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PARAGON OFFSHORE LTD.
FORM 10-12B/A(Amended Registration Statement)
Filed 07/14/14
Telephone 44 20 3300 2300
CIK 0001594590SIC Code 1381 - Drilling Oil and Gas Wells
Fiscal Year 12/31
http://www.edgar-online.com© Copyright 2014, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
As filed with the Securities and Exchange Commission on July 11, 2014 File No. 001-36465
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2 to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES Pursuant to Section 12(b) or 12(g)
of the Securities Exchange Act of 1934
Paragon Offshore Limited (Exact name of registrant as specified in its charter)
3151 Briarpark Drive, Suite 700, Houston, Texas 77042 (Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: +44 20 3300 2300
Securities to be registered pursuant to Section 12(b) of the Act:
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
England and Wales 98-1146017 (State or other jurisdiction of
Incorporation or organization) (I.R.S. Employer
Identification No.)
Title of Each Class to be so Registered Name of Each Exchange on which Each Class is to be Registered
Ordinary Shares, par value $0.01 per share The New York Stock Exchange
Large accelerated filer � Accelerated filer �
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company �
Cross-Reference Sheet Between the Information Statement and Items of Form 10 Information Included in the Information Statement and Incorporated by Reference into
the Registration Statement on Form 10
Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
Item 1. Business.
The information required by this item is contained under the sections of the information statement entitled “Questions and Answers About the Spin-Off,” “Summary,” “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” “The Spin-Off,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and “Where You Can Find More Information” and is incorporated herein by reference.
Item 1A. Risk Factors.
The information required by this item is contained under the sections of the information statement entitled “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” and such sections of the information statement are incorporated herein by reference.
Item 2. Financial Information.
The information required by this item is contained under the sections of the information statement entitled “Summary,” “Capitalization,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.
Item 3. Properties.
The information required by this item is contained under the section of the information statement entitled “Business—Properties” and is incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.
Item 5. Directors and Executive Officers.
The information required by this item is contained under the section of the information statement entitled “Management” and is incorporated herein by reference.
Item 6. Executive Compensation.
The information required by this item is contained under the section of the information statement entitled “Executive Compensation” and is incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions.
The information required by this item is contained under the section of the information statement entitled “Certain Relationships and Related Party Transactions” and is incorporated herein by reference.
Item 8. Legal Proceedings.
The information required by this item is contained under the section of the information statement entitled “Business—Legal Proceedings” and is incorporated herein by reference.
Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.
The information required by this item is contained under the sections of the information statement entitled “Summary,” “The Spin-Off,” “Dividend Policy,” and “Description of Share Capital” and is incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities.
The information required by this item is contained under the section of the information statement entitled “Description of Certain Indebtedness” and is incorporated herein by reference.
Item 11. Description of Registrant’s Securities to be Registered.
The information required by this item is contained under the sections of the information statement entitled “The Spin-Off,” “Dividend Policy” and “Description of Share Capital” and is incorporated herein by reference.
Item 12. Indemnification of Directors and Officers.
The information required by this item is contained under the section of the information statement entitled “Description of Share Capital—Our Liability and Liability of Our Directors and Officers” and is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data.
The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein and is incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein and is incorporated herein by reference.
(b) Exhibits
The following documents are filed as exhibits hereto: Exhibit Number Exhibit Description
3.1* Articles of Association of Paragon Offshore Limited
3.2* Form of Articles of Association of Paragon Offshore plc
4.1*
Senior Secured Revolving Credit Agreement dated as of June 17, 2014 among Paragon Offshore Limited, Paragon International Finance Company, the Lenders from time to time parties thereto; JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and an Issuing Bank; Deutsche Bank Securities Inc. and Barclays Bank PLC, as Syndication Agents; and J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Barclays Bank PLC, as Joint Lead Arrangers and Joint Lead Bookrunners
4.2 Form of Term Loan
4.3 Form of Indenture
10.1* Form of Master Separation Agreement
10.2* Form of Employee Matters Agreement
10.3* Form of Tax Sharing Agreement
10.4* Form of Transition Services Agreement
10.5* Form of Transition Services Agreement (Brazil)
10.6* Form of Paragon Offshore plc 2014 Director Omnibus Plan
10.7* Form of Paragon Offshore plc 2014 Employee Omnibus Incentive Plan
10.8* Form of Deed of Indemnity
21.1* List of Subsidiaries
99.1 Information Statement of Paragon Offshore plc, preliminary and subject to completion, dated as of July 11, 2014 * Previously filed.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. Date: July 11, 2014 Paragon Offshore Limited
By: /s/ Randall D. Stilley Name: Randall D. Stilley Title: President and Chief Executive Officer
EXHIBIT INDEX Exhibit Number Exhibit Description
3.1* Articles of Association of Paragon Offshore Limited
3.2* Form of Articles of Association of Paragon Offshore plc
4.1*
Senior Secured Revolving Credit Agreement dated as of June 17, 2014 among Paragon Offshore Limited, Paragon International Finance Company, the Lenders from time to time parties thereto; JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and an Issuing Bank; Deutsche Bank Securities Inc. and Barclays Bank PLC, as Syndication Agents; and J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Barclays Bank PLC, as Joint Lead Arrangers and Joint Lead Bookrunners
4.2 Form of Term Loan
4.3 Form of Indenture
10.1* Form of Master Separation Agreement
10.2* Form of Employee Matters Agreement
10.3* Form of Tax Sharing Agreement
10.4* Form of Transition Services Agreement
10.5* Form of Transition Services Agreement (Brazil)
10.6* Form of Paragon Offshore plc 2014 Director Omnibus Plan
10.7* Form of Paragon Offshore plc 2014 Employee Omnibus Incentive Plan
10.8* Form of Deed of Indemnity
21.1* List of Subsidiaries
99.1 Information Statement of Paragon Offshore plc, preliminary and subject to completion, dated as of July 11, 2014 * Previously filed.
Exhibit 4.2
FORM OF SENIOR SECURED TERM LOAN AGREEMENT
Dated as of July [ ], 2014
Among
PARAGON OFFSHORE PLC, as Parent,
PARAGON OFFSHORE FINANCE COMPANY, as Borrower,
THE LENDERS PARTIES HERETO, and
JPMORGAN CHASE BANK, N.A., as Administrative Agent,
J.P. MORGAN SECURITIES LLC, DEUTSCHE BANK SECURITIES INC.,
as Joint Lead Arrangers
BARCLAYS BANK PLC, WELLS FARGO BANK, NATIONAL ASSOCIATION,
HSBC BANK USA, NATIONAL ASSOCIATION, CITIBANK, N.A.,
CREDIT SUISSE SECURITIES (USA) LLC, SUNTRUST BANK,
CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK, as Bookrunners,
STANDARD CHARTERED BANK, BANK OF TOKYO MITSUBISHI UFJ, LTD.,
as Senior Managing Agents
SUMITOMO MITSUI BANKING CORPORATION, SANTANDER BANK, N.A.,
as Managing Agents
[ ], as Documentation Agents
TABLE OF CONTENTS
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Page
ARTICLE I DEFINITIONS; INTERPRETATION
Section 1.1. Definitions 1 Section 1.2. Time of Day 49 Section 1.3. Accounting Terms; GAAP; Pro Forma Calculations 49 Section 1.4. Terms and Interpretations Generally 49
ARTICLE II THE TERM LOAN FACILITY
Section 2.1. Term Loans 50 Section 2.2. Types of Term Loans and Minimum Borrowing Amounts 51 Section 2.3. Manner of Term Loan Borrowings; Continuations and Conversions of Borrowings 51 Section 2.4. Interest Periods 53 Section 2.5. Funding of Term Loans 53 Section 2.6. Applicable Interest Rates 54 Section 2.7. Default Rate 55 Section 2.8. Repayment of Loans; Evidence of Debt 56 Section 2.9. Optional Prepayments of Loans 57 Section 2.10. Mandatory Prepayments of Loans/Offers to Prepay 57 Section 2.11. Breakage Fees 59 Section 2.12. Termination of Commitments 60 Section 2.13. [Intentionally Omitted] 60 Section 2.14. Reverse Dutch Auction Repurchases 60 Section 2.15. Open Market Repurchases 61
ARTICLE III FEES AND PAYMENTS
Section 3.1. Fees 62 Section 3.2. Place and Application of Payments 62 Section 3.3. Withholding Taxes 63
ARTICLE IV CONDITIONS PRECEDENT
Section 4.1. Funding Date 68
ARTICLE V REPRESENTATIONS AND WARRANTIES
Section 5.1. Corporate Organization 72 Section 5.2. Power and Authority; Validity 72 Section 5.3. No Violation 72 Section 5.4. Litigation 72 Section 5.5. Use of Proceeds; Margin Regulations 73
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Section 5.6. Investment Company Act 73 Section 5.7. Anti-Corruption Laws; Sanctions Laws and Regulations 73 Section 5.8. True and Complete Disclosure 73 Section 5.9. Financial Statements 74 Section 5.10. No Material Adverse Change 74 Section 5.11. Taxes 74 Section 5.12. Consents 74 Section 5.13. Insurance 75 Section 5.14. Intellectual Property 75 Section 5.15. Ownership of Property 75 Section 5.16. Collateral Documents 75 Section 5.17. Legal Names of Parent and Subsidiaries 75 Section 5.18. Rigs 76 Section 5.19. Form of Documentation 76 Section 5.20. Pari Passu or Priority Status 76 Section 5.21. No Immunity 76 Section 5.22. Solvency 77 Section 5.23. Compliance With Laws 77
ARTICLE VI AFFIRMATIVE COVENANTS
Section 6.1. Corporate Existence 77 Section 6.2. Maintenance of Properties, including Rigs; Rig Contracts 77 Section 6.3. Taxes 78 Section 6.4. [Intentionally Omitted] 79 Section 6.5. Insurance 79 Section 6.6. Financial Reports and Other Information 82 Section 6.7. Lender Inspection Rights 84 Section 6.8. Conduct of Business 85 Section 6.9. Use of Proceeds 85 Section 6.10. Compliance with Laws 85 Section 6.11. [Intentionally Omitted] 85 Section 6.12. Further Assurances; Additional Collateral and Additional Guarantors 85 Section 6.13.
Change of Ownership; Registry; Management; Legal Names; Type of Organization (and whether a Registered Organization); Jurisdiction of Organization; etc. 86
ARTICLE VII NEGATIVE COVENANTS
Section 7.1. Restrictions on Fundamental Changes 87 Section 7.2. Liens 89 Section 7.3. Indebtedness 90 Section 7.4. Transactions with Affiliates 93 Section 7.5. Limitation on Restricted Payments 95 Section 7.6. Limitation on Asset Sales 101 Section 7.7. Restrictive and Negative Pledge Agreements 102 Section 7.8. Unrestricted Subsidiaries 105 Section 7.9. Sanctions Laws and Regulations 105
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ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default 106 Section 8.2. Non-Bankruptcy Defaults 107 Section 8.3. Bankruptcy Defaults 108 Section 8.4. Notice of Default 108 Section 8.5. Expenses 108 Section 8.6. Distribution and Application of Proceeds 108 Section 8.7. Enforcement Rights 109
ARTICLE IX CHANGE IN CIRCUMSTANCES
Section 9.1. Change in Law 109 Section 9.2. Unavailability of Deposits or Inability to Ascertain LIBOR Rate 110 Section 9.3. Increased Cost and Reduced Return 110 Section 9.4. Lending Offices 112 Section 9.5. Discretion of Lender as to Manner of Funding 112 Section 9.6. Substitution of Lender 112
ARTICLE X THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, OTHER AGENTS
Section 10.1. Appointment and Authorization of Administrative Agent 113 Section 10.2. Rights and Powers as a Lender 113 Section 10.3. Action by Administrative Agent and the Other Agents 113 Section 10.4. Consultation with Experts 114 Section 10.5. Indemnification Provisions; Credit Decision 114 Section 10.6. Indemnity 115 Section 10.7. Resignation of Agents 115 Section 10.8. Sub-Agent 116 Section 10.9. Collateral and Guaranty Matters; Collateral Agency Agreement 116
ARTICLE XI MISCELLANEOUS
Section 11.1. No Waiver 117 Section 11.2. Non-Business Day 117 Section 11.3. Documentary Taxes 117 Section 11.4. Survival of Representations 117 Section 11.5. Survival of Indemnities 117 Section 11.6. Setoff; Pro Rata Sharing 118 Section 11.7. Notices 118 Section 11.8. Counterparts 121 Section 11.9. Successors and Assigns 121 Section 11.10. Participations in Loans and Term Loan Notes; Sales and Transfers of Loans and Term Loan Notes 122 Section 11.11. Amendments, Waivers and Consents 125
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Section 11.12. Headings 125 Section 11.13. Legal Fees, Other Costs and Indemnification 126 Section 11.14. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial 127 Section 11.15. Confidentiality 129 Section 11.16. Severability 129 Section 11.17. Currency Conversion 129 Section 11.18. Final Agreement 130 Section 11.19. Officer’s Certificates 130 Section 11.20. Release of Collateral and Guarantors 130 Section 11.21. Patriot Act Notice 131 Section 11.22. No Advisory or Fiduciary Responsibility 131
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Annexes :
Annex I - Commitments
Exhibits :
Exhibit 1.1 - Form of Collateral Rig Mortgage Exhibit 2.3 - Form of Borrowing Request Exhibit 2.8A - Form of Term Loan Note Exhibit 3.3 - Portfolio Interest Certificate Exhibit 6.6 - Form of Compliance Certificate Exhibit 11.10 - Form of Assignment Agreement
Schedules :
Schedule 1.1 - Excluded Rigs Schedule 5.15B - Funding Date Collateral Rigs Schedule 5.17 - Subsidiaries
SENIOR SECURED TERM LOAN AGREEMENT
THIS SENIOR SECURED TERM LOAN AGREEMENT , dated as of July [ ], 2014, is among PARAGON OFFSHORE PLC, a public limited company incorporated under the laws of England and Wales (together with its successors and permitted assigns, including any Surviving Person following a Redomestication, the “ Parent ”), in its capacity as the parent of the Borrower (as defined below), PARAGON OFFSHORE FINANCE COMPANY, a Wholly-Owned Subsidiary of the Parent incorporated under the laws of the Cayman Islands (together with its successors and permitted assigns, the “ Borrower ”), the lenders from time to time parties hereto (each a “ Lender ” and collectively, the “ Lenders ”) and JPMORGAN CHASE BANK, N.A., as Administrative Agent for the Lenders.
WITNESSETH:
WHEREAS, the Borrower has requested that the Lenders establish a senior secured term loan credit facility in the aggregate principal amount of $650,000,000, pursuant to which, among other things, term loans may be made to the Borrower; and
WHEREAS, the Lenders are willing to make such senior secured term loan credit facility available to the Borrower on the terms and subject to the conditions and requirements hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I DEFINITIONS; INTERPRETATION
Section 1.1. Definitions . Unless otherwise defined herein, the following terms shall have the following meanings, which meanings shall be equally applicable to both the singular and plural forms of such terms:
“ Acceptable Flag Jurisdiction ” means each of the United States of America, the Republic of Liberia, the Marshall Islands, Vanuatu, the Bahamas, Panama and any other jurisdiction reasonably acceptable to the Administrative Agent.
“ Acquired Debt ” means, with respect to any specified Person:
(a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is Incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person;
(b) Indebtedness assumed by such specified Person in connection with the acquisition of assets from another Person; or
(c) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, whether or not such Indebtedness is Incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person, provided, that the amount of any such Acquired Debt shall not exceed the Fair Market Value of the assets subject to such Lien.
Acquired Debt shall be deemed to have been Incurred, with respect to clause (a) above, on the date such Person is merged with or into or becomes a Restricted Subsidiary and, with respect to clauses (b) and (c) above, on the date of consummation of such acquisition of assets.
“ Adjusted LIBOR ” means, for any Borrowing of Eurodollar Term Loans for any Interest Period, a rate per annum equal to the higher of (a) the rate determined in accordance with the following formula:
“ Administrative Agent ” means JPMorgan Chase Bank, N.A., acting in its capacity as administrative agent for the Lenders, and any successor Administrative Agent appointed hereunder pursuant to Section 10.7.
“ Administrative Agent’s Account ” means the JPMorgan Chase Bank, N.A. LS2 Incoming Account, Account Number 9008113381H3484 and ABA/Routing Number 02100002, or such other account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
“ Administrative Questionnaire ” means, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.
“ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling” and “controlled”), when used with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of management or policies of a Person (through the ownership of voting Capital Stock, by contract or otherwise).
“ Affiliate Transaction ” has the meaning set forth in Section 7.4(a).
“ Aggregate Collateral Rig Value ” means the aggregate appraised value of all Collateral Rigs as set forth in the most recent annual desktop appraisal report delivered pursuant to Section 6.6(c); provided that, in connection with any Collateral Substitution, Event of Loss, Asset Sale involving a Collateral Rig, addition of a Collateral Rig in accordance with Section 6.12 or release of a Collateral Rig in accordance with Section 11.20, such aggregate appraised value shall be adjusted as of the relevant date of determination to add or subtract, as applicable, the Fair Market Value as of such date of the relevant Rig, as determined in good faith by the Parent and reasonably acceptable to the Collateral Agent.
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Adjusted LIBOR = LIBOR Rate for such Interest Period 1.00 - Statutory Reserve Rate,
and (b) 1.00%.
“ Agreement ” means this Senior Secured Term Loan Agreement, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time.
“ All-In Yield ” means, as to any Indebtedness, the yield thereof, whether in the form of interest rate, margin, original issue discount, upfront fees, an Eurodollar Rate or Base Rate floor greater than the “floor” then in effect on the Term Loans; provided that, in determining the interest rate margins applicable to an Incremental Term Facility and the Term Loan Facility (a) customary arrangement, structuring, commitment or other fees payable to the Arrangers (or their Affiliates) in connection with the Term Loans or to one or more arrangers (or their Affiliates) of any Incremental Term Facility shall be excluded, (b) original issue discount and upfront fees paid to the lenders thereunder shall be included (with original issue discount being equated to interest based on an assumed four-year life to maturity or, if shorter, the actual Weighted Average Life to Maturity) and (c) if the Incremental Term Facility includes an interest rate floor greater than the applicable interest rate floor under the existing Term Loan Facility, such differential between interest rate floors shall be equated to the applicable interest rate margin for purposes of determining whether an increase to the interest rate margin under the existing Term Loan Facility shall be required, but only to the extent an increase in the interest rate floor in the existing Term Loan Facility would cause an increase in the interest rate then in effect thereunder, and in such case the interest rate floor (but not the interest rate margin) applicable to the existing Term Loan Facility may be increased to the extent necessary in respect of such differential between interest rate floors; provided further that each basis point increase to the interest rate floor of the Term Loans shall count as one basis point of increase in the interest rate margin to the Term Loans for purposes of the calculations under clause (d) of the definition of Permitted Incremental Facility.
“ Annual Appraisal Delivery Date ” has the meaning set forth in Section 6.12(b).
“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Parent or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“ Applicable Margin ” means, on any day, with respect to any Eurodollar Term Loan, 2.75% per annum and with respect to any Base Rate Term Loan, 1.75% per annum.
“ Approved Appraiser ” means any of RS Platou Shipbrokers AS, Kennedy Marr Limited, or such other independent appraisal firm nominated by the Parent and reasonably acceptable to the Administrative Agent.
“ Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender; “ Fund ” as used above means any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“ Arrangers ” means, collectively, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc., as joint lead arrangers, acting in their capacities as joint lead arrangers; provided , however , that the Arrangers shall have no duties, responsibilities, or obligations hereunder in such capacity.
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“ Asset Sale ” means (a) the Disposition of any asset constituting Collateral and (b) the issuance of Equity Interests by any of the Parent’s Restricted Subsidiaries or the sale by the Parent or any of the Parent’s Restricted Subsidiaries of Equity Interests in any of the Parent’s Restricted Subsidiaries (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Parent or a Restricted Subsidiary) (whether in a single transaction or a series of related transactions); provided that the Disposition of all or substantially all of the assets of the Parent and its Restricted Subsidiaries taken as a whole will not be an “Asset Sale,” but will be governed by the provisions of Sections 2.10(c) and/or 7.1 and not by Section 7.6; provided further that none of the following shall be deemed to be an “ Asset Sale ”:
(i) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $30,000,000;
(ii) any Disposition of assets between or among the Parent and its Restricted Subsidiaries;
(iii) an issuance or sale of Equity Interests by a Restricted Subsidiary of the Parent to the Parent or to another Restricted Subsidiary of the Parent;
(iv) the disposition of inventory which is sold in the ordinary course of business or the demise, bareboat, time, voyage, other charter, lease or right to use of a Rig in the ordinary course of business;
(v) any Disposition of products, services or accounts receivable in the ordinary course of business and any Disposition of damaged, worn-out or obsolete equipment or other assets or of equipment or other assets that are no longer used or useful for their intended purposes in the ordinary course of business (including the abandonment or other disposition of intellectual property that is, in the reasonable judgment of the Parent, no longer economically practicable to maintain or useful in the conduct of the business of the Parent and its Restricted Subsidiaries, taken as whole) or the early termination or unwinding of any Hedging Obligation;
(vi) sales and grants or licenses and sublicenses by the Parent or any of its Restricted Subsidiaries of software or intellectual property in the ordinary course of business;
(vii) any surrender or waiver of contract rights or the settlement, release, recovery on or surrender of contract, tort or other claims;
(viii) the granting of Liens not prohibited by Section 7.2 and any Disposition of assets resulting from the enforcement or foreclosure of any such Permitted Lien;
(ix) the sale or other disposition of cash or Cash Equivalents;
(x) for purposes of Section 2.10(b) only, a Permitted Investment or a Restricted Payment not prohibited by Section 7.5;
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(xi) any Disposition of Equity Interests in, or other ownership interests in or assets or property, including Indebtedness, or other securities of, an Unrestricted Subsidiary;
(xii) the lease or sublease of any real property in the ordinary course of business;
(xiii) the trade or exchange by the Parent or any Restricted Subsidiary of any asset for any other asset or assets that are used in the Permitted Business; provided that the Fair Market Value of the asset or assets received by the Parent or such Restricted Subsidiary in such trade or exchange (including cash or Cash Equivalents) is at least equal to the Fair Market Value of the asset or assets disposed of by the Parent or such Restricted Subsidiary pursuant to such trade or exchange; and provided, further, that if any cash or Cash Equivalents are used in such trade or exchange to achieve an exchange of equivalent value, that the amount of such cash and/or Cash Equivalents received shall be deemed proceeds of an “Asset Sale”;
(xiv) any Disposition of accounts receivable or similar obligations in connection with the compromise, settlement or collection thereof, including in bankruptcy or similar proceedings;
(xv) for purposes of Section 7.6(a), the sale, lease, conveyance or other disposition of assets sold to comply with any divestment requirement imposed in connection with the approval of an acquisition under Hart-Scott-Rodino Act of 1976;
(xvi) the sale, lease, conveyance, transfer or other disposition in connection with a Redomestication that satisfies the Redomestication Exclusion Condition;
(xvii) any other Disposition pursuant to Paragon Separation Transaction Agreements; and
(xviii) other Asset Sales since the Funding Date, involving assets having a Fair Market Value not to exceed $100,000,000 in the aggregate.
“ Assignment Agreement ” means an agreement in substantially the form of Exhibit 11.10 whereby a Lender conveys part or all of its Term Loans to another Person that is, or thereupon becomes, a Lender, or increases its outstanding Term Loans pursuant to Section 11.10.
“ Auction ” has the meaning set forth in Section 2.14(a).
“ Auction Manager ” has the meaning set forth in Section 2.14(a).
“ Auction Procedures ” means customary procedures for conducting any Auction subject to modification as mutually determined by the Borrower and the Auction Manager and consented to by the Administrative Agent (such consent not to be unreasonably withheld or delayed).
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“ Base Rate ” means for any day the greatest of:
(a) the fluctuating commercial loan rate announced by the Administrative Agent from time to time at its New York, New York office (or other corresponding office, in the case of any successor Administrative Agent) as its prime rate or base rate for Dollar loans in the United States of America in effect on such day (which base rate may not be the lowest rate charged by such Lender on loans to any of its customers), with any change in the Base Rate resulting from a change in such announced rate to be effective on the date of the relevant change;
(b) the sum of (x) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the next Business Day, provided that (A) if such day is not a Business Day, the rate on such transactions on the immediately preceding Business Day as so published on the next Business Day shall apply, and (B) if no such rate is published on such next Business Day, the rate for such day shall be the average of the offered rates quoted to the Administrative Agent by two (2) federal funds brokers of recognized standing on such day for such transactions as selected by the Administrative Agent, plus (y) a percentage per annum equal to one-half of one percent ( 1 ⁄ 2 %) per annum; and
(c) the sum of (x) the LIBOR Market Index Rate plus (y) a percentage per annum equal to one percent (1%) per annum.
“ Base Rate Term Loan ” means a Term Loan bearing interest based on the Base Rate, as provided in Section 2.6(a).
“ Beneficial Owner ” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have corresponding meanings.
“ Board of Directors ” means:
(a) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(b) with respect to a partnership, the Board of Directors of the general partner of the partnership;
(c) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(d) with respect to any other Person, the board or committee of such Person serving a similar function.
“ Borrower ” is defined in the preamble to this Agreement.
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“ Borrowing ” means Term Loans of the same Type made, converted or continued on the same date and, in respect of Eurodollar Term Loans, having a single Interest Period. A Borrowing is “advanced” on the day the Lenders advance their respective Term Loans comprising such Borrowing to the Borrower, is “continued” (in the case of Eurodollar Term Loans) on the date a new Interest Period commences for such Borrowing, and is “converted” (in the case of Eurodollar Term Loans or Base Rate Term Loans) when such Borrowing is changed from one Type of Term Loan to the other, all as requested by the Borrower pursuant to Section 2.3.
“ Borrowing Request ” means a request for an advance, a continuation, or a conversion of a Borrowing pursuant to Section 2.3(a) or (b), as applicable, which, if in writing, shall be substantially the form of Exhibit 2.3 or otherwise include the information requested in such form.
“ Business Day ” means (a) any day other than a Saturday or Sunday on which banks are not authorized or required to close in New York, New York and (b) if the applicable Business Day relates to the advance or continuation of, conversion into, or payment on a Eurodollar Borrowing, any day other than a Saturday or Sunday on which banks are dealing in Dollar deposits in the applicable interbank Eurodollar market in London, England.
“ Calculation Date ” has the meaning set forth in the definition of Fixed Charge Coverage Ratio.
“ Capital Stock ” means (a) in the case of a corporation, corporate stock; (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (c) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests, respectively; (d) in the case of certain companies formed or incorporated under the laws of a jurisdiction other than one in the United States (including the Cayman Islands), shares; and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
“ Capitalized Lease Obligations ” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized and reflected as a liability on a balance sheet prepared in accordance with GAAP, excluding liabilities resulting from a change in GAAP subsequent to the Funding Date, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
“ Cash Equivalents ” means:
(a) U.S. dollars, Euros, pound sterlings or any national currency of any participating member state in the European Union held from time to time;
(b) securities issued or directly and fully Guarantied or insured by (i) the U.S. government or any agency or instrumentality of the U.S. government ( provided that the full faith
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and credit of the United States is pledged in support of those securities), (ii) any country that is a member state of the European Union or any agency or instrumentality thereof or (iii) any foreign country whose sovereign debt has a rating of at least “A1” from Moody’s or at least “A+” from S&P or any agency or instrumentality of such foreign country (or, in either case, the equivalent of such rating by such organization or, if no rating of Moody’s or S&P then exists, the equivalent of such rating by any nationally recognized rating organization) ( provided that the full faith and credit of such foreign country is pledged in support of those securities), in each case having maturities of not more than one year from the date of acquisition;
(c) certificates of deposit, demand deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender under either of the Senior Credit Facilities or with any commercial bank having capital and surplus in excess of $500,000,000 (or its equivalent in any other currency) and a Thomson Bank Watch Rating of “B” or better;
(d) readily marketable general obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of “A” or better from either S&P or Moody’s;
(e) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above;
(f) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and, in each case, maturing within one year after the date of acquisition;
(g) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (f) of this definition; and
(h) in the case of Investments by any Restricted Subsidiary of the Parent organized or having its principal place of business outside the United States, Investments denominated in the currency of the jurisdiction in which such Restricted Subsidiary is organized or has its principal place of business which are similar to the items specified in clauses (a) through (g) of this definition.
“ Casualty Event ” means any theft, loss, physical destruction or damage, taking or similar event (or series of related events) that causes (or cause) all or any material portion of the Collateral to be damaged, destroyed or rendered unfit for its intended use for any reason whatsoever.
“ Change in Law ” means (a) the adoption of or any change in, on or after the date hereof (or, if later, on or after the date the Administrative Agent or any Lender becomes the Administrative Agent or a Lender), any applicable law, treaty, rule or regulation or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof or (b) a
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Redomestication; provided that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case, pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“ Change of Control ” means the occurrence of any of the following after the Funding Date, in each case excluding any of the Paragon Separation Transactions:
(a) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Parent and its Subsidiaries taken as a whole to any Person (including any “person” (as that term is used in Section 13(d)(3) of the Exchange Act)) other than to the Parent or a Subsidiary of the Parent, which transaction is followed by a Rating Decline within 90 days of the consummation of such transaction;
(b) the adoption of a plan relating to the liquidation or dissolution of the Parent;
(c) the consummation of any transaction (including, without limitation, any merger or consolidation or purchase of Capital Stock), the result of which is that any Person (including any “person” (as defined above)), other than Noble Corporation, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the outstanding Voting Stock of the Parent, or other Voting Stock into which the Voting Stock of the Parent is reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares, which occurrence is followed by a Rating Decline within 90 days thereof; or
(d) the Parent consolidates with, or merges with or into any Person, or any Person consolidates with, or merges with or into, the Parent, in such event pursuant to a transaction in which any outstanding Voting Stock of the Parent or such other person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of the Voting Stock of the Parent outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving Person immediately after giving effect to such transaction, which transaction is followed by a Rating Decline within 90 days thereof.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control if (a)(i) the Parent becomes a direct or indirect Wholly-Owned Subsidiary of a Person or directly or indirectly sells, transfers, conveys or otherwise disposes of all or substantially all of the properties or assets of the Parent and its Subsidiaries, taken as a whole, to such Person or a Wholly-Owned Subsidiary thereof and (ii) the holders of the Voting Stock of such Person immediately following that transaction are substantially the same as the holders of the Parent’s Voting Stock immediately prior to that transaction or (b) such transaction constitutes a Redomestication.
“ Change of Control Offer ” has the meaning set forth in Section 2.10(c).
“ Change of Control Prepayment Date ” has the meaning set forth in Section 2.10(c).
“ Code ” means the United States Internal Revenue Code of 1986, as amended.
“ Collateral ” means (a) the Collateral Rigs, (b) the Pledged Equity and (c) all other property (“ Residual Collateral ”) subject to a Lien under the Collateral Documents.
“ Collateral Agency Agreement ” means that certain Collateral Agency Agreement dated as of the Funding Date among the Collateral Agent, the Administrative Agent and the Revolving Administrative Agent, as the same may be amended, restated, amended and restated, supplemented or otherwise modified or replaced from time to time.
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“ Collateral Agent ” means JPMorgan Chase Bank, N.A. acting in its capacity as collateral agent for the Secured Parties, and any successor collateral agent appointed hereunder pursuant to the Collateral Agency Agreement.
“ Collateral and Guaranty Requirements ” means the requirements set forth in clauses (b) and (c) of Section 6.12, subject to clause (d) of such Section.
“ Collateral Coverage Ratio ” means, as of any date of determination, (a) the Aggregate Collateral Rig Value to (b) the sum of (i) the aggregate outstanding principal amount of the Term Loans and (ii) the aggregate amount of the Revolving Commitments in effect, as of such date.
“ Collateral Documents ” means, collectively, the Guaranty and Collateral Agreement, the Collateral Rig Mortgages and any and all other security agreements, vessel or fleet mortgages or assignments executed and delivered by any Credit Party and creating security interests, liens, or encumbrances in the assets of the Credit Parties in favor of the Collateral Agent and/or the Administrative Agent, to secure the Secured Obligations, entered into pursuant to the terms hereof.
“ Collateral Rig ” means, as of the Funding Date, each Funding Date Collateral Rig, and thereafter, each Rig owned by any Credit Party that becomes a Collateral Rig in accordance with Section 6.12 or a Replacement Rig and, in each case, is subject to a Collateral Rig Mortgage, other than any Rig that ceases to be a Collateral Rig as the result of a Collateral Substitution, subject to Section 2.10, an Asset Sale permitted hereby or consented to by the Required Lenders or a release of the Lien on such Rig in accordance with Section 11.20; provided that, Collateral Rigs shall not include any Excluded Rigs or any Tax Excluded Rigs.
“ Collateral Rig Mortgages ” means any of the first preferred fleet or ship mortgages, substantially in the form of Exhibit 1.1 attached hereto, or such other form as may be reasonably satisfactory to the Collateral Agent and the Parent, as each such mortgage may be amended, restated, amended and restated, supplemented or otherwise modified from time to time.
“ Collateral Rig Owner ” means a Rig Owner that owns a Collateral Rig.
“ Collateral Substitution ” means the substitution as Collateral hereunder of one or more Collateral Rigs (each, a “ Replaced Rig ”) with one or more Rigs registered and flagged in an Acceptable Flag Jurisdiction (each, a “ Replacement Rig ”); provided that immediately after giving effect to each such Collateral Substitution (a) the Collateral Coverage Ratio is not less than 1.50 to 1.00 and (b) each Restricted Subsidiary which owns a Replacement Rig is or becomes a Guarantor and the Parent and its Subsidiaries comply with the applicable Collateral and Guaranty Requirements, including with respect to the Replacement Rig, the requirements set forth in Section 6.12(b), within the time periods (or such longer period of time as the Collateral Agent may reasonably agree) set forth in such section, from the date that such Rig becomes a Replacement Rig.
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“ Commitment ” means, with respect to any Lender, such Lender’s obligation to make Term Loans pursuant to Section 2.1 in the amount and percentage set forth opposite its name on Annex I or as later set forth on an Assignment Agreement pursuant to Section 11.10.
“ Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“ Communications ” has the meaning set forth in Section 11.7(b).
“ Compliance Certificate ” means a certificate substantially in the form of Exhibit 6.6.
“ Consolidated Net Income ” means, with respect to any specified Person for any period, the aggregate of the net income (loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP and without any reduction in respect of Preferred Stock dividends; provided that, without duplication:
(a) all extraordinary gains (or losses) and all gains (or losses) realized in connection with any Asset Sale or the disposition of securities or the early extinguishment of Indebtedness, together with any related provision for taxes on any such gain (or loss), will be excluded;
(b) the net income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;
(c) the net income (but not loss) of any Restricted Subsidiary that is not a Guarantor will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that net income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders;
(d) the cumulative effect of a change in accounting principles will be excluded; and
(e) non-cash losses and non-cash gains with respect to Hedging Obligations included in the determination of Consolidated Net Income, including, without limitation, those resulting from the application of Financial Accounting Standards Codification No. 815-Derivatives and Hedging, will be excluded.
“ Consolidated Tangible Assets ” means, with respect to any Person as of any date, the amount which, in accordance with GAAP, would be set forth under the caption “Total Assets” (or any like caption) on a consolidated balance sheet of such Person and its Restricted Subsidiaries determined in accordance with GAAP, less, to the extent included in a determination of “Total Assets,” and without duplication, all goodwill, patents, tradenames, trademarks, copyrights, franchises, experimental expenses, organization expenses and any other amounts classified as intangible assets in accordance with GAAP, in each case, calculated on a pro forma basis after giving effect to any transaction given pro forma effect in the definition of “ Fixed Charge Coverage Ratio .”
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“ Credit Documents ” means this Agreement, the Term Loan Notes, the written Borrowing Requests and the Collateral Documents.
“ Credit Party ” means the Parent, the Borrower and each Subsidiary Guarantor.
“ Currency Rate Protection Agreement ” means any foreign currency exchange and future agreements, arrangements and options designed to protect against fluctuations in currency exchange rates, regardless of whether such agreements are subject to hedge accounting.
“ Debt Facilities ” means one or more debt facilities (including, without limitation, the Senior Credit Facilities), commercial paper facilities or Debt Issuances, in each case, with banks or other institutional lenders or institutional investors providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), letters of credit or other borrowings or Debt Issuances, in each case, as amended, restated, modified, renewed, refunded, replaced in any manner (whether upon or after termination or otherwise) or refinanced (including by means of any capital markets transaction and involving any refinancing that increases the amount of Indebtedness borrowed or issued thereunder, provided that such increase in borrowings is permitted under Section 7.3 in whole or in part from time to time).
“ Debt Issuance ” means, with respect to the Parent or any of its Restricted Subsidiaries, one or more issuances after the Funding Date of Indebtedness evidenced by notes, debentures, bonds or other similar securities or instruments.
“ Default ” means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default.
“ Designated Non-cash Consideration ” means the non-cash consideration received by the Parent or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to certificate of an Officer who is the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Parent, setting forth the Fair Market Value of such Designated Non-cash Consideration and the basis of such valuation, less the amount of cash and Cash Equivalents received in connection with a subsequent sale, redemption or payment of, on, or with respect to, such Designated Non-cash Consideration.
“ Designated Persons ” means a person or entity: (i) listed in the annex to, or otherwise the subject of the provisions of, any executive order administered by OFAC or the U.S. Department of State or (ii) named as a “Specially Designated National and Blocked Person” or a “Foreign Sanctions Evaders” on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list; or is otherwise the subject of any Sanctions Laws and Regulations.
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“ Dispose ” means, with respect to any property, to sell, transfer, lease, assign, convey, transfer, exchange, alienate or dispose thereof (whether in a single transaction or a series of related transactions). The term “Disposition” shall have a correlative meaning.
“ Disqualified Stock ” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is convertible, putable or exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the Maturity Date; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible, putable or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock; provided , further , that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock so long as such Person satisfies its obligations with respect thereto solely by the delivery of Capital Stock that is not Disqualified Stock. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Parent to repurchase or redeem such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Parent may not repurchase or redeem any such Capital Stock (and all securities into which it is convertible, putable or exchangeable or for which it is redeemable) pursuant to such provision prior to compliance by the Parent with Sections 2.10(b), 2.10(c) and 7.5.
“ Documentation Agents ” means, collectively, [ ] and [ ], in their capacities as documentation agents; provided , however , as provided in Section 10.3, no Documentation Agent shall have any duties, responsibilities, or obligations hereunder in such capacity.
“ Dollar ”, “ U.S. Dollar ” and the sign “ $ ” mean lawful money of the United States of America.
“ Dollar Equivalent ” means, on any date of determination (a) with respect to any amount in Dollars, such amount, and (b) with respect to any amount in any currency other than U.S. Dollars, the equivalent in Dollars of such amount, determined by the Administrative Agent using the applicable Exchange Rate with respect to such currency at the time in effect or as otherwise expressly provided herein.
“ EBITDA ” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(a) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
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(b) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(c) any foreign currency translation losses (including losses related to currency remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such period, to the extent that such losses were taken into account in computing such Consolidated Net Income; plus
(d) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges and expenses (excluding any such non-cash charge or expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash charges or expenses were deducted in computing such Consolidated Net Income; plus
(e) if the scheduled completion of any Material Project will occur in the next 12 months, the projected EBITDA of the Parent attributable to any such Material Project for the first 12-month period following the scheduled completion of such Material Project (such amount to be determined based on the relevant Satisfactory Drilling Contract, including any expense or cost reductions that have occurred or, in the reasonable judgment of the Parent, are reasonably expected to occur); provided that the aggregate amount of such projected EBITDA for all such Material Projects shall not exceed an amount equal to 15% of EBITDA in the applicable four-quarter reference period without including any such projected EBITDA; plus
(f) any fees, expenses, charges or losses (other than depreciation or amortization expense) related to any Equity Offering or other capital markets transaction, acquisition, disposition, recapitalization or the Incurrence of Indebtedness permitted to be Incurred by this Agreement (including a refinancing thereof) (whether or not successful), including such fees, expenses, charges or losses related to (i) the Transactions and any transactions pursuant to the Paragon Separation Transaction Agreements, (ii) the offering of the Senior Notes and the Senior Credit Facilities and (iii) any amendment or other modification of the Paragon Separation Transaction Agreements, the Senior Notes, the Senior Credit Facilities or other Indebtedness and, in each case, deducted (and not added back) in computing Consolidated Net Income; minus
(g) any foreign currency translation gains (including gains related to currency remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such period, to the extent that such gains were taken into account in computing such Consolidated Net Income; minus
(h) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business (and excluding any such non-cash item to the extent that it represents the reversal of an accrual or reserve for a potential cash charge or expense that reduced EBITDA in a prior period); minus
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(i) the amount of tax benefit based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent such benefit was included in the computation of Consolidated Net Income, and plus or minus , as applicable,
(j) the effects of adjustments (including the effects of such adjustments pushed down to the Parent and its Restricted Subsidiaries) in any line item in such Person’s consolidated financial statements in such period pursuant to GAAP resulting from the application of purchase accounting,
in each case, on a consolidated basis and determined in accordance with GAAP.
“ Environmental Claims ” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations or proceedings relating to any Environmental Law (“ Claims ”) or any permit issued under any Environmental Law, including (i) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (ii) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to the environment.
“ Environmental Law ” means any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect, including any judicial or administrative order, consent, decree or judgment, relating to the environment.
“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“ Equity Offering ” means any public or private sale of Capital Stock after the Funding Date (other than Disqualified Stock) of the Parent on a primary basis or any contribution to the capital of the Parent in respect of Capital Stock (other than Disqualified Stock) of the Parent, other than (a) issuances to any Subsidiary of the Parent and (b) any offering of Equity Interests in connection with a transaction that is a Change of Control.
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
“ ERISA Affiliate ” means, with respect to any Person, any trade or business (whether or not incorporated) that, together with such Person, is treated as a single employer under Section 414(b) or (c) of the Code.
“ Eurodollar ”, when used in reference to any Term Loan or Borrowing, means that such Term Loan, or the Term Loans comprising such Borrowing, shall bear interest at a rate determined by reference to Adjusted LIBOR, as provided in Section 2.6(b).
“ Event of Default ” means any of the events or circumstances specified in Section 8.1.
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“ Event of Loss ” means any of the following events: (a) the actual or constructive total loss of a Collateral Rig or the agreed or compromised total loss of a Collateral Rig; or (b) the capture, condemnation, confiscation, requisition, purchase, seizure or forfeiture of, or any taking of title to, a Collateral Rig. An Event of Loss shall be deemed to have occurred (i) in the event of an actual loss of a Collateral Rig, at the time and on the date of such loss or if that is not known at noon Greenwich Mean Time on the date which such Collateral Rig was last heard from; (ii) in the event of damage which results in a constructive or compromised or arranged total loss of a Collateral Rig, at the time and on the date of the event giving rise to such damage; or (iii) in the case of an event referred to in clause (b) above, at the time and on the date on which such event is expressed to take effect by the Person making the same.
“ Excess Cash Flow ” means, for Parent and its Restricted Subsidiaries on a consolidated basis, in accordance with GAAP for any calendar year, an amount equal to (a) EBITDA for such period, minus (b) the sum, in each case to the extent not otherwise deducted in determining EBITDA for such period, without duplication, of: (i) the aggregate amount of cash actually paid by Parent and its Restricted Subsidiaries during such calendar year on account of capital expenditures that are not financed through or reimbursed from the proceeds of any issuance or Incurrence of Indebtedness for borrowed money, capital lease, any sale or issuance of Capital Stock, proceeds of any casualty event or other proceeds that would not be included in EBITDA, (ii) consolidated cash interest expense for such period (after giving effect to all net payments and receipts under Interest Rate Protection Agreements), (iii) amounts actually paid in cash in respect of total federal, state, local and foreign income, value added and similar taxes for such period, (iv) Restricted Payments permitted under Section 7.5(b)(xiii) and (v) the aggregate amount of all scheduled principal payments or optional repayments of Indebtedness including repurchases of Term Loans through Auctions in accordance with Section 2.14 or Open Market Purchases in accordance with Section 2.15 (but excluding mandatory prepayments of Term Loans) made by Parent and its Restricted Subsidiaries during such calendar year, but only to the extent that in the case of repayments of revolving debt, such repayment is accompanied by a permanent reduction in the available commitments and that such payments or repayments are not financed through any issuance or Incurrence of Indebtedness for borrowed money, any sale or issuance of Capital Stock, any proceeds of casualty event or other proceeds that would not be included in EBITDA; provided that for the calendar year ending December 31, 2014 such calculations shall be made only with respect to the fourth Fiscal Quarter.
“ Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.
“ Exchange Rate ” means at any time, with respect to any currency, the rate at which such currency may be exchanged into Dollars, as set forth at approximately 11:00 A.M. on such day on the applicable page of the Bloomberg Service reporting the exchange rates for such currency. In the event such exchange rate does not appear on the applicable page of such service, the Exchange Rate shall be determined by reference to such other publicly available services for displaying currency exchange rates as may be agreed upon by the Administrative Agent and the Borrower or, in the absence of such other publicly available services, such Exchange Rate shall instead be determined by the Administrative Agent, based on current market spot rates; provided that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent, after consultation with the Borrower, may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error.
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“ Excluded Perfection Action ” means, with respect to personal property other than Collateral Rigs, (a) any action necessary or desirable to be taken to perfect a security interest if the Collateral Agent reasonably agrees that the costs of taking such action are excessive in relation to the value afforded to the Secured Parties of perfecting such security interest and (b) any action that may be necessary or desirable to be taken to perfect a security interest, other than (i) obtaining Control (as defined in the UCC) over, or possession of, Collateral constituting Pledged Equity, (ii) the filing of a financing statement on Form UCC-1 (and any amendments thereto) in Washington D.C. or any other applicable jurisdiction in the United States and (iii) to the extent reasonably requested by the Collateral Agent, the filing, recording or registration in any jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a central filing, recording or registration system as a condition or result of such security interest’s obtaining priority over the rights of a lien creditor, trustee or receiver with respect to the applicable collateral. For the avoidance of doubt, obtaining the consent or acknowledgment of any third party (other than the Collateral Agent) in respect of a security interest shall be an Excluded Perfection Action.
“ Excluded Perfection Assets ” means any personal property as to which perfection of a Lien granted therein can only be perfected or made effective against third parties by an Excluded Perfection Action.
“ Excluded Rigs ” means each Rig listed on Schedule 1.1.
“ Excluded Swap Obligations ” means, with respect to any Guarantor, (x) as it relates to all or a portion of any Guaranty of such Guarantor, any Rate Management and Currency Protection Obligation if, and to the extent that, such Rate Management and Currency Protection Obligation (or any Guaranty in respect thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guaranty of such Guarantor becomes effective with respect to such Rate Management and Currency Protection Obligation or (y) as it relates to all or a portion of the grant by such Guarantor of a security interest, any Rate Management and Currency Protection Obligation if, and to the extent that, such Rate Management and Currency Protection Obligation (or such security interest in respect thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the security interest of such Guarantor becomes effective with respect to such Rate Management and Currency Protection Obligation. If a Rate Management and Currency Protection Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Rate Management and Currency Protection Obligation that is attributable to swaps for which such Guaranty or security interest is or becomes illegal.
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“ Existing Indebtedness ” means all Indebtedness of the Parent or any of its Restricted Subsidiaries (other than Indebtedness under the Senior Credit Facilities) in existence on the Funding Date (including interest accruing (or the accretion of discount) thereon), until such amounts are repaid.
“ Fair Market Value ” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party; provided that, in the case of any determination of Fair Market Value in an amount in excess of $50,000,000 or any determination made in connection with the definition of “ Asset Sale ”, Section 6.5(c) and Section 7.5, this determination shall be made in good faith by the Board of Directors of the Parent, unless such determination is based on a desktop appraisal report by an Approved Appraiser in the manner described in Section 6.6(c) and each such determination will be conclusive for all purposes under this Agreement.
“ FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), and any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“ FDR Assets ” means the assets, liabilities and businesses of (a) Paragon FDR Holdings Ltd., an exempted company limited by shares incorporated in the Cayman Islands, and a Subsidiary of Noble Corporation, and (b) its Subsidiaries.
“ Finance Party ” has the meaning set forth in Section 3.3(h).
“ Fiscal Quarter ” means a three-month period ending on March 31, June 30, September 30 or December 31 of any year.
“ Fixed Charge Coverage Ratio ” means with respect to any specified Person for any period, the ratio of (a) the EBITDA of such Person for such period to (b) the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries Incurs, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings unless, in connection with any such repayment, the commitments to lend associated with such borrowings are permanently reduced or canceled) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “ Calculation Date ”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such Incurrence, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
For purposes of calculating the Fixed Charge Coverage Ratio:
(a) acquisitions of (i) a Person that becomes a Restricted Subsidiary of the Parent or shall be merged with or into the Parent or any Restricted Subsidiary of the Parent, (ii) all or substantially all of the assets of any other Person or any division or line of business of such other
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Person or (iii) a Rig, that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries and including in each case all related financing transactions (including Incurrence or repayment of Indebtedness) and including increases in ownership of Restricted Subsidiaries, during the applicable four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and the EBITDA for such reference period will be calculated giving pro forma effect to any expense and cost reductions or synergies that have occurred or are reasonably expected to occur within 12 months of the Calculation Date, in good faith by the chief financial or accounting officer of the Parent (regardless of whether any of the foregoing could then be reflected in pro forma financial statements in accordance with Regulation S-X under the Securities Act or any other regulation or policy of the SEC related thereto);
(b) the EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(c) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;
(d) any Person that is a Restricted Subsidiary of the specified Person on the Calculation Date will be deemed to have been a Restricted Subsidiary of the specified Person at all times during such four-quarter period;
(e) any Person that is not a Restricted Subsidiary of the specified Person on the Calculation Date will be deemed not to have been a Restricted Subsidiary of the specified Person at any time during such four-quarter period;
(f) if any Indebtedness to which pro forma effect is being given bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of twelve (12) months);
(g) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Parent to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP;
(h) interest on any Indebtedness under any revolving credit facility computed on a pro forma basis shall be computed based upon (A) the average daily principal balance of such Indebtedness during the applicable period or (B) if such facility was created after the end of the applicable period, the average daily principal balance of such Indebtedness during the period from the date of creation of such facility to the date of determination, or, if lower, the maximum commitments under such revolving credit facility as of the applicable date of determination; and
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(i) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if not, then based upon such optional rate chosen as the Parent may designate.
“ Fixed Charges ” means, with respect to any specified Person for any period, the sum, without duplication, of:
(a) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capitalized Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates; plus
(b) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(c) any interest expense on Indebtedness of another Person that is Guarantied by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guaranty or Lien is called upon; plus
(d) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries or Preferred Stock of any Restricted Subsidiary of such Person, in each case, other than dividends on Equity Interests payable solely in Equity Interests of the Parent (other than Disqualified Stock) or to the Parent or a Restricted Subsidiary of the Parent, in each case, determined on a consolidated basis in accordance with GAAP.
Notwithstanding the foregoing, if any lease or other liability is reclassified as Indebtedness or as a Capital Lease Obligation due to a change in accounting principles after the Funding Date, the interest component of all payments associated with such lease or other liability shall be excluded from Fixed Charges.
“ Flag Jurisdiction Transfer ” means the transfer of the registration and flag of a Collateral Rig from one Acceptable Flag Jurisdiction to another Acceptable Flag Jurisdiction, provided that (a) on each Flag Jurisdiction Transfer Date, the Credit Party which is consummating a Flag Jurisdiction Transfer on such date shall have duly authorized, executed and delivered, and caused to be recorded (or made arrangements satisfactory to the Collateral Agent for the recording thereof) in the appropriate vessel registry amendments or supplements to existing Collateral Rig Mortgages or such other Collateral Rig Mortgages as the Collateral Agent shall deem reasonably necessary or advisable with respect to the Collateral Rig being transferred (the “ Transferred Rig ”) and such Collateral Rig Mortgage shall be effective to create in favor of the Collateral Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority security
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interest, in and Lien upon such Transferred Rig, subject only to Permitted Liens, (b) within ninety (90) days (or such longer period of time as the Collateral Agent may reasonably agree) of the applicable Flag Jurisdiction Transfer Date, the Parent shall, or shall cause the applicable Collateral Rig Owner to, deliver (i) such other instruments, certificates and documents described in Section 4.1(a)(ix)(A) and (B) with respect to such Transferred Rig, (ii) opinions of local counsel for the jurisdiction in which the Transferred Rig is flagged after immediately giving effect to the Flag Jurisdiction Transfer, covering customary matters and in form and substance reasonably satisfactory to the Administrative Agent, and (iii) and such other filings or actions necessary or desirable in the reasonable opinion of the Collateral Agent to perfect and preserve the Lien created on such Transferred Rig, and (c) on each Flag Jurisdiction Transfer Date (or such later date as is reasonably acceptable to the Administrative Agent) with respect to a Collateral Rig, the Administrative Agent shall have received: (i) certificates of ownership or abstracts of title from appropriate authorities showing (or confirmation updating previously reviewed certificates and indicating) the registered ownership of the Transferred Rig transferred on such date by the relevant Credit Party and (ii) the results of maritime registry searches with respect to the Transferred Rig transferred on such date, indicating no record liens other than Liens in favor of the Collateral Agent and Permitted Liens.
“ Flag Jurisdiction Transfer Date ” means the date on which a Flag Jurisdiction Transfer occurs.
“ Foreign Plan ” means any pension, profit sharing, deferred compensation, or other employee benefit plan, program or arrangement that is maintained by any foreign Subsidiary of the Parent which, under applicable local law, is required to be funded through a trust or other funding vehicle, but shall not include any benefit provided by a foreign government or its agencies.
“ Funding Date ” means the date on which the conditions set forth in Section 4.1 are satisfied (or waived in accordance with Section 11.11).
“ Funding Date Collateral Rig ” means each Rig listed on Schedule 5.15B; provided that, such term shall not include an Excluded Rig.
“ GAAP ” means generally accepted accounting principles in the United States from time to time in effect as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board or in such other statements, opinions and pronouncements by such other entity as may be approved by a significant segment of the United States accounting profession.
“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government including for the avoidance of doubt any supranational bodies such as the European Union.
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“ Guarantor ” means the Parent, each Collateral Rig Owner, Pledgor and Internal Charterer that provides a Guaranty of the Secured Obligations pursuant to the Guaranty and Collateral Agreement on the Funding Date or any other Wholly-Owned Subsidiary of the Parent that provides a Guaranty of the Secured Obligations by becoming a party to the Guaranty and Collateral Agreement pursuant to Section 6.12, unless and until such party is released from such Guaranty under the Guaranty and Collateral Agreement pursuant to Section 11.20.
“ Guaranty ” means a guaranty (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof) of all or any part of any Indebtedness. When used as a verb, “Guaranty” has a correlative meaning (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
“ Guaranty and Collateral Agreement ” means that certain Guaranty and Collateral Agreement executed by the Credit Parties in favor of the Collateral Agent for the benefit of the Secured Parties, as amended, restated, amended and restated, supplemented or otherwise modified from time to time (including by any joinders thereto).
“ Hazardous Material ” means “hazardous substances”, as such term is defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Acts of 1986, and shall also include petroleum, including crude oil or any fraction thereof, or any other substance defined as “hazardous” or “toxic” or words with similar meaning and effect under any Environmental Law applicable to the Parent or any of its Restricted Subsidiaries.
“ Hedging Obligations ” means, with respect to any specified Person, the obligations of such Person under:
(a) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements entered into with one or more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in interest rates, or to otherwise reduce the cost of borrowing of such Person or any of such Restricted Subsidiaries, with respect to Indebtedness Incurred;
(b) foreign exchange contracts and currency protection agreements entered into with one or more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in currency exchanges rates;
(c) any commodity futures contract, commodity swap, commodity option, commodity forward sale or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that Person or any of its Restricted Subsidiaries at the time; and
(d) other agreements or arrangements designed to protect such Person or any of its Restricted Subsidiaries against fluctuations in interest rates, commodity prices or currency exchange rates.
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“ Highest Lawful Rate ” means the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on any Loans, under laws applicable to any of the Lenders which are presently in effect or, to the extent allowed by applicable law, under such laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. Determination of the rate of interest for the purpose of determining whether any Loans are usurious under all applicable laws shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the period of the full stated term of the Loans, all interest at any time contracted for, taken, reserved, charged or received from the Borrower in connection with the Loans.
“ Incremental Facility ” has the meaning set forth in Section 7.3(b).
“ Incremental Term Facility ” has the meaning set forth in Section 7.3(b).
“ Incur ” means issue, create, assume, Guaranty, incur or otherwise become liable for; provided , however , that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlative to the foregoing.
“ Indebtedness ” means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(a) in respect of the outstanding principal amount of borrowed money;
(b) in respect of the outstanding principal amount of indebtedness evidenced by bonds, notes, debentures or similar instruments;
(c) all reimbursement obligations of such Person in respect of the principal amount of letters of credit, excluding letters of credit entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the thirtieth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit;
(d) all reimbursement obligations of such Person in respect of the principal amount of banker’s acceptances;
(e) representing Capitalized Lease Obligations;
(f) representing the balance deferred and unpaid of the purchase price of any property (except for accounts payable arising in the ordinary course of business and other amount which are being contested in good faith and for which reserves in conformity with GAAP have been provided) due more than six months after such property is acquired;
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(g) representing any net obligations under Hedging Obligations; and
(h) the maximum mandatory redemption or repurchase price (not including, in either case, any redemption or repurchase premium) of any Disqualified Stock or, with respect to any Non-Guarantor Subsidiary that is a Restricted Subsidiary, any Preferred Stock (but excluding, in each case, any accrued dividends);
if and to the extent any of the preceding items (other than reimbursement obligations in respect of letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes (i) all Indebtedness of others secured by a Lien on any asset of such specified Person (whether or not such Indebtedness is assumed by such specified Person) and, to the extent not otherwise included in clauses (a) through (h) above, the Guaranty by such specified Person of any Indebtedness of any other Person. Indebtedness shall be calculated without giving effect to the effects of the Financial Accounting Standards Codification No. 815 Derivatives and Hedging, and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Agreement as a result of accounting for any embedded derivatives created by the terms of such Indebtedness. For purposes of clause (h), the “maximum fixed repurchase price” of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which such Indebtedness shall be required to be determined pursuant to this Agreement.
Notwithstanding the foregoing, the following shall not constitute or be deemed “Indebtedness”:
(a) any indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all such indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, and the other applicable terms of the instrument governing such indebtedness;
(b) any obligations arising from agreements of a Person providing for indemnification, Guaranties, adjustment of purchase price, holdbacks, contingent payment obligations based on a final financial statement or performance of acquired or disposed of assets or similar obligations (other than Guaranties of Indebtedness), in each case, Incurred by such Person in connection with the acquisition or disposition of assets (including through mergers, consolidations or otherwise); and
(c) taxes, assessments or other similar governmental charges or claims.
The amount of any Indebtedness outstanding as of any date will be (a) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (b) the principal amount of the Indebtedness, in the case of any other Indebtedness, together with any interest or dividend, that is more than 30 days past due; (c) in respect of Indebtedness of another
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Person secured by a Lien on the assets of the specified Person, the lesser of (i) the Fair Market Value of such assets at the date of determination and (ii) the amount of the Indebtedness of the other Person; and (d) in the case of net obligations in respect of Hedging Obligations, the termination value of the agreement or arrangement giving rise to such Hedging Obligations that would be payable by the specified Person at such date.
Except to the extent provided in the preceding sentence, the amount of any Indebtedness that is convertible into or exchangeable for Capital Stock of the Parent outstanding as of any date, shall be deemed to be equal to the principal and premium, if any, in respect of such Indebtedness, notwithstanding the provisions of GAAP (including Financial Accounting Standards Codification No. 470-20, Debt with Conversion and Other Options).
“ Indemnified Parties ” has the meaning set forth in Section 11.13.
“ Indemnified Taxes ” has the meaning set forth in Section 3.3(a).
“ Information ” has the meaning set forth in Section 11.15.
“ Intercompany Note Intercreditor Agreement ” has the meaning set forth in the definition of “Permitted Liens.”
“ Interest Payment Date ” means (a) with respect to any Base Rate Term Loan, the last day of each March, June, September and December, and (b) with respect to any Eurodollar Term Loan, the last day of the Interest Period applicable to the Borrowing of which such Eurodollar Term Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period.
“ Interest Period ” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter (or with the consent of each Lender making a Loan as part of such Borrowing, any other period), in each case as the Borrower may elect. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“ Interest Rate Protection Agreement ” means any interest rate swap, interest rate cap, interest rate collar, or other interest rate hedging agreement or arrangement designed to protect against fluctuations in interest rates, regardless of whether such agreements are subject to hedge accounting.
“ Internal Charterer ” means any direct or indirect Wholly-Owned Subsidiary of the Parent (other than a Local Content Subsidiary) that is party to an internal bareboat charter or other contract respecting the use or operations of any Collateral Rig but is not the relevant Collateral Rig Owner.
“ Interpolated Rate ” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBOR Screen Rate) determined by the
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Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBOR Screen Rate for the longest period for which the LIBOR Screen Rate is available for Dollars) that is shorter than the Impacted Interest Period; and (b) the LIBOR Screen Rate for the shortest period (for which that screen rate is available for Dollars) that exceeds the Impacted Interest Period, in each case, at such time.
“ Investment Grade Rating ” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s or BBB- (or the equivalent) by S&P, in each case, with a stable or better outlook.
“ Investments ” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guaranties), advances or capital contributions (excluding (a) commission, travel and similar advances to officers and employees made in the ordinary course of business and (b) advances to customers or trade creditors in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person or that are represented by notes receivable), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Parent or any Restricted Subsidiary of the Parent sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Parent such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Parent, the Parent will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Parent’s Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 7.5(d). The acquisition by the Parent or any Restricted Subsidiary of the Parent of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Parent or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person on the date of such acquisition in an amount determined as provided in Section 7.5(d). Except as otherwise provided in this Agreement, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value or write-ups, write-downs or write-offs with respect to such Investment.
“ Joint Venture ” means any Person that is not a direct or indirect Subsidiary of the Parent in which the Parent or any of its Restricted Subsidiaries makes any Investment.
“ Lender ” is defined in the preamble to this Agreement.
“ Lending Office ” means the “Lending Office” of such Lender (or an Affiliate of such Lender) designated for each Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.
“ Leverage Ratio ” means, as of any date of determination, the ratio of (i) Net Funded Debt on such date to (ii) EBITDA for the four (4) consecutive Fiscal Quarters ending on or
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immediately prior to such date for which internal financial statements are available, with such pro forma adjustments to Net Funded Debt and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of “Fixed Charge Coverage Ratio.”
“ LIBOR Market Index Rate ” means, for any day, with respect to any interest calculation for Base Rate Term Loans, the rate per annum quoted at approximately 11:00 A.M. (London time) on such day on that page of the Reuters, Telerate or Bloomberg reporting service (as then being used by the Administrative Agent to obtain such interest rate quotes) that displays interest settlement rates for deposits in Dollars in the amount of $5,000,000 for a period of one month, or if such page or such service shall cease to be available, such other page or other service (as the case may be) for the purpose of displaying interest settlement rates as reasonably determined by the Administrative Agent after consultation with the Parent as to the use of any such other service. If for any reason any such settlement interest rate for such one-month period is not available through any such interest rate reporting service, then the “LIBOR Market Index Rate” for such day will be the rate at which the Administrative Agent is offered deposits in Dollars in the amount of $5,000,000 for a period of one month in the London interbank market at 10:00 A.M. (New York time) on such day.
“ LIBOR Rate ” means, for any Interest Period for each Eurodollar Term Loan, the London interbank offered rate as administered by Intercontinental Exchange Benchmark Administration Ltd (or any other Person that takes over the administration of such rate for Dollars) for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent after consultation with the Parent as to the use of any such other service; in each case the “ LIBOR Screen Rate ”) at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest Period; provided that, if the LIBOR Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement and provided , further , if the LIBOR Screen Rate shall not be available at such time for such Interest Period (an “ Impacted Interest Period ”) with respect to Dollars then the LIBOR Rate shall be the Interpolated Rate, provided , that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“ Lien ” means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction, other than a precautionary financing statement in respect of a lease not intended as a security agreement; provided that in no event shall an operating lease be deemed to constitute a Lien.
“ Loan ” means (i) a Base Rate Term Loan or (ii) a Eurodollar Term Loan, as the case may be.
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“ Local Content Subsidiary ” means any Subsidiary of the Parent that is a party to a bareboat charter contract or drilling contract or otherwise holds the right to receive freight, hire, passage moneys payable or other compensation attributable to a Collateral Rig for the purpose of satisfying any local content law or regulation or similar law or regulation.
“ Material Adverse Effect ” means a material adverse effect on (i) the business, assets, operations, liabilities (actual or contingent) or financial condition of the Parent and its Restricted Subsidiaries taken as a whole, (ii) the Credit Parties’ ability, taken as a whole, to perform any of their payment obligations under this Agreement or the Term Loan Notes or under any other Credit Document to which a Credit Party is a party or (iii) the validity or enforceability in any material respect of any of the Credit Documents or the rights and remedies of the Collateral Agent, the Administrative Agent or any Lender under the Credit Documents.
“ Material Guarantor ” means any Guarantor that, as of any date of determination, has (together with its Subsidiaries) tangible assets with an aggregate book value equal to at least 10% of the Consolidated Tangible Assets of the Parent and its Restricted Subsidiaries.
“ Material Project ” means (a) the construction of any Rig or (b) any refurbishment, refitting, redesign or other material improvement to an existing Rig for which the aggregate capital cost to the Parent and its Restricted Subsidiaries exceeds $65,000,000.
“ Material Rig ” means any Collateral Rig and any other Rig, other than an Excluded Rig, that, as of any date of determination, has a Fair Market Value greater than $35,000,000.
“ Maturity Date ” means the date that is seven years after the Funding Date.
“ Maximum Annual Dividend Amount ” has the meaning set forth in Section 7.5(b)(xiii).
“ Moody’s ” means Moody’s Investors Service, Inc. or any successor thereto.
“ Net Cash Proceeds ” means, (a) with respect to any issuance or Incurrence of Indebtedness, the cash proceeds received by the Parent or any of its Restricted Subsidiaries therefrom, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance, and (b) with respect to any Asset Sale or Casualty Event, the aggregate cash proceeds (including in respect of any insurance proceeds or condemnation awards) and the Fair Market Value of any Cash Equivalents received by the Parent or any of its Restricted Subsidiaries in respect of any such Asset Sale or Casualty Event (including, without limitation, any cash or Cash Equivalents received upon the sale or other disposition of any Designated Non-cash Consideration or other non-cash consideration received in any such Asset Sale or Casualty Event), net of (i) the direct costs relating to such Asset Sale or Casualty Event and the sale or disposition of such Designated Non-cash Consideration or other non-cash consideration, including, without limitation, legal, accounting and investment banking fees, and sales commissions, severance costs and any relocation expenses Incurred as a result of such Asset Sale or Casualty Event, (ii) taxes paid or payable as a result of such Asset Sale or Casualty Event, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, (iii) amounts required to be applied to the repayment of Indebtedness secured by a Lien on the properties or assets that were the subject of such Asset
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Sale or Casualty Event, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale or Casualty Event or by applicable law, be repaid out of the proceeds from such Asset Sale or Casualty Event, (iv) payments of unassumed liabilities (not constituting Indebtedness) relating to the assets sold at the time of, or within 30 days after the date of, such Asset Sale or Casualty Event, and (v) any amounts to be set aside in any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such properties or assets, for indemnification obligations of the Parent or any of its Restricted Subsidiaries in connection with such Asset Sale or Casualty Event or for other liabilities associated with such Asset Sale or Casualty Event and retained by the Parent or any of its Restricted Subsidiaries until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Cash Proceeds shall include only the amount of the reserve so reversed or the amount returned to the Parent or its Restricted Subsidiaries from such escrow arrangement, as the case may be; provided , however , that, with respect to this clause (b) if the Borrower shall deliver a Reinvestment Notice, such proceeds shall not constitute Net Cash Proceeds except to the extent not used in the manner set forth in such Reinvestment Notice at the end of the Reinvestment Period, at which time such proceeds shall constitute Net Cash Proceeds and be required to be applied in accordance with Section 2.10(b); provided , further, however, that each of clauses (a) and (b) shall be reduced by the aggregate amount of all repurchases of Term Loans through Auctions in accordance with Section 2.14 or Open Market Purchases in accordance with Section 2.15 (but excluding mandatory prepayments of Term Loans).
“ Net Equity Proceeds ” means, with respect to any issuance or sale of Capital Stock, the cash proceeds of such issuance or sale, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).
“ Net Funded Debt ” means, as of any date of determination, without duplication, (a) the sum of (i) the aggregate outstanding principal amount of Indebtedness for borrowed money which, in accordance with GAAP, would be shown as debt on the consolidated balance sheet of the Parent and its Restricted Subsidiaries as of such date, including obligations under notes, acceptances and other short-term instruments (but excluding, for the avoidance of doubt, all undrawn amounts under revolving credit facilities and letters of credit) and, without duplication of any amounts included in clause (a)(i), (ii) (A) the aggregate outstanding principal amount of Capital Lease Obligations of the Parent and its Restricted Subsidiaries and (B) the aggregate amount of all outstanding Disqualified Stock of the Parent and its Restricted Subsidiaries and all outstanding Preferred Stock of the Parent’s Non-Guarantor Subsidiaries that are Restricted Subsidiaries, in each case, determined on a consolidated basis in accordance with GAAP, minus (b) the sum of (i) to the extent included in the determination of clause (a) above, any Indebtedness of the type described under clause (g) of the definition of Indebtedness, and (ii) the aggregate amount of unrestricted cash and Cash Equivalents included on the consolidated balance sheet of the Parent and its Restricted Subsidiaries as of such date.
“ New Parent ” has the meaning set forth in the definition of “Redomestication”.
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“ Noble Cayman ” means Noble Corporation, a Cayman Islands exempted company limited by shares, and its successors.
“ Noble Corporation ” means Noble Corporation plc, a public limited company incorporated under the laws of England and Wales, and its successors.
“ Non-Guarantor Subsidiary ” means any Restricted Subsidiary that is not a Guarantor or the Borrower.
“ Non-Recourse Debt ” means Indebtedness:
(a) as to which neither the Parent nor any of its Restricted Subsidiaries (a) provides any Guaranty or credit support of any kind (including any undertaking, Guaranty, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise, in each case, except pursuant to a Lien of the type permitted by clause (m) in the definition of “ Permitted Liens ”; and
(b) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Term Loan Obligations) of the Parent or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of such Indebtedness to be accelerated or payable prior to its Stated Maturity.
For purposes of determining compliance with Section 7.3, in the event that any Non-Recourse Debt of any of the Parent’s Unrestricted Subsidiaries ceases to be Non-Recourse Debt of such Unrestricted Subsidiary, such event will be deemed to constitute an Incurrence of Indebtedness by a Restricted Subsidiary of the Parent.
“ Notifying Lender ” has the meaning set forth in Section 9.1(c).
“ Obligations ” means any principal, premium, if any, interest, penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and banker’s acceptances), damages and other liabilities, payable under the documentation governing any Indebtedness and Guaranties in respect thereof.
“ OFAC ” means The Office of Foreign Assets Control of the U.S. Department of the Treasury.
“ Officer ” means, with respect to any Person, the Chairman of the Board of Directors, any other Directors, the Chief Executive Officer, the President, the Chief Financial Officer, any Executive Vice President, Senior Vice President or Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of such Person or, in the event that such Person is a partnership or a limited liability company that has no such officers, a person duly authorized by the general partner, managers, members or a similar body to act on behalf of such Person.
“ Open Market Purchases ” has the meaning set forth in Section 2.15(a).
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“ Other Agents ” means, collectively, the Syndication Agents and the Documentation Agents.
“ Paragon Parent Company ” means Paragon Offshore Limited or, if a Redomestication has occurred subsequent to the Funding Date and prior to the event in question on the date of determination, the Surviving Person resulting from such prior Redomestication.
“ Paragon Registration Statement ” means the registration statement on Form 10 filed by the Parent with the SEC, including all exhibits and schedules thereto.
“ Paragon Separation ” has the meaning set forth in clause (a) of the definition of Paragon Separation Transactions.
“ Paragon Separation Transaction Agreements ” means (a) the Paragon Registration Statement, (b) the Master Separation Agreement, (c) the Employee Matters Agreement, (d) the Tax Sharing Agreement, (e) the Transition Services Agreement and (f) each other agreement related or incidental thereto, in each case, entered into, or to be entered into, by the Parent and/or certain of its Subsidiaries and Noble Corporation and/or certain of its Subsidiaries in connection with the Paragon Separation Transactions.
“ Paragon Separation Transactions ” means (a) the transfer (whether pursuant to a single transfer or a series of related transfers) by Noble Corporation and its Subsidiaries to the Parent and its Subsidiaries of most of the standard specification drilling units, and related assets, liabilities and businesses of Noble Corporation and its Subsidiaries, other than the FDR Assets (the “ Paragon Separation ”), (b) the Incurrence by the Borrower and the Revolving Borrowers of certain Indebtedness under this Agreement and the Revolving Credit Agreement and the issuance and sale of the Senior Notes, and (c) the other transactions described in or otherwise contemplated by the Paragon Separation Transaction Agreements.
“ Parent ” is defined in the preamble to this Agreement.
“ Participant Register ” has the meaning set forth in Section 11.10(a).
“ Participants ” has the meaning set forth in Section 11.10(a).
“ Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, signed into law October 26, 2001, as amended from time to time.
“ PBGC ” means the Pension Benefit Guaranty Corporation or any successor thereto.
“ Percentage ” means, for each Lender, (a) immediately prior to the initial Borrowing on the Funding Date, the percentage of the aggregate amount of the Commitments of all Lenders represented by the amount of such Lender’s Commitment, and (b) thereafter, the percentage of the aggregate principal amount of all Term Loan then outstanding) represented by the amount of such Lender’s Term Loan.
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“ Permitted Acquisition Indebtedness ” means Indebtedness of the Parent or any of its Restricted Subsidiaries to the extent such Indebtedness was Indebtedness of any other Person existing at the time (a) such Person became a Restricted Subsidiary of the Parent, (b) such Person was merged or consolidated with or into the Parent or any of its Restricted Subsidiaries, or (c) assets of such Person were acquired by the Parent or any of its Restricted Subsidiaries and such Indebtedness was assumed in connection therewith (excluding any such Indebtedness that is repaid contemporaneously with such event), provided that on the date such Person became a Restricted Subsidiary of the Parent or the date such Person was merged or consolidated with or into the Parent or any of its Restricted Subsidiaries, or on the date of such asset acquisition, as applicable, either
(a) immediately after giving effect to such transaction on a pro forma basis as if the same had occurred at the beginning of the applicable four-quarter period, the Parent would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 7.3(a); or
(b) immediately after giving effect to such transaction on a pro forma basis as if the same had occurred at the beginning of the applicable four-quarter period, the Fixed Charge Coverage Ratio of the Parent and its Restricted Subsidiaries (determined on a consolidated basis) would be equal to or greater than the Fixed Charge Coverage Ratio of the Parent and its Restricted Subsidiaries (determined on a consolidated basis) immediately prior to such transaction.
“ Permitted Business ” means any business that is the same as, or reasonably related, ancillary or complementary to, any of the businesses in which the Parent and its Restricted Subsidiaries are engaged on the Funding Date, and reasonable extensions thereof, in each case, as determined in good faith by the Parent.
“ Permitted Debt ” has the meaning set forth in Section 7.3(b).
“ Permitted Incremental Facility ” means any Incremental Term Facility provided that:
(a) such Incremental Term Facility shall have the same Guaranties as, and be secured on a pari passu basis with, the Term Loan Facility; provided that such Incremental Term Facility may be Guaranteed by fewer of the Parent’s Restricted Subsidiaries than the Term Loan Facility or be unsecured or the Liens securing such Incremental Term Facility may rank junior to the Liens securing the Term Loan Facility;
(b) such Incremental Term Facility shall (i) have a final maturity no earlier than the Maturity Date, (ii) have a Weighted Average Life to Maturity no shorter than Weighted Average Life to Maturity of the Term Loan Facility and (iii) not have any terms which require it to be mandatorily prepaid prior to the repayment in full of the Term Loans, unless accompanied by at least a ratable payment of the Term Loans;
(c) to the extent the terms and documentation for the Incremental Term Facility are not substantially consistent with the applicable Credit Documents in respect of the Term Loan Facility, either (x) such terms and documentation shall be reasonably satisfactory to the Administrative Agent or (y) such terms and documentation shall either (i) not be materially
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more restrictive, taken as a whole, to the Parent and its Restricted Subsidiaries, than the Credit Documents (or the Lenders receive the benefit of the more restrictive terms which, for avoidance of doubt, may be provided to them without their consent), in each case, as certified by an Officer of the Parent in good faith or (ii) apply after the applicable Maturity Date; and
(d) if the All-In Yield applicable to any such Incremental Term Facility is more than 50 basis points than the corresponding All-In Yield applicable to the Term Loan Facility, then the All-In Yield applicable to the Term Loan Facility shall be increased to the extent necessary cause the All-In Yield then applicable to the Term Loan Facility to equal the All-In Yield then applicable to the Incremental Term Facility minus 50 basis points.
“ Permitted Investments ” means:
(a) any Investment in the Parent or in a Restricted Subsidiary of the Parent;
(b) any Investment in cash and Cash Equivalents;
(c) any Investment by the Parent or any Restricted Subsidiary of the Parent in a Person, if as a result of such Investment:
(i) such Person becomes a Restricted Subsidiary of the Parent; or
(ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Parent or a Restricted Subsidiary of the Parent;
(d) any Investment made as a result of the receipt of non-cash consideration from (a) an Asset Sale permitted under Section 7.6 or (b) a disposition of assets that does not constitute an Asset Sale;
(e) any Investment to the extent made in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Parent;
(f) any Investments received (a) in compromise or resolution of, upon satisfaction of judgments with respect to, (i) obligations of trade creditors or customers that were Incurred in the ordinary course of business of the Parent or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or (ii) litigation, arbitration or other disputes; or (b) as a result of a foreclosure by the Parent or any of its Restricted Subsidiaries with respect to any secured Investment in default;
(g) Investments represented by Hedging Obligations;
(h) loans or advances to directors, officers, employees for moving, relocation and travel expenses and other similar expenditures (other than any loans or advances to any director or executive officer (or equivalent thereof) that would be in violation of Section 402 of the Sarbanes-Oxley Act of 2002), (i) in each case, made in the ordinary course of business of the Parent or any Restricted Subsidiary of the Parent (including payroll, travel and entertainment related advances) or (ii) to purchase Equity Interests of the Parent, which in the case of this clause (ii), do not exceed $20,000,000 in the aggregate at any one time outstanding;
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(i) any Guaranty of Indebtedness of the Parent or a Restricted Subsidiary permitted to be Incurred by Section 7.3 and Issuance of Preferred Stock;
(j) any Investment existing on, or made pursuant to binding commitments existing on, the Funding Date, and any modifications, renewals or extensions that do not increase the amount of the Investment being modified, renewed or extended (as determined as of such date of modification, renewal or extension) unless the incremental increase in such Investment is otherwise permitted under this Agreement and any Investment made pursuant to the Paragon Separation Transaction Agreements;
(k) Investments acquired after the Funding Date as a result of the acquisition by the Parent or any Restricted Subsidiary of the Parent of another Person, including by way of a merger, amalgamation or consolidation with or into the Parent or any of its Restricted Subsidiaries in a transaction that is not prohibited by the covenant described above under Section 7.1 after the Funding Date, to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(l) Guaranties by the Parent or any of its Restricted Subsidiaries of operating leases (other than Capitalized Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into by the Parent or any Restricted Subsidiary of the Parent in the ordinary course of business;
(m) Investments in any Person to the extent such Investments consist of prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business by the Parent or any of its Restricted Subsidiaries;
(n) Investments in Unrestricted Subsidiaries and Joint Ventures made by the Parent or any of its Restricted Subsidiaries, in an aggregate amount (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together will all other Investments made pursuant to this clause (n) and then outstanding, that does not exceed the greater of (i) $25,000,000 and (ii) one percent (1%) of the Parent’s Consolidated Tangible Assets;
(o) Investments pursuant to a retirement restoration plan offered to senior management in an aggregate amount not to exceed $10,000,000 at any time outstanding; and
(p) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (p) that are at the time outstanding not to exceed the greater of (i) $100,000,000 and (ii) three percent (3%) of the Parent’s Consolidated Tangible Assets.
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In determining whether an Investment is a Permitted Investment, the Parent may allocate all or any portion of any Investment and later reallocate all or any portion of any Investment to one or more of the above clauses (a) through (p) and any of the provisions of Section 7.5.
“ Permitted Jurisdiction ” means, with respect to any of the Parent, the Borrower or a Subsidiary Guarantor, as applicable:
(a) the Cayman Islands, Bermuda, Switzerland, the United Kingdom, the Netherlands, Luxembourg, Barbados, the British Virgin Islands, Cyprus and Gibraltar or any territory of any of the foregoing;
(b) with the consent of the Administrative Agent (such consent not to be unreasonably withheld), Delaware or another State of the United States; and
(c) with the consent of the Required Lenders (such consent not to be unreasonably withheld) any other jurisdiction.
“ Permitted Liens ” means:
(a) Liens on assets of the Parent or any of its Restricted Subsidiaries securing Indebtedness and other Obligations under the Senior Credit Facilities and Indebtedness and other Obligations under any Incremental Facility that was permitted to be Incurred under this Agreement and/or securing Hedging Obligations related thereto and/or securing Obligations with regard to Treasury Management Arrangements;
(b) Liens in favor of the Parent, the Borrower or the Guarantors; provided, that with respect to Liens granted in favor of the Parent to secure the US Holdco Intercompany Note, the Parent will pledge such note to the Collateral Agent, for the ratable benefit of the Secured Parties, to secure the Secured Obligations, pursuant to the Guaranty and Collateral Agreement, and the Collateral Agent and/or Administrative Agent shall enter into an intercreditor agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Intercompany Note Intercreditor Agreement ”), in form and substance reasonably acceptable to the Parent, the Administrative Agent and the Collateral Agent, pursuant to which the Collateral Agent and/or the Administrative Agent subordinates the Liens in favor the Collateral Agent and/or the Administrative Agent securing the Secured Obligations on the assets of US Holdco to the Liens securing the obligations of US Holdco under the US Holdco Intercompany Note;
(c) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary of the Parent or is merged with or into or consolidated with the Parent or any Restricted Subsidiary of the Parent; provided that such Liens were in existence prior to the contemplation of such Person becoming a Restricted Subsidiary of the Parent or such merger or consolidation and do not extend to any assets (other than improvements thereon, accessions thereto and proceeds thereof) other than those of the Person that becomes a Restricted Subsidiary of the Parent or is merged with or into or consolidated with the Parent or any Restricted Subsidiary of the Parent;
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(d) Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Parent or any Subsidiary of the Parent; provided that such Liens were in existence prior to such acquisition and not Incurred in contemplation of, such acquisition; provided further that any such Liens may not extend to any other property (other than with respect to the acquired property, improvements thereon, accessions thereto and proceeds thereof) owned by the Parent or any Restricted Subsidiary;
(e) Liens to secure the performance of tenders, bids, purchase agreements, or letters of intent (including earnest money deposits in respect of same) statutory obligations, insurance, surety or appeal bonds, government contracts, leases, workers compensation obligations, unemployment insurance, old age benefits, social security obligations, performance bonds or other obligations of a like nature Incurred in the ordinary course of business (including Liens to secure letters of credit issued to assure payment of such obligations; provided that such letters of credit do not constitute Indebtedness);
(f) Liens to secure Indebtedness (including Capitalized Lease Obligations) permitted by Section 7.3(b)(iv) covering only the assets acquired, designed, constructed, installed or improved with, or financed by, such Indebtedness (and improvements thereon, accessions thereto and proceeds thereof);
(g) Liens existing on the Funding Date or under the Paragon Separation Transaction Agreements (other than Liens Incurred or to be Incurred under the Senior Credit Facilities);
(h) Liens for taxes, assessments or governmental charges or claims that are not more than 90 days past due or which can thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(i) carriers’, warehousemen’s, landlord’s and mechanics’, workmens’, materialmens’, repairman’s, crews’ wages, maritime, custom, revenue authority or like Liens, in each case, Incurred in the ordinary course of business;
(j) survey exceptions, easements, servitudes, permits reservations or similar encumbrances of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph lines, telephone lines, roads, pipelines, transmission lines, transportation lines, distribution lines, removal of gas, oil, coal, metals, steam, minerals, timber or other natural resources and other similar purposes, or zoning or other restrictions as to the use of real property or defects, irregularities and deficiencies in title that were not Incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(k) Liens to secure any Permitted Refinancing Indebtedness Incurred to refinance, refund, replace, amend, extend or modify, as a whole or in part, Indebtedness that was previously so secured pursuant to clauses (c), (d), (f), (g) and this clause (k) and permitted to be Incurred under this Agreement; provided , however , that:
(i) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and
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(ii) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay unpaid accrued interest and premium thereon and any fees and expenses, including premiums and any bona fide amendment, waiver or consent fee, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;
(l) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings;
(m) Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary or any Joint Venture owned by the Parent or any Restricted Subsidiary of the Parent to the extent securing Non-Recourse Debt or other Indebtedness of such Unrestricted Subsidiary or Joint Venture;
(n) bankers’ Liens, rights of setoff, and other similar Liens, Liens arising out of judgments or awards not constituting an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made;
(o) Liens on cash, Cash Equivalents or other property arising in connection with the defeasance, discharge or redemption of Indebtedness;
(p) Liens on specific items of inventory or other goods (and the proceeds thereof) of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(q) grants of software and other technology licenses in the ordinary course of business;
(r) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business;
(s) Liens on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets;
(t) Liens created or evidenced by or resulting from financing statements filed by lessors of property (but only with respect to the property so leased);
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(u) licenses, sublicenses, leases and subleases granted with respect to assets or properties of the Parent and its Restricted Subsidiaries (including the demise, bareboat, time, voyage or other charter, lease or right to use of a Rig), in each case entered into in the ordinary course of business, so long as such licenses, sublicenses, lease or subleases do not (a) interfere in any material respect with the ordinary conduct of the business of the Parent or its Restricted Subsidiaries or (ii) materially impair the use (for its intended purposes) or the value of the property or assets subject thereto;
(v) customary restrictions on assets to be disposed of pursuant to merger agreements, stock or asset purchase agreements and similar agreements to the extent that such dispositions are permitted under this Agreement;
(w) Liens securing reimbursement obligations with respect to commercial letters of credit that encumber documents and other assets relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Parent or any of its Restricted Subsidiaries, including rights of offset and setoff;
(y) Liens arising under this Agreement in favor of the Collateral Agent for its own benefit and similar Liens in favor of other trustees, agents and representatives arising under instruments governing Indebtedness permitted to be Incurred under this Agreement, provided that such Liens are solely for the benefit of the trustees, agents or representatives in their capacities as such and not for the benefit of the holders of such Indebtedness; and
(z) other Liens Incurred by the Parent or any Restricted Subsidiary of the Parent with respect to obligations that do not exceed the greater of (a) $150,000,000 and (b) 5.0% of the Parent’s Consolidated Tangible Assets at any one time outstanding.
“ Permitted Refinancing Indebtedness ” means any Indebtedness of the Parent or any of its Restricted Subsidiaries, issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge, in whole or in part, other Indebtedness of the Parent or any of its Restricted Subsidiaries (other than intercompany Indebtedness) (the “ Refinanced Indebtedness ”); provided that:
(a) the principal amount (or accreted value, if applicable, or in the case of Preferred Stock and Disqualified Stock, the amount thereof determined in accordance with the definition thereof) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, or in the case of Preferred Stock and Disqualified Stock, the amount thereof determined in accordance with the definition thereof) of the Refinanced Indebtedness (plus all accrued (including, for the purposes of defeasance, future accrued) interest on, or accrued dividends on, the Refinanced Indebtedness and the amount of all fees and expenses, including premiums, Incurred in connection therewith);
(b) such Permitted Refinancing Indebtedness (a) has a final maturity date that is later than the final maturity date of the Refinanced Indebtedness, and has a Weighted Average Life to Maturity at the time such Permitted Refinancing Indebtedness is Incurred equal to or greater than the Weighted Average Life to Maturity of the Refinanced Indebtedness or (b) has a final maturity date that is more than 90 days after the Maturity Date;
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(c) if the Refinanced Indebtedness is contractually subordinated in right of payment to the Term Loan Obligations, such Permitted Refinancing Indebtedness is contractually subordinated in right of payment to the Term Loan Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Refinanced Indebtedness; and
(d) if the Parent, the Borrower or a Guarantor is the issuer of or otherwise an obligor on the Refinanced Indebtedness, such Permitted Refinancing Indebtedness is not Incurred (other than by way of a Guaranty) by any Non-Guarantor Subsidiary.
“ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
“ Plan ” means an employee pension benefit plan subject to Title IV of ERISA or the minimum funding standards under Section 412 and 430 of the Code that is either (i) maintained by the Parent or any of its Subsidiaries or ERISA Affiliates, or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Parent or any of its Subsidiaries or ERISA Affiliates is then making or required to make contributions.
“ Platform ” has the meaning set forth in Section 11.7(b).
“ Pledged Equity ” means the Capital Stock in the Borrower, Paragon International Finance Company and each Collateral Rig Owner which are pledged to secure the Secured Obligations under the Guaranty and Collateral Agreement.
“ Pledgor ” means the Parent and each Wholly-Owned Subsidiary, in each case, to the extent that such Person directly owns any Capital Stock in (a) any Collateral Rig Owner, (b) the Borrower or (c) Paragon International Finance Company.
“ Preferred Stock ” means, with respect to any Person, any Capital Stock in such Person of any class or classes (however designated) that rank prior, as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of common Capital Stock in such Person.
“ Primary Collateral ” means (a) the Collateral Rigs and (b) the Pledged Equity.
“ Purchasing Lender ” has the meaning set forth in Section 11.10(b).
“ Qualifying Equity Interests ” means Equity Interests of the Parent other than Disqualified Stock.
“ Rate Management and Currency Protection Obligations ” means any and all obligations of the Parent or any Restricted Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and
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modifications thereof and substitutions therefor), under (a) any and all Rate Management and Currency Protection Transactions, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing.
“ Rate Management and Currency Protection Transaction ” means any Interest Rate Protection Agreement or Currency Rate Protection Agreement now existing or hereafter entered into, in each case, between the Parent or any Restricted Subsidiary and any Lender or any Affiliate of a Lender.
“ Rating Agency ” means each of S&P and Moody’s or, if S&P or Moody’s or both shall not make a rating on the notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Parent, which shall be substituted for S&P or Moody’s or both, as the case may be.
“ Rating Category ” means:
(a) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and
(b) with respect to Moody’s, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).
“ Rating Decline ” means a decrease in the rating of the notes by either Moody’s or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). In determining whether the rating of the notes has decreased by one or more gradations, gradations within Rating Categories, namely + or – for S&P, and 1, 2, and 3 for Moody’s, will be taken into account; for example, in the case of S&P, a rating decline either from BB+ to BB or BB- to B+ will constitute a decrease of one gradation.
“ Recipient ” has the meaning set forth in Section 3.3(h).
“ Redomestication ” means:
(a) any amalgamation, merger, exchange offer, conversion, consolidation or similar action of the Paragon Parent Company with or into any other Person, or of any other Person with or into the Paragon Parent Company, or the direct or indirect Disposition (other than by lease) of all or substantially all of the assets of the Paragon Parent Company to any other Person,
(b) any continuation, discontinuation, domestication, redomestication, amalgamation, merger, plan or scheme of arrangement, exchange offer, business combination, reincorporation, reorganization consolidation or similar action of the Paragon Parent Company, pursuant to the law of the jurisdiction of its organization and of any other jurisdiction, or
(c) the formation of a Person that becomes, as part of the transaction or series of related transactions, the direct or indirect owner of 100% of the voting Capital Stock (except for directors’ qualifying shares) of the Paragon Parent Company (the “ New Parent ”),
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if:
(A) as a result thereof:
(x) in the case of any action specified in clause (a), the entity that is the surviving, resulting or continuing Person in such merger, amalgamation, conversion, consolidation or similar action, or the transferee in such Disposition,
(y) in the case of any action specified in clause (b), the entity that constituted the Paragon Parent Company immediately prior thereto (but disregarding for this purpose any change in its jurisdiction of organization), or
(z) in the case of any action specified in clause (c), the New Parent,
(in any such case described in (a) or (b), the “ Surviving Person ”) is a corporation or other entity, validly incorporated or formed and existing in good standing (to the extent the concept of good standing is applicable) under the laws of a Permitted Jurisdiction, whose outstanding equity securities of each class issued and outstanding immediately following such action, and giving effect thereto, shall be beneficially owned by substantially the same Persons, in substantially the same percentages, as were the outstanding equity securities of the Paragon Parent Company immediately prior thereto; and
(B) the Surviving Person or the New Parent shall have delivered to the Administrative Agent (i) a certificate to the effect that, both immediately before and immediately after giving effect to such transaction, no Default or Event of Default exists, and (ii) an opinion, reasonably satisfactory in form, scope and substance to the Administrative Agent, of counsel reasonably satisfactory to the Administrative Agent, addressing such matters in connection with the Redomestication as the Administrative Agent or any Lender may reasonably request.
“ Redomestication Exclusion Condition ” means the condition that, immediately after giving effect to the entire series of related steps and transactions taken, or to be taken, as part of any Redomestication, taken as a whole, the Parent and its Restricted Subsidiaries, on a consolidated basis, shall not have substantially less assets or, in respect of any Restricted Payment in connection with such Redomestication, substantially less net worth, in each case, in the good faith determination of the Parent (after giving effect to any Restricted Payment, Permitted Investment or Asset Sale consummated in accordance with this Agreement) that the Parent and its Restricted Subsidiaries, on a consolidated basis, had immediately prior to giving effect to such Redomestication.
“ Reinvestment Notice ” means, with respect to any Asset Sale or Casualty Event, a certificate of an Officer who is the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Parent to the Administrative Agent after the date of receipt of Net Cash Proceeds from an Asset Sale or Casualty Event but before the date that such Net Cash Proceeds would be required to be applied to a prepayment of Loans in accordance with Section 2.10(b), as applicable, setting forth (a) the Parent’s or such Restricted Subsidiary’s intent to (i) permanently reduce (and permanently reduce commitments with respect thereto) Secured Indebtedness (other than Disqualified Stock or Subordinated Indebtedness) or Indebtedness of a Non-Guarantor Subsidiary, in each case, other than Indebtedness owed to the Parent or a Restricted Subsidiary; (ii) to acquire all or substantially all
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of the assets of, or any Capital Stock of, another Person engaged in a Permitted Business, if, in the case of any such acquisition of Capital Stock, such Person is or becomes a Restricted Subsidiary of the Parent after giving effect to such acquisition; (iii) to make a capital expenditure or to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business, in each case, within 365 days of receipt of such Net Cash Proceeds (such period, as it may be extended pursuant to the proviso below, the “ Reinvestment Period ”), and (b) certifying that no Default or Event of Default has occurred and is continuing at the time of such certificate; provided that the requirements of clause (ii) and (iii) immediately above shall be deemed to be satisfied with respect to any Asset Sale or Casualty Event if, within 365 days after such Asset Sale or Casualty Event, the Parent or the applicable Restricted Subsidiary, as the case may be, shall have entered into a binding commitment with respect to an acquisition, expenditure or investment, in compliance with clause (ii) and (iii), as the case may be, and that acquisition, expenditure or investment is substantially completed no later than one year and six months after the date of such Asset Sale or Casualty Event.
“ Reinvestment Period ” has the meaning given to such tern in the definition of “ Reinvestment Notice ”.
“ Relevant Party ” has the meaning set forth in Section 3.3(h).
“ Repayment Date ” has the meaning given such term in Section 2.8(a).
“ Reportable Event ” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event, provided , however , that a failure to meet the minimum funding standard of Sections 412 and 430 of the Code and of Sections 302 and 303 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(c) of the Code.
“ Required Insurance ” has the meaning set forth in Section 6.5(a).
“ Required Lenders ” means, as of any date of determination, (a) prior to the Funding Date, Lenders having more than 50% of the aggregate Commitments and (b) thereafter, Lenders holding in the aggregate more than 50% of the aggregate principal amount of the Term Loans then outstanding.
“ Residual Collateral ” has the meaning set forth in the definition of Collateral.
“ Restricted Investment ” means any Investment other than a Permitted Investment.
“ Restricted Payment ” has the meaning set forth in Section 7.5.
“ Restricted Subsidiary ” means any Subsidiary of the Parent that is not an Unrestricted Subsidiary. Unless otherwise qualified, references to “Restricted Subsidiary” or “Restricted Subsidiaries” herein shall refer to those of the Parent.
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“ Revolving Administrative Agent ” means the administrative agent under the Revolving Credit Agreement.
“ Revolving Borrowers ” means, collectively, the Parent and Paragon International Finance Company, a subsidiary of the Parent organized under the laws of the Cayman Islands.
“ Revolving Commitments ” means the “ Commitments ” as defined in the Revolving Credit Agreement.
“ Revolving Credit Agreement ” means that certain Senior Secured Revolving Credit Agreement dated as of June 17, 2014 among the Revolving Borrowers, the Revolving Administrative Agent, and the Revolving Lenders, as the same may be amended, restated, amended and restated, supplemented or otherwise modified, replaced or refinanced from time to time.
“ Revolving Lenders ” means the lenders party to the Revolving Credit Agreement from time to time.
“ Revolving Loans ” means the loans made by the Revolving Lenders to the Revolving Borrowers pursuant to the Revolving Credit Agreement.
“ Revolving Obligations ” means the Revolving Loans and all other “ Obligations ” as defined in the Revolving Credit Agreement.
“ Rig ” means, collectively, offshore drilling rigs, including semisubmersibles, drillships, jack-ups, semisubmersible tender assist vessels, floating production storage and offtake vehicles and submersible rigs, owned by the Parent and/or any Restricted Subsidiary of the Parent, and, individually, any of such rigs.
“ Rig Owner ” means the Parent and each Wholly-Owned Subsidiary, in each case, to the extent that such Person that holds an ownership interest in a Rig.
“ Sanctions Laws and Regulations ” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.
“ Satisfactory Drilling Contract ” means any drilling contract (or any letter of intent with respect thereto) with an initial term of at least six months in form and substance that is reasonably customary in the offshore drilling market, entered into by the Parent or any Restricted Subsidiary with a Person (a) having an Investment Grade Rating or a corporate credit rating equal to or higher than Baa3 (or the equivalent by Moody’s) and BBB- (or the equivalent) by S&P (or with respect to which a letter of credit has been provided), (b) that has an established record of fulfilling payment obligations in a timely manner with Noble Corporation or the Parent or any of its Restricted Subsidiaries or (c) that has been approved by the Revolving Administrative Agent under the Revolving Credit Agreement for purposes of determining a “Satisfactory Drilling Contract” (as defined therein).
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“ S&P ” means Standard & Poor’s Financial Services LLC or any successor thereto.
“ SEC ” means the United States Securities and Exchange Commission, or any Governmental Authority succeeding to the functions of said Commission.
“ Secured Indebtedness ” means any Indebtedness of the Parent or any of its Restricted Subsidiaries secured by a Lien on the assets of the Parent or any of its Restricted Subsidiaries.
“ Secured Obligations ” means, collectively, (a) the Term Loan Obligations, (b) the Revolving Obligations, (c) all Rate Management and Currency Protection Obligations (other than Excluded Swap Obligations) and (d) all Specified Cash Management Obligations; provided , however , notwithstanding anything to the contrary contained herein or in any other Credit Document, no Rate Management and Currency Protection Obligation or Specified Cash Management Obligation shall constitute a Secured Obligation at any time on or after the occurrence of Security Termination.
“ Secured Parties ” means, collectively, the Administrative Agent, the Collateral Agent, the Lenders, the Revolving Administrative Agent, the Issuing Banks (as defined in the Revolving Credit Agreement), the Revolving Lenders, the holders of the Rate Management and Currency Protection Obligations, the holders of any Specified Cash Management Obligations and any other holder of any Secured Obligation.
“ Security Termination ” means such time as when (a) all Commitments have been terminated or expired and (b) all Term Loan Obligations have been paid in full in cash (other than indemnification obligations and other contingent obligations not then due and payable and as to which no claim has been made as at the time of determination).
“ Senior Credit Facilities ” means this Agreement and the Revolving Credit Agreement, in each case, including any related notes, Guaranties, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, increased, renewed, refunded, replaced in any manner (whether upon or after termination or otherwise, and whether with the original lenders, investors, agents or otherwise) or refinanced (including by means of any capital markets transaction and involving any refinancing that increases the amount of Indebtedness borrowed or issued thereunder) in whole or in part from time to time.
“ Senior Notes ” means the senior unsecured notes of the Parent issued in connection with the Paragon Separation Transaction.
“ Senior Notes Documents ” means, collectively, the Senior Notes, any indenture agreement or indenture agreement supplement entered into by the Parent in connection with the issuance of the Senior Notes, and any Guaranties of Indebtedness under the Senior Notes by the Borrower or a Guarantor.
“ Solvent ” and “ Solvency ” means, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay
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the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, Incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature in their ordinary course, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, after giving due consideration to the prevailing practice in the industry in which such Person is engaged, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“ Specified Cash Management Obligations ” means obligations in respect of any agreement providing for treasury, depositary, purchasing card or cash management services, including in connection with any automated clearing house transfers of funds or any similar transactions between the Parent or any Restricted Subsidiary and any Lender or any Affiliate of a Lender.
“ Stated Maturity ” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of Incurrence thereof (or any later date agreed to by the parties after such date of Incurrence), and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
“ Statutory Reserve Rate ” means, the aggregate of the maximum reserve, liquid asset or similar percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by any Governmental Authority of the United States or any jurisdiction to which any Lender is subject for eurocurrency funding. Such reserve, liquid asset or similar percentages shall include those imposed pursuant to Regulation D of the Board of Governors of the Federal Reserve System. Eurodollar Term Loans shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any other applicable law, rule or regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“ Sub-Agent ” means JPMorgan Chase Bank, N.A. or such other Affiliate of JPMorgan Chase Bank, N.A., that conducts international monetary transactions on behalf of JPMorgan Chase Bank, N.A., as from time to time notified to the Borrower by the Administrative Agent.
“ Subordinated Indebtedness ” means (1) with respect to the Borrower, any Indebtedness of the Parent which is by its terms subordinated in right of payment to the Term Loan Obligations and (2) with respect to any Guarantor, any Indebtedness of such Guarantor which is by its terms subordinated in right of payment to the Guaranty of such Guarantor under the Guaranty and Collateral Agreement.
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“ Subsidiary ” means, with respect to any specified Person:
(a) any corporation, association or other business entity (other than a partnership or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); or
(b) any partnership (whether general or limited) or limited liability company of which (a) the sole general partner or member of which is such Person or a Subsidiary of such Person, or (b) if there is more than a single general partner or member, either (x) the only managing general partners or managing members of which are such Person or one or more Subsidiaries of such Person (or any combination thereof) or (y) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise.
Unless otherwise qualified, reference to “Subsidiary” or “Subsidiaries” herein shall refer to those of the Parent.
“ Subsidiary Guarantor ” means any Guarantor other than the Parent.
“ Successor Borrower ” has the meaning set forth in Section 7.1(c).
“ Successor Guarantor ” has the meaning set forth in Section 7.1(d).
“ Successor Parent ” has the meaning set forth in Section 7.1(b).
“ Supplier ” has the meaning set forth in Section 3.3(h).
“ Surviving Person ” has the meaning set forth in the definition of “Redomestication”.
“ Syndication Agents ” means Deutsche Bank Securities Inc. and Barclays Bank PLC in their capacities as syndication agents; provided , however , as provided in Section 10.3, such Syndication Agents shall not have any duties, responsibilities, or obligations hereunder in such capacity.
“ Tax Excluded Rig ” means (a) a Rig owned by a “controlled foreign corporation” (as defined in Section 957(a) of the Code) or (b) any other Rig if the granting of a Lien on such Rig to secure any Secured Obligation could reasonably be expected, in the discretion of the Parent, to result in material tax consequences to the Parent or any Restricted Subsidiary of the Parent.
“ Taxes ” has the meaning set forth in Section 5.11.
“ Term Loan ” has the meaning set forth in Section 2.1.
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“ Term Loan Facility ” means, at any time, the aggregate principal amount of the Term Loans of all Lenders outstanding at such time.
“ Term Loan Note ” has the meaning set forth in Section 2.8(e).
“ Term Loan Obligations ” means all obligations of the Credit Parties to pay fees, costs and expenses hereunder, to pay principal or interest on Loans and to pay any other obligations to the Administrative Agent or any Lender arising under any Credit Document.
“ Transactions ” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof.
“ Treasury Management Arrangement ” means any agreement or other arrangement governing the provision of treasury, depositary, purchasing card or cash management services, including deposit accounts, overdraft, credit or debit card, funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services and other cash management services.
“ Type ”, when used in reference to any Term Loan or Borrowing, refers to whether the rate of interest on such Term Loan, or on the Term Loans comprising such Borrowing, is determined by reference to Adjusted LIBOR or the Base Rate.
“ UCC ” means, with respect to any applicable jurisdiction, the Uniform Commercial Code as in effect from time to time in such jurisdiction.
“ Unfunded Vested Liabilities ” means, for any Plan at any time, the amount (if any) by which the present value of all vested nonforfeitable accrued benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Parent or any of its Subsidiaries or ERISA Affiliates to the PBGC or such Plan.
“ Unrestricted Subsidiary ” means any Subsidiary of the Parent that is designated as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:
(a) has no Indebtedness other than Non-Recourse Debt; except any Guaranty given solely to support a pledge by the Company or any of its Restricted Subsidiaries of the Equity Interests of such Unrestricted Subsidiary, which Guaranty is not recourse to the Company or any Restricted Subsidiary, and except for any Guaranty by the Company or any Restricted Subsidiary in respect of Indebtedness of such Unrestricted Subsidiary that is permitted both as an incurrence of Indebtedness and as an Investment (in each case in any amount equal to the amount of such Indebtedness to be so Guarantied) permitted by Sections 7.3 and 7.5;
(b) except as permitted by Section 7.4, is not party to any agreement, contract, arrangement or understanding with the Parent or any Restricted Subsidiary of the Parent unless the terms of any such agreement, contract, arrangement or understanding are not materially less favorable to the Parent or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Parent;
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(c) is a Person with respect to which neither the Parent nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
(d) has not Guarantied or otherwise directly or indirectly provided credit support for any Indebtedness of the Parent or any of its Restricted Subsidiaries, except for any pledge of Equity Interests of such Unrestricted Subsidiary to secure Indebtedness of the Parent or any of its Restricted Subsidiaries.
All Subsidiaries of an Unrestricted Subsidiary shall also be Unrestricted Subsidiaries.
“ US Holdco ” means Paragon Offshore Holdings US Inc., a Delaware corporation.
“ US Holdco Intercompany Note ” means that certain intercompany note to be entered into after the Funding Date, between the Parent, as obligee, and US Holdco, a direct, Wholly-Owned Subsidiary of the Parent, evidencing the obligation of US Holdco to pay a dividend or make another distribution in cash to the Parent in an aggregate amount not to exceed $500,000,000.
“ Voting Stock ” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“ Weighted Average Life to Maturity ” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(a) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(b) the then outstanding principal amount of such Indebtedness.
“ Wholly-Owned Subsidiary ” means (a) any Restricted Subsidiary of which all of the outstanding Equity Interests (other than any directors’ qualifying shares or shares that are required by the applicable laws and regulations of the jurisdiction of organization of such Subsidiary to be owned by the government of such jurisdiction or individual corporate citizens of such jurisdiction), on a fully-diluted basis, are owned by the Parent and/ or one or more of the Wholly-Owned Subsidiaries or (b) any Restricted Subsidiary that is organized in a jurisdiction and is required by the applicable laws and regulations of such jurisdiction to be partially owned by the government of such jurisdiction or individual or corporate citizens of such jurisdiction, provided that the Parent, directly or indirectly, owns the remaining Equity Interests in such Subsidiary and, by contract or otherwise, controls the management and business of such Subsidiary and derives economic benefits of ownership of such Subsidiary to substantially the same extent as if such Subsidiary were a Wholly-Owned Subsidiary.
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Section 1.2. Time of Day . Unless otherwise expressly provided, all references to time of day in this Agreement and the other Credit Documents shall be references to New York, New York time.
Section 1.3. Accounting Terms; GAAP; Pro Forma Calculations .
(a) Except as otherwise expressly provided herein, and subject to the provisions of this Section 1.3, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time.
(b) If either the Parent or the Required Lenders notifies the Administrative Agent that (i) any change in accounting principles from those used in the preparation of the financial statements of the Parent referred to in Section 5.9 is hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or successors thereto or agencies with similar functions), and such change affects the calculation of any component of any financial covenant, standard or term found in this Agreement, or (ii) there is a change in federal, state or foreign tax laws which affects the Parent’s or any of its Restricted Subsidiaries’ ability to comply with the financial covenants, standards or terms found in this Agreement, then if the Parent shall so request, (x) in the case of clause (i), such financial covenants, standards or terms shall continue to be computed in accordance with the relevant accounting principles as in effect immediate prior to such change therein becoming effective and (y) in the case of clause (ii), the Parent, the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions (with the agreement of the Required Lenders or, if required by Section 11.11, all of the Lenders) so as to equitably reflect such changes with the desired result that the criteria for evaluating any of the Parent’s and its Restricted Subsidiaries’ consolidated financial condition shall be the same after such changes as if such changes had not been made; provided that, the Parent shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculation of such financial covenant, standard or term made before and after giving effect to such change.
Section 1.4. Terms and Interpretations Generally .
(a) It is not intended that the specification of any exception to any covenant herein shall imply that the excepted matter would, but for such exception, be prohibited or required.
(b) For purposes of determining compliance with any covenant hereunder, in the event that any Incurrence of Indebtedness, granting of Liens, making of Restricted Payment or Asset Sales or any other action restricted by any covenant herein meets the criteria of more than one of the baskets or categories of exceptions to such covenant or any definition related thereto, the Parent will be permitted to divide or classify (or later divide, classify or reclassify in whole or in part in its sole discretion) such action in any manner that complies with the relevant covenant or definition.
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(c) For purposes of determining compliance with any covenant, any amount in a currency other than Dollars will be converted to Dollars in a manner consistent with that used in calculating Consolidated Net Income in the annual financial statements of the Parent and its Restricted Subsidiaries delivered pursuant to Section 5.9. Notwithstanding the foregoing, for purposes of determining compliance with any covenant, with respect to any amount of Indebtedness or Restricted Payment in a currency other than Dollars, no breach of any basket contained in such sections shall be deemed to have occurred solely as a result of changes in rates of exchange occurring after the time such Indebtedness is Incurred or Restricted Payment is made.
(d) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (iii) the words “herein”, “hereof’ and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement (unless specifically indicated otherwise) and (v) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
ARTICLE II THE TERM LOAN FACILITY
Section 2.1. Term Loans . Subject to the terms and conditions hereof, each Lender severally and not jointly agrees to make a loan (a “ Term Loan ”) to the Borrower on the Funding Date in an amount equal to such Lender’s Commitment. Term Loans may be repaid, in whole or in part, subject to the terms and conditions hereof. Term Loans are not revolving and amounts borrowed and repaid may not be thereafter reborrowed. Funding of any Term Loans shall be in U.S. Dollars. Notwithstanding anything to the contrary contained herein (and without affecting any other provision hereof), if a Lender elects pursuant to Section 3.1(b) to have an original issue discount apply to its Term Loans, the funded portion of the Term Loan to be made on the Funding Date by such Lender (i.e., the amount advanced by such Lender to the Borrower on the Funding Date) shall be equal to 99.50% of the principal amount of such Term Loan (it being agreed that the full principal amount of each such Term Loan will be deemed outstanding on the Funding Date and the Borrower shall be obligated to repay 100% of the principal amount of each such Term Loan as provided hereunder).
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Section 2.2. Types of Term Loans and Minimum Borrowing Amounts . Borrowings of Term Loans may be outstanding as either Base Rate Term Loans or Eurodollar Term Loans, as selected by the Borrower pursuant to Section 2.3. Each Borrowing of Base Rate Term Loans shall be in an amount of not less than $1,000,000 and each Borrowing of Eurodollar Term Loans shall be in an amount of not less than $2,000,000 and in an integral multiple of $100,000 in excess thereof.
Section 2.3. Manner of Term Loan Borrowings; Continuations and Conversions of Borrowings .
(a) Notice of Term Loan Borrowings . To request the advance of the Borrowing of Term Loans on the Funding Date, the Borrower shall give notice to the Administrative Agent, in accordance with Section 2.3(c), by no later than (i) 12:00 P.M. at least three (3) Business Days before the Funding Date in the case of a Borrowing of Eurodollar Term Loans and (ii) 12:00 P.M. on the Funding Date in the case of a Borrowing of Base Rate Term Loans.
(b) Notice of Continuation or Conversion of Outstanding Borrowings . The Borrower may from time to time elect to change or continue the type of interest rate borne by each Term Loan Borrowing or, subject to the minimum amount requirements in Section 2.2 for each outstanding Term Loan Borrowing, a portion thereof, as follows: (i) if such Borrowing is of Eurodollar Term Loans, the Borrower may continue part or all of such Borrowing as Eurodollar Term Loans for an Interest Period specified by it or convert part or all of such Borrowing into Base Rate Term Loans on the last day of the Interest Period applicable thereto, or the Borrower may earlier convert part or all of such Borrowing into Base Rate Term Loans so long as it pays the breakage fees and funding losses provided in Section 2.11; and (ii) if such Borrowing is of Base Rate Term Loans, the Borrower may convert all or part of such Borrowing into Eurodollar Term Loans for an Interest Period specified by it on any Business Day, in each case pursuant to notices of continuation or conversion as set forth below. The Borrower may select multiple Interest Periods for the Eurodollar Term Loans requested in any single Borrowing Request, provided that at no time shall the number of different Interest Periods for outstanding Eurodollar Term Loans exceed twenty (20) (it being understood for such purposes that (x) Interest Periods of the same duration, but commencing on different dates, shall be counted as different Interest Periods, and (y) all Interest Periods commencing on the same date and of the same duration shall be counted as one Interest Period regardless of the number of Borrowings or Loans involved). Notices of the continuation of such Eurodollar Term Loans for an additional Interest Period or of the conversion of part or all of such Eurodollar Term Loans into Base Rate Term Loans or of such Base Rate Term Loans into Eurodollar Term Loans must be given by no later than (A) 12:00 P.M. at least three (3) Business Days prior to the date of such continuation of, or conversion to, Eurodollar Term Loans and (B) 12:00 P.M. on the date of any conversion of Eurodollar Term Loans to Base Rate Term Loans.
(c) Manner of Notice . The Borrower shall give such notices concerning the advance, continuation, or conversion of a Borrowing described in Sections 2.3(a) and (b), as applicable, by telephone, facsimile or email (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing) pursuant to a Borrowing Request, which shall specify the date of the requested advance, continuation or conversion (which shall be a
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Business Day), the amount of the requested Borrowing, whether such Borrowing is to be advanced, continued, or converted, the Type of Term Loans to comprise such new, continued or converted Borrowing, if such Borrowing is to be comprised of Eurodollar Term Loans and the Interest Period applicable thereto and the Borrower. The Borrower agrees that the Administrative Agent may rely on any such telephonic, facsimile or email notice given by any Person it in good faith believes is an authorized representative of the Borrower without the necessity of independent investigation and that, if any such notice by telephone conflicts with any written confirmation, such telephonic notice shall govern if the Administrative Agent has acted in reliance thereon.
(d) Notice to the Lenders . The Administrative Agent shall give prompt telephonic, email or facsimile notice to each Lender of any notice received by it pursuant to this Section 2.3 relating to a Term Loan Borrowing. The Administrative Agent shall give notice to the Borrower and each Lender by like means of the interest rate applicable to each Borrowing of Eurodollar Term Loans of the Borrower (but, if such notice is given by telephone, the Administrative Agent shall confirm such rate in writing) promptly after the Administrative Agent has made such determination.
(e) Failure to Notify . If the Borrower fails to give notice pursuant to Section 2.3(a) or (b) of the continuation or conversion of any outstanding principal amount of a Borrowing of Eurodollar Term Loans and has not notified the Administrative Agent by 12:00 P.M. at least three (3) Business Days before the last day of the Interest Period for any Borrowing of Eurodollar Term Loans that it intends to repay such Borrowing, the Borrower shall be deemed to have requested the continuation of such Borrowing as a Eurodollar Term Loan with an Interest Period of one (1) month so long as no Event of Default shall have occurred and be continuing or would occur as a result of such Borrowing. Upon the occurrence and during the continuance of any Event of Default, and upon written notice thereof from the Administrative Agent to the Borrower (i) each Eurodollar Term Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Term Loan, and (ii) the obligation of the Lenders to make, continue or convert Loans into Eurodollar Term Loans shall be suspended.
(f) Conversion . If the Borrower shall elect to convert any particular Borrowing pursuant to this Section 2.3 from one Type of Term Loan to the other only in part, then, from and after the date on which such conversion shall be effective, such particular Borrowing shall, for all purposes of this Agreement (including, for purposes of subsequent application of this sentence) be deemed to instead constitute two Borrowings (each originally advanced on the same date as such particular Borrowing), one comprised of (subject to subsequent conversion in accordance with this Agreement) Eurodollar Term Loans in an aggregate principal amount equal to the portion of such Borrowing so elected by the Borrower to be comprised of Eurodollar Term Loans and the second comprised of (subject to subsequent conversion in accordance with this Agreement) Base Rate Term Loans in an aggregate principal amount equal to the portion of such particular Borrowing so elected by the Borrower to be comprised of Base Rate Term Loans. If the Borrower shall elect to have multiple Interest Periods apply to any such particular Borrowing comprised of Eurodollar Term Loans, then, from and after the date such multiple Interest Periods commence, such particular Borrowing shall, for all purposes of this Agreement (including, for purposes of subsequent application of this sentence), be deemed to constitute a number of separate Borrowings (each originally
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commencing on the same date as such particular Borrowing) equal to the number of, and corresponding to, the different Interest Periods so selected, each such deemed separate Borrowing corresponding to a particular selected Interest Period comprised of (subject to subsequent conversion in accordance with this Agreement) Eurodollar Term Loans in an aggregate principal amount equal to the portion of such particular Borrowing so elected by the Borrower to have such Interest Period. This Section 2.3(f) shall be applied appropriately in the event that the Borrower shall make the elections described in the two preceding sentences at the same time with respect to the same particular Borrowing.
Section 2.4. Interest Periods . As provided in Section 2.3, at the time of each request for a Borrowing of Eurodollar Term Loans, or for the continuation or conversion of any Borrowing of Eurodollar Term Loans, the Borrower shall select the Interest Period(s) to be applicable to such Term Loans from among the available options, subject to the limitations in Section 2.3; provided , however , that:
(a) no Interest Period may be selected that would end later than the Maturity Date;
(b) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall extended be to the next succeeding Business Day; provided , however , that if the next succeeding Business Day is in the next calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and
(c) for purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; provided , however , that if there is no such numerically corresponding day in the month in which an Interest Period is to end or if an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end.
Section 2.5. Funding of Term Loans .
(a) Disbursement of Term Loans . Not later than 12:00 P.M. with respect to Borrowings of Eurodollar Term Loans, and 2:00 P.M. with respect to Borrowings of Base Rate Term Loans, on the date of any requested advance of a new Borrowing of Term Loans, each Lender, subject to all other provisions hereof, shall make available for the account of its applicable Lending Office its Term Loan comprising its portion of such Borrowing in funds immediately available for the benefit of the Administrative Agent in the applicable Administrative Agent’s Account and according to the payment instructions of the Administrative Agent. The Administrative Agent shall promptly make the proceeds of each such Borrowing available in immediately available funds to the Borrower (or as directed in writing by the Borrower) on such date. In the event that any Lender does not make such amounts available to the Administrative Agent by the time prescribed above, but such amount is received later that day, such amount shall nevertheless be promptly credited to the Borrower in the manner described in the preceding sentence (and if such credit is made on the next Business Day, with interest on such amount to begin accruing hereunder on such next Business Day); provided that
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acceptance by the Borrower of any such late amount shall not be deemed a waiver by the Borrower of any rights it may have against such Lender. No Lender shall be responsible to the Borrower for any failure by another Lender to fund its portion of a Borrowing, and no such failure by a Lender shall relieve any other Lender from its obligation, if any, to fund its portion of a Borrowing.
(b) Administrative Agent Reliance on Lender Funding . Unless the Administrative Agent shall have been notified by a Lender prior to the time at which such Lender is scheduled to make payment to the Administrative Agent of the proceeds of a Term Loan (which notice shall be effective upon receipt) that such Lender does not intend to make such payment, the Administrative Agent may assume that such Lender has made such payment when due and in reliance upon such assumption may (but shall not be required to) make available to the Borrower the proceeds of the Term Loan to be made by such Lender and, if any Lender has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, pay to the Administrative Agent the amount made available to the Borrower attributable to such Lender together with interest thereon for each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date such Lender pays such amount to the Administrative Agent at a rate per annum equal to the Administrative Agent’s cost of funds for such amount. If such amount is not received from such Lender by the Administrative Agent immediately upon demand, the Borrower will, on demand, repay to the Administrative Agent the proceeds of the Term Loan attributable to such Lender with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Term Loan, but the Borrower will in no event be liable to pay any amounts otherwise due pursuant to Section 2.11 in respect of such repayment. Nothing in this Section shall be deemed to relieve any Lender from any obligation to fund any Term Loans hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.
(c) Source of Funding Options . Each Lender may, at its option, make any Loan available to the Borrower by causing any foreign or domestic branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
Section 2.6. Applicable Interest Rates .
(a) Base Rate Term Loan s. Each Base Rate Term Loan shall bear interest (computed on the basis of a 365-day year or 366-day year, as the case may be, and actual days elapsed including the first day but excluding the date of repayment) on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) or conversion to a Eurodollar Term Loan, at a rate per annum equal to the lesser of (i) the Highest Lawful Rate or (ii) the Base Rate from time to time in effect plus the Applicable Margin. The Borrower agrees to pay such interest on each Interest Payment Date for such Loan and at maturity (whether by acceleration or otherwise).
(b) Eurodollar Term Loans . Each Eurodollar Term Loan shall bear interest (computed on the basis of a 360-day year and actual days elapsed including the first day but excluding the date of repayment) on the unpaid principal amount thereof from the date such
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Loan is made until maturity (whether by acceleration or otherwise) or conversion to a Base Rate Term Loan, at a rate per annum equal to the lesser of (i) the Highest Lawful Rate or (ii) the sum of Adjusted LIBOR plus the Applicable Margin. The Borrower agrees to pay such interest on each Interest Payment Date for such Loan and at maturity (whether by acceleration or otherwise) or, in the case of , conversion to a Base Rate Term Loan on a day prior to the end of the current Interest Period therefor, on the date of such conversion.
(c) Rate Determinations . The Administrative Agent shall determine each interest rate applicable to the Loans hereunder insofar as such interest rate involves a determination of Base Rate, Adjusted LIBOR, LIBOR Rate or LIBOR Market Index Rate, or any applicable default rate pursuant to Section 2.7, and such determination shall be conclusive and binding except in the case of the Administrative Agent’s manifest error or willful misconduct. The Administrative Agent shall promptly give notice to the Borrower and each Lender of each determination of Adjusted LIBOR with respect to each Eurodollar Term Loan.
Section 2.7. Default Rate . If any payment of principal on any Loan is not made when due after the expiration of the grace period therefor provided in Section 8.1(a) (whether by acceleration or otherwise), such past due Loan shall bear interest (computed on the basis of a year of 360, 365 or 366 days, as applicable, and actual days elapsed) after any such grace period expires until such principal then due is paid in full, which the Borrower agrees to pay on demand, at a rate per annum equal to:
(a) for any Base Rate Term Loan, the lesser of (A) the Highest Lawful Rate and (B) the sum of two percent (2%) per annum plus the Base Rate from time to time in effect (but not less than the Base Rate in effect at the time such payment was due) plus the Applicable Margin; and
(b) for any Eurodollar Term Loan, the lesser of (i) the Highest Lawful Rate and (ii) the sum of two percent (2%) per annum plus the rate of interest (inclusive of the Applicable Margin) in effect thereon at the time of such default until the end of the Interest Period for such Loan and, thereafter, at a rate per annum equal to the sum of two percent (2%) per annum plus the Base Rate from time to time in effect (but not less than the Base Rate in effect at the time such payment was due) plus the Applicable Margin for Base Rate Term Loans.
It is the intention of the Administrative Agent and the Lenders to conform strictly to usury laws applicable to them. Accordingly, if the transactions contemplated hereby or any Loan or other Obligation would be usurious as to any of the Lenders under laws applicable to it (including the laws of the United States of America, including to the extent applicable, 46 U.S.C. Section 31322(b)), and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement, the Term Loan Notes or any other Credit Document), then, in that event, notwithstanding anything to the contrary in this Agreement, the Term Loan Notes or any other Credit Document, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under laws applicable to such Lender that is contracted for, taken, reserved, charged or received by such Lender under this Agreement, the Term Loan Notes or any other Credit Document or otherwise shall under no circumstances exceed the Highest Lawful Rate, and any excess shall be credited by such Lender on the principal amount of the Loans (or, if the principal amount of the Loans
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shall have been paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Loans is accelerated by reason of an election of the holder or holders thereof resulting from any Event of Default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under laws applicable to such Lender may never include more than the Highest Lawful Rate, and excess interest, if any, provided for in this Agreement, the Term Loan Notes, any other Credit Document or otherwise shall be automatically canceled by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Loans (or if the principal amount of the Loans shall have been paid in full, refunded by such Lender to the Borrower).
Section 2.8. Repayment of Loans; Evidence of Debt .
(a) Repayment of Loans . The Borrower hereby unconditionally promises to pay to the Administrative Agent, for the account of the Lenders, in equal quarterly installments, which shall be due and payable on last Business Day of each March, June, September and December, commencing December 31, 2014, an amount of 0.25% of aggregate principal amount of the Term Loans outstanding on the Funding Date (as adjusted from time to time pursuant to Section 2.9 and Section 2.10), with the outstanding principal balance of the Term Loans due and payable on the Maturity Date (each such date of repayment, including the Maturity Date, being called a “ Repayment Date ”). All repayments pursuant to this Section 2.8 shall be subject to Section 2.11, but shall otherwise be without premium or penalty.
(b) Record of Loans by Lenders . Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made to the Borrower by such Lender, including the amounts of principal and accrued interest payable and paid to such Lender from time to time hereunder.
(c) Record of Loans by Administrative Agent . The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and, with respect to Eurodollar Term Loans, the Interest Period applicable thereto, (ii) the amount of any principal or accrued interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) Evidence of Obligations . The entries made in the accounts maintained pursuant to Section 2.8(b) or (c) shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Term Loan Notes . The Term Loans outstanding to the Borrower from any Lender shall, at the written request of such Lender, be evidenced by a promissory note of the Borrower payable to such Lender substantially in the form of Exhibit 2.8A (each, a “ Term Loan Note ”). The Borrower agrees to execute and deliver to the Administrative Agent, for the benefit
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of each Lender requesting a Term Loan Note, an original of each such Term Loan Note, appropriately completed, to evidence the respective Loans made by such Lender to the Borrower hereunder, within ten (10) Business Days after the Borrower receives a written request therefor (or such longer period of time as such Lender may reasonably agree).
Section 2.9. Optional Prepayments of Loans . The Borrower shall have the right to prepay any Base Rate Term Loans without premium or penalty, at any time and from time to time in whole or in part (but, if in part, then in an amount which is equal to or greater than $1,000,000); provided , however , that the Borrower shall have given notice of such prepayment to the Administrative Agent no later than 12:00 P.M. on the date of such prepayment. The Borrower shall have the right to prepay any Eurodollar Term Loans, without premium or penalty, at any time and from time to time in whole or in part (but, if in part, then in an amount which is equal to or greater than $5,000,000 and in an integral multiple of $100,000 in excess thereof or such smaller amount as needed to prepay any particular Borrowing in full) subject to any breakage fees and funding losses that are required to be paid pursuant to Section 2.11, with respect to any such prepayment on a day other than the last day of the applicable Interest Period of the applicable Term Loan; provided , however , that the Borrower shall have given notice of such prepayment to the Administrative Agent no later than 12:00 P.M. at least three (3) Business Days before the proposed prepayment date (or such shorter period as may be reasonably agreed by the Administrative Agent in its sole discretion). A notice delivered under this Section 2.9 may be conditioned upon the effectiveness of other credit facilities or the closing of one or more securities offerings, in which case such notice shall be deemed rescinded if such condition shall fail to be satisfied by the proposed prepayment date; provided , that upon any such rescission, the Borrower shall be liable for any breakage fees and funding losses that are required to be paid pursuant to Section 2.11. Notwithstanding the foregoing, if, prior to the twelve-month anniversary of the Funding Date, the Borrower (i) prepays, refinances, substitutes or replaces all or any portion of the Term Loans with the incurrence by the Parent, the Borrower or any Restricted Subsidiary of any debt financing having an applicable All-in Yield that is less than the effective All-in Yield of the Loans being repaid, refinanced, substituted or replaced or (ii) effects any amendment of this Agreement resulting in the Loans having an applicable All-in Yield that is less than the effective All-in Yield of the Loans immediately prior to such amendment, then each Lender shall be paid (1) in the case of clause (i), a prepayment premium equal to 1.0% of the aggregate principal amount of such Loans so repaid, refinanced, substituted or replaced and (2) in the case of clause (ii), a fee equal to 1.0% of the aggregate principal amount of the applicable Loans outstanding immediately prior to such amendment. Any such prepayments shall be made by the payment of the principal amount to be prepaid and, with respect to any Eurodollar Revolving Loans, accrued and unpaid interest thereon to the date of such prepayment. Optional prepayments shall be applied to the Loans then outstanding in the order specified by the Borrower.
Section 2.10. Mandatory Prepayments of Loans/Offers to Prepay .
(a) Issuance and Incurrence of Indebtedness . In the event that the Parent or any Restricted Subsidiary shall receive Net Cash Proceeds from the issuance or Incurrence of Indebtedness for money borrowed of the Borrower or any Restricted Subsidiary not permitted to be issued or Incurred pursuant to Section 7.3, the Parent shall cause the Borrower or the applicable Restricted Subsidiary to, no later than five (5) Business Day following such receipt, apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Loans.
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(b) Asset Sales; Casualty Events . No later than the fifth (5 th ) Business Days following the date of receipt (or the date on which such amounts become Net Cash Proceeds by virtue of the expiration of a Reinvestment Period) by the Parent or any of its Restricted Subsidiaries of any Net Cash Proceeds in respect of any Asset Sale or Casualty Event, the Parent shall cause the Borrower or the applicable Restricted Subsidiary to apply an amount equal to (i) 100% of such Net Cash Proceeds in respect of any Asset Sale and (ii) 100% of such Net Cash Proceeds in excess of $30,000,000 in respect of any Casualty Event, to prepay outstanding Loans. Pending the final application of any such Net Cash Proceeds, the Parent or the applicable Restricted Subsidiary may apply such Net Cash Proceeds temporarily to reduce the Indebtedness outstanding under a revolving credit facility or otherwise invest the Net Cash Proceeds in any manner that is not prohibited hereunder.
(c) Change of Control . In the event that a Change of Control occurs, the Borrower shall no later than the date which is thirty (30) Business Days after the occurrence of such Change of Control deliver a notice to the Administrative Agent (which the Administrative Agent shall promptly deliver to each Lender) stating that a Change of Control has occurred and offering to prepay the Loans held by each Lender at par (each a “ Change of Control Offer ”) on a date which will be no earlier than 30 days nor later than 60 days from the date such notice is delivered to the Administrative Agent (the “ Change of Control Prepayment Date ”). Such notice shall also state that the Lenders electing to have any Lender prepaid pursuant to a Change of Control Offer will be required to notify the Administrative Agent prior to the close of business on the third Business Day preceding the Change of Control Payment Date and that Lenders will be entitled to withdraw their election to require the Borrower to prepay its Loans; provided that the Administrative Agent receives, not later than the close of business on the expiration date of the Change of Control Offer, a facsimile transmission, electronic mail or letter setting forth the name of such Lender, the principal amount of Loans to be prepaid and a statement that such Lender is withdrawing its election to have such Loans prepaid. If any Lender accepts such offer or a portion thereof, the Borrower shall prepay the Loans of such Lender in whole or in part at the discretion of such Lender on the Change of Control Prepayment Date. The Borrower will not be required to make a Change of Control Offer upon a Change of Control if (i) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth herein and prepays the Loans of each Lender accepting such Change of Control Offer at par on the Change of Control Prepayment Date. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made.
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(d) Excess Cash Flow .
(i) If, after the end of each fiscal year (commencing with the year ending December 31, 2014), Excess Cash Flow is greater than $10,000,000, the Parent shall prepay the outstanding Loans no later than the fifth (5 th ) Business Day following its delivery of the Compliance Certificate for such fiscal year, in an amount as set forth below:
(A) an amount equal to 50% of Excess Cash Flow for such fiscal year if the Leverage Ratio as of the last day of such fiscal year equals or exceeds 3.25:1.0, and
(B) an amount equal to the lesser of (A) 25% of Excess Cash Flow for such fiscal year and (B) the amount of a prepayment necessary to lower the Leverage Ratio to no greater than 3.00:1.00 if the Leverage Ratio as of the last day of such fiscal year is greater than 3.00:1.0 but less than 3.25:1.0;
provided that such amounts described in clauses (A) and (B) above shall be reduced by the aggregate amount of all optional prepayments of term loans (including the Loans) during such fiscal year and all optional prepayments of loans under the Revolving Credit Agreement accompanied by permanent reductions in the Revolving Commitments during such fiscal year.
For the avoidance of doubt, if the Leverage Ratio as of the last day of the fiscal year in respect of which such certificate has been delivered is equal to or less than 3.00:1.00, no prepayment with Excess Cash Flow will be required.
(e) All prepayments of Loans under Sections 2.10(a), (b), (c) and (d) shall be accompanied by the concurrent payment of accrued and unpaid interest on the principal amount to be prepaid to but excluding the date of payment.
(f) The Parent shall deliver to the Administrative Agent and each Lender, at the time of each prepayment required under Section 2.10(a), (b) or (d) a certificate of an Officer of the Parent setting forth in reasonable detail the calculation of the amount of such prepayment.
(g) All prepayments under this Section 2.10 shall be subject to Section 2.11.
Section 2.11. Breakage Fees . If any Lender incurs any loss, cost or expense (excluding loss of anticipated profits and other indirect or consequential damages) by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender to fund or maintain any Eurodollar Term Loan as a result of any of the following events other than any such occurrence as a result of a change of circumstance described in Sections 9.1 or 9.2:
(a) any payment, prepayment or conversion of any such Loan on a date other than the last day of its Interest Period (whether by acceleration, mandatory prepayment or otherwise);
(b) any failure to make a principal payment of any such Loan on the due date therefor; or
(c) any failure by the Borrower to borrow, continue or prepay, or convert to, any such Loan on the date specified in a notice given pursuant to Section 2.3 or Section 2.9, as applicable (other than by reason of a default of such Lender),
then the Borrower shall pay to such Lender such amount as will reimburse such Lender for such loss, cost or expense. If any Lender makes such a claim for compensation, it shall provide to the Borrower a certificate executed by an officer of such Lender setting forth the
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amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) no later than ninety (90) days after the event giving rise to the claim for compensation, and the amounts shown on such certificate shall be conclusive and binding in the absence of manifest error of such Lender’s entitlement thereto. Within ten (10) days of receipt of such certificate, the Borrower shall pay directly to such Lender such amount as will compensate such Lender for such loss, cost or expense as provided in such certificate, unless such Lender has failed to timely give notice to the Borrower of such claim for compensation as provided herein, in which event the Borrower shall have no obligation to pay such claim.
Section 2.12. Termination of Commitments . The Commitments shall automatically terminate upon the making of the Term Loans on the Funding Date and any unused Commitments shall expire at 2:00 p.m., New York City time, on the Funding Date.
Section 2.13. [Intentionally Omitted] .
Section 2.14. Reverse Dutch Auction Repurchases .
(a) Notwithstanding anything to the contrary contained in this Agreement, the Parent, the Borrower or any of the Parent’s Subsidiaries may at any time and from time to time purchase Term Loans by conducting reverse Dutch auctions (each, an “ Auction ”) (each Auction to be managed exclusively by the Administrative Agent or another investment bank of recognized standing elected by the Borrower following consultation with the Administrative Agent in accordance with the Auction Procedures (in such capacity, the “ Auction Manager ”)), so long as the following conditions are satisfied:
(i) no Default or Event of Default shall have occurred and be continuing at the time of the purchase of any Term Loans in connection with any Auction;
(ii) the maximum principal amount (calculated on the face amount thereof) of all Term Loans that the Parent, the Borrower or any of the Parent’s Subsidiaries purchases in any such Auction shall be no less than $1,000,000 and whole increments of $500,000 in excess thereof (unless another amount is agreed to by the Administrative Agent and Auction Manager);
(iii) the aggregate principal amount (calculated on the face amount thereof) of all Term Loans so purchased by the Parent, the Borrower or any of the Parent’s Subsidiaries shall automatically be cancelled and retired by them on the settlement date of the relevant purchase (and may not be resold);
(iv) the Borrower shall promptly advise the Administrative Agent of the total amount of all Term Loans so purchased by the Parent, the Borrower or any of the Parent’s Subsidiaries and the Administrative Agent is authorized to make appropriate entries in the Register to reflect such cancellation and retirement;
(v) each offer to purchase Term Loans pursuant to this Section 2.14 is made ratably to the Lenders;
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(vi) proceeds of the Revolving Credit Agreement are not used to purchase Term Loans in any such Auction; and
(vii) no more than one Auction may be ongoing at any one time.
(b) The Parent, the Borrower and the Parent’s Subsidiaries shall have no liability to any Lender for any termination of the respective Auction as a result of its failure to satisfy one or more of the conditions set forth above which are required to be met at the time which otherwise would have been the time of purchase of Term Loans pursuant to the respective Auction, and any such failure shall not result in any Default hereunder. With respect to all purchases of Term Loans made by the Parent, the Borrower or any of the Parent’s Subsidiaries pursuant to this Section 2.14, (i) the Borrower shall pay on the settlement date of each such purchase all accrued and unpaid interest (except to the extent otherwise set forth in the relevant offering documents), if any, on the purchased Term Loans up to the settlement date of such purchase and (ii) such purchases (and the payments made by the Parent, the Borrower or any of the Parent’s Subsidiaries and the cancellation of the purchased Term Loans, in each case, in connection therewith) shall not constitute voluntary or mandatory payments or prepayments for purposes of Sections 2.9 or 2.10 .
(c) The Administrative Agent and the Lenders hereby consent to the Auctions and the other transactions contemplated by this Section 2.14 (provided that no Lender shall have an obligation to participate in any such Auctions) and hereby waive the requirements of any provision of this Agreement (including Sections 2.8, 2.9, 2.10, 3.1, 11.6, 11.9 and 11.10, it being understood and acknowledged that purchases of the Term Loans by the Parent, the Borrower or any of the Parent’s Subsidiaries contemplated by this Section 2.14 shall not constitute Investments by the Parent, the Borrower or any of the Parent’s Subsidiaries) that may otherwise prohibit any Auction or any other transaction contemplated by this Section 2.14. The Auction Manager acting in its capacity as such hereunder shall be entitled to the benefits of the provisions of Article X and Section 11.13 mutatis mutandis as if each reference therein to the “Administrative Agent” were a reference to the Auction Manager, and the Administrative Agent shall cooperate with the Auction Manager as reasonably requested by the Auction Manager in order to enable it to perform its responsibilities and duties in connection with each Auction.
Section 2.15. Open Market Repurchases .
(a) Notwithstanding anything to the contrary contained in this Agreement, the Parent, the Borrower and any of the Parent’s Subsidiaries may at any time and from time to time make open market purchases of Term Loans (each, an “ Open Market Purchase ”), so long as no Default or Event of Default shall have occurred and be continuing on the time of such Open Market Purchase.
(b) The aggregate principal amount (calculated on the face amount thereof) of all Term Loans so purchased by the Parent, the Borrower and any of the Parent’s Subsidiaries shall automatically be cancelled and retired by them on the settlement date of the relevant purchase (and may not be resold).
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(c) The Borrower will promptly advise the Administrative Agent of the total amount of all Term Loans purchased by the Parent, the Borrower and any of the Parent’s Subsidiaries and the Administrative Agent is authorized to make appropriate entries in the Register to reflect such cancellation and retirement.
(d) With respect to all purchases of Term Loans made by the Parent, the Borrower and any of the Parent’s Subsidiaries pursuant to this Section 2.15, (i) the Parent, the Borrower and any of the Parent’s Subsidiaries shall pay on the settlement date of each such purchase all accrued and unpaid interest, if any, on the purchased Term Loans up to the settlement date of such purchase (except to the extent otherwise set forth in the relevant purchase document as agreed by the respective selling Lender) and (ii) such purchases (after the payments made by the Parent, the Borrower and any of the Parent’s Subsidiaries and the cancellation of the purchased Term Loans in each case in connection therewith) shall not constitute voluntary or mandatory payments or prepayments for purposes of Sections 2.9 or 2.10.
(e) The Administrative Agent and the Lenders hereby consent to the Open Market Purchases contemplated by this Section 2.15 and hereby waive the requirements of any provision of this Agreement (including Sections 2.8, 2.9, 2.10, 3.1, 11.6, 11.9 and 11.10, it being understood and acknowledged that purchases of the Term Loans by the Parent, the Borrower or any of the Parent’s Subsidiaries contemplated by this Section 2.15 shall not constitute Investments by the Parent, the Borrower or any of the Parent’s Subsidiaries) that may otherwise prohibit any Open Market Purchase by this Section 2.15.
ARTICLE III FEES AND PAYMENTS
Section 3.1. Fees .
(a) Administrative Agent and Arrangement Fees . The Borrower shall pay, or cause to be paid, to the Administrative Agent the administrative agency fees from time to time agreed to by the Borrower and the Administrative Agent and the arrangement fees previously agreed to by the Parent and the Arrangers, in each case, in the manner provided by such other agreements.
(b) OID . The Borrower agrees to pay a fee to each Lender payable on the Funding Date equal to 0.50% of the principal amount of such Lender’s Term Loans made on the Funding Date, such fee to be paid in cash on the Funding Date, or if the Lender so elects by giving notice to the Administrative Agent at least one (1) Business Day prior to the Funding Date, as an original issue discount with respect to such Term Loans made by it.
Section 3.2. Place and Application of Payments .
(a) All payments of principal of and interest on the Loans and all fees and other amounts payable by any Credit Party under the Credit Documents shall be made free and clear of any set-off, counterclaim or defense by such Credit Party to the Administrative Agent,
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for the benefit of the Lenders entitled to such payments, in immediately available funds on the due date thereof no later than 2:00 P.M. in the applicable Administrative Agent’s Account or such other location as the Administrative Agent may designate in writing to the Borrower. Any payments received by the Administrative Agent from any Credit Party after the time specified in the preceding sentence shall be deemed to have been received on the next Business Day. The Administrative Agent will, on the same day each payment is received or deemed to have been received in accordance with this Section 3.2, cause to be distributed funds to each Lender owed a Term Loan Obligation for which such payment was received, pro rata based on the respective amounts of such type of Term Loan Obligation then owing to each Lender.
(b) If any payment received by the Administrative Agent under any Credit Document is insufficient to pay in full all Term Loan Obligations then due and payable under the Credit Documents, such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent in the order set forth in Section 8.6. In calculating the amount of Term Loan Obligations owing each Lender other than for principal and interest on Loans and fees under Section 3.1, the Administrative Agent shall only be required to include such other Term Loan Obligations that Lenders have certified to the Administrative Agent in writing are due to such Lenders.
Section 3.3. Withholding Taxes .
(a) Payments Free of Withholding . Except as otherwise required by law, each payment by or on behalf of the Borrower to any Lender or the Administrative Agent under this Agreement or any other Credit Document shall be made without withholding for or on account of any present or future Taxes. If any such withholding is so required by law (as determined in good faith by an applicable withholding agent), the applicable withholding agent shall make the withholding and pay the amount withheld to the appropriate governmental authority before penalties attach thereto or interest accrues thereon. Moreover, in the case of any such present or future Taxes imposed by or within the jurisdiction in which the Borrower is incorporated, any jurisdiction from which the Borrower makes any payment under this Agreement or any other Credit Document, or (in each case) any political subdivision or taxing authority thereof or therein, excluding, in the case of each Lender and the Administrative Agent, the following Taxes (whether imposed on or with respect to such Lender or Administrative Agent or required to be withheld or deducted from any payment by or on account of any obligation of any Borrower under any Credit Document):
(i) Taxes imposed on, based upon, or measured by such Lender’s or the Administrative Agent’s net income, profits, gains, overall revenues or receipts, and branch profits, franchise and similar Taxes imposed on it, in each case, as a result of a present or former connection between the taxing jurisdiction and such Lender (including any applicable lending office) or Administrative Agent, or any owner or affiliate thereof, as the case may be, other than connections arising from such Lender’s or the Administrative Agent’s having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Credit Document, or sold or assigned an interest in any Loan or Credit Document;
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(ii) Taxes imposed (other than pursuant to FATCA) by the United States of America (or any political subdivision thereof or tax authority therein) on or with respect to a Lender or Administrative Agent organized under the laws of a jurisdiction outside of the United States, except to the extent that such tax is imposed as a result of any Change in Law (x) after the date hereof, in the case of each Lender or Administrative Agent originally a party hereto, (y) in the case of any Purchasing Lender (as defined in Section 11.10(b)) or Administrative Agent, after the date on which it becomes a Lender or Administrative Agent, as the case may be (unless such Purchasing Lender acquired its interest following a request by the Parent under Section 9.6) or (z) after the designation by such Lender or Administrative Agent of a new Lending Office (other than pursuant to this Section 3.3(a) or Section 9.3(c));
(iii) Taxes imposed by the United States of America pursuant to FATCA on or with respect to a Lender or Administrative Agent organized under the laws of a jurisdiction outside of the United States; or
(iv) Taxes which would not have been imposed but for (a) the failure of such Lender or the Administrative Agent, as the case may be, to provide on a timely basis (A) the applicable forms prescribed by the Internal Revenue Service, as required pursuant to Section 3.3(b) (unless excused pursuant to Section 3.3(c)), or (B) any other form, certification, documentation or proof which is reasonably requested by the Parent or the Administrative Agent, or (b) a determination by a taxing authority or a court of competent jurisdiction that a form, certification, documentation or other proof provided by such Lender or the Administrative Agent to establish an exemption from such tax, assessment or other governmental charge is false or not properly completed;
(all present or future Taxes, other than the Taxes described in the preceding clauses (i) through (iii), “ Indemnified Taxes ”), the Borrower shall forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Lender and the Administrative Agent is free and clear of such Taxes that are Indemnified Taxes (including Indemnified Taxes on such additional amount) and is equal to the amount that such Lender or the Administrative Agent (as the case may be) would have received had withholding of any Indemnified Taxes not been made. If the Borrower pays any such Taxes that are Indemnified Taxes, or any penalties or interest in connection therewith, it shall deliver official tax receipts evidencing the payment or certified copies thereof, or other evidence of payment if such tax receipts have not yet been received by the Borrower (with such tax receipts to be delivered within fifteen (15) days after being actually received), to the Lender or the Administrative Agent on whose account such withholding was made (with a copy to the Administrative Agent if not the recipient of the original) within fifteen (15) days of such payment. If the Administrative Agent or any Lender pays any Indemnified Taxes which the Borrower has failed to withhold or pay to the appropriate governmental authority, or any penalties or interest in connection therewith, the Borrower shall reimburse the Administrative Agent or that Lender for the payment in the currency in which such payment was made within thirty (30) days after the receipt of written demand therefor. Such Lender or the Administrative Agent shall make written demand on the Parent for reimbursement hereunder no later than ninety (90) days after the earlier of (i) the date on which such Lender or the Administrative Agent makes payment of the Indemnified Taxes, penalties and interest, and (ii) the date on which the relevant taxing authority or other governmental authority makes written demand upon such Lender or the Administrative Agent for
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payment of the Indemnified Taxes, penalties and interest. Any such demand shall describe in reasonable detail such Indemnified Taxes, penalties or interest, including the amount thereof if then known to such Lender or the Administrative Agent, as the case may be. In the event that such Lender or the Administrative Agent fails to give the Borrower timely notice as provided herein, the Borrower shall not have any obligation to pay such claim for reimbursement. In the event that any taxing authority notifies the Borrower that it has improperly failed to withhold any Taxes (other than Indemnified Taxes) from a payment to any Lender or the Administrative Agent under this Agreement or any other Credit Document, the Borrower shall timely and fully pay such Taxes to such taxing authority and such Lender or Administrative Agent, as the case may be, shall pay the amount of such Taxes to the Borrower within thirty (30) days after the receipt of written demand therefor. If the Borrower is or will be required to pay an additional amount to a Lender or the Administrative Agent pursuant to this Section 3.3(a), then such payee shall use reasonable efforts to take requested measures (including changing the jurisdiction of its Lending Office) so as to reduce or eliminate any such amounts which may thereafter accrue, if such change would not otherwise be materially disadvantageous to such payee.
(b) U.S. Withholding Tax Exemptions .
(i) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Administrative Agent two copies of a properly completed and duly executed certification on the applicable United States Internal Revenue Service Form W-8 (or any successor form) wherein such Lender either (x) claims entitlement to complete exemption from U.S. federal withholding tax with respect to payments to be received pursuant to the Credit Documents (as if such payments were U.S. source) or (y) certifies that it is not a United States person, provided , that, in the case of subclause (y), such Lender also shall submit a certificate substantially in the form of the applicable Exhibit 3.3 to the effect that such Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10-percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code. Each Lender that delivers a certificate pursuant to the foregoing subsequently shall deliver two further copies of such certificate on or before the date that any such form expires or becomes obsolete, or promptly after the occurrence of any event requiring a change in the most recent certificate so delivered.
(ii) Upon the request of the Borrower or the Administrative Agent, each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Administrative Agent properly completed and duly executed copies of any additional forms of the United States Internal Revenue Service (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) that the Borrower believe to be reasonably necessary to accomplish exemption from (or a reduced rate of) withholding obligations under then-applicable United States law or that the Administrative Agent believes to be necessary to facilitate the Administrative Agent’s performance under this Agreement; provided that the submission of such documentation shall not be required if in the Lender’s reasonable judgment such submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(iii) Each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower two copies of a properly completed and duly executed certification on United States Internal Revenue Service Form W-9 to the effect that it is such a United States person and is exempt from U.S. withholding tax.
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(c) Inability of Lender to Submit Forms . If any Lender determines in good faith that (i) it is not legally able to submit to the Borrower or Administrative Agent any form or certificate that such Lender is obligated to submit pursuant to Section 3.3(b), (ii) it is required to withdraw or cancel any such form or certificate previously submitted, or (iii) any such form or certificate otherwise becomes ineffective or inaccurate, such Lender shall promptly notify the Borrower and Administrative Agent of such fact, and such Lender shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable.
(d) FATCA Compliance . If any payment required to be made to any Lender, under this Agreement or any other Credit Document would be subject to Taxes imposed by the United States of America pursuant to FATCA as a result of such Lender failing to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall submit to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 3.3(d), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(e) Refund of Taxes . If any Lender or the Administrative Agent receives a refund of any Indemnified Tax or any tax referred to in Section 11.3, in either case, with respect to which the Borrower has paid any amount pursuant to this Section 3.3 or Section 11.3, such Lender or the Administrative Agent shall pay the amount of such refund (including any interest received with respect thereto) to the Borrower within fifteen (15) days after receipt thereof. A Lender or the Administrative Agent shall provide, at the sole cost and expense of the Borrower, such assistance as the Borrower may reasonably request in order to obtain such a refund; provided , however , that none of the Administrative Agent or any Lender shall in any event be required to disclose any information to the Borrower with respect to the overall tax position (or any other information relating to taxes that such Person reasonably determines to be confidential) of the Administrative Agent or such Lender.
(f) Indemnification by Lenders . Each Lender shall severally indemnify the Administrative Agent, within 10 days after written demand therefor, for (i) any Taxes attributable to such Lender (but only to the extent that the Parent has not already indemnified the Administrative Agent for such Taxes and without limiting the obligation of the Parent to do so) and (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 11.10(a) relating to the maintenance of a Participant Register, in either case, that are payable or
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paid by the Administrative Agent in connection with any Credit Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Credit Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (f).
(g) FATCA Certification . Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) hereby represents and warrants that it is entitled to complete exemption from U.S. federal withholding tax under FATCA with respect to payments to be received pursuant to any Credit Document (as if such payments were U.S. source), and agrees to use its reasonable best efforts to maintain such exemption. In the event that any such Lender ceases to maintain such exemption, it shall promptly so notify the Borrower in writing.
(h) VAT .
(i) All amounts expressed to be payable under a Credit Document by any party to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder (a “ Finance Party ”) which (in whole or in part) constitute the consideration for any supply for VAT purposes are deemed to be exclusive of any VAT which is chargeable on that supply, and accordingly, subject to paragraph (ii) below, if VAT is or becomes chargeable on any supply made by any Finance Party to any party under a Credit Document and such Finance Party is required to account to the relevant tax authority for the VAT, that party must pay to such Finance Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of the VAT (and such Finance Party must promptly provide an appropriate VAT invoice to that party).
(ii) If VAT is or becomes chargeable on any supply made by any Finance Party (the “ Supplier ”) to any other Finance Party (the “ Recipient ”) under a Credit Document, and any party other than the Recipient (the “ Relevant Party ”) is required by the terms of any Credit Document to pay an amount equal to the consideration for that supply to the Supplier (rather than being required to reimburse or indemnify the Recipient in respect of that consideration):
(1) (where the Supplier is the person required to account to the relevant tax authority for the VAT) the Relevant Party must also pay to the Supplier (at the same time as paying that amount) an additional amount equal to the amount of the VAT. The Recipient must (where this clause (h) applies) promptly pay to the Relevant Party an amount equal to any credit or repayment the Recipient receives from the relevant tax authority which the Recipient reasonably determines relates to the VAT chargeable on that supply; and
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(2) where the Recipient is the person required to account to the relevant tax authority for the VAT the Relevant Party must promptly, following demand from the Recipient, pay to the Recipient an amount equal to the VAT chargeable on that supply but only to the extent that the Recipient reasonably determines that it is not entitled to credit or repayment from the relevant tax authority in respect of that VAT.
(iii) Where a Credit Document requires any party to reimburse or indemnify a Finance Party for any cost or expense, that party shall reimburse or indemnify (as the case may be) such Finance Party for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that such Finance Party reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority.
(iv) Any reference in this clause (h) to any party shall, at any time when such party is treated as a member of a group for VAT purposes, including (where appropriate and unless context otherwise requires) a reference to the representative member of such group at such time (the term “representative member” to have the same meaning as in the UK Value Added Tax Act 1994).
(v) In relation to any supply made by a Finance Party to any party under a Credit Document, if reasonably requested by such Finance Party, that party must promptly provide such Finance Party with details of that party’s VAT registration and such other information as is reasonably requested in connection with such Finance Party’s VAT reporting requirements in relation to such supply.
(i) Survival . Each party’s obligations under this Section 3.3 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Credit Document.
ARTICLE IV CONDITIONS PRECEDENT
Section 4.1. Funding Date . This Agreement shall be effective and the obligation of each Lender to make any Loan hereunder is subject to satisfaction (or waiver in accordance with Section 11.11) of the following conditions precedent:
(a) The Administrative Agent shall have received (including by facsimile or other electronic means) (x) duly executed copies of this Agreement, the Guaranty and Collateral Agreement, the Collateral Rig Mortgages covering each Funding Date Collateral Rig, the Collateral Agency Agreement, any Term Loan Notes requested pursuant to Section 2.8(e) prior to the Funding Date and (y) the following all in form and substance reasonably satisfactory to the Administrative Agent:
(i) Secretary’s Certificates of the Credit Parties . Certificates of the secretary or an assistant secretary (or, if a Credit Party does not have a secretary or assistant secretary, any other Person duly authorized to execute such a certificate on behalf of such Credit Party) containing specimen signatures of the persons authorized to execute Credit Documents to
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which such Credit Party is a party or any other documents provided for herein or therein, together with (A) copies of resolutions of the Board of Directors or other appropriate governing body of such Credit Party authorizing the execution and delivery of the Credit Documents to which it is a party and (B) copies of such Credit Party’s constituent organizational documents;
(ii) Good Standing Certificates of the Credit Parties . For each Credit Party, a certificate of good standing (or the equivalent) from the appropriate governing agency of such Credit Party’s jurisdiction of organization (to the extent the concept of good standing is applicable in such jurisdiction);
(iii) Regulatory Filings and Approvals . Copies of all necessary governmental and third party approvals, registrations, and filings in respect of the transactions contemplated by this Agreement;
(iv) Insurance Certificate . An insurance certificate dated not more than ten (10) Business Days prior to the Funding Date describing in reasonable detail the insurance maintained by, or on behalf of, the Parent and its Restricted Subsidiaries as of the Funding Date, as required by Section 6.5;
(v) Opinions of Counsel . Written opinions of (A) Baker Botts L.L.P., counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders and dated the Funding Date, (B) Maples and Calder, Cayman Islands counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders and dated the Funding Date, (C) MNKS, Luxembourg counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders and dated the Funding Date, (D) Travers Smith LLP, English counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders and dated the Funding Date, (E) Pestalozzi Attorneys at Law Ltd, Swiss counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders and dated the Funding Date and (F) Thompson Coburn LLP, Liberian counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders and dated the Funding Date, in each case, covering such matters relating to the Credit Parties and the Credit Documents as are usual and customary in respect of the transaction contemplated by this Agreement;
(vi) Closing Certificate . A certificate of an Officer of the Parent as to the satisfaction of all conditions set forth in Sections 4.1(b) and (c);
(vii) Process Agent . An acknowledgment from CT Corporation with respect to its irrevocable appointment by the Credit Parties pursuant to Section 11.14 and the applicable provisions of the Guaranty and Collateral Agreement;
(viii) Certain Agreements . (A) Duly executed copies of (1) the Revolving Credit Agreement, effective as of the Funding Date, and (2) the Senior Notes Documents and (B) a copy of the Paragon Registration Statement as in effect on the Funding Date (which such copy may be delivered by providing an electronic link thereto on the SEC website);
(ix) Collateral Rig Matters . Each of the following for each Funding Date Collateral Rig:
(A) certificates of ownership from appropriate authorities showing (or confirmation updating previously reviewed certificates and indicating) the registered ownership of such Funding Date Collateral Rig;
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(B) the results of maritime registry searches with respect to such Funding Date Collateral Rig, indicating no record liens other than Permitted Liens;
(C) class certificates from the American Bureau of Shipping or another internationally recognized classification society indicating that each Rig meets the criteria specified in Section 5.18;
(D) a report, in form and scope reasonably satisfactory to the Administrative Agent, from Marsh USA Inc. or such other firm of independent energy insurance brokers as is reasonably acceptable to the Administrative Agent with respect to the insurance maintained by, or on behalf of, the Parent in respect of such Funding Date Collateral Rig, together with a certificate from such broker certifying that the Parent and its Restricted Subsidiaries have the Required Insurances as of the Funding Date; and
(E) a desktop appraisal report dated as of a date prior to the Funding Date acceptable to the Administrative Agent from an Approved Appraiser stating the current fair market value, as of the date of such report, of the Funding Date Collateral Rigs and demonstrating that the Collateral Coverage Ratio, as of the Funding Date is not less than 1.50 to 1.00;
(x) UCC-1s; UCC Searches . Each of the following:
(A) financing statements on Form UCC-1 in proper form for filing under the UCC in each jurisdiction as may be necessary, or in the reasonable opinion of the Collateral Agent desirable, to perfect the security interests purported to be created by the Guaranty and Collateral Agreement to the extent such perfection is required by the Guaranty and Collateral Agreement; and
(B) appropriate UCC search results in respect of the Credit Parties, as may be reasonably requested by the Collateral Agent, from Washington D.C. and any other relevant jurisdiction, reflecting no prior Liens encumbering the properties of any Credit Party, other than those which shall be released prior to or contemporaneously with the Funding Date and Permitted Liens;
(xi) Consummation of Paragon Separation Transactions . Evidence that, substantially concurrently with the Funding Date: (A) the Parent is (x) receiving the proceeds of the issuance of the Senior Notes, (y) effecting the Paragon Separation and (z) not a Subsidiary of Noble Cayman, (B) the lenders under the Revolving Credit Agreement are obligated to advance Revolving Loans thereunder, and (C) the aggregate amount of gross cash proceeds of the Senior Notes and the aggregate principal amount of Term Loans borrowed is not less than $1,730,000,000, provided that after giving effect to such borrowing, the Parent would have a Leverage Ratio, calculated on a pro forma basis of not more than 3.50 to 1.00; and
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(xii) Solvency Certificate . A solvency certificate from the chief financial officer or controller (or other financial officer) of the Parent, dated as of the Funding Date, setting forth the conclusion that, immediately after giving effect to the Paragon Separation Transactions and the Incurrence of all the financings contemplated thereby, the Parent and its Restricted Subsidiaries, on a consolidated basis are Solvent.
(b) Each of the representations and warranties of the Parent and its Restricted Subsidiaries set forth herein and in the other Credit Documents shall be true and correct in all material respects (without duplication of any materiality qualifiers) as of the Funding Date, except to the extent that any such representation or warranty relates solely to an earlier date, in which case it shall have been true and correct in all material respects as of such earlier date.
(c) No Default or Event of Default shall have occurred and be continuing.
(d) On or before the Funding Date, the Lenders, the Administrative Agent and the Arrangers shall have received all fees and all reasonable out-of-pocket expenses (to the extent invoiced at least two (2) Business Days prior to the Funding Date) then due and owing to the Administrative Agent, the Lenders, and the Arrangers pursuant to this Agreement and as otherwise agreed in writing by the Parent.
(e) The Administrative Agent and the Lenders shall have received all documentation and other information required by regulatory authorities with respect to the Credit Parties under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, that has been reasonably requested by the Administrative Agent and the Lenders a reasonable period in advance of the Funding Date.
(f) The Administrative Agent shall have received in the case of any Term Loan, the Borrowing Request required by the first sentence of Section 2.3(a) in accordance with Section 2.3(c).
(g) The Administrative Agent shall have received such other documents as the Administrative Agent or special counsel to the Administrative Agent may reasonably request.
The Administrative Agent (or at the Administrative Agent’s direction, its counsel) shall notify the Borrower and the Lenders of the Funding Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 11.11) at or prior to 2:00 p.m., New York City time, on August 31, 2014 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).
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ARTICLE V REPRESENTATIONS AND WARRANTIES
The Parent and the Borrower represent and warrant to each Lender and Administrative Agent, which representations and warranties shall be deemed made on the Funding Date, as follows:
Section 5.1. Corporate Organization . Each Credit Party: (i) is duly incorporated or organized and existing in good standing under the laws of the jurisdiction of its organization or incorporation (to the extent the concept of good standing is applicable in such jurisdiction); (ii) has all necessary organizational or other corporate power and authority to own the property and assets it uses in its business and otherwise to carry on its present business; and (iii) is duly licensed or qualified and in good standing (to the extent the concept of good standing is applicable in such jurisdiction) in each jurisdiction in which the nature of the business transacted by it or the nature of the property owned or leased by it makes such licensing or qualification necessary, except in each case, where the failure to have such power and authority or to be so licensed or qualified or to be in good standing, as the case may be, would not have a Material Adverse Effect.
Section 5.2. Power and Authority; Validity . Each of the Credit Parties has the organizational power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which it is a party and has taken all necessary company action to authorize the execution, delivery and performance of such Credit Documents. Each of the Credit Parties has duly executed and delivered each Credit Document to which it is a party and each such Credit Document constitutes the legal, valid and binding obligation of such Credit Party which is a party thereto enforceable against it in accordance with its terms, subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and equitable principles.
Section 5.3. No Violation . Neither the execution, delivery or performance by any Credit Party of the Credit Documents to which it is a party nor compliance by it with the terms and provisions thereof, nor the consummation by it of the transactions contemplated herein or therein, will (i) contravene any applicable provision of any law, statute, rule or regulation, or any applicable order, writ, injunction or decree of any court or governmental instrumentality, except where such contravention would not reasonably be expected to have a Material Adverse Effect, (ii) conflict with or result in any breach of any term, covenant, condition or other provision of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien other than any Permitted Lien upon any of the property or assets of such Credit Party or any of its Restricted Subsidiaries under, the terms of any material agreement evidencing Indebtedness to which such Credit Party or any of its Restricted Subsidiaries is a party or by which they or any of their properties or assets are bound or to which they may be subject, or (iii) violate or conflict with any provision of the memorandum of association and articles of association, charter, articles or certificate of incorporation, partnership or limited liability company agreement, by-laws, or other applicable governance documents of such Credit Party or any of its Restricted Subsidiaries.
Section 5.4. Litigation . As of the Funding Date, there are no actions, suits, proceedings or counterclaims (including derivative or injunctive actions) pending or, to the knowledge of the Parent, threatened against the Parent or any of its Restricted Subsidiaries that are reasonably likely to have a Material Adverse Effect.
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Section 5.5. Use of Proceeds; Margin Regulations .
(a) Use of Proceeds . The proceeds of the Loans shall only be used (i) to pay costs, fees and expenses incurred in connection with the Paragon Separation Transactions, the Revolving Credit Agreement, this Agreement, the other transactions to be consummated on or about the date of the consummation of the Paragon Separation Transactions, and other transactions incidental thereto, (ii) to make payments in respect of the Paragon Separation Transactions and (iii) for capital expenditures, working capital and other general corporate purposes of the Parent and its Restricted Subsidiaries, including for Investments and acquisitions.
(b) Margin Stock . Neither the Parent nor any of its Restricted Subsidiaries is engaged principally or as one of its important activities in the business of extending credit for the purpose of “purchasing” or “carrying” “margin stock” (each, as defined in Regulation U of the Board of Governors of the Federal Reserve System). No proceeds of the Loans will be used by the Borrower for a purpose which violates Regulations T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect.
Section 5.6. Investment Company Act . Neither the Parent nor any of its Restricted Subsidiaries is an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.
Section 5.7. Anti-Corruption Laws; Sanctions Laws and Regulations . The Parent and its Subsidiaries have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance with Anti-Corruption Laws and applicable Sanctions Laws and Regulations. The Parent and its Subsidiaries and, to the knowledge of the Parent and its Subsidiaries, their respective officers, employees, directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions Laws and Regulations in all material respects (for the avoidance of doubt, this representation shall not fail to be true and correct due to any failure or failures to comply with Anti-Corruption Laws (i) that are isolated and do not evidence a pervasive or systemic pattern of violations of such laws and regulations or a significant deficiency in the implementation of the aforesaid policies and procedures to ensure compliance by the Parent and its Subsidiaries with Anti-Corruption Laws or (ii) that arise from actions or incidents that have been publicly disclosed by Noble Corporation or the Parent or disclosed in writing to the Administrative Agent, in each case, at least twenty (20) days prior to the Funding Date). Neither the Parent nor any of its Subsidiaries, or to their knowledge any of their directors or officers, or any of their respective agents acting or benefiting in any capacity in connection with this Agreement or any other Credit Document, is a Designated Person or is knowingly engaged in any activity that could reasonably be expected to result in such Person becoming a Designated Person. No Borrowing, use of proceeds or other Transaction contemplated by this Agreement will result in a violation of Anti-Corruption Laws or applicable Sanctions Laws and Regulations by the Parent or any of its Subsidiaries.
Section 5.8. True and Complete Disclosure . All factual information (taken as a whole) furnished by the Parent or any of its Restricted Subsidiaries in writing to the Administrative Agent or any Lender in connection with any Credit Document or any transaction contemplated therein did not, as of the date such information was furnished (or, if such information expressly related to a specific date, as of such specific date), contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein (taken as a whole), in light of the circumstances under which such information was furnished, not misleading, except
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for such statements, if any, as have been updated, corrected, supplemented, superseded or modified pursuant to a written correction or supplement furnished to the Lenders prior to the date of this Agreement; provided , that with respect to projected financial information, each of the Parent and the Borrower represents only that such information was prepared in good faith based upon assumptions believed by it to be reasonable at the time, it being understood that (i) such projections are not to be viewed as facts and that actual results during the period(s) covered by any such projections may differ significantly from the projected results and that such difference may be material and that such projections are not a guaranty of financial performance and (ii) no representation is made with respect to information of a general economic or general industry nature. To the extent commercially reasonable, the Parent has provided such information and has taken such action, in each case, as has been reasonably requested in writing by the Administrative Agent or any Lender in order to assist the Administrative Agent or such Lender in maintaining compliance with the Patriot Act.
Section 5.9. Financial Statements . The financial statements required to be included in the Paragon Registration Statement have been prepared in accordance with GAAP. Such annual and quarterly financial statements fairly present in all material respects the financial position of the standard specification drilling business of Noble Corporation, and the results of operations for the periods indicated, subject in the case of interim financial statements, to normal year-end audit adjustments and omission of certain footnotes (as permitted by the SEC). As of the Funding Date, the Parent and its Restricted Subsidiaries, considered as a whole, had no material contingent liabilities or material Indebtedness required under GAAP to be disclosed in a consolidated balance sheet of the Parent that were not included in the financial statements included in the Paragon Registration Statement or in writing to the Administrative Agent (with a written request to the Administrative Agent to distribute such disclosure to the Lenders), except for the Term Loan Obligations and the Senior Notes.
Section 5.10. No Material Adverse Change . Since December 31, 2013, there has occurred no event or circumstance that has had a Material Adverse Effect.
Section 5.11. Taxes . The Parent and its Subsidiaries have filed all material tax returns required to be filed, whether in the United States or in any foreign jurisdiction, and have paid all governmental taxes, rates, assessments, fees, charges and levies (collectively, “ Taxes ”) shown to be due and payable on such returns or on any assessments made against the Parent and its Subsidiaries or any of their properties (other than any such assessments, fees, charges or levies that are not more than ninety (90) days past due, or which can thereafter be paid without penalty, or which are being contested in good faith by appropriate proceedings and for which reserves have been provided in conformity with GAAP, or which the failure to pay or delay in filing could not reasonably be expected to have a Material Adverse Effect).
Section 5.12. Consents . As of the Funding Date, all consents and approvals of, and filings and registrations with, and all other actions of, all governmental agencies, authorities or instrumentalities required to have been obtained or made by the Credit Parties in order to execute and deliver and perform their obligations under the Credit Documents to which they are a party, have been or will have been obtained or made and are or will be in full force and effect.
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Section 5.13. Insurance . As of the Funding Date, the Parent and its Restricted Subsidiaries, or an Affiliate of the Parent, on behalf of the Parent and its Restricted Subsidiaries, maintain in effect the Required Insurance; provided that the Parent or any Restricted Subsidiary or an Affiliate of the Parent may self-insure to the extent and in the manner normal for companies of like size, type and financial condition.
Section 5.14. Intellectual Property . The Parent and its Restricted Subsidiaries own or hold valid licenses to use all the patents, trademarks, permits, service marks, and trade names that are necessary to the operation of the business of the Parent and its Restricted Subsidiaries as presently conducted, except where the failure to own, or hold valid licenses to use, such patents, trademarks, permits, service marks, and trade names could not reasonably be expected to have a Material Adverse Effect.
Section 5.15. Ownership of Property .
(a) The Parent and its Restricted Subsidiaries have good title to or a valid leasehold interest in all of their real property and good title to, or a valid leasehold interest in, all of their other property, subject to no Liens except Permitted Liens, except where the failure to have such title or leasehold interest in such property could not reasonably be expected to have a Material Adverse Effect.
(b) The Parent and/or each Credit Party is the true, lawful and sole owner of each Collateral Rig stated to be owned by it, with respect to Funding Date Collateral Rigs, on Schedule 5.15B, and thereafter, in the relevant Collateral Rig Mortgage, and its ownership of each Collateral Rig is free and clear of all Liens except for Permitted Liens.
Section 5.16. Collateral Documents . The Collateral Documents are effective to create in favor of the Collateral Agent (for the benefit of the Secured Parties) a legal, valid and enforceable Lien in the Credit Party’s right, title and interest in the Collateral described therein. Except with respect to Excluded Perfection Assets, (i) when financing statements or equivalent filings or notices have been made or the Collateral Rig Mortgages are filed or recorded in the appropriate offices as may be required under applicable law and (ii) upon the taking of possession or control by the Collateral Agent of such Collateral with respect to which a security interest may be perfected only or control (which control shall be given to the Collateral Agent to the extent required by any Collateral Document), the Collateral Agent shall have fully perfected Liens on, and security interests in, all right, title and interest of the Credit Parties in such Collateral, in each case prior and superior in right to any other Liens, other than Permitted Liens which are permitted to attach to such Collateral under the terms of this Agreement.
Section 5.17. Legal Names of Parent and Subsidiaries . Schedule 5.17 sets forth, as of the Funding Date, the legal name of the Parent, the Borrower and each Subsidiary of the Parent, the type of organization or entity of each such Person and the jurisdiction of organization or incorporation of each such Person. Schedule 5.17 also sets forth, as of the Funding Date, the direct owner and percentage ownership of each such Subsidiary on the Funding Date. As of the Funding Date, there are no Unrestricted Subsidiaries.
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Section 5.18. Rigs .
(a) As of the Funding Date, the name, registered owner and official number, and jurisdiction of registration and flag of each Funding Date Collateral Rig are set forth on Schedule 5.15B. Each Rig owned by the Parent or a Restricted Subsidiary is operated in compliance with all applicable law, rules and regulations (applicable to such Rig and as required by the American Bureau of Shipping or other internationally recognized classification society reasonably acceptable to the Administrative Agent), except where failure to comply with such law, rules or regulations could not reasonably be expected to have a Material Adverse Effect.
(b) Each Credit Party which owns or operates one or more Rigs is qualified to own and operate such Rig under the laws of such Credit Party’s jurisdiction of incorporation and the jurisdiction in which such Rig is flagged, except where failure to so qualify could not reasonably be expected to have a Material Adverse Effect.
(c) Each Rig (except an Excluded Rig or a Rig that is cold stacked) maintains its classification as is applicable for rigs of comparable age and size with the American Bureau of Shipping or another internationally recognized classification society reasonably acceptable to the Administrative Agent, free of any conditions or recommendations affecting class, except for temporary lapses of such classification as may from time to time arise as a result of the normal operation of such Rig, so long as the Parent or applicable Rig Owner is using commercially reasonable efforts to remedy such lapses.
Section 5.19. Form of Documentation . Each of the Collateral Rig Mortgages is or, when executed, will be in proper legal form under the laws of the applicable Acceptable Flag Jurisdiction for the enforcement thereof in all material respects under such laws and the laws of the jurisdiction of organization of the applicable Credit Party party thereto, subject as to enforceability, to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and equitable principles. To ensure the legality, validity, enforceability or admissibility in evidence of each such Collateral Rig Mortgage in the applicable Acceptable Flag Jurisdiction or the jurisdiction of the applicable Credit Party party thereto, it is not necessary that any Collateral Rig Mortgage or any other document be filed or recorded with any court or other authority in any such jurisdiction, except as have been, or will be, made.
Section 5.20. Pari Passu or Priority Status . Neither the Parent nor any other Credit Party has taken any action which would cause the claims of unsecured creditors of the Parent or of any other Credit Party, as the case may be (other than claims of such creditors to the extent that they are statutorily preferred or Permitted Liens), to have priority over the claims of the Administrative Agent, the Collateral Agent and the Secured Parties against the Parent and such other Credit Party under this Agreement or the other Credit Documents.
Section 5.21. No Immunity . Neither the Parent nor any other Credit Party is a sovereign entity or has immunity on the grounds of sovereignty or otherwise from setoff or any legal process under the laws of any jurisdiction. The execution and delivery of the Credit Documents by the Credit Parties and the performance by them of their respective obligations thereunder constitute commercial transactions.
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Section 5.22. Solvency . The Parent and its Restricted Subsidiaries, taken as a whole, are Solvent. The Parent and its Restricted Subsidiaries, taken as a whole, after giving effect to the execution and performance of the Paragon Separation Transaction, including the Incurrence of Indebtedness in connection therewith, will be Solvent.
Section 5.23. Compliance With Laws . The Parent and its Subsidiaries are in compliance with all laws, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective property and all Environmental Laws, except for any failure to comply with any of the foregoing which could not reasonably be expected to have a Material Adverse Effect.
ARTICLE VI AFFIRMATIVE COVENANTS
The Parent covenants and agrees that, from and after the Funding Date and for so long thereafter as any Loan or Term Loan Note is outstanding hereunder, or any other Term Loan Obligation (other than indemnification obligations and other contingent obligations not then due and payable and as to which no claim has been made as at the time of determination) is due and payable hereunder:
Section 6.1. Corporate Existence . The Parent will, and will cause each of its Restricted Subsidiaries to, preserve and maintain its incorporation status or organizational existence, except (i) for the dissolution of any Restricted Subsidiaries whose assets are transferred to the Parent or any of its Restricted Subsidiaries, (ii) where the failure to preserve, renew or keep in full force and effect the incorporation status or existence of any Restricted Subsidiary could not reasonably be expected to have a Material Adverse Effect or (iii) as otherwise expressly permitted in this Agreement.
Section 6.2. Maintenance of Properties, including Rigs; Rig Contracts .
(a) The Parent will, and will cause each of its Restricted Subsidiaries to, maintain, preserve and keep its properties and equipment necessary to the proper conduct of its business in reasonably good repair, working order and condition (normal wear and tear or damage done by casualty or condemnation excepted) and will from time to time make all reasonably necessary repairs, renewals, replacements, additions and betterments thereto so that at all times such properties and equipment are reasonably preserved and maintained, in each case with such exceptions as could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect; provided , however , that nothing in this Section 6.2 shall prevent the Parent or any Restricted Subsidiary from discontinuing the operation or maintenance of any such properties or equipment if such discontinuance is, in the judgment of the Parent desirable in the conduct of its business.
(b) The Parent will, and will cause each Rig Owner to, at all times, and without cost or expense to the Administrative Agent, maintain and preserve, or cause to be maintained and preserved, each Rig owned by such Rig Owner (except for an Excluded Rig or any Rig that is cold stacked) and its material equipment, outfit and appurtenances, tight, staunch,
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strong, in good condition, working order and repair and fit for its intended service, in each case with such exceptions as could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. The Parent will, and will cause each Rig Owner to, with respect to each Rig owned by such Rig Owner (except for an Excluded Rig or any Rig that is cold stacked), at all times comply with all applicable laws, treaties and conventions of the jurisdiction in which the applicable Rig is flagged, and rules and regulations issued thereunder, and shall have on board as and when required thereby valid certificates showing compliance therewith, unless the failure to so comply or have on board such documentation could not reasonably be expected to have a Material Adverse Effect. The Parent will, and will cause each Rig Owner to, keep each Rig owned by such Rig Owner (except for an Excluded Rig or any Rig that is cold stacked) in such condition as will entitle such Rig to maintain its classification, as is applicable for rigs of comparable age and type, by the American Bureau of Shipping or another internationally recognized classification society reasonably acceptable to the Administrative Agent, except for any temporary lapse of such classification as may from time to time arise as a result of the normal operation of such Rig, so long as the Parent or the applicable Rig Owner is using commercially reasonable efforts to remedy such lapse. The Parent will, and will cause each Rig Owner to, with respect to each Rig owned by such Rig Owner (except for an Excluded Rig or any Rig that is cold stacked), comply with and satisfy in all material respects the provisions of any applicable law, convention, regulation, proclamation or order concerning financial responsibility for liabilities imposed on such Rig Owner, the Parent, the Parent’s Subsidiaries or such Rig with respect to pollution by any state or nation or political subdivision thereof and will maintain all certificates or other evidence of financial responsibility as may be required by any such law, convention, regulation, proclamation or order with respect to the trade in which the Rig is from time to time engaged and the cargo carried by it.
(c) The Parent will, and will cause each Rig Owner that owns a Material Rig to, supply the Administrative Agent promptly following its receipt of a reasonable written request from the Administrative Agent with copies of all survey reports in their possession with respect to such Material Rig.
(d) The Parent will, and will cause each Collateral Rig Owner to, promptly notify the Administrative Agent of and furnish the Administrative Agent with full information, promptly upon becoming available, including copies of reports and surveys, regarding any material accident or accident involving repairs (except to the extent any such accident could not reasonably be expected to result in a Material Adverse Effect).
(e) The Parent will, and will cause each applicable Rig Owner or Internal Charterer to, use commercially reasonable efforts to, perform any and all charter contracts or drilling contracts which are, or may be, entered into with respect to each Rig, except to the extent any such nonperformance could not reasonably be expected to result in a Material Adverse Effect.
Section 6.3. Taxes . The Parent will, and will cause each of its Subsidiaries to, duly pay and discharge all Taxes upon or against it or its properties, unless and to the extent that (i) the same is being contested in good faith and by appropriate proceedings and reserves have been established in conformity with GAAP, or (ii) the failure to effect such payment or discharge or any delay in filing could not reasonably be expected to have a Material Adverse Effect.
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Section 6.4. [Intentionally Omitted] .
Section 6.5. Insurance .
(a) The Parent will, and will cause each of its Restricted Subsidiaries to, or will cause an Affiliate of the Parent to, on behalf of the Parent and its Restricted Subsidiaries, (i) maintain with financially sound and reputable insurance companies ( provided that this Section 6.5 shall not be deemed to be breached if an insurance company with which the Parent, any Restricted Subsidiary or the applicable Affiliate of the Parent maintains insurance becomes financially troubled and the Parent, such Restricted Subsidiary or such Affiliate of the Parent reasonably promptly obtains coverage from a different, financially sound insurer) insurance on the Rigs (other than the Excluded Rigs) and other material insurable properties of the Parent and its Restricted Subsidiaries in at least such amounts and against all such risks as is consistent and in accordance with normal industry practice for similarly situated insureds and as provided in this Section 6.5 (the “ Required Insurance ”) and (ii) furnish to the Administrative Agent, at the written request of the Administrative Agent or any Lender, a complete description of the material terms of insurance carried on the Rigs (other than the Excluded Rigs); provided that the Parent or any Restricted Subsidiary or an Affiliate of the Parent may self-insure to the extent and in the manner normal for companies of like size, type and financial condition; provided , further that the Collateral Agent may, in its sole discretion, consent (such consent not to be unreasonably withheld, delayed or conditioned) to the maintenance of alternate insurance coverage should the Parent provide adequate substantiation that such alternate insurance coverage is cost effective from the Parent and its Restricted Subsidiaries’ perspective.
(b) The Parent will, and will cause each of the Rig Owners to, or will cause an Affiliate of the Parent to, on behalf of the Parent and the Rig Owners, at all times keep the Collateral Rigs insured in favor of the Collateral Agent as provided in this Section 6.5; and from and after the date that is sixty (60) Business Days after consummation of the Paragon Separation Transactions (or such longer period as the Collateral Agent may reasonably agree) (x) all policies or certificates with respect to such insurance (and any other insurance maintained by the Parent and/or such Rig Owners): (i) shall be endorsed to the Collateral Agent’s reasonable satisfaction for the benefit of the Collateral Agent (including by naming the Collateral Agent as loss payee and/or additional insured, as its interests may appear) and (ii) shall provide that the respective insurers irrevocably waive any and all rights of subrogation with respect to the Collateral Agent and the other Secured Parties and (y) the Parent and/or the applicable Rig Owner will use commercially reasonable efforts to provide that such insurance policies state that they shall not be canceled for non-payment of premium without at least thirty (30) days’ prior written notice thereof by the respective insurer to the Collateral Agent. On the Funding Date and from time to time thereafter to the extent reasonably requested by the Collateral Agent, but no more frequently than once each calendar year, the Parent shall deliver certificates evidencing such insurance policies for deposit with the Collateral Agent; provided that the Parent shall not be required to deliver certificates including the endorsements and waivers of subrogation described in this Section 6.5(b) until the date that is sixty (60) Business Days after consummation of the Paragon Separation Transactions (or such longer period as the Collateral Agent may reasonably agree). The Administrative Agent shall be under no duty or obligation to verify the adequacy or existence of any such insurance or any such policies or endorsements.
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(c) The Parent will, and will cause each of the Rig Owners to, or will cause an Affiliate of the Parent to, on behalf of the Parent and the applicable Rig Owners, cause the Rigs to be insured with insurers or protection and indemnity clubs or associations of the type described in Section 6.5(a)(i), against the risks indicated below:
(i) marine war risk insurance, including coverage afforded by the London Blocking and Trapping Addendum (or equivalent) and Missing Rig Clause (or equivalent), and marine hull and machinery insurance in an amount equal to not less than 120% of the aggregate outstanding principal amount of the Term Loans at such time, except as otherwise reasonably agreed in writing by the Collateral Agent. The insured values for hull and machinery required under this clause (c)(i) for the Collateral Rigs shall at all times be in an amount equal to 60% of the Fair Market Value of each Collateral Rig, and the remaining hull and machinery insurance required by this clause (c)(i) may be procured as increased value and/or disbursements insurance;
(ii) marine protection and indemnity insurance or equivalent (including coverage against liability for war risk perils, passengers, fines and penalties arising out of the operation of the Rigs, including crew, pollution, spillage or leakage, and workers’ compensation or U.S. Longshore and Harbor Worker’s Act insurance as shall be required by applicable law) in such amounts reasonably approved by the Collateral Agent; provided , however , that insurance against liability under applicable law or international convention arising out of pollution, spillage or leakage shall be in an amount not less than the greater of:
(A) such sources of pollution, spillage or leakage coverage as are commercially available as shall be carried by prudent rig owners with similar rigs engaged in similar trades plus amounts available from customary excess insurers of such risks as excess amounts shall be carried by prudent rig owners for similar rigs engaged in similar trades; and
(iii) the Collateral Agent’s interest insurance (including extended mortgagee’s interest-additional perils-pollution) coverage on terms satisfactory to the Administrative Agent; provided that such coverage should only apply to Collateral Rigs operating in the Gulf of Mexico; all such Collateral Agent’s interest insurance cover shall in the Collateral Agent’s discretion be obtained directly by the Collateral Agent and the Rig Owner shall on demand pay or cause to be paid all costs of such cover; premium costs shall be reimbursed by the Rig Owner to the Collateral Agent;
(iv) while a Rig is idle or laid up, at the option of the Parent or the applicable Rig Owner and in lieu of the above-mentioned marine and war risk hull insurance, port risk insurance insuring the relevant Rig against the usual risks encountered by like rigs under similar circumstances; and
(v) for the marine, war-risks and protection and indemnity/liability insurances required herein, the Parent or the applicable Rig Owner shall have the discretion to utilize deductibles or self-insured retentions that are customary for similar rigs engaged in similar activities.
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All insurance maintained hereunder shall be primary insurance without right of contribution against any other insurance maintained by the Collateral Agent. From and after the date that is sixty (60) Business Days after consummation of the Paragon Separation Transactions (or such longer period as the Collateral Agent may reasonably agree), the policy of marine and war risk hull and machinery insurance with respect to the Collateral Rigs shall provide that the Collateral Agent shall be named in its capacity as Collateral Agent and as a loss payee. Any entry in a marine and war risk protection and indemnity club with respect to the Collateral Rigs shall note the interest of the Collateral Agent. The Administrative Agent, the Collateral Agent and each of their respective successors and assigns shall not be responsible for any premiums, club calls, if any, assessments or any other obligations or for the representations and warranties made therein by any Rig Owner, the Parent, any of the Parent’s Subsidiaries or any other Person.
(d) The Parent will, or will cause each of the Rig Owners to, or will cause an Affiliate of the Parent to, on behalf of the Parent and the applicable Rig Owners, furnish to the Administrative Agent a comprehensive summary prepared and signed by its energy insurance brokers with respect to the protection and indemnity insurance, the hull and machinery and war risk insurance carried and maintained on the Rigs, together with their opinion as to the adequacy thereof and its compliance with the provisions of this Section 6.5. The Parent will, or will cause each of the Rig Owners to, or will cause an Affiliate of the Parent to, on behalf of the Parent and the applicable Rig Owners, cause such insurance broker and/or the protection and indemnity club or association providing protection and indemnity insurance referred to in Section 6.5(c)(ii), to agree to provide the Administrative Agent with such information as to such insurances as the Administrative Agent may reasonably request with respect to expiration, termination or cancellation of any policy or any default in the payment of any premium.
(e) Unless the Administrative Agent has given notice to the underwriters of the occurrence and continuance of an Event of Default, all insurance claim proceeds of whatsoever nature with respect to the Collateral Rigs payable under any insurance shall be payable to the Parent, the applicable Rig Owner or others as their interests may appear; thereafter, payments of insurance claim proceeds with respect to the Collateral Rigs shall be made to the Collateral Agent for distribution in accordance with the Collateral Agency Agreement, unless the Collateral Agent, acting in accordance with the Collateral Agency Agreement, has given written consent to the underwriter to make payments to other parties.
(f) In the event that any claim or Lien is asserted against a Collateral Rig for loss, damage or expense that is covered by insurance required hereunder and it is necessary for the applicable Rig Owner to obtain a bond or supply other security to prevent arrest of such Collateral Rig or to release such Collateral Rig from arrest on account of such claim or Lien, the Collateral Agent, on request of the applicable Rig Owner, may, in the sole discretion of the Collateral Agent, assign to any person, firm or corporation executing a surety or guaranty bond or other agreement to save or release the Collateral Rig from such arrest, all right, title and interest of the Collateral Agent in and to said insurance covering said loss, damage or expense, as collateral security to indemnify against liability under said bond or other agreement.
(g) The Parent will not, and will not permit any Rig Owner to, execute or permit or willingly allow to be done any act by which any insurance required under this Section 6.5 may be suspended, impaired or cancelled, and will not permit or allow any Rig to undertake
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any voyage or operational risk which may not be permitted by the policies in force, without having previously notified the Administrative Agent in writing and insured the relevant Rig by additional coverage to extend to such voyages, risks, passengers or cargoes.
(h) If an Event of Default has occurred and is continuing, subject to the rights of any charterer, the Collateral Agent shall have the exclusive right to negotiate and agree to any compromise to any claim with respect to any Collateral Rig with respect to which any underwriter proposes to pay less on any claim than the amount thereof.
(i) If the Parent or any Restricted Subsidiary shall fail to maintain insurance in accordance with this Section 6.5 with respect to the Collateral Rigs, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance, and the Parent agrees to reimburse the Administrative Agent for all reasonable costs and expenses of procuring such insurance.
(j) Notwithstanding anything in this Section 6.5 to the contrary, if the requisite Revolving Lenders or requisite lenders under any refinancing of the Revolving Credit Agreement consent to any amendments or waivers of the provisions of Section 6.5 of the Revolving Credit Agreement or the corresponding comparable provision(s) of such other revolving credit agreement, as applicable, such amendments or waivers shall be incorporated herein and shall be deemed to amendment or waiver the corresponding provisions of this Section 6.5 and compliance by the Parent and its Restricted Subsidiaries of such provisions of the Revolving Credit Agreement or other revolving credit agreement, as applicable, shall be deemed compliance with this Section 6.5.
Section 6.6. Financial Reports and Other Information .
(a) Periodic Financial Statements; Other Documents; Notices .
(i) Whether or not required by the rules and regulations of the SEC, so long as the Term Loan Obligations are outstanding, the Parent shall deliver to the Administrative Agent (who will in turn provide notice to the Lenders of) (or, to the extent permitted by the SEC, file with the SEC for public availability), within the time periods specified in the SEC’s rules and regulations that are then applicable to the Parent (or, if the Parent is not subject to such reporting requirements of the Exchange Act, then within those time periods for filing as are applicable to a filer that is not an “accelerated filer” as defined in such rules and regulations), taking into account any extension of time, deemed filing date or safe harbor contemplated or provided for by Rule 12b-25, Rule 13a-11(c) and Rule 15d-11(c) under the Exchange Act or successor provisions:
(A) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q (or any successor or comparable form) and 10-K (or any successor or comparable form) if the Parent were required to file such reports, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Parent’s certified independent accountants; and
(B) all current reports that would be required to be filed with the SEC on Form 8-K (or any successor or comparable form) if the Parent were required to file such reports.
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(ii) The Parent will be deemed to have delivered such reports to the Administrative Agent and the Lenders if it has filed such reports with the SEC using the EDGAR filing system and such reports are publicly available.
(iii) All reports delivered pursuant to Section 6.6(a)(i) shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports.
(iv) If, at any time, the Parent is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Parent will deliver such information to the Administrative Agent and post the reports referred to in Section 6.6(a)(i) on its website (to which access will be given to the Lenders, as applicable) within the time periods that would apply if the Parent were required to file those reports with the SEC.
(v) If the Parent has designated any of its Subsidiaries as Unrestricted Subsidiaries, and if any such Unrestricted Subsidiary or group of Unrestricted Subsidiaries, if taken together as one Subsidiary, would constitute a Significant Subsidiary of the Parent, then the quarterly and annual financial information required by this Section 6.6 will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Parent and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Parent.
(b) Compliance Certificates . Within one hundred and twenty (120) days after the end of each fiscal year of the Parent, the Parent shall deliver to the Administrative Agent (who will in turn provide notice to the Lenders of) a Compliance Certificate signed by certificate of an Officer who is the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Parent, in his or her capacity as such, certifying that no Default or Event of Default then exists or, if any such Default or Event of Default exists as of the date of such certificate, setting forth a description of such Default or Event of Default and specifying the action, if any, taken by the Parent to remedy the same. Such certificate shall also set forth the Leverage Ratio for the Parent and its Restricted Subsidiaries on a consolidated basis as of the last day of such fiscal year most recently ended and the amount of Excess Cash Flow, if any, for such fiscal year.
(c) Appraisal Reports . Annually, but no later than one hundred and twenty (120) days after the end of each fiscal year of the Parent (beginning with the fiscal year ending December 31, 2014), the Parent shall deliver a desktop appraisal report as of recent date in form and substance, and from an Approved Appraiser, stating the then current Fair Market Value (and each current Fair Market Value used in such determination) of each of the Collateral Rigs on an individual charter-free basis, provided , however , that if the Fair Market Value of a Collateral Rig in such desktop appraisal report is expressed as a numerical range of a high and low score, the
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Fair Market Value for such Collateral Rig shall be deemed to be the mathematical average of such scores. All such appraisals shall be arranged by, and made at the expense of, the Parent or its Subsidiaries.
(d) [Intentionally Omitted] .
(e) Notices of Default, Litigation, Etc . The Parent will promptly, and in any event within five (5) Business Days, after an Officer of the Parent has knowledge thereof, give written notice to the Administrative Agent of (who will in turn provide notice to the Lenders of): (i) the occurrence of any Default or Event of Default; (ii) any litigation or governmental proceeding of the type described in Section 5.4; (iii) any circumstance that has had or could reasonably be expected to have a Material Adverse Effect; and (iv) any notice received by it or any Restricted Subsidiary from the holder(s) of Indebtedness of the Parent or any Restricted Subsidiary in an amount which, in the aggregate, exceeds $50,000,000 (or, if denominated in a currency other than Dollars, the Dollar Equivalent of $50,000,000), where such notice states or claims the existence or occurrence of any event of default with respect to such Indebtedness under the terms of any indenture, loan or credit agreement, debenture, note, or other document evidencing or governing such Indebtedness.
(f) Notices of Event of Loss, Certain Events related to Collateral Rigs . The Parent will promptly, and in any event within ten (10) Business Days, after an Officer of the Parent has knowledge thereof, give written notice to the Administrative Agent of (who will in turn provide notice to the Lenders of): (i) any Event of Loss or Events of Loss suffered by a Material Rig, (ii) the filing of a libel or complaint against a Material Rig or the attachment, levy or the taking into custody by virtue of any legal proceeding in any court of competent jurisdiction of a Material Rig and (iii) any failure by a Rig Owner to maintain the flag and vessel or ship registry in an Acceptable Flag Jurisdiction.
Section 6.7. Lender Inspection Rights . Upon reasonable notice from the Administrative Agent, in its capacity as Collateral Agent, and no more often than once in any calendar year (unless an Event of Default has occurred and is continuing, in which case there shall be no limit to the number or frequency of such visitations or inspections while such Event of Default is continuing), the Parent will permit the Collateral Agent (and such Persons as the Collateral Agent may reasonably designate) during normal business hours at such entity’s sole expense (unless an Event of Default shall have occurred and is continuing, in which event at the Parent’s expense), to visit and inspect any of the properties of the Parent or any of its Restricted Subsidiaries, subject to any confidentiality restrictions with third parties or attorney-client privilege, to examine all of their books and records, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Parent authorizes such accountants to discuss with the Collateral Agent the affairs, finances and accounts of the Parent and its Restricted Subsidiaries; provided that any inspection of any Rig, its cargo and its papers shall be subject to the requirements of any operators of such Rig and any applicable Governmental Authority. The chief financial officer (or other financial officer) of the Parent and/or his or her designee shall be afforded the opportunity to be present at any meeting of the Collateral Agent and such accountants.
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Section 6.8. Conduct of Business . The Parent and its Restricted Subsidiaries will at all times remain primarily engaged in any of (i) the contract drilling business, (ii) the provision of services to the energy industry, (iii) other existing businesses described in the Paragon Registration Statement or (iv) any related or ancillary businesses.
Section 6.9. Use of Proceeds . The Borrower will use the proceeds of the Loans only for purposes and in the manner set forth in Section 5.5.
Section 6.10. Compliance with Laws .
(a) The Parent will, and will cause its Restricted Subsidiaries to, conduct their business, and otherwise be, in compliance with all applicable laws, regulations, ordinances and orders of any governmental or judicial authorities (including Environmental Laws and ERISA); provided , however , that this Section 6.10 shall not require the Parent or any Restricted Subsidiary to comply with any such law, regulation, ordinance or order if (x) it shall be contesting such law, regulation, ordinance or order in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor, or (y) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
(b) The Parent and its Subsidiaries will maintain in effect and enforce policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance with Anti-Corruption Laws and applicable Sanctions Laws and Regulations.
Section 6.11. [Intentionally Omitted] .
Section 6.12. Further Assurances; Additional Collateral and Additional Guarantors .
(a) Further Assurances . Other than with respect to any Excluded Perfection Assets, the Parent will, and will cause the Credit Parties to, make, execute and deliver all such additional and further acts, deeds, instruments and documents as the Collateral Agent or the Required Lenders (through the Administrative Agent) may reasonably require for the purposes of implementing or effectuating the provisions of this Agreement and the other Credit Documents, or of renewing the rights of the Secured Parties with respect to the Collateral as to which the Collateral Agent, for the ratable benefit of the Secured Parties, has or is intended to have a perfected Lien pursuant hereto or thereto, including filing any financing or continuation statements under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby or by the other Credit Documents.
(b) Additional Collateral Rigs . If the Collateral Coverage Ratio as of the date that any annual appraisal report is required to be delivered pursuant to Section 6.6(c) (the “ Annual Appraisal Delivery Date ”) is less than 1.50 to 1.00, then the Parent shall within sixty (60) days (or such longer period of time as the Collateral Agent may reasonably agree) of the Annual Appraisal Delivery Date, execute and deliver, or cause one or more of its Wholly-Owned Subsidiaries to execute and deliver, and cause to be recorded (or make arrangements satisfactory to the Collateral Agent for the recording thereof) in the appropriate vessel registry, amendments or supplements to existing Collateral Rig Mortgages or such other Collateral Rig Mortgages as the Collateral Agent shall deem reasonably necessary or advisable to grant to the Collateral
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Agent, for the ratable benefit of the Secured Parties, a Lien over any Rigs owned by the Parent or any of Wholly-Owned Subsidiaries, as applicable, not already subject to a Collateral Rig Mortgage, to the extent necessary to ensure that, immediately after giving effect to the addition of the additional Collateral Rigs, either (x) the Collateral Coverage Ratio is equal to at least 1.50 to 1.00 or (y) all Rigs of the Parent and its Wholly-Owned Subsidiaries (other than Excluded Rigs and Tax Excluded Rigs) are subject to Collateral Rig Mortgages (whichever is less). In connection with the execution and delivery of such Collateral Rig Mortgages over such additional Collateral Rigs, the Parent shall, or shall cause the applicable Collateral Rig Owner, within sixty (60) days of (or such longer period of time as the Collateral Agent may reasonably agree) of the Annual Appraisal Delivery Date, to deliver (i) such other instruments, certificates and documents described in Section 4.1(a)(ix)(A) and (B) with respect to such additional Collateral Rig(s), (ii) opinions of local counsel for the jurisdiction in which the applicable additional Collateral Rig is flagged, covering customary matters and in form and substance reasonably satisfactory to the Administrative Agent, and (iii) and such other filings or actions necessary or desirable in the reasonable opinion of the Collateral Agent to perfect the security interest created by such Collateral Rig Mortgages.
(c) Additional Guarantors; Additional Personal Property Collateral . Within 60 days (or such longer period of time as the Collateral Agent may reasonably agree) of the date that any Wholly-Owned Subsidiary (other than the Borrower) becomes (i) a Collateral Rig Owner, (ii) an Internal Charterer or (iii) a Pledgor, the Parent shall cause such Wholly-Owned Subsidiary to become a Guarantor hereunder and duly authorize, execute and deliver to the Collateral Agent joinders to the Guaranty and Collateral Agreement to the extent such Wholly-Owned Subsidiary is not already a party thereto. In connection with any such joinder, the Parent shall also deliver, or cause to be delivered, to the Administrative Agent customary certificates and legal opinions relating to such joinder, as may be reasonably requested by the Administrative Agent.
(d) Exclusions . Notwithstanding anything to the contrary contained herein or in any other Credit Document, in no event (either on the Funding Date or thereafter) shall (i) any Lien be granted with respect to any asset of any Restricted Subsidiary or (ii) any Restricted Subsidiary be required to become a Guarantor or Pledgor (or otherwise comply with clauses (b) or (c) above) if, and to the extent, the granting of such a Lien or pledge to secure, or provision of a Guaranty of, any Secured Obligation is prohibited by applicable law or could reasonably be expected, in the discretion of the Parent, to result in material adverse tax consequences to the Parent, such Subsidiary or any other Subsidiary of the Parent. In addition, notwithstanding anything to the contrary contained herein or in any other Credit Document, the Parent and its Restricted Subsidiaries will not be required to perform any Excluded Perfection Actions.
Section 6.13. Change of Ownership; Registry; Management; Legal Names; Type of Organization (and whether a Registered Organization); Jurisdiction of Organization; etc .
(a) Flag and Registry . The Parent shall, and shall cause the Rig Owners, to maintain the flag and vessel or ship registry in an Acceptable Flag Jurisdiction with respect to the Material Rigs, except for (i) any such transfers or changes otherwise permitted by this Agreement, including modifications which satisfy the conditions set forth in the definition of “Flag Jurisdiction Transfer”, (ii) any such transfers or changes consented to in writing by the Administrative Agent (such consent not to be unreasonably withheld, delayed or conditioned) and (iii) any such transfers or changes pursuant to a Redomestication.
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(b) Corporate Changes . Within 30 days (or such longer period reasonably agreed to by the Collateral Agent) of any change in the legal name, incorporation status or type of organization or jurisdiction of organization or incorporation of the Parent, the Borrower or any Guarantor, the Parent shall deliver, or cause to be delivered, to the Collateral Agent written notice of such change, and shall take, or cause to be taken, all actions reasonably requested by the Collateral Agent to maintain the security interests of the Collateral Agent, for the benefit of the Secured Parties, in the Collateral intended to be granted under the Collateral Documents at all times perfected and in full force and effect to the extent required by the Collateral Documents.
ARTICLE VII NEGATIVE COVENANTS
The Parent covenants and agrees that, from and after the Funding Date and for so long thereafter as any Loan or Term Loan Note, or any other Term Loan Obligation (other than indemnification obligations and other contingent obligations not then due and payable and as to which no claim has been made as at the time of determination) is due and payable hereunder:
Section 7.1. Restrictions on Fundamental Changes . The Parent will not, and will not permit any of its Restricted Subsidiaries to wind up, liquidate or dissolve its affairs, merge or consolidate with any other Person, or Dispose of all or substantially all of the assets of the Parent and its Restricted Subsidiaries, taken as a whole, to any other Person, except that:
(a) any Restricted Subsidiary of the Parent may merge with and into, consolidate with or be dissolved or liquidated into, the Parent, the Borrower, any Subsidiary Guarantor or any other Restricted Subsidiary, so long as (w) in the case of any such merger, consolidation, dissolution or liquidation involving the Parent, except in the case of any such merger, consolidation, dissolution or liquidation involving the Borrower, the Parent is the surviving Person of any such merger, consolidation, dissolution or liquidation, (x) in the case of any such merger, consolidation, dissolution or liquidation involving the Borrower, the Borrower is the surviving Person of any such merger, consolidation, dissolution or liquidation, (y) except as provided in preceding clauses (w) and (x), in the cases of any such merger, consolidation, dissolution or liquidation involving a Subsidiary Guarantor, a Subsidiary Guarantor is the surviving corporation of any such merger, consolidation, dissolution or liquidation, and (z) in all cases in connection with a merger, consolidation, dissolution or liquidation involving a Credit Party, the Collateral and Guaranty Requirements shall be fully satisfied immediately after giving effect thereto;
(b) the Parent may merge or consolidate with, or Dispose of all or substantially all of its assets to, any other Person, so long as (t) either (1) the Parent is the surviving Person of any such merger or consolidation or (2) the resulting or surviving Person (if other than the Parent) of any such merger or consolidation or the Person to which such Disposition has been made (including, in each case, in connection with a Redomestication) (the “ Successor Parent ”) is an entity organized or existing under the laws of a Permitted Jurisdiction, (u) no Default or Event of Default shall have occurred and is continuing, (v) the Successor
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Parent (if other than the Parent, the Borrower or a Subsidiary Guarantor) expressly assumes all the Obligations of the Parent in respect of its Guaranty of the Term Loan Obligations pursuant to a novation or other agreements in form reasonably satisfactory to the Administrative Agent, (w) in all cases in connection with any such merger, consolidation or Disposition of assets, the Collateral and Guaranty Requirements shall be fully satisfied immediately after giving effect thereto, (x) the Successor Parent would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, (A) be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 7.3(a) or (B) have had a Fixed Charge Coverage Ratio greater than or equal to the actual Fixed Charge Coverage Ratio for the Parent and its Restricted Subsidiaries (on a consolidated basis) for such four-quarter period, (y) in the case of subclause (t)(2) of this clause (b) (other than in the case where the Successor Parent is organized or existing under the laws of Delaware or another State of the United States), in the event that the Successor Parent is organized in a jurisdiction that is different from the jurisdiction in which the Parent or the relevant Restricted Subsidiary was organized immediately before giving effect to the transaction, such Successor Parent has delivered to the Administrative Agent an opinion of counsel reasonably satisfactory to the Administrative Agent stating (1) that the obligations of such Successor Parent under this Agreement are enforceable under the laws of such Permitted Jurisdiction of its formation subject to customary exceptions and (2) the Lenders will not recognize any income, gain or loss for U.S. federal income tax purposes as a result of the transaction and will be subject to U.S. federal income tax on the same amount and at the same times as would have been the case if such transaction had not occurred and (z) such Successor Parent has agreed in writing to submit to New York jurisdiction and appoints an agent for the service of process in New York, each on terms reasonably satisfactory to the Administrative Agent;
(c) the Borrower may merge or consolidate with, or Dispose of all or substantially all of its assets to, any other Person, so long as (u) either (1) the Borrower is the surviving Person of any such merger or consolidation or (2) the resulting or surviving Person (if other than the Borrower) of any such merger or consolidation or the Person to which such Disposition has been made (including, in each case, in connection with a Redomestication) (the “ Successor Borrower ”) is an entity organized or existing under the laws of a Permitted Jurisdiction, (v) no Default or Event of Default shall have occurred and is continuing, (w) the Successor Borrower (if other than the Borrower) expressly assumes all the obligations of the Borrower under the Credit Documents pursuant to a novation or other agreements in form reasonably satisfactory to the Administrative Agent, (x) in all cases in connection with any such merger, consolidation or Disposition of assets, the Collateral and Guaranty Requirements shall be fully satisfied immediately after giving effect thereto, (y) each Credit Party (unless such Credit Party is the other party to the transactions described above) shall have confirmed to the Administrative Agent in writing, whether by a supplement to this Agreement or to the Guaranty and Collateral Agreement, that its Obligations under the Credit Documents to which it is a party shall apply to such Successor Borrower’s obligations under the Credit Documents, and (z) in the case of subclause (u)(2) of this clause (c) (other than in the case where any Successor Parent or the Successor Borrower is organized or existing under the laws of Delaware or another State of the United States), in the event that the Successor Borrower is organized in a jurisdiction that is different from the jurisdiction in which the Borrower was organized immediately before giving effect to the transaction, such Successor Borrower has delivered to the Administrative Agent an
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opinion of counsel reasonably satisfactory to the Administrative Agent stating (1) that the obligations of such Successor Borrower under this Agreement are enforceable under the laws of such Permitted Jurisdiction of its formation subject to customary exceptions and (2) the Lenders will not recognize any income, gain or loss for U.S. federal income tax purposes as a result of the transaction and will be subject to U.S. federal income tax on the same amount and at the same times as would have been the case if such transaction had not occurred;
(d) any Restricted Subsidiary may merge or consolidate with any other Person, so long as in the case of any merger or consolidation involving a Subsidiary Guarantor, (v) either (1) the Subsidiary Guarantor is the surviving Person of any such merger or consolidation or (2) the resulting or surviving Person (if other than such Subsidiary Guarantor) of any such merger or consolidation or the Person to which such Disposition has been made (including, in each case, in connection with a Redomestication) (the “ Successor Guarantor ”) is an entity organized or existing under the laws of a Permitted Jurisdiction, (w) no Default or Event of Default shall have occurred and is continuing, (x) the Successor Guarantor (if other than the Parent, the Borrower or another Subsidiary Guarantor) expressly assumes all the obligations of such Subsidiary Guarantor under the Credit Documents pursuant to a novation or other agreements in form reasonably satisfactory to the Administrative Agent, (y) in all cases in connection with a merger or consolidation involving a Subsidiary Guarantor, the Collateral and Guaranty Requirements shall be fully satisfied immediately after giving effect thereto and (z) in the case of subclause (v)(2) above (other than in the case where the Successor Guarantor is organized or existing under the laws of Delaware or another State of the United States), in the event that the Successor Guarantor is organized in a jurisdiction that is different from the jurisdiction in which the relevant Subsidiary Guarantor was organized immediately before giving effect to the transaction, such Successor Guarantor has delivered to the Administrative Agent an opinion of counsel reasonably satisfactory to the Administrative Agent stating (1) that the obligations of such Successor Guarantor under the Credit Documents are enforceable under the laws of such Permitted Jurisdiction of its formation subject to customary exceptions and (2) the Lenders will not recognize any income, gain or loss for U.S. federal income tax purposes as a result of the transaction and will be subject to U.S. federal income tax on the same amount and at the same times as would have been the case if such transaction had not occurred;
(e) any Restricted Subsidiary that either is not a Credit Party or is not a Material Guarantor may wind up, liquidate or dissolve its affairs, so long as (x) the Parent determines that such action is not adverse to the interests of the Lenders and (y) the Liens granted to the Collateral Agent for the benefit of the Secured Parties to the extent required by the Collateral and Guaranty Requirements shall remain in full force and effect;
(f) any Redomestication shall be permitted; and
(g) Dispositions permitted by Section 7.5 and Section 7.6 (including Dispositions that are excluded from the definition of “Asset Sale” shall be permitted.
Section 7.2. Liens . The Parent will not and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of its property or assets, or income or profits therefrom, or assign or convey any right to receive income therefrom, whether owned on the Funding Date or thereafter acquired, which Lien is securing any Indebtedness.
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Section 7.3. Indebtedness .
(a) The Parent shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Debt); provided , however , that the Parent and any of its Restricted Subsidiaries may Incur Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio of the Parent and its Restricted Subsidiaries (on a consolidated basis) for the Parent’s most recently ended four full Fiscal Quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred at the beginning of such four-quarter period.
(b) Section 7.3(a) shall not prohibit the Incurrence of any of the following items (collectively, “ Permitted Debt ”):
(i) the Incurrence by the Parent, the Borrower and any of the Subsidiary Guarantors of Indebtedness (and Guaranties in respect of) under the Senior Credit Facilities and under one or more other Debt Facilities (each, an “ Incremental Facility ”) in an aggregate principal amount at any one time outstanding under this Section 7.3(b)(i) not to exceed the greater of (i) $1,650,000.000 and (ii) the sum of $500,000,000 and 25% of the Parent’s Consolidated Tangible Assets; provided that each term loan Incremental Facility (each an “ Incremental Term Facility ”) shall be a Permitted Incremental Facility;
(ii) the Incurrence by the Parent and its Restricted Subsidiaries of the Existing Indebtedness;
(iii) the Incurrence of Indebtedness represented by the Senior Notes and any Guaranties of such Indebtedness by the Borrower or a Subsidiary Guarantor;
(iv) the Incurrence by the Parent or any of its Restricted Subsidiaries of Indebtedness represented by Capitalized Lease Obligations, mortgage financings, industrial revenue bonds, purchase money obligations or other Indebtedness, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Parent or any of its Restricted Subsidiaries, in each case whether through the direct purchase of such assets or through the purchase of Equity Interests of any Person owning such assets, in an aggregate principal amount, including all Permitted Refinancing Indebtedness Incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness Incurred pursuant to this clause (iv), not to exceed the greater of (i) $300,000,000 and (ii) 10% of the Parent’s Consolidated Tangible Assets at any time outstanding;
(v) the Incurrence by the Parent or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge, in whole or in part, any Indebtedness (other than intercompany Indebtedness) that was permitted to be Incurred under Section 7.3(a) or Section 7.3(b)(ii), (iii), this clause (v) or (x);
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(vi) the Incurrence by the Parent or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Parent and any of its Restricted Subsidiaries; provided , however , that:
(A) if the Borrower is the obligor on such Indebtedness and the payee is not a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Term Loan Obligations then due;
(B) if a Guarantor is the obligor on such Indebtedness and the payee is not the Borrower or a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Term Loan Obligations then due; and
(C) (1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being beneficially held by a Person other than the Parent or a Restricted Subsidiary of the Parent or (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Parent or a Restricted Subsidiary of the Parent will be deemed, in each case, to constitute an Incurrence (as of the date of such issuance, sale or transfer) of such Indebtedness by the Parent or such Restricted Subsidiary, as the case may be, that was not permitted by this Section 7.3(b)(vi);
(vii) the issuance by any of the Parent’s Restricted Subsidiaries to the Parent or to any of its Restricted Subsidiaries of shares of Preferred Stock; provided , however , that:
(A) any subsequent issuance or transfer of Equity Interests that results in any such Preferred Stock being held by a Person other than the Parent or a Restricted Subsidiary of the Parent; and
(B) any sale or other transfer of any such Preferred Stock to a Person that is not either the Parent or a Restricted Subsidiary of the Parent,
will be deemed, in each case, to constitute an issuance of such Preferred Stock by such Restricted Subsidiary that was not permitted by this Section 7.3(b)(vii);
(viii) the Incurrence by the Parent or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of business and not for speculative purposes;
(ix) any Guaranty of Indebtedness of the Parent or a Restricted Subsidiary to the extent that the Guarantied Indebtedness was permitted to be incurred by another provision of this Section 7.3, provided that if the Indebtedness being Guarantied is subordinated or pari passu with the Term Loan Obligations, any such Guaranty must be subordinated or pari passu , as applicable, to the same extent as the Indebtedness Guarantied;
(x) Permitted Acquisition Indebtedness;
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(xi) Indebtedness in respect of workers’ compensation claims, public liability insurance, unemployment insurance, property, casualty or liability insurance, self-insurance obligations or completion, performance, bid performance, appeal or surety bonds in the ordinary course of business, including Guaranties (not for borrowed money) or obligations with respect to letters of credit supporting such workers’ compensation claims, public liability insurance, unemployment insurance, property, casualty or liability insurance, self-insurance obligations or completion, performance, bid performance, appeal or surety bonds;
(xii) the Incurrence by the Parent or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided , however , that such Indebtedness is extinguished within five Business Days of Incurrence;
(xiii) Indebtedness of the Parent or any of its Restricted Subsidiaries consisting of the financing of insurance premiums;
(xiv) Indebtedness of the Parent or any of its Restricted Subsidiaries in respect of Treasury Management Arrangements, Incurred in the ordinary course of business; and
(xv) the Incurrence by the Parent or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness Incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness Incurred pursuant to this clause (xv), not to exceed the greater of (A) $150,000,000 and (B) 5.0% of the Parent’s Consolidated Tangible Assets determined as of the date of such Incurrence.
(c) For purposes of determining compliance with this Section 7.3, in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the criteria of more than one of the categories of Permitted Debt described in Sections 7.3(b)(i) through (xv) above, or is entitled to be Incurred pursuant to Section 7.3(a), the Parent will be permitted to divide and classify such item of Indebtedness, Disqualified Stock or Preferred Stock, as applicable, on the date of its Incurrence, or later re-divide and reclassify all or a portion of such item of Indebtedness, Disqualified Stock or Preferred Stock, as applicable, in any manner that complies with this Section 7.3. Indebtedness under Debt Facilities (including the Senior Credit Facilities, but excluding the Senior Notes and any Guaranties of Indebtedness under the Senior Notes) outstanding on the Funding Date will be deemed to have been Incurred on such date in reliance of Section 7.3(b)(i) and not Section 7.3(a) or Section 7.3(b)(ii), and may not later be reclassified. The accrual of interest or Preferred Stock dividends, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of Preferred Stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Preferred Stock or Disqualified Stock in the form of additional shares of the same class of Preferred Stock or Disqualified Stock will not be deemed to be an Incurrence of Indebtedness or an issuance of Preferred Stock or Disqualified Stock for purposes of this Section 7.3; provided , in each such case, that the amount thereof is included in Fixed Charges of the Parent as accrued. Further, the reclassification of any lease or other liability of the Parent or any of its Restricted Subsidiaries as
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Indebtedness due to a change of accounting principles after the Funding Date will not be deemed an Incurrence of Indebtedness for purposes of this covenant. In addition, for purposes of determining any particular amount of Indebtedness under this covenant, Guaranties or Liens supporting Indebtedness otherwise included in the determination of such particular amount shall not be included so long as incurred by a Person that could have Incurred such Indebtedness.
(d) For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be utilized, calculated based on the relevant currency Exchange Rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-dominated restriction to be exceeded if calculated at the relevant currency Exchange Rate in effect on the date of such refinancing, such U.S. dollar-dominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this Section 7.3, the maximum amount of Indebtedness that the Parent or any Restricted Subsidiary may Incur pursuant to this Section 7.3 shall not be deemed to be exceeded solely as a result of fluctuations in Exchange Rates or currency values. The principal amount of any Permitted Refinancing Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency Exchange Rate applicable to the currencies in which such Permitted Refinancing Indebtedness is denominated that is in effect on the date of such refinancing.
Section 7.4. Transactions with Affiliates .
(a) The Parent shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any properties or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or Guaranty with, or for the benefit of, any Affiliate of the Parent (each, an “ Affiliate Transaction ”) involving aggregate payments or consideration to or from the Parent or a Restricted Subsidiary in excess of $25,000,000, unless:
(i) the Affiliate Transaction is on terms that are not materially less favorable to the Parent or the relevant Restricted Subsidiary, as the case may be, than those that could reasonably be expected to have been obtained in a comparable transaction by the Parent or such Restricted Subsidiary with an unrelated Person on an arm’s-length basis or, if in the good faith judgment of the Parent’s Board of Directors, no comparable transaction is available with which to compare such Affiliate Transaction, such Affiliate Transaction is otherwise fair to the Parent or the relevant Restricted Subsidiary from a financial point of view; and
(ii) the Parent delivers to the Administrative Agent:
(A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration to or from the Parent or a
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Restricted Subsidiary in excess of $35,000,000 but no greater than $50,000,000, a certificate of an Officer who is the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Parent certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant; and
(B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $50,000,000, a resolution of the Board of Directors of the Parent set forth in a certificate of an Officer who is the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Parent certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors of the Parent.
(b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 7.4(a):
(i) any employment agreement, severance agreement, consulting agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by the Parent or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;
(ii) transactions between or among the Parent and/or its Restricted Subsidiaries;
(iii) transactions with a Person (other than an Unrestricted Subsidiary of the Parent) that is an Affiliate of the Parent solely because the Parent owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
(iv) payment of customary compensation (including bonuses) to, and the provision of customary indemnity and other benefits (including pursuant to any employment agreement or any retirement, health, stock option or stock ownership or other benefit plan) on behalf of, officers, directors, employees or consultants of the Parent or any of its Restricted Subsidiaries;
(v) any issuance of Equity Interests (other than Disqualified Stock) of the Parent to, or receipt of capital contributions from, Affiliates of the Parent;
(vi) Restricted Payments that are permitted under Section 7.5;
(vii) transactions between the Parent or any of its Restricted Subsidiaries and any Person that would not otherwise constitute an Affiliate Transaction except for the fact that one director of such other Person is also a director of the Parent or such Restricted Subsidiary, as applicable; provided that such director abstains from voting as a director of the Parent or such Restricted Subsidiary, as applicable, on any matter involving such other Person;
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(viii) any transaction in which the Parent or any of its Restricted Subsidiaries, as the case may be, delivers to the Administrative Agent a letter from an accounting, appraisal or investment banking firm of national standing stating that such transaction is fair to the Parent or such Restricted Subsidiary from a financial point of view or that such transaction meets the requirements of Section 7.4(a)(i);
(ix) transaction with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Agreement; provided that in the reasonable determination of the Board of Directors or the senior management of the Parent, such transactions are on terms not materially less favorable to the Parent or the relevant Restricted Subsidiary than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate of the Parent;
(x) any transaction where the only consideration paid by the Parent or the relevant Restricted Subsidiary is Qualifying Equity Interests of the Parent; and
(xi) transactions pursuant to agreements or arrangements in effect on the Funding Date or pursuant to the Paragon Separation Transaction Agreements, or, in each case, any amendment, modification, or supplement thereto or replacement thereof, as long as such agreement or arrangement, as so amended, modified, supplemented or replaced is not materially more disadvantageous to the Parent and the Restricted Subsidiaries, taken as a whole, than the agreement or arrangement in existence on the Funding Date or, in the case of the Paragon Separation Transaction Agreements, as described in the Paragon Registration Agreement.
Section 7.5. Limitation on Restricted Payments .
(a) The Parent shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or distribution on account of the Parent’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment by the Parent or any of its Restricted Subsidiaries in connection with any merger or consolidation involving the Parent or any of its Restricted Subsidiaries), except in connection with any Redomestication that satisfies the Redomestication Exclusion Condition (other than (a) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Parent, (b) dividends or distributions by a Restricted Subsidiary of the Parent, so long as, in the case of any dividend or distribution payable on or in respect of any Equity Interests issued by a Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the Parent or the Restricted Subsidiary holding such Equity Interests receives at least its pro rata share of such dividend or distribution) and (c) payments made in respect of any stock appreciation rights or similar benefits plans);
(ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Parent) any Equity Interests of the Parent;
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(iii) make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness of the Parent, the Borrower or any Guarantor (excluding (a) any intercompany Indebtedness between or among the Parent and any of its Restricted Subsidiaries, (b) the purchase, redemption, defeasance, repurchase or other acquisition of Subordinated Indebtedness of the Parent, the Borrower or any Guarantor purchased, redeemed, defeased or otherwise acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year after the date of purchase, repurchase, redemption, defeasance or acquisition, and (c) any payment of principal at the Stated Maturity thereof); or
(iv) make any Restricted Investment (all such payments and other actions set forth in clauses (a) through (b) above (other than any exception thereto) being collectively referred to as “ Restricted Payments ”), unless, at the time of and immediately after giving effect to such Restricted Payment:
(A) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment;
(B) the Parent would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 7.3(a); and
(C) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Parent and its Restricted Subsidiaries since the Funding Date (excluding Restricted Payments made pursuant to Section 7.5(b)(ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (xii), (xiii) and (xiv), is less than the sum, without duplication, of:
(1) 50% of the Consolidated Net Income of the Parent for the period (taken as one accounting period) from the first day of the Fiscal Quarter during which the Funding Date occurs to the end of the Parent’s most recently ended Fiscal Quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus
(2) 100% of the aggregate net cash proceeds and the Fair Market Value of (i) marketable securities (other than marketable securities of the Parent or a Subsidiary of the Parent), (ii) Equity Interests of a Person (other than the Parent or any existing Subsidiary of the Parent) engaged primarily in a Permitted Business and (iii) other assets used or useful in a Permitted Business, in each case, received by the Parent or a Restricted Subsidiary since the Funding Date (A) as a contribution to its common equity capital or from the issue or sale of Qualifying Equity Interests or (B) from the issue or sale of convertible or exchangeable Disqualified Stock of the Parent or convertible or exchangeable debt securities of the Parent, in each case that have been converted into or exchanged for Qualifying Equity Interests of the Parent
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(in the case of clauses (A) or (B), other than net cash proceeds received from an issuance or sale of Qualifying Equity Interests, convertible or exchangeable Disqualified Stock or debt securities to a Restricted Subsidiary of the Parent or to an employee stock ownership plan or similar trust to the extent such issuance or sale to such employee stock ownership plan or similar trust is financed by loans from or Guarantied by the Parent or any Restricted Subsidiary (unless such loans have been repaid with cash on or prior to the date of determination)) or (C) upon the exercise of any options, warrants or rights to purchase Qualifying Equity Interests; plus
(3) the amount by which Indebtedness of the Parent or its Restricted Subsidiaries is reduced on the Parent’s consolidated balance sheet upon the conversion or exchange (other than Indebtedness held by a Subsidiary of the Parent) subsequent to the Funding Date of any Indebtedness of the Parent or its Restricted Subsidiaries convertible or exchangeable for Equity Interests (other than Disqualified Stock) of the Parent (less the amount of any cash, or the Fair Market Value of any other property, distributed by the Parent upon such conversion or exchange); plus
(4) the amounts received by the Parent or its Restricted Subsidiaries, with respect to any Restricted Investments made by the Parent or any of its Restricted Subsidiaries in any Person after the Funding Date resulting from:
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(I) repurchases or redemptions of, or returns of capital on, such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investment to an unaffiliated purchaser, repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to the Parent or any Restricted Subsidiary (other than for reimbursement of tax payments);
(II) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries or the merger or consolidation of an Unrestricted Subsidiary with and into the Parent or any of its Restricted Subsidiaries not to exceed the amount of Investments previously made by the Parent or any Restricted Subsidiary in such Unrestricted Subsidiary; or
(III) such Person (other than an Unrestricted Subsidiary) becoming a Restricted Subsidiary or being merged or consolidated with the Parent or a Restricted Subsidiary, an amount equal to the amount included as a Restricted Investment and on account of the Parent’s or any Restricted Subsidiary’s Investment in such Person prior to the time it became a Restricted Subsidiary or the time of such merger or consolidation,
which amount in the case of Section 7.5(a)(iv)(C)(4)(I) is an the amount equal to the lesser of (A) the initial amount of such Restricted Investment and (B) the cash amount (less any expenses incurred in connection with such transaction) and the Fair Market Value of assets used or useful in a Permitted Business received by the Parent or any Restricted Subsidiary (other than for reimbursement of tax payments), provided, however, that no amount will be included under Section 7.5(a)(iv)(C)(4)(I) to the extent it is already included in Consolidated Net Income.
(b) Section 7.5(a) shall not prohibit:
(i) any Restricted Payment made or paid within 60 days after the date of declaration or giving of a redemption notice, as the case may be, thereof, if at such date of declaration or notice, such Restricted Payment would have complied with the provisions of this Agreement (and such payment shall be deemed to be paid on the date of declaration or notice for purposes of any calculation required by this covenant);
(ii) the making of any Restricted Payment in exchange for, or out of or with the Net Equity Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Parent) of, Qualifying Equity Interests of the Parent or from the substantially concurrent contribution of common equity capital to the Parent (with a sale or contribution being deemed substantially concurrent if such Restricted Payment occurs not more than 120 days after such sale or contribution); provided that the amount of any such Net Equity Proceeds that are utilized for any such Restricted Payment will not be considered to be Net Equity Proceeds of Qualifying Equity Interests for purposes of Section 7.5(a)(iv)(C)(2) and will not be considered to be Net Cash Proceeds for purposes of Section 2.10(a);
(iii) the repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness of the Parent, the Borrower or any Subsidiary Guarantor with the Net Cash Proceeds from a substantially concurrent Incurrence of, or exchange for, Permitted Refinancing Indebtedness (with an Incurrence of Permitted Refinancing Indebtedness being deemed substantially concurrent if such repurchase, redemption, defeasance, acquisition or retirement occurs not more than 120 days after such Incurrence);
(iv) any Restricted Payment to any existing or former directors, employees, management or consultants or advisors of the Parent or any Restricted Subsidiary of the Parent or their assigns, estates or heirs, in each case in connection with equity incentive plans, under stock option plans or stock purchase agreements or other agreements to compensate such persons approved by the Board of Directors of the Parent; provided that the Equity Interests with respect to which such Restricted Payments are made were received for services related to, or for the benefit of, the Parent and its Restricted Subsidiaries; and provided, further, that Restricted Payments pursuant to this clause will not exceed $10,000,000 in the aggregate during any calendar year (with any unused amounts in any calendar year being carried over to successive calendar years and added to such amount subject to a maximum of $25,000,000 in any calendar year); plus , to the extent not previously applied or included, (A) the Net Equity
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Proceeds received by the Parent or any of its Restricted Subsidiaries from sales of Equity Interests (other than Disqualified Stock) to directors, employees, management or consultants or advisors of the Parent or any Restricted Subsidiary of the Parent that occur after the Funding Date (to the extent such Net Equity Proceeds have not otherwise been applied to the payment of Restricted Payments pursuant to Section 7.5(a)(iv)(C)(2)) and (B) the net cash proceeds of key man life insurance policies received by the Parent or any of its Restricted Subsidiaries after the Funding Date; provided that the Parent may elect to apply all or any portion of the aggregate increase contemplated by clauses (A) and (B) above in any calendar year; and provided, further, that cancellation of Indebtedness owing to the Parent or any Restricted Subsidiary from any existing or former directors, employees, management or consultants or advisors of the Parent or any Restricted Subsidiary of the Parent in connection with the repurchase of Equity Interests of the Parent or any Restricted Subsidiary will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;
(v) the purchase, redemption, defeasance or other acquisition or retirement for value of Equity Interests deemed to occur upon the exercise or conversion of stock options, warrants, rights to acquire Equity Interests or other convertible securities, to the extent such Equity Interests represent a portion of the exercise or conversion price thereof;
(vi) the purchase, redemption, defeasance or other acquisition or retirement for value of Equity Interests of the Parent or any Restricted Subsidiary of the Parent held by any current or former officers, directors, employees, management or consultants or advisors of the Parent or any of its Restricted Subsidiaries in connection with the exercise or vesting of any equity compensation (including, without limitation, stock options, restricted stock and phantom stock) in order to satisfy any tax withholding obligation with respect to such exercise or vesting;
(vii) the purchase, redemption, defeasance or other acquisition or retirement of any Subordinated Indebtedness (i) at a purchase price not greater than 101% of the principal amount of such Indebtedness in the event of a Change of Control in accordance with provisions similar to Section 2.10(c) or (ii) at a purchase price not greater than 100.0% of the principal amount of such Indebtedness in the event of an Asset Sale in accordance with provisions similar Section 2.10(b); provided that, prior to or simultaneously with such purchase, redemption, defeasance or other acquisition or retirement, the Parent (or a third party to the extent permitted by this Agreement) has made a prepayment or an offer pursuant to Sections 2.10(b) or (c), as applicable, with respect to the Loans as a result of such Change of Control or Asset Sale, as applicable, and in the cash of a Change of Control Offer, has completed the repayment of all Loans validly tendered for repayment and not withdrawn;
(viii) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Parent or any Restricted Subsidiaries or any class or series of Preferred Stock of any Non-Guarantor Subsidiary that is a Restricted Subsidiary of the Parent issued on or after the Funding Date in accordance with the Fixed Charge Coverage Ratio test described in Section 7.3, to the extent such dividends are included in the definition of “Fixed Charges”;
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(ix) payments of cash, dividends, distributions, advances or other Restricted Payments by the Parent or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares (or to allow for the purchase by the Parent or any of its Restricted Subsidiaries of fractional shares) upon the exercise, conversion or exchange of any stock options, warrants, other rights to purchase Equity Interests or other convertible or exchangeable securities ( provided that any such payment is not for the purpose of evading the limitations of this covenant);
(x) other Restricted Payments in an aggregate amount since the Funding Date not to exceed the greater of (A) $50,000,000 since the Funding Date and (B) 1.5% of the Parent’s Consolidated Tangible Assets determined as of the date of such Restricted Payment;
(xi) other Restricted Payments, so long as the Leverage Ratio of the Parent and its Restricted Subsidiaries on a consolidated basis is no greater than 2.50:1.00 determined on a pro forma basis for the most recently ended four full Fiscal Quarters for which internal financial statements are available immediately preceding the date for which such Restricted Payment is being made;
(xii) the declaration and payment of dividends on the Parent’s common Equity Interests, not to exceed (A) within the first calendar year ending after the Funding Date, $93,000,000 in the aggregate (such amount or such greater amount to which such amount is increased pursuant to the following subclause (B), the “ Maximum Annual Dividend Amount ”) and (B) within any subsequent calendar year, (x) the Maximum Annual Dividend Amount for the immediately preceding calendar year plus (y) an amount equal to 10% of the Maximum Annual Dividend Amount for the immediately preceding calendar year;
(xiii) any Restricted Payments attributable to or arising in connection with, (i) the Transactions and (ii) any other transactions pursuant to agreements or arrangements in effect on the Funding Date or pursuant to the Paragon Separation Transaction Agreements on substantially the term described in the Paragon Registration Statement or any amendment, modification or supplement thereto, as long as the terms of such agreement or arrangement, as so amended, modified, supplemented or replaced is not materially more disadvantageous to the Parent and its Restricted Subsidiaries, taken as a whole, than the terms of such agreement or arrangement on the Funding Date or, in the case of the Paragon Separation Transaction Agreements, as described in the Paragon Registration Statement;
(xiv) the repurchase or retirement of Equity Interests of the Parent in an aggregate amount not to exceed $20,000,000 since the Funding Date; and
provided , however , that at the time of, and after giving effect to, any Restricted Payment permitted under Sections 7.5(b)(viii), (x) and (xi), no Default shall have occurred and be continuing or would occur as a consequence thereof.
(c) For purposes of determining compliance with this “Restricted Payments” covenant, in the event that a Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in Section 7.5(b) or as a Permitted Investment or
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pursuant to Section 7.5(a)(iv)(C), the Parent will be permitted to divide or classify (or later divide, classify or reclassify in whole or in part in its sole discretion) such Restricted Payment in any manner that complies with this covenant.
(d) The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Parent or any Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Section 7.6. Limitation on Asset Sales . After the Funding Date, the Parent will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(a) the Parent or such Restricted Subsidiary, as the case may be, receives consideration at the time of consummation of such Asset Sale at least equal to the Fair Market Value (which may be measured as of the date of the definitive agreement with respect to such Asset Sale) of the assets or Equity Interests issued or sold or otherwise disposed of; and
(b) at least 75% of the total consideration from such Asset Sale and all other Asset Sales on a cumulative basis since the Funding Date received by the Parent or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents; provided that for purposes of this Section 7.6(b) only and no other purpose, each of the following will be deemed to be cash (without duplication):
(i) (x) in the case of an Asset Sale of Residual Collateral or of Equity Interests that do not constitute Pledged Equity, any liabilities, as shown on the Parent’s most recent consolidated balance sheet, of the Parent or any Restricted Subsidiary (other than Disqualified Stock, contingent liabilities and other liabilities that are by their terms subordinated in right of payment to the Term Loan Obligations) and (y) in the case of an Asset Sale of Primary Collateral, any liabilities, as shown on the Parent’s most recent consolidated balance sheet, of the Parent or any Restricted Subsidiary that constitutes (1) Secured Indebtedness (other than Disqualified Stock, contingent liabilities and other liabilities that are by their terms subordinated in right of payment to the Term Loan Obligations) or (2) Indebtedness of a Non-Guarantor Subsidiary, in each case of (1) and (2), other than Indebtedness owed to the Parent or a Restricted Subsidiary and, in the case of each of (x) and (y), that are assumed by the transferee of any such assets pursuant to a novation or indemnity agreement that releases the Parent or such Restricted Subsidiary from or indemnifies the Parent or such Restricted Subsidiary against further liability;
(ii) (x) in the case of an Asset Sale of Equity Interests that do not constitute Pledged Equity, Indebtedness (other than Disqualified Stock, contingent liabilities and liabilities that are by their terms subordinated to the Term Loan Obligations) of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Sale and (y) in the case of an Asset Sale of Pledged Equity, (1) Secured Indebtedness (other than Disqualified Stock, contingent liabilities and other liabilities that are by their terms subordinated in right of payment to the Term Loan Obligations) or (2) Indebtedness of a Non-Guarantor Subsidiary, in each case of (1) and (2), other than Indebtedness owed to the Parent or a Restricted Subsidiary, of any Subsidiary Guarantor that is no longer a Subsidiary Guarantor as a result of such Asset Sale; provided in the case of each of (x) and (y), that the Parent and each Restricted Subsidiary are released from any Guaranty of such Indebtedness in connection with such Asset Sale;
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(iii) any securities, notes or other obligations received by the Parent or any such Restricted Subsidiary from such transferee that are, within 180 days after receipt thereof, converted by the Parent or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or Cash Equivalents received in that conversion;
(iv) any stock or assets of the kind referred to in clauses (a)(ii) and (a)(iii) of the definition of Reinvestment Notice; and
(v) (x) in the case of an Asset Sale of Primary Collateral, to the extent that the addition of such Designated Non-cash Consideration as Collateral in accordance with the Collateral and Guaranty Requirements is necessary to cause the Collateral Coverage Ratio to equal at least 1.50 to 1.00, any Designated Non-cash Consideration of a type that constitutes Primary Collateral and (y) in all other cases, any Designated Non-cash Consideration received by the Parent or any of its Restricted Subsidiaries in such Asset Sale, having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this Section 7.6(b)(v) that is at the time outstanding, not to exceed the greater of (1) $100,000,000 and (2) 3.0% of the Parent’s Consolidated Tangible Assets at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received without giving effect to subsequent changes in value);
provided that in the case of any Asset Sale pursuant to a condemnation, seizure, appropriation or similar taking, including by deed in lieu of condemnation, or any casualty, actual or constructive total loss or an agreed or compromised total loss, such Asset Sale shall not be required to satisfy the requirements of Sections 7.6(a) and 7.6(b).
Section 7.7. Restrictive and Negative Pledge Agreements .
(a) The Parent shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Parent to:
(i) pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to the Parent or any of its Restricted Subsidiaries or pay any Indebtedness owed to the Parent or any of its Restricted Subsidiaries (it being understood that the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Capital Stock shall not be deemed a restriction on the ability to make dividends or distributions on Capital Stock);
(ii) make loans or advances to the Parent or any of its Restricted Subsidiaries (it being understood that the subordination of the loans or advances made to the Parent or any Restricted Subsidiary to other Indebtedness Incurred by the Parent or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or
(iii) sell, lease or transfer any of its properties or assets to the Parent or any of its Restricted Subsidiaries (it being understood that such transfers shall not include any type of transfer described in Sections 7.7(a)(i) or (ii)).
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(b) Section 7.7(a) shall not apply to encumbrances or restrictions existing under or by reason of:
(i) agreements (including agreements governing Existing Indebtedness and Debt Facilities (including the Senior Credit Facilities)) as in effect on the Funding Date and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Funding Date, as determined by the Parent in its reasonable and good faith judgment;
(ii) the Senior Notes Documents and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements. refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Senior Notes Documents on the Funding Date, as determined by the Parent in its reasonable and good faith judgment;
(iii) agreements or other documents governing other Indebtedness permitted to be Incurred under Section 7.3 and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that either (A) the provisions relating to such encumbrance or restriction contained in such agreements or other documents are not materially more restrictive, taken as a whole, as determined by the Parent in its reasonable and good faith judgment, than those in effect on the Funding Date or (B) any such encumbrance or restriction contained in such agreements or documents does not prohibit (except upon a default or an event of default thereunder) the payment of dividends in a manner that, as determined by the Parent in good faith, would result in the Parent being unable to, to make principal and interest payments on the Term Loan Obligations as and when they come due;
(iv) applicable law, rule, regulation, approval, permit or order;
(v) any agreement or instrument governing Indebtedness or Capital Stock of a Person acquired by the Parent or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was Incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Agreement to be Incurred; and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or instruments; provided that the amendments, restatements, modifications,
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renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements governing such Indebtedness or Capital Stock, as determined by the Parent in its reasonable and good faith judgment;
(vi) any agreement or instrument relating to property or assets acquired after the Funding Date, so long as such encumbrance or restriction relates only to the property or assets so acquired and is not and was not created in in anticipation of such acquisition and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or instruments; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements or instruments, as determined by the Parent in its reasonable and good faith judgment;
(vii) customary non-assignment provisions in contracts, leases, licenses and other agreements entered into in the ordinary course of business;
(viii) purchase money obligations for property acquired in the ordinary course of business and Capitalized Lease Obligations permitted under this Agreement, in each case, that impose restrictions on the property purchased or leased of the nature described in Section 7.7(a)(iii); and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of agreements governing such purchase money obligations or Capital Lease Obligations; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in agreements governing such purchase money obligations or Capital Lease Obligations, as determined by the Parent in its reasonable and good faith judgment;
(ix) any agreement for the sale or other disposition of Capital Stock or assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending such sale or other disposition;
(x) in the case of Section 7.7(a)(iii), Liens permitted to be Incurred under Section 7.2 that limit the right of the debtor to dispose of the assets subject to such Liens;
(xi) provisions limiting the disposition or distribution of assets or property in joint venture agreements, partnership agreements, limited liability company agreements, asset sale agreements, sale and leaseback agreements, stock sale agreements and other similar agreements (including agreements entered into in connection with a Restricted Investment) entered (i) in the ordinary course of business or (ii) into with the approval of the Parent’s Board of Directors, which limitation is applicable only to the assets that are the subject of such agreements;
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(xii) restrictions on cash or other deposits or net worth imposed by customers or required by insurance, surety or bonding companies, in each case under contracts entered into in the ordinary course of business; and
(xiii) encumbrances or restrictions with respect to property under a charter, lease or other agreement that has been entered into in the ordinary course for the employment, charter or other hire of such property.
Section 7.8. Unrestricted Subsidiaries . The Parent:
(a) may designate, by written notification thereof to the Administrative Agent, any Restricted Subsidiary, including a newly formed or newly acquired Subsidiary, as an Unrestricted Subsidiary if (i) immediately prior, and after immediately giving effect, to such designation, no Default has occurred and is continuing, and (ii) such designation is deemed to be an Investment in an Unrestricted Subsidiary in an amount equal to the Fair Market Value as of the date of such designation of the Parent’s direct and indirect ownership interest in such Subsidiary and such Investment would not be prohibited under Section 7.5 at the time of such designation; and
(b) may designate or redesignate, by written notification thereof to the Administrative Agent, any Unrestricted Subsidiary to be a Restricted Subsidiary if immediately after giving effect to such designation or redesignation, (i) no Default has occurred and is continuing, (ii) such designation is deemed to be an Investment in an Unrestricted Subsidiary and (iii) all Liens, Indebtedness and Investments of such Unrestricted Subsidiary outstanding immediately following such designation or redesignation would, if Incurred or made at such time, have been permitted to be Incurred or made for all purposes hereof.
If, at any time, any Unrestricted Subsidiary fails to meet the requirements of the definition of “Unrestricted Subsidiary”, it shall thereafter cease to be an Unrestricted Subsidiary for purposes hereof and any Indebtedness and Investments of the Subsidiary and any Liens on assets of such Subsidiary shall be deemed to be Incurred or made by a Restricted Subsidiary at such time and the Parent shall not be deemed to be in default of this Section 7.8, but if the Indebtedness is not permitted to be Incurred under Section 7.3, the Investments are prohibited by Section 7.5, or the Lien is not permitted under Section 7.2, the Parent shall be in default of the applicable covenant.
Section 7.9. Sanctions Laws and Regulations . The Parent and its Subsidiaries shall not, and, to their knowledge, their respective officers, employees, directors and agents (in their capacity as officers, employees, directors or agents, respectively, of the Parent or any of its Subsidiaries), shall not, use the proceeds of any Borrowing (i) to fund any activities or business of or with any Designated Person, or in any country or territory, that at the time of such funding is the subject of any sanctions under any Sanctions Laws and Regulations (on the Funding Date, Cuba, Iran, North Korea, Sudan and Syria), (ii) in any other manner that would result in a material violation of any Sanctions Laws and Regulations by the Parent or its Subsidiaries or (iii) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws.
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ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default . Any one or more of the following shall constitute an Event of Default if occurring on or after the Funding Date:
(a) default by any Credit Party in the payment of (i) any interest in respect of any Loan or any fees payable hereunder, within thirty (30) Business Days following the date when due or (ii) any principal amount of any Loan when due;
(b) failure by the Parent or any Restricted Subsidiary in the observance or performance of the covenant set forth in Section 7.1 or to prepay the Loans when required under Sections 2.10(b) and (c);
(c) default by the Parent or any Restricted Subsidiary in the observance or performance of any provision hereof or of any other Credit Document not mentioned in clauses (a) or (b) above, which is not remedied (i) except in the case of Section 6.6, within sixty (60) days after notice thereof to the Borrower by the Administrative Agent or (ii) in the case of Section 6.6, within 120 days after notice thereof to the Borrower by the Administrative Agent;
(d) any representation or warranty made or deemed made herein or in any other Credit Document by the Parent or any Restricted Subsidiary proves untrue in any material respect as of the date of the making, or deemed making, thereof;
(e) (i) Indebtedness (other than the Term Loan Obligations and Rate Management and Currency Protection Obligations) in the aggregate principal amount of the Dollar Equivalent of $75,000,000 of the Parent and its Restricted Subsidiaries shall (A) not be paid at maturity (beyond any applicable grace periods), or (B) be declared to be due and payable or required to be prepaid, redeemed or repurchased prior to its stated maturity other than any repurchase or redemption of Indebtedness in connection with a change of control offer or asset sale offer or other similar mandatory prepayment or (ii) any default in respect of Rate Management and Currency Protection Obligations resulting in the exercise by the counterparty thereunder of its right to terminate its position under the applicable Rate Management and Currency Protection Transaction and the amount payable by the Parent and its Restricted Subsidiaries in the aggregate (after giving effect to any netting agreements relating thereto) in respect of such termination is the Dollar Equivalent of $75,000,000;
(f) the Parent, the Borrower or Material Guarantor (i) has entered involuntarily against it an order for relief under the United States Bankruptcy Code or a comparable action is taken under any applicable bankruptcy or insolvency law of another country or political subdivision of such country, (ii) generally does not pay, or admits its inability generally to pay, its debts as they become due, (iii) makes a general assignment for the benefit of creditors, (iv) applies for, seeks, consents to, or acquiesces in, the appointment of a receiver, custodian, trustee, liquidator or similar official for it or any substantial part of its property under the United States Bankruptcy Code or under the applicable bankruptcy or insolvency laws of another country or a political subdivision of such country, (v) institutes any proceeding seeking to have entered against it an order for relief under the United States
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Bankruptcy Code or any comparable law, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fails to file an answer or other pleading denying the material allegations of or consents to or acquiesces in any such proceeding filed against it in a court of competent jurisdiction, (vi) makes any Board of Directors resolution in direct furtherance of any matter described in clauses (i)-(v) above, or (vii) fails to contest in good faith any appointment or proceeding described in this Section 8.1(f);
(g) a custodian, receiver, trustee, liquidator or similar official is appointed for the Parent, the Borrower or Material Guarantor or any substantial part of its property under the United States Bankruptcy Code or under the applicable bankruptcy or insolvency laws of another country or a political subdivision of such country, or a proceeding described in Section 8.1(f)(v) is instituted against the Parent, the Borrower or Material Guarantor in a court of competent jurisdiction, and such appointment continues undischarged or such proceeding continues undismissed and unstayed for a period of sixty (60) days (or one hundred twenty (120) days in the case of any such event occurring outside the United States of America);
(h) the Parent or any Restricted Subsidiary fails within sixty (60) days of any final judgments or orders that are rendered in a court of competent jurisdiction to vacate, pay, bond or otherwise discharge in accordance with the terms thereof any judgments or orders for the payment of money which is in excess of the Dollar Equivalent of $75,000,000 in the aggregate (to the extent not covered by insurance by a reputable and creditworth insurer as to which the insurer has no disclaimed coverage) and which are not stayed on appeal or otherwise being appropriately contested in good faith in a manner that stays execution;
(i) (i) any Credit Document ceases to be in full force and effect (other than as expressly permitted hereunder or thereunder by reason of a release of Collateral in accordance with the terms hereof or thereof or Security Termination), (ii) any Credit Document shall be declared null and void, (iii) any Credit Party shall repudiate in writing its obligations under any Credit Document to which it is party, (iv) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability under any Credit Document to which it is party, or (v) the Collateral Agent shall not have or shall cease to have, or any Credit Party shall assert in writing that the Collateral Agent shall not have or shall cease to have, a valid and perfected Lien in any material portion of the Collateral (except for Excluded Perfection Assets) purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of the Collateral Agent to take any action within its control.
Section 8.2. Non-Bankruptcy Defaults . When any Event of Default (other than those described in Section 8.1(f) or (g) with respect to the Parent, the Borrower or a Material Guarantor) has occurred and is continuing, the Administrative Agent shall, by notice to the Borrower, if so directed by the Required Lenders, declare the principal of and the accrued interest on all outstanding Loans to be forthwith due and payable and thereupon all outstanding Loans, including both principal and interest thereon, shall be and become immediately due and payable together with all other accrued amounts payable under the Credit Documents without further demand, presentment, protest or notice of any kind, including notice of intent to accelerate and notice of acceleration, each of which is expressly waived by the Borrower. The
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Administrative Agent, after giving notice to the Borrower pursuant to this Section 8.2, shall also promptly send a copy of such notice to the other Lenders but the failure to do so shall not impair or annul the effect of such notice.
Section 8.3. Bankruptcy Defaults . When any Event of Default described in Section 8.1(f) or (g) has occurred and is continuing with respect to the Parent, the Borrower or a Material Guarantor, then all outstanding Loans shall immediately become due and payable together with all other accrued amounts payable under the Credit Documents without presentment, demand, protest or notice of any kind, each of which is expressly waived by the Borrower.
Section 8.4. Notice of Default . The Administrative Agent shall give notice to the Borrower under Section 8.2 promptly upon being requested to do so by the Required Lenders and shall thereupon notify all the Lenders thereof.
Section 8.5. Expenses . The Parent agrees to pay to the Administrative Agent and each Lender all reasonable out-of-pocket expenses Incurred or paid by the Administrative Agent or such Lender, including reasonable attorneys’ fees and court costs, in connection with any Default or Event of Default hereunder or in connection with the enforcement of any of the Credit Documents.
Section 8.6. Distribution and Application of Proceeds . After the exercise of remedies provided for in Section 8.2 or the occurrence and during the continuance of an Event of Default described in Section 8.1(f) or (g), any payment to the Administrative Agent or any Lender hereunder, from the Collateral Agent under the Collateral Agency Agreement or otherwise shall be paid to the Administrative Agent to be distributed and applied as follows (unless otherwise agreed by the Parent, the Administrative Agent and all Lenders):
(a) First , to the payment of any and all reasonable out-of-pocket costs and expenses of the Administrative Agent, including reasonable attorneys’ fees and out-of-pocket costs and expenses, as provided by this Agreement or by any other Credit Document, Incurred in connection with the collection of such payment or in respect of the enforcement of any rights of the Administrative Agent or the Lenders under this Agreement or any other Credit Document;
(b) Second , to the payment of any due and unpaid fees to the Administrative Agent or any Lender as provided by this Agreement or any other Credit Document, pro rata in the proportion in which the amount of such fees due and unpaid to the Administrative Agent and each Lender bears to the aggregate amount of the fees due and unpaid to the Administrative Agent and all Lenders collectively, until all such fees have been paid in full;
(c) Third , to the payment of accrued and unpaid interest on the Loans to the date of such application, pro rata in the proportion in which the amount of such interest, accrued and unpaid to each Lender bears to the aggregate amount of such interest accrued and unpaid to all Lenders collectively, until all such accrued and unpaid interest has been paid in full;
(d) Fourth , to the payment of the outstanding due and payable principal amount of each of the Loans pro rata in the proportion in which the outstanding principal amount of such Loans bears to the aggregate amount of all outstanding Loans;
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(e) Fifth , to the payment of any other outstanding Term Loan Obligations then due and payable, pro rata in the proportion in which the outstanding Term Loan Obligations owing to each Lender and Administrative Agent bears to the aggregate amount of all such Term Loan Obligations until all such Term Loan Obligations have been paid in full; and
(f) Sixth , to the Borrower or as the Borrower may direct unless otherwise directed by a court of competent jurisdiction.
Section 8.7. Enforcement Rights . Notwithstanding anything to the contrary contained herein or in any other Credit Document, the authority to enforce rights and remedies hereunder and under the other Credit Documents against the Credit Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent (or its authorized designee, including Collateral Agent as its mortgagee trustee) in accordance with Article VIII for the benefit of all the Lenders; provided that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Credit Documents, (b) any Lender from exercising setoff rights in accordance with Section 11.6 or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Credit Party under any law relating to bankruptcy, insolvency or reorganization or relief of debtors.
ARTICLE IX CHANGE IN CIRCUMSTANCES
Section 9.1. Change in Law .
(a) Notwithstanding any other provisions of this Agreement or any Note, if a Change in Law makes it unlawful for any Lender to make or maintain Eurodollar Term Loans (or in connection with any Redomestication, any Term Loans), such Lender shall promptly give written notice thereof and of the basis therefor in reasonable detail to the Borrower, and such Lender’s obligations to fund Eurodollar Term Loans (or in connection with any Redomestication, any Term Loans) or make, continue or convert, as applicable, such Loans under this Agreement shall thereupon be suspended until it is no longer unlawful for such Lender to make or maintain such Loans.
(b) Upon the giving of the notice to the Borrower referred to in Section 9.1(a) in respect of any such Eurodollar Term Loan (except in the case of any such notice delivered in connection with a Redomestication), and provided the Borrower shall not have prepaid such Loan pursuant to Section 2.9, (i) any such outstanding Eurodollar Term Loan of such Lender shall be automatically converted to a Base Rate Term Loan on the last day of the Interest Period then applicable thereto or on such earlier date as required by law, and (ii) such Lender shall make or continue its portion of any requested Borrowing of such Loan as a Base Rate Term Loan, which Base Rate Term Loan shall, for all other purposes, be considered part of such Borrowing.
(c) Upon the giving of the notice by any Lender (such Lender, a “ Notifying Lender ”) to the Borrower referred to in Section 9.1(a) in connection with a Redomestication, the
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Borrower will either (i) notify the Administrative Agent and such Notifying Lender that (A) the Commitment of such Lender shall be terminated or (B) the rights and obligations of such Notifying Lender under this Agreement of such Notifying Lender have been assigned to one or more banks or other financial institutions (which may be, but need not be, one or more existing Lenders) which at the time agree to, in the case of any such Person that is an existing Lender, increase its Commitment and in the case of any other Person become a party to this Agreement; provided that such Notifying Lender shall have received payment of an amount equal to the outstanding principal of its Term Loans and/or unreimbursed Letters of Credit obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder or (ii) postpone the proposed Redomestication until such time that either one of the actions described in subclause (i) have been taken or such Notifying Lender shall have delivered a notice described in Section 9.1(d) below.
(d) Any Lender that has given any notice pursuant to Section 9.1(a) shall, upon determining that it would no longer be unlawful for it to make such Eurodollar Term Loans (or in connection with any Redomestication, any Term Loans), give prompt written notice thereof to the Borrower and the Administrative Agent, and upon giving such notice, its obligation to make, allow conversions into and maintain, as applicable, such Loans shall be reinstated (except in the case of any Notifying Lender with respect to which the actions described in subclause (i) of Section 9.1(c) above have been taken).
Section 9.2. Unavailability of Deposits or Inability to Ascertain LIBOR Rate . If on or before the first day of any Interest Period for any Borrowing of Eurodollar Term Loans the Administrative Agent determines in good faith (after consultation with the other Lenders) that, due to changes in circumstances since the date hereof, adequate and fair means do not exist for determining the LIBOR Rate (including the unavailability of matching deposits) or such rate will not accurately reflect the cost to the Required Lenders of funding Eurodollar Term Loans for such Interest Period, the Administrative Agent shall give written notice (in reasonable detail) of such determination and of the basis therefor to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower and Lenders that the circumstances giving rise to such suspension no longer exist (which the Administrative Agent shall do promptly after they do not exist), (i) the obligations of the Lenders to make, continue or convert Loans as or into such Eurodollar Term Loans, or to convert Base Rate Term Loans into such Eurodollar Term Loans, shall be suspended and (ii) each outstanding Eurodollar Term Loan will automatically on the last day of the then existing Interest Period therefor, convert into a Base Rate Term Loan.
Section 9.3. Increased Cost and Reduced Return .
(a) If, a Change in Law, or compliance by any Lender (or its applicable Lending Office), with any request or directive (whether or not having the force of law) of any Governmental Authority issued after the date hereof (or, if later, after the date the Administrative Agent or such Lender becomes the Administrative Agent or a Lender):
(i) subjects any Lender (or its applicable Lending Office) to any tax, duty or other charge related to any Term Loan or its obligation to advance or maintain Term Loans or shall change the basis of taxation of payments to any Lender (or its applicable Lending Office) of the principal of or interest on its Term Loans or any other amounts due under this Agreement related to its Term Loans or its obligation to make Term Loans (except for changes with respect to Taxes that are not Indemnified Taxes); or
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(ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement (including any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding for any Term Loan any such requirement included in an applicable Statutory Reserve Rate) against assets of, deposits with or for the account of, or credit extended by, any Lender (or its applicable Lending Office) or imposes on any Lender (or its Lending Office) or on the interbank market any other condition affecting its Term Loans owed to it or its obligation to advance or maintain Term Loans;
and the result of any of the foregoing is to increase the cost to such Lender (or its applicable Lending Office) of advancing or maintaining any Term Loan or to reduce the amount of any sum received or receivable by such Lender (or its applicable Lending Office) in connection therewith under this Agreement, by an amount deemed by such Lender to be material, then, subject to Section 9.3(c), from time to time, within thirty (30) days after receipt of a certificate from such Lender (with a copy to the Administrative Agent) pursuant to Section 9.3(c) setting forth in reasonable detail such determination and the basis thereof, the Borrower shall, without duplication under this Agreement, be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction.
(b) If, after the date hereof, the Administrative Agent or any Lender shall have reasonably determined that a Change in Law regarding capital adequacy or liquidity (including any revision in the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other applicable capital adequacy or liquidity rules heretofore adopted and issued by any governmental authority), or any change after the date hereof in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Administrative Agent or any Lender (or its applicable Lending Office) with any request or directive regarding capital adequacy or liquidity (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s capital, or on the capital of any corporation controlling such Lender as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or its controlling corporation’s policies with respect to capital adequacy or liquidity in effect immediately before such adoption, change or compliance) by an amount reasonably deemed by such Lender to be material, then, subject to Section 9.3(c), from time to time, within thirty (30) days after its receipt of a certificate from such Lender (with a copy to the Administrative Agent) pursuant to Section 9.3(c) setting forth in reasonable detail such determination and the basis thereof, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction.
(c) Each of the Administrative Agent and the Lenders that determines to seek compensation under this Section 9.3 shall give written notice to the Borrower and, in the case of a Lender other than the Administrative Agent, the Administrative Agent of the circumstances
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that entitle the Administrative Agent or such Lender to such compensation no later than ninety (90) days after the Administrative Agent, such Lender receives actual notice or obtains actual knowledge of the law, rule, order or interpretation or occurrence of another event giving rise to a claim hereunder. In any event, neither the Parent nor the Borrower shall have any obligation to pay any amount with respect to claims accruing prior to the ninetieth day preceding such written demand; provided that if the basis or circumstances giving rise to such compensation is retroactive, then such 90-day period referred to in this sentence shall be extended to include the period with retroactive effect thereof. Each of the Administrative Agent and the Lenders shall use reasonable efforts to avoid the need for, or reduce the amount of, such compensation and any payment under Section 3.3, including the designation of a different Lending Office, if such action or designation will not, in the sole judgment of the Administrative Agent or such Lender made in good faith, be otherwise disadvantageous to it; provided that the foregoing shall not in any way affect the rights of any Lender or the obligations of the Parent or the Borrower under this Section 9.3. A certificate of the Administrative Agent or any Lender, as applicable, claiming compensation under this Section 9.3, and setting forth the additional amount or amounts to be paid to it hereunder and accompanied by a statement prepared by the Administrative Agent or such Lender, as applicable, describing in reasonable detail the calculations thereof shall be conclusive absent manifest error of the correctness thereof. In determining such amount, such Lender may use any reasonable averaging and attribution methods.
Section 9.4. Lending Offices . The Administrative Agent and each Lender may, at its option, elect to make or maintain its Loans hereunder at the Lending Office for each Type available hereunder or at such other of its branches, offices or Affiliates as it may from time to time elect and designate in a written notice to the Borrower and the Administrative Agent, provided that, except in the case of any such transfer to another of its branches, offices or Affiliates made at the request of the Borrower, neither the Parent nor the Borrower shall be responsible for the costs arising under Section 3.3 or 9.3 resulting from any such transfer to the extent not otherwise applicable to such Lender prior to such transfer.
Section 9.5. Discretion of Lender as to Manner of Funding . Subject to the other provisions of this Agreement, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit.
Section 9.6. Substitution of Lender . If (a) any Lender has demanded compensation or given notice of its intention to demand compensation under Section 9.3, (b) the Borrower is required to pay any additional amount to any Lender under Section 2.11, (c) any Lender fails to, or is unable to, submit any form or certificate required under Section 3.3(b) or withdraws or cancels any previously submitted form with no substitution therefor, (d) any Lender gives notice of any Change in Law or regulations, or in the interpretation thereof, pursuant to Section 9.1, (f) any Lender shall seek to avoid its obligation to make or maintain Loans hereunder for any reason, including reliance upon 12 U.S.C. § 1821(e) or (n) (1) (B), (g) any taxes referred to in Section 3.3 or Section 11.3 have been levied or imposed (or the Borrower determines in good faith that there is a substantial likelihood that such taxes will be levied or imposed) so as to require withholding or deductions by the Borrower or payment by the Borrower of additional amounts to any Lender, or other reimbursement or indemnification of any Lender, as a result thereof, (h) any Lender shall decline to consent to a modification or waiver of the terms of this Agreement or any other Credit Documents requested by the Parent and the Borrower, or shall fail
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to give its consent to a Redomestication under the laws of a jurisdiction that requires Required Lender consent pursuant to the definition of “Redomestication” or (i) any Lender ceases to be entitled to complete exemption from U.S. federal withholding tax under FATCA with respect to payments to be received pursuant to any Credit Document (as if such payments were U.S. source) or so notifies the Borrower under Section 3.3(g), then and in such event, upon request from the Borrower delivered to such Lender and the Administrative Agent, such Lender shall assign, in accordance with the provisions of Section 11.10 (including the provisions governing required consents) and an appropriately completed Assignment Agreement, all of its rights and obligations under the Credit Documents to another Lender or a commercial banking institution selected by the Borrower, in consideration for the payments set forth in such Assignment Agreement and payment by the Borrower to such Lender of all other amounts which such Lender may be owed pursuant to this Agreement, including Sections 2.11, 3.3, 9.3 and 11.3.
ARTICLE X THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, OTH ER AGENTS
Section 10.1. Appointment and Authorization of Administrative Agent . Each of the Lenders hereby appoints JPMorgan Chase Bank, N.A. as the Administrative Agent, and hereby authorizes the Administrative Agent to take such action on each of its behalf and to exercise such powers under the Credit Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto.
Section 10.2. Rights and Powers as a Lender . The Administrative Agent and the Other Agents, to the extent each such Person is also a Lender, shall have the same rights and powers under the Credit Documents as any other Lender and may exercise or refrain from exercising such rights and power as though it were not the Administrative Agent, or an Other Agent, and the Administrative Agent and the Other Agents and their respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Parent or any of its Subsidiaries or Affiliates thereof as if it were not an Administrative Agent or an Other Agent under the Credit Documents. The term Lender as used in all Credit Documents, unless the context otherwise clearly requires, includes, to the extent such Person is also a Lender hereunder, the Administrative Agent and the Other Agents in their respective individual capacities as a Lender.
Section 10.3. Action by Administrative Agent and the Other Agents . The obligations of the Administrative Agent under the Credit Documents are only those expressly set forth therein. Neither the Syndication Agent nor any Documentation Agent shall have any liabilities, duties, responsibilities or obligations hereunder in such capacity. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action concerning any Default or Event of Default, except as expressly provided in Section 8. Unless and until the Required Lenders (or, if required by Section 11.11, all of the Lenders) give such direction (including the giving of a notice of default as described in Section 8.1(c)), the Administrative Agent may, except as otherwise expressly provided herein or therein, take or refrain from taking such actions as it deems appropriate and in the best interest of all the Lenders. In no event, however, shall the Administrative Agent be required to take any action in violation of applicable law or of any provision of any Credit Document, and the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Credit Document
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unless it first receives any further assurances of its indemnification from the Lenders that it may require, including prepayment of any related expenses and any other protection it requires against any and all costs, expenses, and liabilities it may Incur in taking or continuing to take any such action. The Administrative Agent shall be entitled to assume that no Default or Event of Default, other than non-payment of any scheduled principal or interest payment due hereunder, exists unless notified in writing to the contrary by a Lender or the Parent. In all cases in which the Credit Documents do not require the Administrative Agent to take specific action, the Administrative Agent shall be fully justified in using its discretion in failing to take or in taking any action thereunder. Any instructions of the Required Lenders, or of any other group of Lenders called for under specific provisions of the Credit Documents, shall be binding on all the Lenders and holders of Term Loan Notes.
Section 10.4. Consultation with Experts . The Administrative Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.
Section 10.5. Indemnification Provisions; Credit Decision . Neither the Administrative Agent nor any of its directors, officers, agents, or employees shall be liable to any Lender for any action taken or not taken by them in connection with the Credit Documents (i) with the consent or at the request of the Required Lenders (or, if required by Section 11.11, all of the Lenders) or (ii) in the absence of their own gross negligence or willful misconduct as found in a final non-appealable judgment of a court of competent jurisdiction. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement, any other Credit Document or any Borrowing; (ii) the performance or observance of any of the covenants or agreements of the Parent or any Subsidiary contained herein or in any other Credit Document; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness, genuineness, enforceability, value, worth or collectability hereof or of any other Credit Document or of any other documents or writings furnished in connection with any Credit Document; and the Administrative Agent makes no representation of any kind or character with respect to any such matters mentioned in this sentence. The Administrative Agent may execute any of its duties under any of the Credit Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders or any other Person for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care. The Administrative Agent shall not Incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular and without limiting any of the foregoing, the Administrative Agent shall have no responsibility for confirming the accuracy of any Compliance Certificate or other document or instrument received by any of them under the Credit Documents. The Administrative Agent may treat the payee of any Term Loan Note as the holder thereof until written notice of transfer shall have been filed with such Administrative Agent signed by such owner in form satisfactory to such Administrative Agent. Each of the Lenders acknowledges that it has independently, and without reliance on the Administrative Agent, the Other Agents or any other Lender, obtained such information and made such investigations and inquiries regarding the Parent and its Subsidiaries as it deems appropriate, and
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based upon such information, investigations and inquiries, made its own credit analysis and decision to extend credit to the Borrower in the manner set forth in the Credit Documents. It shall be the responsibility of each Lender to keep itself informed about the creditworthiness and business, properties, assets, liabilities, condition (financial or otherwise) and prospects of the Parent and its Subsidiaries, and the Administrative Agent shall have no liability whatsoever to any Lender or for such matters. The Administrative Agent shall have no duty to disclose to the Lenders information that is not required by any Credit Document to be furnished by the Parent or any Subsidiaries to such Agent at such time, but is voluntarily furnished to such Agent (either in its capacity as Administrative Agent or in its individual capacity).
Section 10.6. Indemnity . The Lenders shall ratably, in accordance with their Percentages, indemnify and hold the Administrative Agent, the Other Agents, and their directors, officers, employees, agents and representatives harmless from and against any liabilities, losses, costs or expenses suffered or Incurred by it under any Credit Document or in connection with the transactions contemplated thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified as found in a final non-appealable judgment of a court of competent jurisdiction; provided that this Section 10.6 shall not limit the Borrower’s reimbursement obligations hereunder. The obligations of the Lenders under this Section 10.6 shall survive termination of this Agreement.
Section 10.7. Resignation of Agents . The Administrative Agent and the Other Agents may resign at any time and shall resign upon any removal thereof as a Lender pursuant to the terms of this Agreement upon at least thirty (30) days’ prior written notice to the Lenders and the Borrower. Any resignation of the Administrative Agent shall not be effective until a replacement therefor is appointed pursuant to the terms hereof. Upon any such resignation of the Administrative Agent, the Required Lenders and, so long as no Event of Default shall then exist, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed) shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders and, so long as no Event of Default shall then exist, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed) appoint a successor Administrative Agent which shall be any Lender hereunder or any commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of its appointment as the Administrative Agent hereunder, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent under the Credit Documents; and the retiring Administrative Agent shall be discharged from its duties and obligations thereunder. After any retiring Administrative Agent’s or Other Agent’s resignation hereunder as Administrative Agent or Other Agent, as the case may be, the provisions of this Article X and all protective provisions of the other Credit Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Other Agent, as the case may be.
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Section 10.8. Sub-Agent . The Sub-Agent has been designated under this Agreement to carry out certain duties of the Administrative Agent as described herein. The Sub-Agent shall be subject to each of the obligations in this Agreement to be performed by the Sub-Agent, and each of the Borrower and the Lenders agrees that the Sub-Agent shall be entitled to exercise each of the rights and shall be entitled to each of the benefits of the Administrative Agent under this Agreement as relate to the performance of its obligations hereunder.
Section 10.9. Collateral and Guaranty Matters; Collateral Agency Agreement . Each Lender (and, by its acceptance of the benefit of any Lien in Collateral pursuant to the terms of the Collateral Documents, each holder of the Rate Management and Currency Protection Obligations, each holder of the Specified Cash Management Obligations and each other Person for whose benefit the Collateral Agent is granted a Lien in Collateral pursuant to the terms of the Collateral Documents) hereby (a) authorizes and directs (i) JPMorgan Chase Bank, N.A. to act as Collateral Agent under the Collateral Agency Agreement and each other Collateral Document, (ii) the Administrative Agent to execute the Collateral Agency Agreement on its behalf (and any amendments, restatements, supplements and other modifications thereof expressly contemplated thereby or for which the requisite consent has been obtained in accordance with the terms thereof), (iii) the Collateral Agent to execute the Intercompany Note Intercreditor Agreement on its behalf (and any amendments, restatements, supplements and other modifications thereof expressly contemplated thereby or for which the requisite consent has been obtained in accordance with the terms thereof), (iv) the Collateral Agent, from time to time, to take any actions with respect to the Collateral or Collateral Documents which may be necessary to perfect and maintain the Liens upon the Collateral granted pursuant to the Collateral Documents and to enter into additional Collateral Documents or amendments to Collateral Documents, as contemplated by Section 6.12 or as necessary or advisable in connection with transfers or changes to the flag or vessel and/or ship registry of any Collateral Rig permitted by Section 6.13, (v) the Administrative Agent to, or to instruct the Collateral Agent in accordance with the Collateral Agency Agreement to (A) release any and all Collateral from the Liens created by the Collateral Documents, subordinate any Lien on any and all such Collateral and/or release any and all Guarantors from their respective obligations under the Guaranty and Collateral Agreement at any time and from time to time in accordance with the provisions of the Collateral Documents and Section 11.20 and (B) execute and deliver, and take any action referred to in Section 11.20, to evidence any such release or subordination and (vi) the Administrative Agent to appoint the Collateral Agent as its mortgagee trustee to receive, hold, administer and enforce the Collateral Rig Mortgages covering the Collateral Rigs, as contemplated under Section 2.1 of the Collateral Agency Agreement; (b) agrees that it will be bound by, and will take no actions contrary to the provisions of, the Collateral Agency Agreement; and (c) acknowledges that it has received a copy of the Collateral Agency Agreement and that the exercise of certain of the Administrative Agent’s rights and remedies hereunder may be subject to, and restricted by, the provisions of the Collateral Agency Agreement. NOTWITHSTANDING ANY OTHER PROVISION CONTAINED IN THIS AGREEMENT, IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND THE COLLATERAL AGENCY AGREEMENT, THE COLLATERAL AGENCY AGREEMENT SHALL CONTROL.
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s and/or the Collateral Agent’s authority, as
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applicable, to release any Collateral from the Liens created by the Collateral Documents, to subordinate any such Liens and/or to release any Guarantor from its obligations under the Guaranty and Collateral Agreement, in each case, pursuant to this Section 10.9 or, in the case of the Collateral Agent, pursuant to the Collateral Agency Agreement.
ARTICLE XI MISCELLANEOUS
Section 11.1. No Waiver . No delay or failure on the part of the Administrative Agent, any Lender or on the part of the holder or holders of any Term Loan Notes, in the exercise of any power, right or remedy under any Credit Document shall operate as a waiver thereof or as an acquiescence in any default, nor shall any single or partial exercise thereof preclude any other or further exercise of any other power, right or remedy. To the fullest extent permitted by applicable law, the powers, rights and remedies under the Credit Documents of the Administrative Agent, the Lenders and the holder or holders of any Term Loan Notes are cumulative to, and not exclusive of, any powers, rights or remedies any of them would otherwise have.
Section 11.2. Non-Business Day . Subject to Section 2.4, if any payment of principal or interest on any portion of any Loan or any other Term Loan Obligation shall fall due on a day which is not a Business Day, interest or fees (as applicable) at the rate, if any, such portion of any Loan or other Term Loan Obligation bears for the period prior to maturity shall continue to accrue in the manner set forth herein on such Obligation from the stated due date thereof to the next succeeding Business Day, on which the same shall instead be payable.
Section 11.3. Documentary Taxes . The Borrower agrees that it will pay any documentary, stamp or similar Taxes payable with respect to any Credit Document, including interest and penalties, in the event any such Taxes are assessed irrespective of when such assessment is made, other than any such Taxes imposed as a result of any transfer of an interest in a Credit Document. Each Lender that determines to seek compensation under this Section 11.3 shall give written notice to the Borrower and, in the case of a Lender other than the Administrative Agent, the Administrative Agent of the circumstances that entitle such Lender to such compensation no later than ninety (90) days after such Lender receives actual notice or obtains actual knowledge of the law, rule, order or interpretation or occurrence of another event giving rise to a claim hereunder. In any event, the Borrower shall not have any obligation to pay any amount with respect to claims under this Section 11.3 accruing prior to the 90th day preceding such written demand (except that, if the applicable event giving rise to such Taxes is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof).
Section 11.4. Survival of Representations . All representations and warranties made herein or in certificates given pursuant hereto shall survive the execution and delivery of this Agreement and the other Credit Documents, and shall continue in full force and effect with respect to the date as of which they were made until Security Termination.
Section 11.5. Survival of Indemnities . All indemnities and all provisions relative to reimbursement to the Lenders of amounts sufficient to protect the yield of the Lenders with respect to the Loans, including Section 2.11, Section 3.3, Section 8.5, Section 9.3, Section 11.3 and Section 11.13, shall, subject to Section 9.3(c), survive the Security Termination.
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Section 11.6. Setoff; Pro Rata Sharing . In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of, and throughout the continuance of, any Event of Default, each Lender and each subsequent holder of any Term Loan Note or any of their respective Affiliates is hereby authorized by the Borrower at any time or from time to time, without prior notice to the Borrower or any other Person, any such prior notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other Indebtedness at any time owing by that Lender or that subsequent holder or any of their respective Affiliates to or for the credit or the account of the Borrower, whether or not matured, against and on account of the due and unpaid obligations and liabilities of the Borrower to that Lender or that subsequent holder under the Credit Documents, irrespective of whether or not that Lender or that subsequent holder shall have made any demand hereunder. Each Lender or any of their respective Affiliates shall promptly give notice to the Borrower of any action taken by it under this Section 11.6, provided that any failure of such Lender or any of their respective Affiliates to give such notice to the Borrower shall not affect the validity of such setoff. Except as otherwise provided herein, each Lender agrees with each other Lender party hereto that if such Lender receives and retains any payment, whether by setoff or application of deposit balances or otherwise, in respect of the Loans in excess of its ratable share of payments on all such Term Loan Obligations then owed to the Lenders hereunder, then such Lender shall purchase for cash at face value, but without recourse, ratably from each of the other Lenders such amount of the Loans held by each such other Lender as shall be necessary to cause such Lender to share such excess payment ratably with all the other Lenders; provided , however , that if any such purchase is made by any Lender and if such excess payment or part thereof is thereafter recovered from such purchasing Lender, the related purchases from the other Lenders shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest.
Section 11.7. Notices .
(a) Except as otherwise specified herein and except as otherwise provided in Section 11.7(b), all notices under the Credit Documents shall be in writing (including email or facsimile) and shall be given to a party hereunder at its address, email address or facsimile number set forth below or such other address, email address or facsimile number as such party may hereafter specify by notice to the Administrative Agent, the Parent and the Borrower, given by courier, by United States certified or registered mail, by facsimile or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices under the Credit Documents to the Lenders shall be addressed to their respective domestic Lending Offices in the United States at the respective addresses, email addresses or facsimile numbers, or telephone numbers set forth on their applicable Administrative Questionnaire provided to the Administrative Agent, the Parent and the Borrower or, in the case of Persons becoming Lenders pursuant to Assignment Agreements, on their applicable Assignment Agreements, and to the Parent, the Borrower, the Administrative Agent and the Sub-Agent:
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To the Parent:
Paragon Offshore Limited 3151 Briarpark Drive Suite 700 Houston, TX 77042 Attention: Legal Department Facsimile: (832) 201-7433 Email: [email protected]
Each such notice, request or other communication shall be effective (i) if given by facsimile or email, when such fax or email is transmitted to the facsimile number or email address specified in this Section 11.7 or pursuant to Section 11.10 and a confirmation of receipt of such fax or email has been received by the sender, (ii) if given by courier, when delivered, (iii) if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested, or (iv) if given by any other means, when delivered at the addresses specified in this Section 11.7, or pursuant to Section 11.10; provided that any notice given pursuant to Article II shall be effective only upon receipt and, provided , further , that any notice that but for this proviso would be effective after the close of business on a Business Day or on a day that is not a Business Day shall be effective at the opening of business on the next Business Day.
Notwithstanding the foregoing, materials required to be delivered pursuant to Section 6.6 shall be delivered to the Administrative Agent as specified in Section 11.7(b) or as otherwise specified to the Parent and the Borrower by the Administrative Agent; provided that any communication that (A) relates to a request for a new, or a conversion of an existing, Loan or other extension of credit (including any election of an interest rate or Interest Period relating thereto), (B) relates to the payment of any principal or other amount due under this Agreement
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To the Borrower:
Paragon Offshore Finance Company c/o Maples Corporate Services Limited P.O. Box 309, Ugland House S. Church Street Grand Cayman KY1-1104 Cayman Islands Attention: Legal Department Facsimile: (832) 201-7433 Email: [email protected]
To the Administrative Agent JPMorgan Chase Bank, N.A. and the Sub-Agent:
500 Stanton Christiana Rd Ops 2, Floor 3 Newark, DE 19713 Attention: Tesfaye Antenth Telephone: 302-634-4812 Facsimile: 302-634-1417 Email: [email protected]
prior to the scheduled date therefor, (C) provides notice of any Default or Event of Default or (D) is required to be delivered to satisfy any condition precedent to the effectiveness of any provision of this Agreement and/or any Loan or other extension of credit hereunder, shall be in writing (including facsimile or email communication) and mailed, faxed or delivered pursuant to this Section 11.7(a).
(b) The Borrower will provide to the Administrative Agent all information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to the Credit Documents, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Loan or other extension of credit (including any election of an interest rate or Interest Period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default or (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of any provision of this Agreement and/or any Loan or other extension of credit hereunder (all such non-excluded communications being referred to herein collectively as “ Communications ”), by transmitting the Communications in an electronic/soft medium to Tesfaye Anteneh at [email protected].
The Borrower further agrees that the Administrative Agent may make the Communications available the Lenders by posting the Communications on Intralinks or a substantially similar electronic transmission system (the “ Platform ”). The Borrower acknowledge that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution.
THE PLATFORM IS PROVIDED “ AS IS” AND “ AS AVAILABLE ” . THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COM MUNICATIONS, OR THE ADEQUACY OF THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERROR S OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY , INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL T HE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THE RESPECTIVE OFFICERS, DIREC TORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES OF THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES (COLLECTIVELY, “ AGENT PARTIES ” ) HAVE ANY LIABILITY TO THE BORROWER, ANY LENDER OR A NY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE TRANSMISSION BY THE PARENT, THE BORROWER, AN Y OF THE AGENT PARTIES OR ANY OTHER PERSON OF COMMUNICATIONS THROUGH THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY AGENT PARTY IS
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FOUND IN A FINAL NON -APPEALABLE JUDGMENT OF A COURT OF COMPETENT JURISDI CTION TO HAVE RESULTED PRIMARILY FROM SUCH AGENT PARTY ’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
The Administrative Agent agrees that the receipt of the Communications by the Administrative Agent at its email address set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Credit Documents. Each of the Lenders agrees that notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Credit Documents. Each of the Lenders agrees (i) to notify the Administrative Agent in writing (including by electronic communication) from time to time of such Lender’s email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.
Nothing herein shall prejudice the right of the Administrative Agent or any Lender to give any notice or other communication pursuant to any Credit Document in any other manner specified in such Credit Document.
Section 11.8. Counterparts . This Agreement may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, each of which when executed shall be deemed an original, but all such counterparts taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic method of transmission (in .pdf format) shall be effective as delivery of a manually executed original counterpart of this Agreement.
Section 11.9. Successors and Assigns . This Agreement shall be binding upon the Parent, the Borrower, each of the Lenders, the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Parent, the Borrower, each of the Lenders, the Administrative Agent and their respective successors and assigns, including any subsequent holder of any Note; provided , however , (i) neither the Parent nor the Borrower may assign any of its rights or obligations under this Agreement or any other Credit Document without the written consent of all Lenders and the Administrative Agent (except pursuant to a Redomestication), (ii) the Administrative Agent may not assign any of its rights or obligations under this Agreement or any Credit Document except in accordance with Article X, and (iii) no Lender may assign any of its rights or obligations under this Agreement or any other Credit Document except in accordance with Section 11.10. Any Lender may at any time pledge or assign all or any portion of its rights under this Agreement and the Term Loan Notes issued to it (i) to a Federal Reserve Bank or the European Central Bank to secure extensions of credit by such Federal Reserve Bank to such Lender or (ii) in the case of any Lender that is a fund comprised in whole or in part of commercial loans, to a trustee for such fund in support of such Lender’s obligations to such trustee; provided that no such pledge or assignment shall release a Lender from any of its obligations hereunder or substitute any such Federal Reserve Bank or the European Central Bank or such trustee for such Lender as a party hereto and the Parent, the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely with such Lender in connection with the rights and obligations of such Lender under this Agreement.
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Section 11.10. Participations in Loans and Term Loan Notes; Sales and Transfers of Loans and Term Loan Notes .
(a) Any Lender may, without the consent of, or notice to, the Borrower or the Administrative Agent, at any time sell to one or more commercial banking or other financial or lending institutions (“ Participants ”) participating interests in the Term Loans of such Lender hereunder, provided that no Lender shall transfer, grant or assign any participation under which the Participant shall have rights to vote upon or to consent to any matter to be decided by the Lenders or the Required Lenders hereunder or under any other Credit Document or to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) increase the amount of such Lender’s Commitment and such increase would affect such Participant, (ii) reduce the principal of, or interest on, any of such Lender’s Term Loans, or any fees or other amounts payable to such Lender hereunder and such reduction would affect such Participant, (iii) postpone any date fixed for any scheduled payment of principal of, or interest on, any of such Lender’s Term Loans, or any fees or other amounts payable to such Lender hereunder and such postponement would affect such Participant, or (iv) release any collateral security for any Term Loan Obligation, except as otherwise specifically provided in any Credit Document. In the event of any such sale by a Lender of participating interests to a Participant, such Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Term Loan Note for all purposes under this Agreement, the Parent, the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and such Lender shall retain the sole right to enforce the obligations of the Borrower under any Credit Document. The Borrower agrees that if amounts outstanding under this Agreement and the Term Loan Notes shall have been declared or shall have become due and payable in accordance with Section 8.2 or 8.3 upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Term Loan Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note, provided that such right of setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Section 11.6. The Borrower also agrees that each Participant shall be entitled to the benefits of and have the obligations under Sections 2.11, 3.3 and 9.3 with respect to its participation in the Term Loans outstanding from time to time, provided that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred if no participation had been transferred (unless the entitlement to such greater payment results from a Change in Law after the date such Lender transferred the participation) and provided , further , that Sections 9.3(c) and 9.6 shall apply to the transferor Lender with respect to any claim by any Participant pursuant to Section 2.11, 3.3 or 9.3 as fully as if such claim was made by such Lender. Anything herein to the contrary notwithstanding, the Borrower shall not at any time be obligated to pay to any Lender any sum in excess of the sum the Borrower would have been obligated to pay to such Lender hereunder if such Lender had not sold any participation in its rights and obligations under this Agreement or any other Credit Document, unless the obligation to pay such sum results from a Change in Law after the date such Lender sold its participation in its Term Loans. Each Lender that sells a participation shall, acting solely for
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this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Term Loans or other obligations under the Credit Documents (the “ Participant Register ”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any Term Loans or its other obligations under any Credit Document) except to the extent that such disclosure is necessary to establish that such Term Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(b) Any Lender may at any time sell (i) to any of such Lender’s Affiliates, to an Approved Fund or to any other Lender or Affiliate thereof, that, in each case, is a commercial banking or other financial or lending institution not subject to Regulation T of the Board of Governors of the Federal Reserve System, or (ii) with the prior written consent (which shall not be unreasonably withheld or delayed) of the Administrative Agent and, if no Event of Default has occurred and is continuing, the Borrower (it being understood that if the Borrower has not responded within ten (10) Business Days after the delivery of any written request for a consent, such consent shall be deemed to have been given), to one or more commercial banking or other financial or lending institutions not described in (i), above that are not subject to Regulation T of the Board of Governors of the Federal Reserve System (any of (i) or (ii), a “ Purchasing Lender ”), all or any part of its rights and obligations under this Agreement and the other Credit Documents, pursuant to an Assignment Agreement, executed by such Purchasing Lender and such transferor Lender (and, in the case of a Purchasing Lender described in clause (ii), above, by the Borrower and the Administrative Agent) and delivered to the Administrative Agent; provided that each such sale to a Purchasing Lender (other than an existing Lender) shall be in the amount of $5,000,000 or more, or if in a lesser amount or if as a result of such sale the aggregate principal amount of such Lender’s Term Loans would be less than the amount of $5,000,000 (calculated as hereinafter set forth), such sale shall be of all of such Lender’s rights and obligations under this Agreement and all of the other Credit Documents payable to it to one Purchasing Lender. Upon such execution, delivery and acceptance, from and after the effective date of the transfer determined pursuant to such Assignment Agreement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment Agreement, have the rights and obligations of a Lender hereunder and (y) the transferor Lender thereunder shall, to the extent provided in such Assignment Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of a transferor Lender’s rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). On or prior to the effective date of the transfer determined pursuant to such Assignment Agreement, the Borrower, at its own expense, shall upon reasonable notice from the Administrative Agent execute and deliver to the Administrative Agent in exchange for any surrendered Term Loan Note, a new Term Loan Note as appropriate to such Purchasing Lender in an amount equal to the Term Loans assumed by it pursuant to such Assignment Agreement, and, if the transferor Lender has retained any outstanding Term Loan hereunder, a new Term Loan Note to the order of the transferor Lender
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in an amount equal to the outstanding Term Loans retained by it hereunder. Such new Term Loan Notes shall be dated the Funding Date and shall otherwise be in the form of the Term Loan Notes replaced thereby. The Term Loan Notes surrendered by the transferor Lender shall be returned by the Administrative Agent to the Borrower marked “cancelled”.
(c) Upon its receipt of an Assignment Agreement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof or an Approved Fund thereof, by the Administrative Agent and, to the extent required by Section 11.10(b), by the Borrower), together with payment by the transferor Lender to the Administrative Agent hereunder of a registration and processing fee of $3,500 (unless the Borrower is replacing such Lender pursuant to the terms hereof, in which event such fee shall be paid by the Borrower), the Administrative Agent shall (i) promptly accept such Assignment Agreement, and (ii) on the effective date of the transfer determined pursuant thereto give notice of such acceptance and recordation to the Lenders and the Borrower. The Borrower shall not be responsible for such registration and processing fee or any costs or expenses Incurred by any Lender, any Purchasing Lender or the Administrative Agent in connection with such assignment except as provided above.
(d) If, pursuant to this Section 11.10 any interest in this Agreement or any Loan or Term Loan Note is transferred (including by reason of a change of the Lending Office of the Lender with respect to such Loan or Note) to (i) any transferee that is organized under the laws of any jurisdiction other than the United States of America or any State thereof or (ii) any transferee that is an entity organized under the laws of the United States of America or any State thereof and that is disregarded for U.S. federal income tax purposes as separate from any Person organized under the laws of any jurisdiction other than the United States of America or any State thereof), the transferor Lender shall cause such transferee (or its owner, as appropriate), concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, the Borrower or the transferor Lender with respect to any payments to be made to such transferee pursuant to the Credit Documents, (ii) to furnish to the transferor Lender (and, in the case of any Purchasing Lender, the Administrative Agent and the Borrower) two copies of a properly completed and duly executed certification on the applicable United States Internal Revenue Service Form W-8 (or any successor form) wherein such transferee (or its owner, as appropriate) either (x) claims entitlement to complete exemption from U.S. federal withholding tax with respect to payments to be received pursuant to the Credit Documents (as if such payments were U.S. source) or (y) certifies that it is not a United States person, provided , that, in the case of subclause (y), such transferee also shall submit a certificate substantially in the form of Exhibit 3.3 to the effect that such transferee is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10-percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code, and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Borrower) to provide the transferor Lender (and, in the case of any Purchasing Lender, the Administrative Agent and the Borrower) any other forms contemplated by Section 3.3(b) and Section 3.3(d), and (iv) to comply from time to time with all applicable U.S. and United Kingdom laws and regulations with regard to any applicable withholding tax exemption. Any such transferee shall make the representation contained in and agree to be bound by the provisions of Section 3.3(g) as if such transferee were a Lender.
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(e) Notwithstanding any other provisions of this Section 11.10, no transfer or assignment of the interests of any Lender hereunder or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans, the Term Loan Notes or any other Term Loan Obligations under the securities laws of any jurisdiction.
(f) Notwithstanding any other provision in the Credit Documents, any Lender may, at any time, assign all or a portion of its rights and obligations with respect to Term Loans under this Agreement to the Parent, the Borrower or any of the Parent’s Subsidiaries through reverse Dutch auctions in accordance with Section 2.14 and open market purchases in accordance with Section 2.15; provided that the aggregate principal amount (calculated on the face amount thereof) of all Term Loans so assigned by any Lender to the Parent, the Borrower or any of the Parent’s Subsidiaries shall automatically be cancelled and retired by them on the settlement date of the relevant assignment (and may not be reassigned or resold).
Section 11.11. Amendments, Waivers and Consents . Any provision of the Credit Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) in the case of this Agreement, the Parent, the Borrower, the Required Lenders, and if the rights or duties of the Administrative Agent are affected thereby, the Administrative Agent and (b) in the case of any other Credit Document, each party thereto and the Administrative Agent (with the consent of the Required Lenders), provided that:
(i) no amendment or waiver shall (A) increase or extend any Commitment of any Lender without the consent of such Lender, (B) reduce the amount of or postpone the date for any scheduled payment of any principal of or interest (including any reduction in the rate of interest unless such reduction is otherwise provided herein) on any Loan or of any fee payable hereunder, without the consent of each Lender owed any such Term Loan Obligation, (C) release all or substantially all of the value of the Guaranties of the Guarantors under the Guaranty and Collateral Agreement or all or substantially all of the Collateral (except as expressly provided for in the Guaranty and Collateral Agreement, the Collateral Documents or Section 11.20) without the consent of all Lenders, (D) waive the provisions of Article IV hereof without in each such case the consent of all Lenders, (E) change any provision requiring ratable funding or sharing of payments without the consent of all Lenders or (F) amend or waive this Section 11.11, the definition herein of “Required Lenders” or the number of Lenders required to take any action under any other provision of the Credit Documents without the consent of each Lender directly and adversely affected thereby; and
(ii) notwithstanding anything to the contrary herein any Borrowing Request may be amended with the consent of only the Borrower and the Administrative Agent.
Section 11.12. Headings . Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement.
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Section 11.13. Legal Fees, Other Costs and Indemnification .
(a) The Borrower, upon written demand by the Administrative Agent, agrees to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent (including the reasonable fees and disbursements of one legal counsel to the Administrative Agent, plus, if reasonably required by the Administrative Agent, one local counsel in each appropriate jurisdiction) in connection with the preparation and execution of the Credit Documents (not to exceed such amount previously agreed to by the Administrative Agent), and any amendment, waiver or consent related thereto, whether or not the transactions contemplated therein are consummated. The Borrower further agrees to indemnify and hold harmless each Lender, each Affiliate of a Lender, each Arranger, the Administrative Agent, the Other Agents, and their respective directors, officers, employees and attorneys (collectively, the “ Indemnified Parties ”), against all losses, claims, damages, penalties, judgments, liabilities and expenses (including the reasonable fees of one legal counsel for the Indemnified Parties, plus one local counsel in each appropriate jurisdiction and, in the case of an actual or perceived conflict of interest, another firm of counsel for the Indemnified Party affected by such conflict, and other reasonable expenses of litigation or preparation therefor, whether or not such Indemnified Party is a party thereto) which any of them may pay or Incur as a result of (a) any action, suit or proceeding by any third party or Governmental Authority against such Indemnified Party and relating to any Credit Document, the Loans or the application or proposed application by the Borrower of the proceeds of any Loan, REGARDLESS OF WHETHER SUCH CLAIMS OR ACTIONS ARE FO UNDED IN WHOLE OR IN PART UPON THE ALLEGED SIMPLE OR CONTRIBUTORY NEGLIGENCE OF ANY OF THE IND EMNIFIED PARTIES , (b) any investigation of any third party or any Governmental Authority involving any Lender, any Affiliate of a Lender, any Arranger or the Administrative Agent or the Other Agents (in each case, in such capacity hereunder) and related to any use made or proposed to be made by the Borrower of the proceeds of any Loan or any transaction financed or to be financed in whole or in part, directly or indirectly with the proceeds of any Loan, and (c) any investigation of any third party or any Governmental Authority, litigation or proceeding involving any Lender, any Affiliate of a Lender, any Arranger or the Administrative Agent or the Other Agents (in each case, in such capacity hereunder) and related to any environmental cleanup, audit, compliance or other matter relating to any Environmental Law or the presence of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law) with respect to the Borrower, regardless of whether caused by, or within the control of, the Borrower, provided , however , that the Borrower shall not be obligated to indemnify any Indemnified Party for any of the foregoing (i) arising out of such Indemnified Party’s gross negligence, willful misconduct or violation of law or willful breach of its obligations hereunder as found in a final non-appealable judgment of a court of competent jurisdiction or as expressly agreed in writing by such Indemnified Party, (ii) to the extent arising from a litigation, claim or proceeding solely among Indemnified Parties (other than a litigation, claim or proceeding brought against the Administrative Agent in its capacity as such or to the extent arising from the actions of a Credit Party) or (iii) to the extent such indemnification relates to Taxes, except any Taxes arising from a non-Tax claim. The Borrower, upon written demand by the Administrative Agent, the Other Agents, a Lender, an Affiliate of a Lender or an Arranger at any time, shall reimburse such Agent, Lender, Affiliate of a Lender or Arranger for any reasonable legal or other expenses Incurred in connection with investigating or defending against any of the foregoing, except if the same is excluded from indemnification pursuant to the provisions of the preceding sentence. Each Indemnified Party agrees to contest any indemnified
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claim if requested by the Borrower, in a manner reasonably directed by the Borrower, with counsel selected by the Indemnified Party and approved by the Borrower, which approval shall not be unreasonably withheld or delayed. Any Indemnified Party that proposes or intends to settle or compromise any such indemnified claim shall give the Borrower written notice of the terms of such settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain the Borrower’s prior written consent thereto, which consent shall not be unreasonably withheld or delayed; provided that the Indemnified Party shall not be restricted from settling or compromising any such claim if (i) the Indemnified Party waives its right to indemnity from the Borrower in respect of such claim and such settlement or compromise does not materially increase the Borrower’s liability pursuant to this Section 11.13 to any related party of such Indemnified Party, (ii) an Event of Default as described in Section 8.1(a), (b), (f) or (g) or has occurred and is continuing or (iii) the Indemnified Party reasonably believes the Credit Parties will not be able to satisfy the full amount of such claim and the Credit Parties have failed to provide sufficient collateral to the Indemnified Party to secure the value of such claim.
(b) To the extent that any Credit Party fails to pay any amount required to be paid by it to the Administrative Agent under Section 11.13(a), each Lender severally agrees to pay to the Administrative Agent within 10 days of demand therefor, as the case may be, such Lender’s Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.
Section 11.14. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial .
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AND THE RIGHTS AND DUTIES OF THE PARTIES THERETO, SHALL, EXCEPT AS OTHERWISE PROVIDE D IN CERTAIN OF THE OTHER CREDIT DOCUMENTS, BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(b) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, CO URSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE OTHER AGENTS, THE LENDERS OR A CREDIT PARTY MAY BE BROUGHT AND MAINTAINED IN THE COURTS O F THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN. TO THE FU LLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARENT AND THE BORROWER HEREBY EXPRESSL Y AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN THE BOROUG H OF MANHATTAN FOR THE PURPOSE OF ANY
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SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH OF THE PARENT AND THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, 111 8 TH AVENUE, NEW YORK, NEW YORK 10011, AS THE DESIGNEE, APPOINTEE AND AGENT OF THE PARENT AND THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF SUCH PERSON, SERVICE OF PROCESS IN SUCH JURISDICTION IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT HERETO. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARENT AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVIC E OF PROCESS, BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT T HE STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARENT AND THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH CO URT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVEN IENT FORUM. TO THE EXTENT THAT EITHER THE PARENT OR THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SE RVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWI SE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PER MITTED BY APPLICABLE LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
(c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO E NFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUM ENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWI TH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGR EES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
(d) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS T O SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.7. NOTHIN G IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(e) EACH OF THE PARENT, THE BORROWER, THE ADMINISTRATIV E AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULL EST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO
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CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN T HIS SECTION 11.14 OR OTHERWISE RELATING TO THE CREDIT DOCUMENTS ANY SPECIAL, INDIRECT, CONSEQUENTI AL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES); PROVIDED THAT THIS WAIVER DOES NOT LIMIT ANY OF THE BORROWER ’S INDEMNIFICATION OBLIGATIONS HEREUNDER.
Section 11.15. Confidentiality . Each of the Administrative Agent and the Lenders agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to their respective Affiliates, to prospective Purchasing Lenders and Participants, and to prospective counterparties under hedging, swap or derivatives agreements, and their respective directors, officers, employees and agents, including accountants, legal counsel and other advisors who have reason to use such Information in connection with the evaluation of the transactions contemplated by this Agreement (subject to similar confidentiality provisions as provided herein) solely for purposes of evaluating such Information and, with the written consent of the Parent or the Borrower (such consent not to be unreasonably withheld or delayed), the Rating Agencies, (ii) to the extent requested by any regulatory authority or self-regulatory body, (iii) to the extent required by applicable law or regulation or by any subpoena or similar legal process, (iv) in connection with the exercise of any remedies hereunder or any proceedings relating to this Agreement or the other Credit Documents, (v) with the written consent of the Parent or the Borrower, or (vi) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Section 11.15, or (B) becomes available on a non-confidential basis from a source other than the Parent or its Affiliates, or the Lenders or their respective Affiliates, excluding any Information from such source which, to the actual knowledge of the Administrative Agent, the Other Agents or Lender receiving such Information, has been disclosed by such source in violation of a duty of confidentiality to the Parent or any of its Affiliates. For purposes hereof, “Information” means all information received by the Administrative Agent or the Lenders from the Parent or any of its Subsidiaries relating to the Parent, any of its Subsidiaries or their respective businesses, other than any such information that is available to the Administrative Agent, the Other Agents or the Lenders on a non-confidential basis prior to disclosure by the Parent or such Subsidiary, excluding any Information from a source which, to the actual knowledge of the Administrative Agent or the Lender receiving such Information, has been disclosed by such source in violation of a duty of confidentiality to the Parent or any Affiliate thereof. The Administrative Agent and the Lenders shall be considered to have complied with their respective obligations if they have exercised the same degree of care to maintain the confidentiality of such Information as they would accord their own confidential information.
Section 11.16. Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Section 11.17. Currency Conversion . All payments of Term Loan Obligations under this Agreement, the Term Loan Notes or any other Credit Document shall be made in U.S. Dollars. If any payment of any Term Loan Obligation, whether through payment by any Credit Party or
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the proceeds of any Collateral, shall be made in a currency other than U.S. Dollars, such amount shall be converted into U.S. Dollars at the rate determined by the Administrative Agent as the rate quoted by it in accordance with methods customarily used by such Person for such or similar purposes as the spot rate for the purchase by such Person of U.S. Dollars with the currency of actual payment through its principal foreign exchange trading office (including, in the case of the Administrative Agent, the Sub-Agent) at approximately 11:00 A.M. (local time at such office) two (2) Business Days prior to the effective date of such conversion. The parties hereto hereby agree, to the fullest extent that they may effectively do so under applicable law, that (i) if for the purposes of obtaining any judgment or award it becomes necessary to convert from any currency (other than U.S. Dollars) into U.S. Dollars any amount in connection with the Term Loan Obligations, then the conversion shall be made as provided above on the Business Day before the day on which the judgment or award is given, (ii) in the event that there is a change in the applicable conversion rate prevailing between the Business Day before the day on which the judgment or award is given and the date of payment, the Borrower will pay to the Administrative Agent, for the benefit of the Lenders, such additional amounts (if any) as may be necessary, and the Administrative Agent, on behalf of the Lenders, will pay to the Borrower such excess amounts (if any) as result from such change in the rate of exchange, to assure that the amount paid on such date is the amount in such other currency, which when converted at the conversion rate described herein on the date of payment, is the amount then due in U.S. Dollars, and (iii) any amount due from the Borrower under this Section 11.17 shall be due as a separate debt and shall not be affected by judgment or award being obtained for any other sum due.
Section 11.18. Final Agreement . The Credit Documents constitute the entire understanding among the Credit Parties, the Lenders, the Other Agents and the Administrative Agent and supersede all earlier or contemporaneous agreements, whether written or oral, concerning the subject matter of the Credit Documents. THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER CREDIT DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 11.19. Officer’s Certificates . It is not intended that any certificate of any Officer of any Credit Party delivered to the Administrative Agent or any Lender pursuant to this Agreement shall give rise to any personal liability on the part of such Officer.
Section 11.20. Release of Collateral and Guarantors .
(a) Any Lien on any Collateral granted to or held by, and any Guaranty of a Guarantor of the Term Loan Obligations to, the Administrative Agent and/or the Collateral Agent under any Credit Document shall automatically be released, terminated and discharged (as used in this Section 11.20, “released”) without the need for any further action by any Person: (i) upon Security Termination, (ii) with respect to any such Lien, in the event that any asset constituting Collateral is, or is to be, Disposed of as part of, or in connection with, any transaction not prohibited hereunder or under any other Credit Document, or if such asset becomes an “Excluded Asset” (as defined in the Guaranty and Collateral Agreement), (iii) with respect to any Collateral Rig, promptly following the request of the Borrower to release such Rig
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from the Lien of the applicable Collateral Rig Mortgage, if immediately after giving effect to such release, the Collateral Coverage Ratio will not be less than 1.50 to 1.00, (iv) with respect to any such Guaranty, if such Credit Party ceases to be a Collateral Rig Owner, Pledgor or Internal Charterer, or (v) to the extent approved, authorized or ratified in writing in accordance with Section 11.11.
(b) In addition, the Collateral Agent and/or the Administrative Agent, as applicable, shall, without the need for any further action by any Person, subordinate or release (i) any Lien on any Collateral granted to or held by the Collateral Agent and/or the Administrative Agent, respectively, under any Credit Document to the holder of any Permitted Lien described in the proviso of clause (b) and clauses (c), (d) and (f) of the definition of Permitted Liens.
(c) In the case of any release or subordination described in this Section 11.20, the Administrative Agent and/or the Collateral Agent, as applicable, shall, at the Borrower’s expense, promptly execute and deliver to the applicable Credit Party such documents as such Credit Party or the Parent may reasonably request to evidence such release or subordination and take such additional actions as may from time to time be reasonably requested by the applicable Credit Party or the Parent to effect the foregoing.
Section 11.21. Patriot Act Notice . Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Parent and the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Parent and the Borrower, which information includes the name and address of the Parent and the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Parent and the Borrower in accordance with the Patriot Act. The Parent and the Borrower shall provide, to the extent commercially reasonable, such information and take such actions as are reasonably requested by the Administrative Agent or any Lenders in order to assist the Administrative Agent and the Lenders in maintaining compliance with the Patriot Act.
Section 11.22. No Advisory or Fiduciary Responsibility . In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Credit Document), the Parent and the Borrower acknowledge and agree, and acknowledge their respective Affiliates’ understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Other Agents, the Arrangers and the Lenders are arm’s-length commercial transactions between the Parent, the Borrower and their Affiliates, on the one hand, and the Administrative Agent, the Other Agents, the Arrangers and the Lenders, on the other hand, (B) the Parent and the Borrower have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate, and (C) the Parent and the Borrower are capable of evaluating, and understand and accept, the terms, risks and conditions of the transactions contemplated hereby and by the other Credit Documents; (ii) (A) the Administrative Agent, each Other Agent, each Lender and each Arranger is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Parent, the Borrower or any of their respective Affiliates, or any other Person and (B) neither Administrative Agent nor any Other Agent, any Arranger or any Lender has any obligation to the Parent or the Borrower or any of their
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respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Credit Documents; and (iii) the Administrative Agent, the Other Agents, the Arrangers and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Parent, the Borrower and their respective Affiliates, and neither the Administrative Agent, any Other Agent, any Arranger or any Lender has any obligation to disclose any of such interests to the Parent, the Borrower or their respective Affiliates. To the fullest extent permitted by law, the Parent and the Borrower hereby waive and release any claims that it may have against the Administrative Agent, any Other Agent, any Arranger or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
[ The remainder of this page is intentionally left blank. ]
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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed as of the date first above written.
Signature Page to Paragon Term Loan Agreement
PARAGON OFFSHORE PLC , as Parent
By: Name: James A. MacLennan Title: Director
PARAGON OFFSHORE FINANCE COMPANY , as Borrower
By: Name: Alan R. Hay Title: Director
Signature Page to Paragon Term Loan Agreement
JPMORGAN CHASE BANK, N.A. , as Administrative Agent and Lender
By: Name: Title:
Signature Page to Paragon Term Loan Agreement
DEUTSCHE BANK AG NEW YORK BRANCH , as Lender
By: Name: Title:
By: Name: Title:
Signature Page to Paragon Term Loan Agreement
BARCLAYS BANK PLC , as Lender
By: Name: Title:
Signature Page to Paragon Term Loan Agreement
[ Other Lender ]
By: Name: Title:
Exhibit 4.3
FORM OF SENIOR NOTES INDENTURE
Dated as of July [ ], 2014
Among
PARAGON OFFSHORE PLC,
THE SUBSIDIARY GUARANTORS LISTED ON THE SIGNATURE PAGES HERETO
and
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee
6.75% SENIOR NOTES DUE 2022
and
7.25% SENIOR NOTES DUE 2024
TABLE OF CONTENTS
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Page
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE 1
Section 1.01 Definitions 1 Section 1.02 Other Definitions 30 Section 1.03 Rules of Construction 31 Section 1.04 Incorporation by Reference of Trust Indenture Act 32 Section 1.05 Acts of Holders 32
ARTICLE 2 THE NOTES 34
Section 2.01 Form and Dating; Terms 34 Section 2.02 Execution and Authentication 35 Section 2.03 Registrar and Paying Agent 36 Section 2.04 Paying Agent to Hold Money in Trust 36 Section 2.05 Holder Lists 36 Section 2.06 Transfer and Exchange 37 Section 2.07 Replacement Notes 38 Section 2.08 Outstanding Notes 38 Section 2.09 Treasury Notes 38 Section 2.10 Temporary Notes 39 Section 2.11 Cancellation 39 Section 2.12 Defaulted Interest 39 Section 2.13 CUSIP and ISIN Numbers 40
ARTICLE 3 REDEMPTION 40
Section 3.01 Notices to Trustee 40 Section 3.02 Selection of Notes to Be Redeemed or Purchased 40 Section 3.03 Notice of Redemption 41 Section 3.04 Effect of Notice of Redemption 42 Section 3.05 Deposit of Redemption or Purchase Price 42 Section 3.06 Notes Redeemed or Purchased in Part 42 Section 3.07 Optional Redemption 43 Section 3.08 Mandatory Redemption 45 Section 3.09 Offers to Repurchase by Application of Excess Proceeds 45 Section 3.10 Purchase of Notes 48
ARTICLE 4 COVENANTS 48
Section 4.01 Payment of Notes 48 Section 4.02 Maintenance of Office or Agency 48 Section 4.03 Taxes 48 Section 4.04 Stay, Extension and Usury Laws 49 Section 4.05 Corporate Existence 49 Section 4.06 Reports 49 Section 4.07 Compliance Certificate 50 Section 4.08 Restricted Payments 51
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Page
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock 56 Section 4.10 Liens 59 Section 4.11 Additional Guarantees 59 Section 4.12 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries 60 Section 4.13 Designation of Restricted and Unrestricted Subsidiaries 62 Section 4.14 Transactions with Affiliates 63 Section 4.15 Offer to Repurchase Upon Change of Control 64 Section 4.16 Asset Sales 67 Section 4.17 Effectiveness of Covenants 69 Section 4.18 Business Activities 70 Section 4.19 Maintenance of Listing 70 Section 4.20 Payment of Additional Amounts 71
ARTICLE 5 SUCCESSORS 73
Section 5.01 Merger, Consolidation or Sale of All Assets 73 Section 5.02 Successor Entity Substituted 75
ARTICLE 6 DEFAULTS AND REMEDIES 76
Section 6.01 Events of Default and Remedies 76 Section 6.02 Acceleration 78 Section 6.03 Other Remedies 79 Section 6.04 Waiver of Past Defaults 79 Section 6.05 Control by Majority 79 Section 6.06 Limitation on Suits 80 Section 6.07 Rights of Holders to Receive Payment 80 Section 6.08 Collection Suit by Trustee 80 Section 6.09 Restoration of Rights and Remedies 80 Section 6.10 Trustee May File Proofs of Claim 81 Section 6.11 Priorities 81 Section 6.12 Undertaking for Costs 81
ARTICLE 7 TRUSTEE 82
Section 7.01 Duties of Trustee 82 Section 7.02 Rights of Trustee 83 Section 7.03 Individual Rights of Trustee 84 Section 7.04 Trustee’s Disclaimer 84 Section 7.05 Notice of Defaults 84 Section 7.06 Reports by Trustee to Holders of the Notes 84 Section 7.07 Compensation and Indemnity 85 Section 7.08 Replacement of Trustee 85 Section 7.09 Successor Trustee by Merger, etc. 86 Section 7.10 Eligibility; Disqualification 86 Section 7.11 Preferential Collection of Claims Against the Company 87
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE 87
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance 87 Section 8.02 Legal Defeasance and Discharge 87
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Section 8.03 Covenant Defeasance 88 Section 8.04 Conditions to Legal or Covenant Defeasance 88 Section 8.05 Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions 89 Section 8.06 Repayment to the Company 90 Section 8.07 Reinstatement 90
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER 91
Section 9.01 Without Consent of Holders 91 Section 9.02 With Consent of Holders 92 Section 9.03 Compliance with Trust Indenture Act 93 Section 9.04 Revocation and Effect of Consents 93 Section 9.05 Notation on or Exchange of Notes 94 Section 9.06 Trustee to Sign Amendments, etc. 94 Section 9.07 Exchange Notices 94
ARTICLE 10 GUARANTEES 94
Section 10.01 Guarantee 94 Section 10.02 Limitation on Guarantor Liability 96 Section 10.03 Execution and Delivery 96 Section 10.04 Subrogation 96 Section 10.05 Benefits Acknowledged 97 Section 10.06 Release of Note Guarantees 97 Section 10.07 Swiss Limitation 98 Section 10.08 Luxembourg Limitation 99
ARTICLE 11 SATISFACTION AND DISCHARGE 99
Section 11.01 Satisfaction and Discharge 99 Section 11.02 Application of Trust Money 100
ARTICLE 12 MISCELLANEOUS 101
Section 12.01 [RESERVED] 101 Section 12.02 Notices 101 Section 12.03 Communication by Holders with Other Holders 103 Section 12.04 Certificate and Opinion as to Conditions Precedent 103 Section 12.05 Statements Required in Certificate or Opinion 103 Section 12.06 Rules by Trustee and Agents 103 Section 12.07 No Personal Liability of Directors, Officers, Employees and Shareholders 104 Section 12.08 Governing Law 104 Section 12.09 Waiver of Jury Trial 104 Section 12.10 Force Majeure 104 Section 12.11 No Adverse Interpretation of Other Agreements 104 Section 12.12 Successors 104 Section 12.13 Severability 104 Section 12.14 Counterpart Originals 105 Section 12.15 Table of Contents, Headings, etc. 105 Section 12.16 Facsimile and PDF Delivery of Signature Pages 105
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Section 12.17 U.S.A. PATRIOT Act 105 Section 12.18 Payments Due on Non-Business Days 105 Section 12.19 Consent to Jurisdiction and Service 105 Section 12.20 Accounting Provisions 106
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Appendix A Provisions Relating to Initial Notes and Additional Notes
Exhibit A-1 Form of 2022 Note Exhibit A-2 Form of 2024 Note Exhibit B-1 Form of Institutional Accredited Investor Transferee Letter of Representation for 2022 Notes Exhibit B-2 Form of Institutional Accredited Investor Transferee Letter of Representation for 2024 Notes Exhibit C Form of Supplemental Indenture to Be Delivered by Subsequent Guarantors
INDENTURE, dated as of July [ ], 2014, among Paragon Offshore plc, a public limited company incorporated under the laws of England and Wales (together with any successor obligor to its obligations under this Indenture and the Notes pursuant to Article 5, including any Surviving Person following a Redomestication, the “ Company ”), the Guarantors listed on the signature pages hereto and Deutsche Bank Trust Company Americas, as Trustee.
W I T N E S S E T H
WHEREAS, the Company has duly authorized the creation of and issue of $500,000,000 aggregate principal amount of 6.75% Senior Notes due 2022 (the “ 2022 notes ”) and $580,000,000 aggregate principal amount of 7.25% Senior Notes due 2024 (the “ 2024 notes ” and, together with the 2022 notes, the “ Initial Notes ”); and
WHEREAS, the Guarantors have duly authorized the execution and delivery of this Indenture;
NOW, THEREFORE, the Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
“ 2022 Applicable Premium ” means, with respect to any 2022 note on any redemption date, as calculated by the Company, the greater of:
(1) 1.0% of the principal amount of the 2022 note; and
(2) the excess, if any, of:
(a) the present value at such redemption date of (i) the redemption price of the 2022 note at July 15, 2018, (such redemption price being set forth in the table appearing in Section 3.07(d)) plus (ii) all required interest payments due on the 2022 note through July 15, 2018, (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the 2022 Treasury Rate as of such redemption date plus 50 basis points; over
(b) the principal amount of the 2022 note.
“ 2024 Applicable Premium ” means, with respect to any 2024 Note on any redemption date, as calculated by the Company, the greater of:
(1) 1.0% of the principal amount of the 2024 note; and
(2) the excess, if any, of:
(a) the present value at such redemption date of (i) the redemption price of the 2024 note at August 15, 2019, (such redemption price being set forth in the table appearing in Section 3.07(h)) plus (ii) all required interest payments due on the 2024 note through August 15, 2019, (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the 2024 Treasury Rate as of such redemption date plus 50 basis points; over
(b) the principal amount of the 2024 note.
Section 1.01 Definitions .
“ 2022 Treasury Rate ” means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to July 15, 2018; provided , however , that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Company shall obtain the 2022 Treasury Rate by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to July 15, 2018, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
“ 2024 Treasury Rate ” means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to August 15, 2019; provided , however , that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Company shall obtain the 2024 Treasury Rate by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to August 15, 2019, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
“ Accounting Change ” means any change in GAAP.
“ Acquired Debt ” means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is Incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person;
(2) Indebtedness assumed by such specified Person in connection with the acquisition of assets from another Person; or
(3) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, whether or not such Indebtedness is Incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; provided that the amount of any such Acquired Debt shall not exceed the Fair Market Value of the assets subject to such Lien.
Acquired Debt shall be deemed to have been Incurred, with respect to clause (1) above, on the date such Person is merged with or into or becomes a Restricted Subsidiary and, with respect to clauses (2) and (3) above, on the date of consummation of such acquisition of assets.
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“ Additional 2022 Notes ” means additional 2022 notes (other than the Initial Notes) issued from time to time under this Indenture in accordance with Section 2.01 and Section 4.09, whether or not they bear the same CUSIP number.
“ Additional 2024 Notes ” means additional 2024 notes (other than the Initial Notes) issued from time to time under this Indenture in accordance with Section 2.01 and Section 4.09, whether or not they bear the same CUSIP number.
“ Additional Notes ” means the Additional 2022 Notes and the Additional 2024 Notes.
“ Affiliate ” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “ control ,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “ controlling ,” “ controlled by ” and “ under common control with ” have correlative meanings.
“ Agent ” means any Registrar, Paying Agent or Transfer Agent.
“ Asset Sale ” means:
(1) the sale, lease, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of any property, assets or rights by the Company or any of the Company’s Restricted Subsidiaries; provided that the sale, lease, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will not be an “Asset Sale,” but will be governed by Section 4.15 and/or Article 5 and not by Section 4.16; and
(2) the issuance of Equity Interests by any of the Company’s Restricted Subsidiaries or the sale by the Company or any of the Company’s Restricted Subsidiaries of Equity Interests in any of the Company’s Restricted Subsidiaries (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) (whether in a single transaction or a series of related transactions).
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $30.0 million;
(2) the sale, lease, conveyance or other disposition of assets between or among the Company and its Restricted Subsidiaries;
(3) an issuance or sale of Equity Interests by a Restricted Subsidiary of the Company to the Company or to another Restricted Subsidiary of the Company;
(4) the disposition of inventory which is sold in the ordinary course of business or the demise, bareboat, time, voyage, other charter, lease or right to use of a Rig in the ordinary course of business;
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(5) the sale, lease, conveyance, transfer or other disposition of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete equipment or other assets or of equipment or other assets that is no longer used or useful for their intended purposes in the ordinary course of business (including the abandonment or other disposition of intellectual property that is, in the reasonable judgment of the Company, no longer economically practicable to maintain or useful in the conduct of the business of the Company and its Restricted Subsidiaries, taken as whole) or the early termination or unwinding of any Hedging Obligation;
(6) sales and grants or licenses and sublicenses by the Company or any of its Restricted Subsidiaries of software or intellectual property in the ordinary course of business;
(7) any surrender or waiver of contract rights or the settlement, release, recovery on or surrender of contract, tort or other claims;
(8) the granting of Liens not prohibited by Section 4.10 and any disposition of assets resulting from the enforcement or foreclosure of any such Permitted Lien;
(9) the sale or other disposition of cash or Cash Equivalents;
(10) for purposes of Section 4.16 only, a Permitted Investment or a Restricted Payment that does not violate Section 4.08;
(11) any sale or other disposition of Equity Interests in, or other ownership interests in or assets or property, including Indebtedness, or other securities of, an Unrestricted Subsidiary;
(12) the lease or sublease of any real property in the ordinary course of business;
(13) the trade or exchange by the Company or any Restricted Subsidiary of any asset for any other asset or assets that are used in a Permitted Business; provided that the Fair Market Value of the asset or assets received by the Company or such Restricted Subsidiary in such trade or exchange (including cash or Cash Equivalents) is at least equal to the Fair Market Value of the asset or assets disposed of by the Company or such Restricted Subsidiary pursuant to such trade or exchange; and provided, further, that if any cash or Cash Equivalents are used in such trade or exchange to achieve an exchange of equivalent value, that the amount of such cash and/or Cash Equivalents received shall be deemed proceeds of an “Asset Sale”;
(14) any disposition of accounts receivable or similar obligations in connection with the compromise, settlement or collection thereof, including in bankruptcy or similar proceedings;
(15) for purposes of Section 4.16(a)(1), the sale, lease, conveyance or other disposition of assets sold to comply with any divestment requirement imposed in connection with the approval of an acquisition under Hart-Scott-Rodino Act of 1976;
(16) the sale, lease, conveyance, transfer or other disposition in connection with a Redomestication that satisfies the Redomestication Exclusion Condition;
(17) any other disposition pursuant to the Separation Documents on substantially the terms described in the Offering Memorandum; and
(18) other Asset Sales since the Issue Date, involving assets having a Fair Market Value not to exceed $100.0 million in the aggregate.
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“ Bankruptcy Law ” means Title 11, U.S. Code, as amended, or any similar federal, state or foreign law for the relief of debtors.
“ Beneficial Owner ” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “ beneficially owns ” and “ beneficially owned ” have corresponding meanings.
“ Board of Directors ” means:
(1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such Board of Directors;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership;
(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar function.
“ Business Day ” means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York or another place of payment are authorized or required by law to close.
“ Capital Lease Obligation ” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized and reflected as a liability on a balance sheet prepared in accordance with GAAP, excluding liabilities resulting from a change in GAAP subsequent to the Issue Date, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.
“ Capital Stock ” means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests, respectively;
(4) in the case of certain companies formed or incorporated under the laws of a jurisdiction other than one in the United States (including the Cayman Islands), shares; and
(5) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person,
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but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
“ Cash Equivalents ” means:
(1) U.S. dollars, euros, pounds sterling or any national currency of any participating member state in the European Union held from time to time;
(2) securities issued or directly and fully Guaranteed or insured by (i) the U.S. government or any agency or instrumentality of the U.S. government ( provided that the full faith and credit of the United States is pledged in support of those securities), (ii) any country that is a member state of the European Union or any agency or instrumentality thereof or (iii) any foreign country whose sovereign debt has a rating of at least “A1” from Moody’s or at least “A+” from S&P or any agency or instrumentality of such foreign country (or, in either case, the equivalent of such rating by such organization or, if no rating of Moody’s or S&P then exists, the equivalent of such rating by any nationally recognized rating organization) ( provided that the full faith and credit of such foreign country is pledged in support of those securities), in each case, having maturities of not more than one year from the date of acquisition;
(3) certificates of deposit, demand deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender under either of the Senior Credit Facilities or with any commercial bank having capital and surplus in excess of $500.0 million (or its equivalent in any other currency) and a Thomson Bank Watch Rating of “B” or better;
(4) readily marketable general obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of “A” or better from either S&P or Moody’s;
(5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(6) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and, in each case, maturing within one year after the date of acquisition;
(7) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition; and
(8) in the case of Investments by any Restricted Subsidiary of the Company organized or having its principal place of business outside the United States, Investments denominated in the currency of the jurisdiction in which such Restricted Subsidiary is organized or has its principal place of business which are similar to the items specified in clauses (1) through (7) of this definition.
“ Change of Control ” means the occurrence of any of the following after the Issue Date, in each case, excluding any of the Transactions:
(1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or
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substantially all of the properties or assets of the Company and its Subsidiaries, taken as a whole, to any Person (including any “person” (as that term is used in Section 13(d)(3) of the Exchange Act)) other than to the Company or a Subsidiary of the Company, which transaction is followed by a Rating Decline within 90 days of the consummation of such transaction;
(2) the adoption of a plan relating to the liquidation or dissolution of the Company;
(3) the consummation of any transaction (including, without limitation, any merger or consolidation or purchase of Capital Stock), the result of which is that any Person (including any “person” (as defined above)), other than Noble, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the outstanding Voting Stock of the Company, or other Voting Stock into which the Voting Stock of the Company is reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares, which occurrence is followed by a Rating Decline within 90 days thereof; or
(4) the Company consolidates with, or merges with or into any Person, or any Person consolidates with, or merges with or into, the Company, in such event pursuant to a transaction in which any outstanding Voting Stock of the Company or such other person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of the Voting Stock of the Company outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving Person immediately after giving effect to such transaction, which transaction is followed by a Rating Decline within 90 days thereof.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control if (I)(a) the Company becomes a direct or indirect Wholly-Owned Subsidiary of a Person or directly or indirectly sells, transfers, conveys or otherwise disposes of all or substantially all of the properties or assets of the Company and its Subsidiaries, taken as a whole, to such Person or a Wholly-Owned Subsidiary thereof and (b) the holders of the Voting Stock of such Person immediately following that transaction are substantially the same as the holders of the Company’s Voting Stock immediately prior to that transaction or (II) such transaction constitutes a Redomestication.
“ Code ” means the Internal Revenue Code of 1986, as amended.
“ Company ” has the meaning set forth in the recitals hereto.
“ Consolidated EBITDA ” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus , without duplication:
(1) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(2) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(3) any foreign currency translation losses (including losses related to currency remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such period, to the extent that such losses were taken into account in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges and expenses (excluding any such non-cash charge or expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash charges or expenses were deducted in computing such Consolidated Net Income; plus
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(5) if the scheduled completion of any Material Project will occur in the next 12 months, the projected Consolidated EBITDA of the Company attributable to any such Material Project for the first 12-month period following the scheduled completion of such Material Project (such amount to be determined based on the relevant Satisfactory Drilling Contract, including any expense or cost reductions that have occurred or, in the reasonable judgment of the Company, are reasonably expected to occur); provided that the aggregate amount of such projected Consolidated EBITDA for all such Material Projects shall not exceed an amount equal to 15% of Consolidated EBITDA in the applicable four-quarter reference period without including any such projected Consolidated EBITDA; plus
(6) any fees, expenses, charges or losses (other than depreciation or amortization expense) related to any Equity Offering or other capital markets transaction, acquisition, disposition, recapitalization or the Incurrence of Indebtedness permitted to be Incurred by this Indenture (including a refinancing thereof) (whether or not successful), including such fees, expenses, charges or losses related to (i) the Transactions and any transactions pursuant to the Separation Documents, (ii) the offering of the Notes and the Senior Credit Facilities and (iii) any amendment or other modification of the Separation Documents, the Notes, the Senior Credit Facilities or other Indebtedness and, in each case, deducted (and not added back) in computing Consolidated Net Income; minus
(7) any foreign currency translation gains (including gains related to currency remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such period, to the extent that such gains were taken into account in computing such Consolidated Net Income; minus
(8) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business (and excluding any such non-cash item to the extent that it represents the reversal of an accrual or reserve for a potential cash charge or expense that reduced Consolidated EBITDA in a prior period); minus
(9) the amount of tax benefit based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent such benefit was included in the computation of Consolidated Net Income, and plus or minus , as applicable;
(10) the effects of adjustments (including the effects of such adjustments pushed down to the Company and its Restricted Subsidiaries) in any line item in such Person’s consolidated financial statements in such period pursuant to GAAP resulting from the application of purchase accounting,
in each case, on a consolidated basis and determined in accordance with GAAP.
“ Consolidated Net Income ” means, with respect to any specified Person for any period, the aggregate of the net income (loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP and without any reduction in respect of Preferred Stock dividends; provided that, without duplication:
(1) all extraordinary gains (or losses) and all gains (or losses) realized in connection with any Asset Sale or the disposition of securities or the early extinguishment of Indebtedness, together with any related provision for taxes on any such gain (or loss), will be excluded;
(2) the net income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;
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(3) the net income (but not loss) of any Restricted Subsidiary that is not a Guarantor will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that net income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders;
(4) the cumulative effect of a change in accounting principles will be excluded; and
(5) non-cash losses and non-cash gains with respect to Hedging Obligations included in the determination of Consolidated Net Income, including, without limitation, those resulting from the application of Financial Accounting Standards Codification No. 815—Derivatives and Hedging, will be excluded.
“ Consolidated Tangible Assets ” means, with respect to any Person as of any date, the amount which, in accordance with GAAP, would be set forth under the caption “Total Assets” (or any like caption) on a consolidated balance sheet of such Person and its Restricted Subsidiaries determined in accordance with GAAP, less , to the extent included in a determination of “Total Assets,” and without duplication, all goodwill, patents, tradenames, trademarks, copyrights, franchises, experimental expenses, organization expenses and any other amounts classified as intangible assets in accordance with GAAP, in each case, calculated on a pro forma basis after giving effect to any transaction given pro forma effect in the definition of “Fixed Charge Coverage Ratio”.
“ Consolidated Total Indebtedness ” means, as of any date of determination, without duplication, (a) the sum of (i) the aggregate outstanding principal amount of Indebtedness for borrowed money which, in accordance with GAAP, would be shown as debt on the consolidated balance sheet of the Company and its Restricted Subsidiaries as of such date, including obligations under Notes, acceptances and other short-term instruments (but excluding, for the avoidance of doubt, all undrawn amounts under revolving credit facilities and letters of credit) and, without duplication of any amounts included in clause (a)(i), (ii) (A) the aggregate outstanding principal amount of Capital Lease Obligations of the Company and its Restricted Subsidiaries and (B) the aggregate amount of all outstanding Disqualified Stock of the Company and its Restricted Subsidiaries and all outstanding Preferred Stock of the Company’s Non-Guarantor Subsidiaries that are Restricted Subsidiaries, in each case, determined on a consolidated basis in accordance with GAAP, minus (b) the sum of (i) to the extent included in the determination of clause (a) above, any Indebtedness of the type described under clause (7) of the definition of Indebtedness, and (ii) the aggregate amount of unrestricted cash and Cash Equivalents included on the consolidated balance sheet of the Company and its Restricted Subsidiaries as of such date.
“ continuing ” means, with respect to any Default or Event of Default, that such Default or Event of Default has not been cured or waived.
“ Corporate Trust Office of the Trustee ” shall be at the address of the Trustee specified in Section 12.02 or such other address as to which the Trustee may give notice to the Holders and the Company.
“ Custodian ” means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.
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“ Debt Facilities ” means one or more debt facilities (including, without limitation, the Senior Credit Facilities), commercial paper facilities or Debt Issuances, in each case, with banks or other institutional lenders or institutional investors providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), letters of credit or other borrowings or Debt Issuances, in each case, as amended, restated, modified, renewed, refunded, replaced in any manner (whether upon or after termination or otherwise) or refinanced (including by means of any capital markets transaction and involving any refinancing that increases the amount of Indebtedness borrowed or issued thereunder) ( provided that such increase in borrowings is permitted under Section 4.09) in whole or in part from time to time.
“ Debt Issuance ” means, with respect to the Company or any of its Restricted Subsidiaries, one or more issuances after the Issue Date of Indebtedness evidenced by notes, debentures, bonds or other similar securities or instruments.
“ Default ” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
“ Definitive Note ” means a certificated Initial Note or Additional Note (bearing the Restricted Notes Legend if the transfer of such Note is restricted by applicable law) that does not include the Global Notes Legend.
“ Depositary ” means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 as the Depositary with respect to the Notes, and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
“ Designated Non-cash Consideration ” means the non-cash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate setting forth the Fair Market Value of such Designated Non-cash Consideration and the basis of such valuation, less the amount of cash and Cash Equivalents received in connection with a subsequent sale, redemption or payment of, on, or with respect to, such Designated Non-cash Consideration.
“ Disqualified Stock ” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is convertible, putable or exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible, putable or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock; provided, further , that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock so long as such Person satisfies its obligations with respect thereto solely by the delivery of Capital Stock that is not Disqualified Stock. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock (and all securities into which it is convertible, putable or exchangeable or for which it is redeemable) pursuant to such provision prior to compliance by the Company with Section 4.15 and Section 4.16 and such repurchase or redemption complies with Section 4.08.
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“ DTC ” means the Depository Trust Company.
“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“ Equity Offering ” means any public sale of Capital Stock after the Issue Date (other than Disqualified Stock) of the Company on a primary basis or any contribution to the capital of the Company in respect of Capital Stock (other than Disqualified Stock) of the Company, other than (1) issuances to any Subsidiary of the Company and (2) any offering of Equity Interests in connection with a transaction that is a Change of Control.
“ Exchange ” means the Official List of the Luxembourg Stock Exchange.
“ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended.
“ Existing Indebtedness ” means all Indebtedness of the Company or any of its Restricted Subsidiaries (other than Indebtedness under the Senior Credit Facilities) in existence on the Issue Date (including interest accruing (or the accretion of discount) thereon), until such amounts are repaid.
“ Fair Market Value ” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company in the case of amounts greater than or equal to $50.0 million and otherwise, by any officer of the Company (unless otherwise provided in this Indenture), whose determination will be conclusive for all purposes under this Indenture and the Notes.
“ Fixed Charge Coverage Ratio ” means with respect to any specified Person for any period, the ratio of (1) the Consolidated EBITDA of such Person for such period to (2) the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries Incurs, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings unless, in connection with any such repayment, the commitments to lend associated with such borrowings are permanently reduced or canceled) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “ Calculation Date ”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such Incurrence, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions of (x) a Person that becomes a Restricted Subsidiary of the Company or shall be merged with or into the Company or any Restricted Subsidiary of the Company, (y) all or substantially all of the assets of any other Person or any division or line of business of such other Person or (z) a Rig, that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries and including in each case all related financing transactions (including Incurrence or repayment of Indebtedness) and including increases in ownership of Restricted Subsidiaries, during the
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applicable four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and the Consolidated EBITDA for such reference period will be calculated giving pro forma effect to any expense and cost reductions or synergies that have occurred or are reasonably expected to occur within 12 months of the Calculation Date, in good faith by the chief financial or accounting officer of the Company (regardless of whether any of the foregoing could then be reflected in pro forma financial statements in accordance with Regulation S-X under the Securities Act or any other regulation or policy of the SEC related thereto);
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary of the specified Person on the Calculation Date will be deemed to have been a Restricted Subsidiary of the specified Person at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary of the specified Person on the Calculation Date will be deemed not to have been a Restricted Subsidiary of the specified Person at any time during such four-quarter period;
(6) if any Indebtedness to which pro forma effect is being given bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months);
(7) interest on a Capital Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Company to be the rate of interest implicit in such Capital Lease Obligation in accordance with GAAP;
(8) interest on any Indebtedness under any revolving credit facility computed on a pro forma basis shall be computed based upon (A) the average daily principal balance of such Indebtedness during the applicable period or (B) if such facility was created after the end of the applicable period, the average daily principal balance of such Indebtedness during the period from the date of creation of such facility to the date of determination, or, if lower, the maximum commitments under such revolving credit facility as of the applicable date of determination; and
(9) interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if not, then based upon such optional rate chosen as the Company may designate.
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“ Fixed Charges ” means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates; plus
(2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries or Preferred Stock of any Restricted Subsidiary of such Person, in each case other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, in each case, determined on a consolidated basis in accordance with GAAP.
Notwithstanding the foregoing, if any lease or other liability is reclassified as Indebtedness or as a Capital Lease Obligation due to a change in accounting principles after the Issue Date, the interest component of all payments associated with such lease or other liability shall be excluded from Fixed Charges.
“ GAAP ” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements, opinions or pronouncements by such other entity as have been approved by a significant segment of the U.S. accounting profession, which are in effect from time to time.
“ Government Securities ” means securities that are (1) direct obligations of the United States for the timely payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States the timely payment of which is unconditionally Guaranteed as a full faith and credit obligation of the United States, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Securities or a specific payment of principal of or interest on any such Government Securities held by such custodian for the account of the holder of such depositary receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Government Securities or the specific payment of principal of or interest on the Government Securities evidenced by such depositary receipt.
“ Guarantee ” means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof) of all or any part of any Indebtedness. When used as a verb, “Guarantee” has a correlative meaning (whether arising by virtue of partnership arrangements or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).
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“ Guarantor ” means each Restricted Subsidiary in existence on the Issue Date that provides a Note Guarantee on the Issue Date (and any other Restricted Subsidiary that thereafter provides a Note Guarantee in accordance with the provisions of this Indenture); provided that upon release or discharge of such Restricted Subsidiary from its Note Guarantee in accordance with this Indenture, such Restricted Subsidiary ceases to be a Guarantor.
“ Hedging Obligations ” means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements entered into with one or more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in interest rates, or to otherwise reduce the cost of borrowing of such Person or any of such Restricted Subsidiaries, with respect to Indebtedness Incurred;
(2) foreign exchange contracts and currency protection agreements entered into with one or more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in currency exchanges rates;
(3) any commodity futures contract, commodity swap, commodity option, commodity forward sale or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that Person or any of its Restricted Subsidiaries at the time; and
(4) other agreements or arrangements designed to protect such Person or any of its Restricted Subsidiaries against fluctuations in interest rates, commodity prices or currency exchange rates.
“ Holder ” means a Person in whose name a Note is registered on the Registrar’s books.
“ Incur ” means issue, create, assume, Guarantee, incur or otherwise become liable for; provided , however , that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “ Incurred ” and “ Incurrence ” have meanings correlative to the foregoing.
“ Indebtedness ” means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:
(1) in respect of the outstanding principal amount of borrowed money;
(2) in respect of the outstanding principal amount of indebtedness evidenced by bonds, notes, debentures or similar instruments;
(3) all reimbursement obligations of such Person in respect of the principal amount of letters of credit, excluding letters of credit entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the 30 th Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit;
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(4) all reimbursement obligations of such Person in respect of the principal amount of banker’s acceptances;
(5) representing Capital Lease Obligations;
(6) representing the balance deferred and unpaid of the purchase price of any property (except for accounts payable arising in the ordinary course of business and other amount which are being contested in good faith and for which reserves in conformity with GAAP have been provided) due more than six months after such property is acquired;
(7) representing any net obligations under Hedging Obligations; and
(8) the maximum mandatory redemption or repurchase price (not including, in either case, any redemption or repurchase premium) of any Disqualified Stock or, with respect to any Non-Guarantor Subsidiary that is a Restricted Subsidiary, any Preferred Stock (but excluding, in each case, any accrued dividends);
if and to the extent any of the preceding items (other than reimbursement obligations in respect of letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. Indebtedness shall be calculated without giving effect to the effects of Financial Accounting Standards Codification No. 815–Derivatives and Hedging, and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Indenture as a result of accounting for any embedded derivatives created by the terms of such Indebtedness. For purposes of clause (8), the “maximum fixed repurchase price” of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which such Indebtedness shall be required to be determined pursuant to this Indenture. Furthermore, notwithstanding the foregoing, the following shall not constitute or be deemed “Indebtedness”:
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(i) any Indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all such indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such Indebtedness, and subject to no other Liens, and the other applicable terms of the instrument governing such indebtedness;
(ii) any obligations arising from agreements of a Person providing for indemnification, Guarantees, adjustment of purchase price, holdbacks, contingent payment obligations based on a final financial statement or performance of acquired or disposed of assets or similar obligations (other than Guarantees of Indebtedness), in each case, Incurred by such Person in connection with the acquisition or disposition of assets (including through mergers, consolidations or otherwise); and
(iii) taxes, assessments or other similar governmental charges or claims.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness, together with any interest or dividend, that is more than 30 days past due;
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(4) in the case of net obligations in respect of Hedging Obligations, the termination value of the agreement or arrangement giving rise to such Hedging Obligations that would be payable by the specified Person at such date.
Except to the extent provided in the preceding sentence, the amount of any Indebtedness that is convertible into or exchangeable for Capital Stock of the Company outstanding as of any date, shall be deemed to be equal to the principal and premium, if any, in respect of such Indebtedness, notwithstanding the provisions of GAAP (including Financial Accounting Standards Codification No. 470-20, Debt with Conversion and Other Options).
“ Indenture ” means this Indenture, as amended or supplemented from time to time.
“ Initial Notes ” has the meaning set forth in the recitals hereto.
“ Interest ” with respect to the Notes means interest with respect thereto and Additional Amounts, if any.
“ Interest Payment Date ” means (a) with respect to the 2022 notes, January 15 and July 15 of each year to stated maturity of the 2022 notes and (b) with respect to the 2024 notes, February 15 and August 15 of each year to stated maturity of the 2024 notes, and shall refer to the Interest Payment Date for both series of Notes, as applicable.
“ Investment Grade Rating ” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s or BBB- (or the equivalent) by S&P, in each case, with a stable or better outlook.
“ Investments ” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees), advances or capital contributions (excluding (1) commission, travel and similar advances to officers and employees made in the ordinary course of business and (2) advances to customers or trade creditors in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person or that are represented by notes receivable), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company’s Investments
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(a) the Fair Market Value of such assets at the date of determination; and
(b) the amount of the Indebtedness of the other Person; and
in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.08(d). The acquisition by the Company or any Restricted Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person on the date of such acquisition in an amount determined as provided in Section 4.08(d). Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value or write-ups, write-downs or write-offs with respect to such Investment.
“ Issue Date ” means the first date on which the Initial Notes are issued under this Indenture.
“ Joint Venture ” means any Person that is not a direct or indirect Subsidiary of the Company in which the Company or any of its Restricted Subsidiaries makes any Investment.
“ Leverage Ratio ” means, as of any date of determination, the ratio of Consolidated Total Indebtedness on such date to Consolidated EBITDA for the Company’s four fiscal quarter period ending on or immediately prior to such date for which internal financial statements are available, with such pro forma adjustments to Consolidated Total Indebtedness and Consolidated EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of “Fixed Charge Coverage Ratio.”
“ Lien ” means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction, other than a precautionary financing statement in respect of a lease not intended as a security agreement; provided that in no event shall an operating lease be deemed to constitute a Lien.
“ Limited Guarantee ” means a Note Guarantee by a Person organized in Switzerland, Luxembourg and in any other jurisdiction (except the United States, the Cayman Islands, the Netherlands or Brazil), the amount of which is limited pursuant to the terms of such Note Guarantee in order to comply with applicable requirements of law in the jurisdiction of organization of the applicable Person with respect to the enforceability of such Note Guarantee.
“ Material Project ” means (a) the construction of any Rig or (b) any refurbishment, refitting, redesign or other material improvement to an existing Rig for which the aggregate capital cost to the Company and its Restricted Subsidiaries exceeds $65.0 million.
“ Moody’s ” means Moody’s Investors Service, Inc., or any successor to the ratings business thereof.
“ Net Proceeds ” means the aggregate cash proceeds and the Fair Market Value of any Cash Equivalents received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash or Cash Equivalents received upon the sale or other disposition of any Designated Non-cash Consideration or other non-cash consideration received in any Asset Sale), net of (1) the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration or other non-cash consideration, including, without limitation, legal, accounting and investment banking fees, and sales commissions, severance costs and any relocation expenses Incurred as a result of such Asset Sale, (2) taxes paid or payable as a result of the Asset Sale, in
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each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, (3) amounts required to be applied to the repayment of Indebtedness secured by a Lien on the properties or assets that were the subject of such Asset Sale, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale or by applicable law, be repaid out of the proceeds from such Asset Sale, (4) payments of unassumed liabilities (not constituting Indebtedness) relating to the assets sold at the time of, or within 30 days after the date of, such Asset Sale, and (5) any amounts to be set aside in any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such properties or assets, for indemnification obligations of the Company or any of its Restricted Subsidiaries in connection with such Asset Sale or for other liabilities associated with such Asset Sale and retained by the Company or any of its Restricted Subsidiaries until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Proceeds shall include only the amount of the reserve so reversed or the amount returned to the Company or its Restricted Subsidiaries from such escrow arrangement, as the case may be.
“ Noble ” means Noble Corporation plc, a public limited company incorporated under the laws of England and Wales, and its successors.
“ Non-Guarantor Subsidiary ” means any Subsidiary that is not a Guarantor.
“ Non-Recourse Debt ” means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any Guarantee or credit support of any kind (including any undertaking, Guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise, in each case, except pursuant to a Lien of the type permitted by clause (14) in the definition of “Permitted Liens”; and
(2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of such Indebtedness to be accelerated or payable prior to its Stated Maturity.
For purposes of determining compliance with Section 4.09, in the event that any Non-Recourse Debt of any of the Company’s Unrestricted Subsidiaries ceases to be Non-Recourse Debt of such Unrestricted Subsidiary, such event will be deemed to constitute an Incurrence of Indebtedness by a Restricted Subsidiary of the Company.
“ Note Guarantee ” means the Guarantee by each Guarantor of the Company’s payment obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture.
“ Notes ” means the Initial Notes and more particularly means any Note authenticated and delivered under this Indenture. For all purposes of this Indenture, the term “ Notes ” shall also include any Additional Notes that may be issued under a supplemental indenture and Notes to be issued or authenticated upon transfer, replacement or exchange of Notes.
“ Obligations ” means any principal, premium, if any, interest, penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and banker’s acceptances), damages and other liabilities, payable under the documentation governing any Indebtedness and Guarantees in respect thereof.
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“ Offering Memorandum ” means the offering memorandum dated July 11, 2014 related to the offer and sale of the Notes.
“ Officer ” means, with respect to any Person, the Chairman of the Board of Directors, any other Directors, the Chief Executive Officer, the President, the Chief Financial Officer, any Executive Vice President, Senior Vice President or Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of such Person or, in the event that such Person is a partnership or a limited liability company that has no such officers, a person duly authorized by the general partner, managers, members or a similar body to act on behalf of such Person.
“ Officers’ Certificate ” means a certificate signed by two Officers of the Company, one of whom is the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer.
“ Opinion of Counsel ” means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or any Subsidiary of the Company.
“ Permitted Acquisition Indebtedness ” means Indebtedness of the Company or any of its Restricted Subsidiaries to the extent such Indebtedness was Indebtedness of any other Person existing at the time (a) such Person became a Restricted Subsidiary of the Company, (b) such Person was merged or consolidated with or into the Company or any of its Restricted Subsidiaries, or (c) assets of such Person were acquired by the Company or any of its Restricted Subsidiaries and such Indebtedness was assumed in connection therewith (excluding any such Indebtedness that is repaid contemporaneously with such event); provided that on the date such Person became a Restricted Subsidiary of the Company or the date such Person was merged or consolidated with or into the Company or any of its Restricted Subsidiaries, or on the date of such asset acquisition, as applicable, either
(1) immediately after giving effect to such transaction on a pro forma basis as if the same had occurred at the beginning of the applicable four-quarter period, the Company would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); or
(2) immediately after giving effect to such transaction on a pro forma basis as if the same had occurred at the beginning of the applicable four-quarter period, the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries (determined on a consolidated basis) would be equal to or greater than the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries (determined on a consolidated basis) immediately prior to such transaction.
“ Permitted Business ” means any business that is the same as, or reasonably related, ancillary or complementary to, any of the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date, and reasonable extensions thereof, in each case, as determined in good faith by the Company.
“ Permitted Foreign Jurisdiction ” means each of the Cayman Islands, Bermuda, Switzerland, the United Kingdom, the Kingdom of the Netherlands, the Grand Duchy of Luxembourg, Ireland, Barbados, the British Virgin Islands, Cyprus or Gibraltar, any other member country of the European Union, or any territory of any of the foregoing, or any other jurisdiction generally acceptable to institutional lenders under the Senior Credit Facilities, as determined in good faith by the Board of Directors of the Company.
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“ Permitted Investment ” means:
(1) any Investment in the Company or in a Restricted Subsidiary of the Company;
(2) any Investment in cash and Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash consideration from (a) an Asset Sale that was made pursuant to and in compliance with Section 4.16 or (b) a disposition of assets that does not constitute an Asset Sale;
(5) any Investment to the extent made in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(6) any Investments received (a) in compromise or resolution of, upon satisfaction of judgments with respect to, (i) obligations of trade creditors or customers that were Incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or (ii) litigation, arbitration or other disputes; or (b) as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to any secured Investment in default;
(7) Investments represented by Hedging Obligations;
(8) loans or advances to directors, officers and employees for moving, relocation and travel expenses and other similar expenditures (other than any loans or advances to any director or executive officer (or equivalent thereof) that would be in violation of Section 402 of the Sarbanes-Oxley Act of 2002), (a) in each case, made in the ordinary course of business of the Company or any Restricted Subsidiary of the Company (including payroll, travel and entertainment related advances) or (b) to purchase Equity Interests of the Company, which in the case of this clause (b), do not exceed $20.0 million in the aggregate at any one time outstanding;
(9) repurchases of the Notes;
(10) any Guarantee of Indebtedness of the Company or a Restricted Subsidiary permitted to be Incurred by Section 4.09;
(11) any Investment existing on, or made pursuant to binding commitments existing on, the Issue Date, and any modifications, renewals or extensions that do not increase the amount of the Investment being modified, renewed or extended (as determined as of such date of modification, renewal or extension) unless the incremental increase in such Investment is otherwise permitted under this Indenture, and any Investment made pursuant to the Separation Documents;
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(12) Investments acquired after the Issue Date as a result of the acquisition by the Company or any Restricted Subsidiary of the Company of another Person, including by way of a merger, amalgamation or consolidation with or into the Company or any of its Restricted Subsidiaries in a transaction that is not prohibited by Article 5 after the Issue Date, to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(13) Guarantees by the Company or any of its Restricted Subsidiaries of operating leases (other than Capital Lease Obligations) or of other obligations that do not constitute Indebtedness, in each case entered into by the Company or any Restricted Subsidiary of the Company in the ordinary course of business;
(14) Investments in any Person to the extent such Investments consist of prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business by the Company or any of its Restricted Subsidiaries;
(15) Investments in Unrestricted Subsidiaries and Joint Ventures made by the Company or any of its Restricted Subsidiaries, in an aggregate amount (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together will all other Investments made pursuant to this clause (15) and then outstanding, that does not exceed the greater of (a) $25.0 million and (b) 1.0% of the Company’s Consolidated Tangible Assets;
(16) Investments pursuant to a retirement restoration plan offered to senior management in an aggregate amount not to exceed $10.0 million at any time outstanding; and
(17) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (17) that are at the time outstanding not to exceed the greater of (a) $100.0 million and (b) 3.0% of the Company’s Consolidated Tangible Assets.
In determining whether an Investment is a Permitted Investment, the Company may allocate all or any portion of any Investment and later reallocate all or any portion of any Investment to one or more of the above clauses (1) through (17) and any of the provisions of Section 4.08.
“ Permitted Liens ” means:
(1) Liens on assets of the Company or any of its Restricted Subsidiaries securing Indebtedness and other Obligations under Debt Facilities that was permitted by the terms of this Indenture to be Incurred pursuant to clause (1) of the definition of Permitted Debt and/or securing Hedging Obligations related thereto and/or securing Obligations with regard to Treasury Management Arrangements;
(2) Liens in favor of the Company or any Restricted Subsidiary;
(3) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary of the Company or is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such Person becoming a Restricted Subsidiary of the
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Company or such merger or consolidation and do not extend to any assets (other than improvements thereon, accessions thereto and proceeds thereof) other than those of the Person that becomes a Restricted Subsidiary of the Company or is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company;
(4) Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to such acquisition and not Incurred in contemplation of, such acquisition; provided , further , that any such Liens may not extend to any other property (other than with respect to the acquired property, improvements thereon, accessions thereto and proceeds thereof) owned by the Company or any Restricted Subsidiary;
(5) Liens to secure the performance of tenders, bids, purchase agreements, or letters of intent (including earnest money deposits in respect of same) statutory obligations, insurance, surety or appeal bonds, government contracts, leases, workers compensation obligations, unemployment insurance, old age benefits, social security obligations, performance bonds or other obligations of a like nature Incurred in the ordinary course of business (including Liens to secure letters of credit issued to assure payment of such obligations; provided that such letters of credit do not constitute Indebtedness);
(6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of Section 4.09(b) covering only the assets acquired, designed, constructed, installed or improved with, or financed by, such Indebtedness (and improvements thereon, accessions thereto and proceeds thereof);
(7) Liens existing on the Issue Date or under the Separation Documents (other than Liens Incurred or to be Incurred under the Senior Credit Facilities);
(8) Liens for taxes, assessments or governmental charges or claims that are not more than 90 days past due or which can thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
(9) carriers’, warehousemen’s, landlord’s and mechanics’, workmens’, materialmens’, repairman’s, crews’ wages, maritime, custom, revenue authority or like Liens, in each case, Incurred in the ordinary course of business;
(10) survey exceptions, easements, servitudes, permits, reservations or similar encumbrances of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraphs, telephone lines, roads, pipelines, transmission lines, transportation lines, distribution lines, removal of gas, oil, coal, metals, steam, minerals, timber or other natural resources and other similar purposes, or zoning or other restrictions as to the use of real property or defects, irregularities and deficiencies in title that were not Incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(11) Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees);
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(12) Liens to secure any Permitted Refinancing Indebtedness Incurred to refinance, refund, replace, amend, extend or modify, as a whole or in part, Indebtedness that was previously so secured pursuant to clauses (3), (4), (6), (7) and this clause (12) and permitted to be Incurred under this Indenture; provided , however , that:
(a) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and
(b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay unpaid accrued interest and premium thereon and any fees and expenses, including premiums and any bona fide amendment, waiver or consent fee, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;
(13) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings;
(14) Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary or any Joint Venture owned by the Company or any Restricted Subsidiary of the Company to the extent securing Non-Recourse Debt or other Indebtedness of such Unrestricted Subsidiary or Joint Venture;
(15) bankers’ Liens, rights of setoff, and other similar Liens, Liens arising out of judgments or awards not constituting an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made;
(16) Liens on cash, Cash Equivalents or other property arising in connection with the defeasance, discharge or redemption of Indebtedness;
(17) Liens on specific items of inventory or other goods (and the proceeds thereof) of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(18) grants of software and other technology licenses in the ordinary course of business;
(19) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business;
(20) Liens on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets;
(21) Liens created or evidenced by or resulting from financing statements filed by lessors of property (but only with respect to the property so leased);
(22) licenses, sublicenses, leases and subleases granted with respect to assets or properties of the Company and its Restricted Subsidiaries (including the demise, bareboat, time,
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voyage or other charter, lease or right to use of a Rig), in each case entered into in the ordinary course of business, so long as such licenses, sublicenses, lease or subleases do not (a) interfere in any material respect with the ordinary conduct of the business of the Company or its Restricted Subsidiaries or (ii) materially impair the use (for its intended purposes) or the value of the property or assets subject thereto;
(23) customary restrictions on assets to be disposed of pursuant to merger agreements, stock or asset purchase agreements and similar agreements to the extent that such dispositions are permitted under this Indenture;
(24) Liens securing reimbursement obligations with respect to commercial letters of credit that encumber documents and other assets relating to such letters of credit and products and proceeds thereof;
(25) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and setoff;
(26) Liens arising under this Indenture in favor of the Trustee for its own benefit and similar Liens in favor of other trustees, agents and representatives arising under instruments governing Indebtedness permitted to be Incurred under this Indenture; provided that such Liens are solely for the benefit of the trustees, agents or representatives in their capacities as such and not for the benefit of the holders of such Indebtedness; and
(27) other Liens Incurred by the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed the greater of (a) $150.0 million and (b) 5.0% of the Company’s Consolidated Tangible Assets at any one time outstanding.
“ Permitted Refinancing Indebtedness ” means any Indebtedness of the Company or any of its Restricted Subsidiaries, issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge, in whole or in part, other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness) (the “ Refinanced Indebtedness ”); provided that:
(1) the principal amount (or accreted value, if applicable, or in the case of Preferred Stock and Disqualified Stock, the amount thereof determined in accordance with the definition thereof) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, or in the case of Preferred Stock and Disqualified Stock, the amount thereof determined in accordance with the definition thereof) of the Refinanced Indebtedness (plus all accrued (including, for the purposes of defeasance, future accrued) interest on, or accrued dividends on, the Refinanced Indebtedness and the amount of all fees and expenses, including premiums, Incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness (a) has a final maturity date that is later than the final maturity date of the Refinanced Indebtedness, and has a Weighted Average Life to Maturity at the time such Permitted Refinancing Indebtedness is Incurred equal to or greater than the Weighted Average Life to Maturity of the Refinanced Indebtedness or (b) has a final maturity date that is more than 90 days after the final maturity date of the Notes;
(3) if the Refinanced Indebtedness is contractually subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness is contractually subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Refinanced Indebtedness; and
(4) if the Company or a Guarantor is the issuer of or otherwise an obligor on the Refinanced Indebtedness, such Permitted Refinancing Indebtedness is not Incurred (other than by way of a Guarantee) by any Non-Guarantor Subsidiary.
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“ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
“ Preferred Stock ” means, with respect to any Person, any Capital Stock in such Person of any class or classes (however designated) that rank prior, as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of common Capital Stock in such Person.
“ Qualifying Equity Interests ” means Equity Interests of the Company other than Disqualified Stock.
“ Rating Agency ” means each of S&P and Moody’s or, if S&P or Moody’s or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company, which shall be substituted for S&P or Moody’s or both, as the case may be.
“ Rating Category ” means:
(1) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and
(2) with respect to Moody’s, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).
“Rating Decline ” means a decrease in the rating of the Notes by either Moody’s or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Rating Categories, namely + or – for S&P, and 1, 2, and 3 for Moody’s, will be taken into account; for example, in the case of S&P, a rating decline either from BB+ to BB or BB- to B+ will constitute a decrease of one gradation.
“ Record Date ” means (a) with respect to the 2022 notes, for the interest payable on any applicable Interest Payment Date means the January 1 or July 1 (whether or not a Business Day) next preceding such Interest Payment Date and (b) with respect to the 2024 notes, for the interest payable on any applicable Interest Payment Date means the February 1 or August 1 (whether or not a Business Day) next preceding such Interest Payment Date, and shall refer to the Record Dates for both series of Notes, as applicable.
“ Redomestication ” means:
(a) any amalgamation, merger, exchange offer, conversion, consolidation or similar action of the Company with or into any other Person, or of any other Person with or into the Company, or the direct or indirect sale, conveyance or other disposition (other than by lease) of all or substantially all of the assets of the Company to any other Person,
(b) any continuation, discontinuation, domestication, redomestication, amalgamation, merger, plan or scheme of arrangement, exchange offer, business combination, reincorporation, reorganization consolidation or similar action of the Company, pursuant to the law of the jurisdiction of its organization and of any other jurisdiction, or
(c) the formation of a Person that becomes, as part of the transaction or series of related transactions, the direct or indirect owner of 100% of the voting Capital Stock (except for directors’ qualifying shares) of the Company (the “ New Parent ”),
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if as a result thereof:
(x) in the case of any action specified in clause (a), the entity that is the surviving, resulting or continuing Person in such merger, amalgamation, conversion, consolidation or similar action, or the transferee in such sale, conveyance or other disposition,
(y) in the case of any action specified in clause (b), the entity that constituted the Company immediately prior thereto (but disregarding for this purpose any change in its jurisdiction of organization), or
(z) in the case of any action specified in clause (c), the New Parent,
(in any such case described in (a) or (b), the “ Surviving Person ”) is a corporation or other entity, validly incorporated or formed and existing in good standing (to the extent the concept of good standing is applicable) under the laws of a Permitted Foreign Jurisdiction, whose outstanding equity securities of each class issued and outstanding immediately following such action, and giving effect thereto, shall be beneficially owned by substantially the same Persons, in substantially the same percentages, as were the outstanding equity securities of the Company immediately prior thereto.
“ Redomestication Exclusion Condition ” means the condition that, immediately after giving effect to the entire series of related steps and transactions taken, or to be taken, as part of any Redomestication, taken as a whole, the Company and its Restricted Subsidiaries, on a consolidated basis, shall not have substantially less assets or, in respect of any Restricted Payment in connection with such Redomestication, substantially less net worth, in each case, in the good faith determination of the Company (after giving effect to any Restricted Payment, Permitted Investment or Asset Sale consummated in accordance with this Indenture) that the Company and its Restricted Subsidiaries, on a consolidated basis, had immediately prior to giving effect to such Redomestication.
“ Responsible Officer ” means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee having direct responsibility for the administration of this Indenture, or any other officer to whom any corporate trust matter is referred because of such officer’s knowledge of and familiarity with the particular subject.
“ Restricted Investment ” means an Investment other than a Permitted Investment.
“ Restricted Subsidiary ” of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary. Unless otherwise indicated, when used herein, the term “Restricted Subsidiary” shall refer to a Restricted Subsidiary of the Company.
“ Revolving Credit Facility ” means that certain Senior Secured Revolving Credit Agreement, dated as of June 17, 2014, by and among the Company and Paragon International Finance Company, as borrowers, the various lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as the administrative agent thereunder, including any notes, Guarantees, collateral documents, instruments and other agreements executed in connection therewith, and, in each case, as amended, restated, modified, supplemented, extended, increased, renewed, refunded, replaced in any manner
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(whether upon or after termination or otherwise, and whether with the original lenders, investors, agents or otherwise) or refinanced (including by means of any capital markets transaction and involving any refinancing that increases the amount of Indebtedness borrowed or issued thereunder) in whole or in part from time to time.
“ Rig ” means, collectively, offshore drilling rigs, including, without limitation, semisubmersibles, drillships, jack-ups, semisubmersible tender assist vessels, floating production storage and offtake vehicles and submersible rigs, owned by the Company and/or any Restricted Subsidiary of the Company, and, individually, any of such rigs.
“ S&P ” means Standard & Poor’s Financial Services LLC, or any successor to the ratings business thereof.
“ Satisfactory Drilling Contract ” means any drilling contract (or any letter of intent with respect thereto) with an initial term of at least six months in form and substance that is reasonably customary in the offshore drilling market, entered into by the Company or any Restricted Subsidiary with a Person (a) having an Investment Grade Rating or a corporate credit rating equal to or higher than Baa3 (or the equivalent by Moody’s) and BBB- (or the equivalent) by S&P (or with respect to which a letter of credit has been provided), (b) that has an established record of fulfilling payment obligations in a timely manner with Noble or the Company or any of its Restricted Subsidiaries or (c) that has been approved by the administrative agent under the Revolving Credit Facility for purposes of determining a “Satisfactory Drilling Contract” (as defined therein).
“ SEC ” means the U.S. Securities and Exchange Commission or any successor thereto.
“ Secured Indebtedness ” means any Indebtedness of the Company or any of its Restricted Subsidiaries secured by a Lien on the assets of the Company or any of its Restricted Subsidiaries.
“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
“ Senior Credit Facilities ” means, collectively, the Revolving Credit Facility and the Term Loan Facility.
“ Separation Documents ” means the agreements, instruments or other documents entered into in connection with the Transactions described in the Offering Memorandum, each on substantially the terms described in the Offering Memorandum, and each other agreement, instrument or document incidental thereto.
“ Significant Subsidiary ” means any Restricted Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Issue Date.
“ Stated Maturity ” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of Incurrence thereof (or any later date agreed to by the parties after such date of Incurrence), and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
“ Subordinated Indebtedness ” means (1) with respect to the Company, any Indebtedness of the Company which is by its terms subordinated in right of payment to the Notes and (2) with respect to any Guarantor, any Indebtedness of such Guarantor which is by its terms subordinated in right of payment to the Note Guarantee of such Guarantor under this Indenture.
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“ Subsidiary ” means, with respect to any specified Person:
(1) any corporation, association or other business entity (other than a partnership or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); or
(2) any partnership (whether general or limited) or limited liability company of which (a) the sole general partner or member of which is such Person or a Subsidiary of such Person, or (b) if there is more than a single general partner or member, either (x) the only managing general partners or managing members of which are such Person or one or more Subsidiaries of such Person (or any combination thereof) or (y) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise.
“ Surviving Person ” has the meaning set forth in the definition of “Redomestication”.
“ Swiss Federal Tax Administration ” means the Swiss tax authority responsible for levying Swiss Federal Withholding Tax.
“ Swiss Federal Withholding Tax ” means the taxes levied pursuant to the Swiss Federal Withholding Tax Act.
“ Swiss Federal Withholding Tax Act ” means the Swiss Federal Act on Withholding Tax of 13 October 1965 ( Bundesgesetz über die Verrechnungssteuer vom 13 Oktober 1965 ), together with the related ordinances, regulations and guidelines, all as amended and applicable from time to time.
“ Term Loan Facility ” means that certain senior secured term loan agreement, dated as of the Issue Date, by and among Paragon Offshore Finance Company, the various lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, including any notes, Guarantees, collateral documents, instruments and other agreements executed in connection therewith, and, in each case, as amended, restated, modified, supplemented, extended, increased, renewed, refunded, replaced in any manner (whether upon or after termination or otherwise, and whether with the original lenders, investors, agents or otherwise) or refinanced (including by means of any capital markets transaction and involving any refinancing that increases the amount of Indebtedness borrowed or issued thereunder) in whole or in part from time to time
“ TIA ” or “ Trust Indenture Act ” means the Trust Indenture Act of 1939, as in effect on the Issue Date, and as amended to the extent required by law (15 U.S.C. §§ 77aaa-77bbbb).
“ Transactions ” has the definition set forth in the Offering Memorandum.
“ Transfer Restricted Notes ” means Definitive Notes and any other Notes that bear or are required to bear the Restricted Notes Legend.
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“ Treasury Management Arrangement ” means any agreement or other arrangement governing the provision of treasury, depositary, purchasing card or cash management services, including deposit accounts, overdraft, credit or debit card, funds transfer, automated clearinghouse, zero balance accounts, returned check concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade finance services and other cash management services.
“ Trustee ” means Deutsche Bank Trust Company Americas, as trustee, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
“ Unrestricted Subsidiary ” means any Subsidiary of the Company that is designated as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt; except any Guarantee given solely to support a pledge by the Company or any of its Restricted Subsidiaries of the Equity Interests of such Unrestricted Subsidiary, which Guarantee is not recourse to the Company or any Restricted Subsidiary, and except for any Guarantee by the Company or any Restricted Subsidiary in respect of Indebtedness of such Unrestricted Subsidiary that is permitted both as an incurrence of Indebtedness and as an Investment (in each case in any amount equal to the amount of such Indebtedness to be so Guaranteed) permitted by Section 4.08 and Section 4.09;
(2) except as permitted by Section 4.14, is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are not materially less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries, except for any pledge of Equity Interests of such Unrestricted Subsidiary to secure Indebtedness of the Company or any of its Restricted Subsidiaries.
All Subsidiaries of an Unrestricted Subsidiary shall also be Unrestricted Subsidiaries.
“ Voting Stock ” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“ Weighted Average Life to Maturity ” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
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“ Wholly-Owned Subsidiary ” of a Person means a Subsidiary, all of the Equity Interests of which (other than directors’ qualifying shares or shares that are required by the applicable laws and regulations of the jurisdiction of organization of such Subsidiary to be owned by the government of such jurisdiction or individual corporate citizens of such jurisdiction) are owned by such Person or another Wholly-Owned Subsidiary of such Person.
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Section 1.02 Other Definitions .
Term Defined in Section
“ 2002 Law ” 10.08(b)(1) “ Additional Amounts ” 4.20(a) “ Agent Members ” 2.1(c) of Appendix A “ Affiliate Transaction ” 4.14(a) “ Alternate Offer ” 4.15(f) “ Applicable Procedures ” 1.1(a) of Appendix A “ Asset Sale Offer ” 4.16(d) “ Asset Sale Offer Amount ” 3.09(b) “ Asset Sale Offer Period ” 3.09(b) “ Asset Sale Purchase Date ” 3.09(b) “ Authentication Order ” 2.02(c) “ Change of Control Offer ” 4.15(a) “ Change of Control Payment ” 4.15(a) “ Change of Control Purchase Date ” 4.15(a) “ Clearstream ” 1.1(a) of Appendix A “ Covenant Defeasance ” 8.03 “ Definitive Notes Legend ” 2.2(e) of Appendix A “ Distribution Compliance Period ” 1.1(a) of Appendix A “ ERISA Legend ” 2.2(e) of Appendix A “ Euroclear ” 1.1(a) of Appendix A “ Event of Default ” 6.01(a) “ Excess Proceeds ” 4.16(d) “ Expiration Date ” 1.05(j) “ Global Note ” 2.1(b) of Appendix A “ Global Notes Legend ” 2.2(e) of Appendix A “ Guaranteed Obligations ” 10.01(a) “ IAI ” 1.1(a) of Appendix A “ IAI Global Note ” 2.1(b) of Appendix A “ Legal Defeasance ” 8.02(a) “ Luxembourg Guaranteed Obligations ” 10.08 “ Luxembourg Guarantor ” 10.08 “ Maximum Annual Dividend Amount ” 4.08(b) “ Note Register ” 2.03(a) “ Pari Passu Indebtedness ” 4.16(b) “ Payment Default ” 6.01(a) “ Paying Agent ” 2.03(a) “ PDF ” 12.16 “ Permitted Debt ” 4.09(b) “ QIB ” 1.1(a) of Appendix A “ Registrar ” 2.03(a)
Unless the context otherwise requires:
(1) a term defined in Section 1.01 or 1.02 has the meaning assigned to it therein, and a term used herein that is defined in the Trust Indenture Act, either directly or by reference therein, shall have the meaning assigned to it therein;
(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(3) “or” is not exclusive;
(4) words in the singular include the plural, and words in the plural include the singular;
(5) provisions apply to successive events and transactions;
(6) unless the context otherwise requires, any reference to an “Appendix,” “Article,” “Section,” “clause,” “Schedule” or “Exhibit” refers to an Appendix, Article, Section, clause, Schedule or Exhibit, as the case may be, of this Indenture;
(7) the words “herein,” “hereof” and other words of similar import refer to this Indenture as a whole and not any particular Article, Section, clause or other subdivision;
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Term Defined in Section
“ Regulation S ” 1.1(a) of Appendix A “ Regulation S Global Note ” 2.1(b) of Appendix A “ Regulation S Notes ” 2.1(a) of Appendix A “ Reinstatement Date ” 4.17(b) “ Restricted Payments ” 4.08(a) “ Restricted Notes Legend ” 2.2(e) of Appendix A “ Rule 144 ” 1.1(a) of Appendix A “ Rule 144A ” 1.1(a) of Appendix A “ Rule 144A Global Note ” 2.1(b) of Appendix A “ Rule 144A Notes ” 2.1(a) of Appendix A “ Successor Company ” 5.01(a) “ Successor Guarantor ” 5.01(c) “ Suspended Covenants ” 4.17(a) “ Suspension Date ” 4.17(a) “ Suspension Period ” 4.17(b) “ Swiss Guarantor ” 10.07(a) “ Swiss Restricted Obligations ” 10.07(a) “ Swiss Maximum Amount ” 10.07(a) “ Tax Jurisdiction ” 4.20(a) “ Tax Redemption Date ” 3.07(i) “ Taxes ” 4.20(a) “ Transfer Agent ” 2.03(a) “ Unrestricted Global Note ” 1.1(a) of Appendix A “ U.S. Person ” 1.1(a) of Appendix A
Section 1.03 Rules of Construction .
(8) “including” means including without limitation;
(9) references to sections of, or rules under, the Securities Act, the Exchange Act or the Trust Indenture Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time;
(10) unless otherwise provided, references to agreements and other instruments shall be deemed to include all amendments and other modifications to such agreements or instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Indenture; and
(11) in the event that a transaction meets the criteria of more than one category of permitted transactions or listed exceptions, the Company may classify, divide or reclassify such transaction as it, in its sole discretion, determines.
Whenever this Indenture refers to a provision of the Trust Indenture Act as applicable to this Indenture, the provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms used in this Indenture have the following meanings:
“ Commission ” means the SEC;
“ indenture securities ” means the Notes;
“ indenture security holder ” means a Holder of a Note;
“ indenture to be qualified ” means this Indenture;
“ indenture trustee ” or “ institutional trustee ” means the Trustee; and
“ obligor ” on the Notes and the Note Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by SEC rule under the Trust Indenture Act have the meanings so assigned to them.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company and the Guarantors. Proof of execution of any such instrument or of a writing appointing any such agent, or the holding by any Person of a Note, shall be sufficient for any purpose of this Indenture and (subject to Section 7.01) conclusive in favor of the Trustee, the Company and the Guarantors, if made in the manner provided in this Section 1.05.
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Section 1.04 Incorporation by Reference of Trust Indenture Act .
Section 1.05 Acts of Holders .
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved (1) by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof or (2) in any other manner deemed reasonably sufficient by the Trustee. Where such execution is by or on behalf of any legal entity other than an individual, such certificate or affidavit shall also constitute proof of the authority of the Person executing the same. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of any action taken, suffered or omitted by the Trustee, the Company or the Guarantors in reliance thereon, whether or not notation of such action is made upon such Note.
(e) The Company may set a record date for purposes of determining the identity of Holders entitled to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, or to vote on or consent to any action authorized or permitted to be taken by Holders; provided that the Company may not set a record date for, and the provisions of this clause shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in clause (f) below. Unless otherwise specified, if not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or in the case of any such vote, prior to such vote, any such record date shall be the later of 30 days prior to the first solicitation of such consent or vote or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation or vote. If any record date is set pursuant to this clause (e), the Holders on such record date, and only such Holders, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action (including revocation of any action), whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless made, given or taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Notes, or each affected Holder, as applicable, on such record date. Promptly after any record date is set pursuant to this clause, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder in the manner set forth in Section 12.02.
(f) The Trustee may set any day as a record date for the purpose of determining the Holders entitled to join in the giving or making of (1) any notice of default under Section 6.01(a), (2) any declaration of acceleration referred to in Section 6.02, (3) any direction referred to in Section 6.05 or (4) any request to pursue a remedy as permitted in Section 6.06. If any record date is set pursuant to this clause, the Holders on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless made, given or taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Notes or each affected Holder, as applicable, on such record date. Promptly after any record date is set pursuant to this clause, the Trustee, at the Company’s expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company and to each Holder in the manner set forth in Section 12.02.
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(g) Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Note may do so with regard to all or any part of the principal amount of such Note or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Any notice given or action taken by a Holder or its agents with regard to different parts of such principal amount pursuant to this clause shall have the same effect as if given or taken by separate Holders of each such different part.
(h) Without limiting the generality of the foregoing, a Holder, including a Depositary that is the Holder of a Global Note, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders, and a Depositary that is the Holder of a Global Note may provide its proxy or proxies to the beneficial owners of interests in any such Global Note through such Depositary’s standing instructions and customary practices.
(i) The Company may fix a record date for the purpose of determining the Persons who are beneficial owners of interests in any Global Note held by a Depositary entitled under the procedures of such Depositary, if any, to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders; provided that if such a record date is fixed, only the beneficial owners of interests in such Global Note on such record date or their duly appointed proxy or proxies shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action, whether or not such beneficial owners remain beneficial owners of interests in such Global Note after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other action shall be effective hereunder unless made, given or taken on or prior to the applicable Expiration Date.
(j) With respect to any record date set pursuant to this Section 1.05, the party hereto that sets such record date may designate any day as the “ Expiration Date ” and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Notes in the manner set forth in Section 12.02, on or prior to both the existing and the new Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section 1.05, the party hereto which set such record date shall be deemed to have initially designated the 90th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this clause (j).
ARTICLE 2
THE NOTES
(a) Provisions relating to the Initial Notes, Additional Notes and any other Notes issued under this Indenture are set forth in Appendix A, which is hereby incorporated in and expressly made a part of this Indenture. The Notes and the Trustee’s certificate of authentication shall each be substantially in the form of Exhibit A-1 or Exhibit A-2, as applicable, hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, rules or agreements with national securities exchanges to which the Company or any Guarantor is subject, if any, or usage ( provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $2,000 and integral multiples of $1,000 in excess thereof.
(b) The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is unlimited.
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Section 2.01 Form and Dating; Terms .
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture, and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
The Notes shall be subject to repurchase by the Company pursuant to a Change of Control Offer as provided in Section 4.15 or an Asset Sale Offer as provided in Section 4.16, and otherwise as not prohibited by this Indenture. The Notes shall not be redeemable, other than as provided in Article 3.
Additional Notes ranking pari passu with the Initial Notes may be created and issued from time to time by the Company without notice to or consent of the Holders and shall be consolidated with and form a single class with the Initial Notes and shall have the same terms as to status, redemption or otherwise (other than issue date, issue price and, if applicable, the first Interest Payment Date and the first date from which interest will accrue) as the Initial Notes; provided that the Company’s ability to issue Additional Notes shall be subject to the Company’s compliance with Section 4.09; provided , further , that if any Additional Notes are not fungible with the applicable series of Notes for U.S. Federal income tax purposes, such Additional Notes will be issued as a separate series under this Indenture and will have a separate CUSIP number and ISIN from the applicable series of Notes. Any Additional Notes shall be issued with the benefit of an indenture supplemental to this Indenture.
(a) At least one Officer shall execute the Notes on behalf of the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid.
(b) A Note shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose until authenticated substantially in the form of Exhibit A-1 or Exhibit A-2, as applicable, attached hereto by the manual signature of an authorized signatory of the Trustee. The signature shall be conclusive evidence that the Note has been duly authenticated and delivered under this Indenture.
(c) On the Issue Date, the Trustee shall, upon receipt of a written order of the Company signed by an Officer (an “ Authentication Order ”), authenticate and deliver the Initial Notes. In addition, at any time and from time to time, the Trustee shall, upon receipt of an Authentication Order, authenticate and deliver any Additional Notes in an aggregate principal amount specified in such Authentication Order for such Additional Notes issued hereunder.
(d) The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders, the Company or an Affiliate of the Company.
(e) The Trustee shall authenticate and make available for delivery upon a written order of the Company signed by one Officer of the Company (a) Initial Notes for original issue on the Issue Date in an aggregate principal amount of $1,080,000,000, comprised of $500,000,000 aggregate principal
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Section 2.02 Execution and Authentication .
amount of 2022 notes and $580,000,000 aggregate principal amount of 2024 notes, (b) subject to the terms of this Indenture, Additional Notes and (c) any other Unrestricted Global Notes issued in exchange for any of the foregoing in accordance with this Indenture. Such order shall specify the amount of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes, Additional Notes or other Unrestricted Global Notes.
(a) The Company shall maintain an office or agency where Notes may be presented for registration of transfer (“ Transfer Agent ”) or for exchange (“ Registrar ”) and at least one office or agency where Notes may be presented for payment (“ Paying Agent ”). The Registrar shall keep a register of the Notes (“ Note Register ”) and of their transfer and exchange. The Company may appoint one or more co-registrars, one or more additional paying agents and one or more additional transfer agents. The term “ Registrar ” includes any co-registrar, the term “ Paying Agent ” includes any additional paying agent and the term “ Transfer Agent ” includes any additional transfer agent. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Restricted Subsidiaries may act as Paying Agent or Registrar.
(b) The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as Paying Agent and Registrar for the Notes and to act as Custodian with respect to the Global Notes. The Company initially appoints Deutsche Bank Luxembourg S.A. to act as Paying Agent and Transfer Agent in Luxembourg.
(c) For so long as the Notes are listed on the Exchange and the rules of the Exchange require, the Company shall publish notice of the change in a Paying Agent or Registrar in a daily newspaper with general circulation in Luxembourg (which is expected to be the Luxemburger Wurt ) or, to the extent and in the manner permitted by the rules, posted on the official website of the Exchange.
The Company shall, no later than 11:00 a.m. (New York City time) on each due date for the payment of principal, premium, if any, and interest on any of the Notes, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held in trust for the Holders entitled to the same, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of its action or failure so to act. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by such Paying Agent for the payment of principal, premium, if any, and interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, a Paying Agent shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes.
The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with Trust
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Section 2.03 Registrar and Paying Agent .
Section 2.04 Paying Agent to Hold Money in Trust .
Section 2.05 Holder Lists .
Indenture Act Section 312(b). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least two Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders, and the Company shall otherwise comply with Trust Indenture Act Section 312(a).
(a) The Notes shall be issued in registered form and shall be transferable only upon the surrender of a Note for registration of transfer and in compliance with Appendix A.
(b) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar’s request.
(c) No service charge shall be imposed in connection with any registration of transfer or exchange (other than pursuant to Section 2.07), but the Holders shall be required to pay any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.15, 4.16, 4.20 and 9.05).
(d) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(e) Neither the Company nor the Registrar shall be required (1) to issue, to register the transfer of or to exchange any Note during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 and ending at the close of business on the day of selection, (2) to register the transfer of or to exchange any Note so selected for redemption, or tendered for repurchase (and not withdrawn) in connection with a Change of Control Offer or an Asset Sale Offer, in whole or in part, except the unredeemed or unpurchased portion of any Note being redeemed or repurchased in part or (3) to register the transfer of or to exchange any Note between a Record Date and the next succeeding Interest Payment Date.
(f) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal, premium, if any, and (subject to the Record Date provisions of the Notes) interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary.
(g) Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 4.02, the Company shall execute, and the Trustee shall authenticate and mail, in the name of the designated transferee or transferees, one or more replacement Notes of any authorized denomination or denominations of a like aggregate principal amount.
(h) At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination or denominations of a like aggregate principal amount upon surrender of the Notes to be exchanged at such office or agency. Whenever any Global Notes or Definitive Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and mail, the replacement Global Notes and Definitive Notes which the Holder making the exchange is entitled to in accordance with the provisions of Appendix A.
(i) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by mail or by facsimile or electronic transmission.
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Section 2.06 Transfer and Exchange .
If a mutilated Note is surrendered to the Trustee or if a Holder claims that its Note has been lost, destroyed or wrongfully taken and the Trustee receives evidence to its satisfaction of the ownership and loss, destruction or theft of such Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee’s requirements are otherwise met. If required by the Trustee or the Company, an indemnity bond must be provided by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge the Holder for the expenses of the Company and the Trustee in replacing a Note. Every replacement Note is a contractual obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Notwithstanding the foregoing provisions of this Section 2.07, in case any mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note.
(a) The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; provided that Notes held by the Company or a Subsidiary of the Company will not be deemed to be outstanding for purposes of Section 3.07(b) and (f).
(b) If a Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser, as such term is defined in Section 8-303 of the Uniform Commercial Code in effect in the State of New York.
(c) If the principal amount of any Note is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue from and after the date of such payment.
(d) If a Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on the maturity date, any redemption date or any date of purchase pursuant to an Asset Sale Offer or a Change of Control Offer, money sufficient to pay Notes payable or to be redeemed or purchased on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest.
In determining whether the Holders of the requisite principal amount of Notes have concurred in any direction, waiver or consent, Notes beneficially owned by the Company, or by any Affiliate of the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right to deliver any such direction, waiver or consent with respect to the Notes and that the pledgee is not the Company or any obligor upon the Notes or any Affiliate of the Company or of such other obligor.
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Section 2.07 Replacement Notes .
Section 2.08 Outstanding Notes .
Section 2.09 Treasury Notes .
Until definitive Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders and beneficial holders, as the case may be, of temporary Notes shall be entitled to all of the benefits accorded to Holders, or beneficial holders, respectively, of Notes under this Indenture.
The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes in accordance with its customary procedures (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall, upon the written request of the Company, be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation.
(a) If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section 2.12. The Trustee shall fix or cause to be fixed each such special record date and payment date; provided that no such special record date shall be less than ten days prior to the related payment date for such defaulted interest. The Trustee shall promptly notify the Company of such special record date. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or deliver by electronic transmission in accordance with the applicable procedures of the Depositary, or cause to be mailed or delivered by electronic transmission in accordance with the applicable procedures of the Depositary to each Holder a notice that states the special record date, the related payment date and the amount of such interest to be paid.
(b) Subject to the foregoing provisions of this Section 2.12 and for greater certainty, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue interest, which were carried by such other Note.
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Section 2.10 Temporary Notes .
Section 2.11 Cancellation .
Section 2.12 Defaulted Interest .
The Company in issuing the Notes may use CUSIP or ISIN numbers (if then generally in use) and, if so, the Trustee shall use CUSIP or ISIN numbers in notices of redemption or exchange or in Offers to Purchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange or in Offers to Purchase and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption or exchange shall not be affected by any defect in or omission of such numbers. The Company shall as promptly as practicable notify the Trustee in writing of any change in the CUSIP or ISIN numbers.
ARTICLE 3
REDEMPTION
If the Company elects to redeem Notes pursuant to Section 3.07, it shall furnish to the Trustee, at least five Business Days before notice of redemption is required to be mailed or caused to be mailed to Holders pursuant to Section 3.03 (unless a shorter notice shall be agreed to by the Trustee) but not more than 60 days before a redemption date, an Officers’ Certificate setting forth (1) the Section of this Indenture pursuant to which the redemption shall occur, (2) the redemption date, (3) the principal amount of the Notes to be redeemed and the series of such Notes to be redeemed and (4) the redemption price, if then ascertainable.
(a) If less than all of the Notes of a series are to be redeemed pursuant to Section 3.07 or purchased, the Trustee shall select the Notes of that series to be redeemed or purchased (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed or (2) if the Notes are not so listed, on a pro rata basis (or, in the case of Notes issued as Global Notes, based on a method as the Depositary or its nominee or successor may require, or where such nominee or successor is the Trustee, a method that most nearly approximates pro rata selection as the Trustee deems fair and appropriate) unless otherwise required by law. In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the then outstanding Notes of the applicable series not previously called for redemption or purchase.
(b) The Trustee shall promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or integral multiples of $1,000; provided that no Notes of $2,000 in principal amount or less shall be redeemed in part. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase.
(c) After the redemption date or purchase date, upon surrender of a Note to be redeemed or purchased in part only, a new Note or Notes in principal amount equal to the unredeemed or unpurchased portion of the original Note, representing the same Indebtedness to the extent not redeemed or not purchased, shall be issued in the name of the Holder of the Notes upon cancellation of the original Note (or appropriate book entries shall be made to reflect such partial redemption).
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Section 2.13 CUSIP and ISIN Numbers
Section 3.01 Notices to Trustee .
Section 3.02 Selection of Notes to Be Redeemed or Purchased .
(a) Subject to Section 3.09, the Company shall mail or deliver by electronic transmission in accordance with the applicable procedures of the Depositary, or cause to be mailed (or delivered by electronic transmission in accordance with the applicable procedures of the Depositary) notices of redemption of Notes not less than 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed pursuant to this Article at such Holder’s registered address or otherwise in accordance with the applicable procedures of the Depositary, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with Article 8 or Article 11. Notices of redemption may not be conditional.
(b) The notice shall identify the Notes to be redeemed (including CUSIP and ISIN number, if applicable) and shall state:
(1) the redemption date;
(2) the redemption price, including the portion thereof representing any accrued and unpaid interest; provided that in connection with a redemption under Section 3.07(a) or Section 3.07(e), the notice need not set forth the redemption price but only the manner of calculation thereof;
(3) if any Note is to be redeemed in part only, the portion of the principal amount of that Note that is to be redeemed;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Notes called for redemption ceases to accrue on and after the redemption date;
(7) the Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of the CUSIP or ISIN number, if any, listed in such notice or printed on the Notes.
(c) At the Company’s request, the Trustee shall give the notice of redemption in the Company’s name and at the Company’s expense; provided that the Company shall have delivered to the Trustee, at least two Business Days before notice of redemption is required to be sent or caused to be sent to Holders pursuant to this Section 3.03 (unless a shorter notice shall be agreed to by the Trustee), an Officers’ Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in Section 3.03(b).
(d) For so long as the Notes are listed on the Exchange and the rules of the Exchange so require, the Company shall publish notice of redemption on the official website of the Luxembourg Stock Exchange or in a daily newspaper with general circulation in Luxembourg (which is expected to be the Luxemburger Wort ).
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Section 3.03 Notice of Redemption .
Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become irrevocably due and payable (subject to the provisions of the next succeeding sentence) on the redemption date at the redemption price. Notice of any redemption, including, without limitation, upon an Equity Offering, may, at the Company’s discretion, be subject to one or more conditions precedent, including, but not limited to, completion of a related Equity Offering. The notice, if mailed or delivered by electronic transmission in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to give such notice or any defect in the notice to the Holder of any Note designated for redemption in whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Subject to Section 3.05, on and after the redemption date, interest ceases to accrue on Notes or portions of Notes called for redemption.
(a) No later than 11:00 a.m. (New York City time) on the redemption or purchase date (or such later time as such date to which the Trustee may reasonably agree), the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued and unpaid interest on all Notes to be redeemed or purchased on that date. If a Note is redeemed or purchased on or after a Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Holder of record on such Record Date. The Paying Agent shall promptly mail to each Holder whose Notes are to be redeemed or repurchased the applicable redemption or purchase price thereof and accrued and unpaid interest thereon. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued and unpaid interest on, all Notes to be redeemed or purchased.
(b) If the Company complies with the provisions of Section 3.05(a), on and after the redemption or purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption, whether or not such Notes are presented for payment, and the Holders of such Notes shall have no further rights with respect to such Notes except for the right to receive the redemption or purchase price of, and accrued interests, if any, on such Notes upon surrender of such Notes. If a Note is redeemed or purchased on or after a Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest to the redemption or purchase date in respect of such Note will be paid on such redemption or purchase date to the Person in whose name such Note is registered at the close of business on such Record Date. If any Note called for redemption or purchase shall not be so paid upon surrender for redemption or purchase because of the failure of the Company to comply with Section 3.05(a), interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and, to the extent lawful, on any interest accrued to the redemption or purchase date not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01.
Upon surrender of a Note that is redeemed or purchased in part, the Company shall issue and, upon receipt of an Authentication Order, the Trustee shall promptly authenticate and mail to the Holder (or cause to be transferred by book entry) at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered representing the same Indebtedness to the extent not redeemed or purchased; provided that each new Note shall be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. It is understood that, notwithstanding anything in this Indenture to the contrary, only an Authentication Order and not an Opinion of Counsel or Officers’ Certificate is required for the Trustee to authenticate such new Note.
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Section 3.04 Effect of Notice of Redemption .
Section 3.05 Deposit of Redemption or Purchase Price .
Section 3.06 Notes Redeemed or Purchased in Part .
(a) At any time prior to July 15, 2018, the Company may on any one or more occasions redeem all or a part of the 2022 notes, upon notice pursuant to Section 3.03, at a redemption price equal to 100% of the principal amount of the 2022 notes redeemed, plus the 2022 Applicable Premium as of, and accrued and unpaid interest, if any, to the date of redemption. The Company will (a) determine the 2022 Treasury Rate at least one Business Day prior to the redemption date and (b) prior to such redemption date, file with the Trustee an Officers’ Certificate setting forth the 2022 Applicable Premium and the 2022 Treasury Rate and showing the calculation of each in reasonable detail.
(b) At any time prior to July 15, 2017, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2022 notes issued under this Indenture (calculated after giving effect to any issuance of Additional 2022 Notes), upon notice pursuant to Section 3.03, at a redemption price equal to 106.75% of the principal amount of the 2022 notes redeemed, plus accrued and unpaid interest thereon, if any, to the applicable date of redemption, with the net cash proceeds of one or more Equity Offerings by the Company; provided that (1) at least 65% of the aggregate principal amount of the 2022 notes issued under this Indenture (calculated after giving effect to any issuance of Additional 2022 Notes but excluding 2022 notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption (unless all of such 2022 notes are redeemed); and (2) the redemption occurs within 180 days of the date of closing of any such Equity Offering.
(c) Except pursuant to clause (a) or (b) of this Section 3.07, the 2022 notes shall not be redeemable at the Company’s option prior to July 15, 2018.
(d) On and after July 15, 2018, the Company may on any one or more occasions redeem all or a part of the 2022 notes, upon notice pursuant to Section 3.03, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on July 15 of each of the years indicated below:
(e) At any time prior to August 15, 2019, the Company may on any one or more occasions redeem all or a part of the 2024 notes, upon notice pursuant to Section 3.03, at a redemption price equal to 100% of the principal amount of the 2024 notes redeemed, plus the 2024 Applicable Premium as of, and accrued and unpaid interest, if any, to the date of redemption. The Company will (a) determine the 2024 Treasury Rate at least one Business Day prior to the redemption date and (b) prior to such redemption date, file with the Trustee an Officers’ Certificate setting forth the 2024 Applicable Premium and the 2024 Treasury Rate and showing the calculation of each in reasonable detail.
(f) At any time prior to August 15, 2017, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2024 notes issued under this Indenture (calculated after giving effect to any issuance of Additional 2024 Notes), upon notice pursuant to Section 3.03, at a redemption price equal to 107.25% of the principal amount of the 2024 notes redeemed, plus accrued and unpaid interest thereon, if any, to the applicable date of redemption, with the net cash proceeds of one or more Equity Offerings by the Company; provided that (1) at least 65% of the
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Section 3.07 Optional Redemption .
Year Percentage 2018 103.375 % 2019 101.688 % 2020 and thereafter 100.000 %
aggregate principal amount of the 2024 notes issued under this Indenture (calculated after giving effect to any issuance of Additional 2024 Notes but excluding 2024 notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption (unless all of such 2024 notes are redeemed); and (2) the redemption occurs within 180 days of the date of closing of any such Equity Offering.
(g) Except pursuant to clause (e) or (f) of this Section 3.07, the 2024 notes shall not be redeemable at the Company’s option prior to August 15, 2019.
(h) On and after August 15, 2019, the Company may on any one or more occasions redeem all or a part of the 2022 Notes, upon notice pursuant to Section 3.03, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on August 15 of each of the years indicated below:
(i) The Company may redeem the Notes, in whole but not in part, at its discretion at any time, upon notice pursuant to Section 3.03, at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date fixed by the Company for redemption (a “ Tax Redemption Date ”) and all Additional Amounts, if any, then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise, if on the next date on which any amount would be payable in respect of the Notes, the Company is or would be required to pay Additional Amounts, and the Company cannot avoid any such payment obligation by taking reasonable measures available (including, for the avoidance of doubt, the appointment of a new Paying Agent), and the requirement arises as a result of:
(1) any change in, or amendment to, the laws (or any regulations or rulings promulgated thereunder) of the relevant Tax Jurisdiction affecting taxation, which change or amendment has not been publicly announced before and which becomes effective on or after the date on which the Tax Jurisdiction imposing the relevant withholding or deduction became the applicable Tax Jurisdiction under this Indenture; or
(2) any change in, or amendment to, the existing official position regarding the application, administration or interpretation of such laws, regulations or rulings (including a holding, judgment or order by a court of competent jurisdiction or a change in published practice), which change, amendment, application or interpretation has not been publicly announced before and becomes effective on or after the date on which the Tax Jurisdiction imposing the relevant withholding or deduction became the applicable Tax Jurisdiction under the Indenture.
(j) In the case of Additional Amounts required to be paid as a result of the Company’s conducting business other than in the place of its organization, such amendment or change must be announced and become effective on or after the date in which the Company began to conduct business giving rise to the relevant withholding or deduction.
(k) The Company will not give any notice of redemption pursuant to clause (i) above earlier than 60 days prior to the earliest date on which it would be obligated to make such payment or
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Year Percentage 2019 103.625 % 2020 102.417 % 2021 101.208 % 2022 and thereafter 100.000 %
withholding if a payment in respect of the Notes were then due, and at the time such notice is given, the obligation to pay Additional Amounts must remain in effect. Prior to the publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Company will deliver to the Trustee an opinion of independent tax counsel, the choice of such counsel to be subject to the prior written approval of the Trustee (such approval not to be unreasonably withheld) to the effect that there has been such change or amendment which would entitle the Company to redeem the Notes hereunder. In addition, before the Company publishes or mails notice of redemption of the Notes, it will deliver to the Trustee an Officers’ Certificate to the effect that it cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it.
(l) The Trustee will accept, and will be entitled to rely solely on, such Officers’ Certificate and Opinion of Counsel as conclusive proof of the existence and satisfaction of the conditions precedent as described in clause (k) above, in which event such satisfaction of the conditions precedent will be conclusive and binding on the Holders.
(m) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06.
The Company will not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
(a) In the event that, pursuant to Section 4.16, the Company is required to commence an Asset Sale Offer, the Company will follow the procedures specified below.
(b) The Asset Sale Offer will remain open for a period of 20 Business Days following its commencement, except to the extent that a longer period is required by applicable law (the “ Asset Sale Offer Period ”). No later than five days after the termination of the Asset Sale Offer Period (the “ Asset Sale Purchase Date ”), the Company will apply all Excess Proceeds to the purchase of the aggregate principal amount of Notes and, if applicable, Pari Passu Indebtedness (on a pro rata basis, if applicable) required to be purchased pursuant to Section 4.16 (the “ Asset Sale Offer Amount ”), or, if less than the Asset Sale Offer Amount of Notes (and, if applicable, Pari Passu Indebtedness) has been so validly tendered, all Notes and Pari Passu Indebtedness validly tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the same manner as interest payments on the Notes are made.
(c) If the Asset Sale Purchase Date is on or after a Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest to the Asset Sale Purchase Date will be paid on the Asset Sale Purchase Date to the Person in whose name a Note is registered at the close of business on such Record Date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
(d) Upon the commencement of an Asset Sale Offer, the Company shall mail a notice to each of the Holders or otherwise deliver such notice in accordance with the applicable procedures of the Depositary, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders and, if required, all Holders of Pari Passu Indebtedness. The notice, which shall govern the terms of the Asset Sale Offer, shall state:
(1) that an Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.16 and the expiration time of the Asset Sale Offer Period;
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Section 3.08 Mandatory Redemption .
Section 3.09 Offers to Repurchase by Application of Excess Proceeds .
(2) the Asset Sale Offer Amount, the purchase price, including the portion thereof representing any accrued and unpaid interest, and the Asset Sale Purchase Date;
(3) that Notes must be tendered in integral multiples of $1,000 (subject to clause (8) below), and any Note not properly tendered will remain outstanding and will continue to accrue interest;
(4) that, unless the Company defaults in making the payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest on and after the Asset Sale Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled “Option of Holder to Elect Purchase” attached to such Note completed, the Paying Agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Asset Sale Purchase Date;
(6) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives at the address specified in the notice, not later than the expiration of the Asset Sale Offer Period, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder tendered for purchase and a statement that such Holder is withdrawing its tendered Notes and its election to have such Note purchased;
(7) that, if the aggregate principal amount of Notes and Pari Passu Indebtedness surrendered by the holders thereof exceeds the Asset Sale Offer Amount, then the Notes and such Pari Passu Indebtedness will be purchased on a pro rata basis based on the aggregate accreted value or principal amount, as applicable, of the Notes of each series or such Pari Passu Indebtedness tendered and the selection of the Notes for purchase shall be made by the Trustee by such method as the Trustee in its sole discretion shall deem to be fair and appropriate (or, in the case of Notes issued as Global Notes, based on a method as the Depositary or its nominee or successor may require, or where such nominee or successor is the Trustee, a method that most nearly approximates pro rata selection as the Trustee deems fair and appropriate), although no Note having a principal amount of $2,000 shall be purchased in part;
(8) that Holders whose Notes of a particular series were purchased only in part will be issued new Notes of such series equal in principal amount to the unpurchased portion of the Notes of such series surrendered (the unpurchased portion of the Notes of such series must be equal to $2,000 or an integral multiple of $1,000 in excess thereof); and
(9) the other procedures, as determined by the Company, consistent with this Section 3.09 that a Holder must follow.
(e) On or before the Asset Sale Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary or as otherwise provided in Section 4.16, the Asset Sale Offer Amount of Notes and Pari Passu Indebtedness or portions thereof validly tendered and not properly withdrawn pursuant to the Asset Sale Offer, or, if less than the Asset Sale Offer Amount has been validly tendered and not properly withdrawn, all Notes and Pari Passu Indebtedness so tendered, in the case of the Notes, in whole number multiples of $1,000; provided that if, following
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repurchase of a portion of a Note, the remaining principal amount of such Note outstanding immediately after such repurchase would be less than $2,000, then the portion of such Note so repurchased shall be reduced so that the remaining principal amount of such Note outstanding immediately after such repurchase is $2,000. The Company will deliver, or cause to be delivered, to the Trustee the Notes so accepted and an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof so accepted and that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09.
(f) The Paying Agent or the Company, as the case may be, and the Company, with respect to any Pari Passu Indebtedness, will promptly, but in no event later than five Business Days after termination of the Asset Sale Offer Period, mail or deliver to each tendering Holder or holder or lender of Pari Passu Indebtedness, as the case may be, an amount equal to the purchase price of the Notes or the Pari Passu Indebtedness so validly tendered and not properly withdrawn by such holder or lender, as the case may be, and accepted by the Company for purchase, and the Company will promptly issue a new Note of the applicable series, and the Trustee, upon receipt of an Authentication Order, will authenticate and mail or deliver (or cause to be transferred by book-entry) such new Note of the applicable series to such Holder (it being understood that, notwithstanding anything in this Indenture to the contrary, no Opinion of Counsel or Officers’ Certificate is required for the Trustee to authenticate and mail or deliver such new Note) in a principal amount equal to any unpurchased portion of the Note of such series surrendered; provided that each such new Note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. In addition, the Company will take any and all other actions required by the agreements governing the Pari Passu Indebtedness. Any Note not so accepted will be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Asset Sale Purchase Date.
(g) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those requirements, laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 3.09 or Section 4.16 of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 3.09 or Section 4.16 provisions of this Indenture by virtue of such compliance.
Other than as specifically provided in this Section 3.09 or Section 4.16, any purchase pursuant to this Section 3.09 shall be made pursuant to the applicable provisions of Sections 3.01 through 3.06.
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The Company or any Affiliate of the Company may, subject to applicable law, at any time purchase or otherwise acquire Notes in the open market or by private agreement. Any such acquisition shall not operate as or be deemed for any purpose to be a redemption of the indebtedness represented by such Notes. Any Notes purchased or acquired by the Company or an Affiliate may be delivered to the Trustee and, upon such delivery, the indebtedness represented thereby shall be deemed to be satisfied. Section 2.11 shall apply to all Notes so delivered.
ARTICLE 4
COVENANTS
(a) The Company will pay, or cause to be paid, the principal, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary, holds as of 11:00 a.m. (New York City) time, on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay the principal, premium, if any, and interest then due.
(b) The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, at the rate equal to the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful.
The Company shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company and the Guarantors in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate additional offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03.
The Company shall pay, and shall cause each of its Restricted Subsidiaries to pay, prior to delinquency, all taxes, assessments and governmental levies except (a) such as are being contested in good faith and by appropriate negotiations or proceedings or (b) where the failure to effect such payment
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Section 3.10 Purchase of Notes.
Section 4.01 Payment of Notes .
Section 4.02 Maintenance of Office or Agency .
Section 4.03 Taxes .
would not have a material adverse effect (1) upon the financial condition, business or results of operations of the Company and its Restricted Subsidiaries and (2) on the ability of the Company and its Subsidiaries, taken as a whole, and (3) on the ability of the Company and its Restricted Subsidiaries, taken as a whole, to perform their respective obligations under the Notes or this Indenture.
The Company and each Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.
Subject to Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (1) its existence and the corporate, partnership, limited liability company or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (2) the material rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership, limited liability company or other existence of any of its Restricted Subsidiaries, if the Company in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole.
(a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Trustee and, upon its prior request, to any Holder (or, to the extent permitted by the SEC, file with the SEC for public availability), within the time periods specified in the SEC’s rules and regulations that are then applicable to the Company (or, if the Company is not subject to such reporting requirements of the Exchange Act, then within those time periods for filing as are applicable to a filer that is not an “accelerated filer” as defined in such rules and regulations), taking into account any extension of time, deemed filing date or safe harbor contemplated or provided for by Rule 12b-25, Rule 13a-11(c) and Rule 15d-11(c) under the Exchange Act or successor provisions:
(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q (or any successor or comparable form) and 10-K (or any successor or comparable form) if the Company were required to file such reports, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Company’s certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K (or any successor or comparable form) if the Company were required to file such reports.
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Section 4.04 Stay, Extension and Usury Laws .
Section 4.05 Corporate Existence .
Section 4.06 Reports .
(b) The Company will be deemed to have furnished such reports to the Trustee and the Holders if it has filed such reports with the SEC using the EDGAR filing system and such reports are publicly available. The Trustee will have no obligation to determine if and when the Company’s financial statements or reports are publicly available and accessible electronically.
(c) All reports specified in clauses (a)(1) and (a)(2) above will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports.
(d) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company will deliver such information to the Trustee and post the reports referred to in the preceding paragraphs on its website (to which access will be given to Holders, as applicable) within the time periods specified above.
(e) If the Company has designated any of its Subsidiaries as an Unrestricted Subsidiary, and if any such Unrestricted Subsidiary or group of Unrestricted Subsidiaries, if taken together as one Subsidiary, would constitute a Significant Subsidiary of the Company, then the quarterly and annual financial information required by this Section 4.06 will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
(f) Delivery of reports, information and documents to the Trustee pursuant to this Section 4.06 is for informational purposes only and the Trustee’s receipt of them will not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants under this Indenture (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
(g) The Company will also make available copies of all reports required by clauses (1) and (2) of Section 4.06(a), if and so long as the Notes are listed on the Exchange and admitted for trading on the Exchange and the rules of the Exchange so require, at the offices of the Paying Agent or, to the extent and in the manner permitted by such rules, post such reports on the official website of the Exchange.
(a) The Company and each Guarantor (to the extent that such Guarantor is so required under the Trust Indenture Act) will deliver to the Trustee, within 120 days after the end of each fiscal year ending after the Issue Date, a certificate from the principal executive officer, principal financial officer or principal accounting officer stating that a review of the activities of the Company and its Restricted Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company and each Guarantor have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to such Officer signing such certificate, that to the best of his or her knowledge, the Company and each Guarantor have kept, observed, performed and fulfilled each and every condition and covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions, covenants and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company and each Guarantor are taking or propose to take with respect thereto).
(b) When any Default or Event of Default has occurred and is continuing under this Indenture, the Company will promptly (which shall be within ten Business Days following the date on
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Section 4.07 Compliance Certificate .
which the Company becomes aware of such Default or Event of Default or receives notice of such Default or Event of Default) send to the Trustee an Officers’ Certificate specifying such Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereof.
(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment by the Company or any of its Restricted Subsidiaries in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries), except in connection with any Redomestication that satisfies the Redomestication Exclusion Condition (other than (a) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company, (b) dividends or distributions by a Restricted Subsidiary of the Company, so long as, in the case of any dividend or distribution payable on or in respect of any Equity Interests issued by a Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the Company or the Restricted Subsidiary holding such Equity Interests receives at least its pro rata share of such dividend or distribution and (c) payments made in respect of any stock appreciation rights or similar benefits plans);
(2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company;
(3) make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness of the Company or any Guarantor (excluding (a) any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries, (b) the purchase, redemption, defeasance, repurchase or other acquisition of Subordinated Indebtedness of the Company or any Guarantor purchased, redeemed, defeased or otherwise acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year after the date of purchase, repurchase, redemption, defeasance or acquisition, and (c) any payment of principal at the Stated Maturity thereof); or
(4) make any Restricted Investment
(all such payments and other actions set forth in these clauses (1) through (4) of this Section 4.08(a) (other than any exception thereto) being collectively referred to as “ Restricted Payments ”), unless, at the time of and immediately after giving effect to such Restricted Payment:
(A) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment;
(B) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); and
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Section 4.08 Restricted Payments .
(C) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the Issue Date (excluding Restricted Payments made pursuant to clauses (2), (3), (4), (5), (6), (7), (8), (9), (12), (13) and (14) of Section 4.08(b)), is less than the sum, without duplication, of:
(i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the first day of the fiscal quarter during which the Issue Date occurs to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus
(ii) 100% of the aggregate net cash proceeds and the Fair Market Value of (a) marketable securities (other than marketable securities of the Company or a Subsidiary of the Company), (b) Equity Interests of a Person (other than the Company or any existing Subsidiary of the Company) engaged primarily in a Permitted Business and (c) other assets used or useful in a Permitted Business, in each case, received by the Company or a Restricted Subsidiary since the Issue Date (x) as a contribution to its common equity capital or from the issue or sale of Qualifying Equity Interests, (y) from the issue or sale of convertible or exchangeable Disqualified Stock of the Company or convertible or exchangeable debt securities of the Company, in each case, that have been converted into or exchanged for Qualifying Equity Interests of the Company (in the case of clauses (x) or (y), other than net cash proceeds received from an issuance or sale of Qualifying Equity Interests, convertible or exchangeable Disqualified Stock or debt securities to a Restricted Subsidiary of the Company or to an employee stock ownership plan or similar trust to the extent such issuance or sale to such employee stock ownership plan or similar trust is financed by loans from or Guaranteed by the Company or any Restricted Subsidiary (unless such loans have been repaid with cash on or prior to the date of determination)) or (z) upon the exercise of any options, warrants or rights to purchase Qualifying Equity Interests; plus
(iii) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company’s consolidated balance sheet upon the conversion or exchange (other than Indebtedness held by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Equity Interests (other than Disqualified Stock) of the Company (less the amount of any cash, or the Fair Market Value of any other property, distributed by the Company upon such conversion or exchange); plus
(iv) the amounts received by the Company or its Restricted Subsidiaries, with respect to any Restricted Investments made by the Company or any of its Restricted Subsidiaries in any Person after the Issue Date, resulting from:
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(x) repurchases or redemptions of, or returns of capital on, such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investment to an unaffiliated purchaser, repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to the Company or any Restricted Subsidiary (other than for reimbursement of tax payments);
(y) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries or the merger or consolidation of an
Unrestricted Subsidiary with and into the Company or any of its Restricted Subsidiaries not to exceed the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary; or
which amount in the case of subclause (x) under this clause (iv) is an amount equal to the lesser of (I) the initial amount of such Restricted Investment and (II) the cash amount (less any expenses incurred in connection with such transaction) and the Fair Market Value of assets used or useful in a Permitted Business received by the Company or any Restricted Subsidiary (other than for reimbursement of tax payments); provided , however , that no amount will be included under this clause (iv) to the extent it is already included in Consolidated Net Income.
(b) The provisions of Section 4.08(a) will not prohibit:
(1) any Restricted Payment made or paid within 60 days after the date of declaration or giving of a redemption notice, as the case may be, thereof, if at such date of declaration or notice such Restricted Payment would have complied with the provisions of this Indenture (and such payment shall be deemed to be paid on the date of declaration or notice for purposes of any calculation required by this Section 4.08);
(2) the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Qualifying Equity Interests of the Company or from the substantially concurrent contribution of common equity capital to the Company (with a sale or contribution being deemed substantially concurrent if such Restricted Payment occurs not more than 120 days after such sale or contribution); provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will not be considered to be net proceeds of Qualifying Equity Interests for purposes of clause (C)(ii) Section 4.08(a) and will not be considered to be net cash proceeds from an Equity Offering for purposes of Section 3.07;
(3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from a substantially concurrent Incurrence of, or exchange for, Permitted Refinancing Indebtedness (with an Incurrence of Permitted Refinancing Indebtedness being deemed substantially concurrent if such repurchase, redemption, defeasance, acquisition or retirement occurs not more than 120 days after such Incurrence);
(4) any Restricted Payment to any existing or former directors, employees, management or consultants or advisors of the Company or any Restricted Subsidiary of the Company or their assigns, estates or heirs, in each case, in connection with equity incentive plans, under stock option plans or stock purchase agreements or other agreements to compensate such persons approved by the Board of Directors of the Company; provided that the Equity Interests with respect to which such Restricted Payments are made were received for services related to, or for the benefit of, the Company and its Restricted Subsidiaries; and provided, further , that Restricted Payments pursuant to this clause will not exceed $10.0 million in the aggregate during any calendar year (with any unused amounts in any calendar year being carried over to successive calendar years and added to such amount subject to a maximum of $25.0 million in any calendar year); plus , to the extent not previously applied or included, (i) the net cash proceeds received by
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(z) such Person (other than an Unrestricted Subsidiary) becoming a Restricted Subsidiary or being merged or consolidated with the Company or a Restricted Subsidiary, an amount equal to the amount included as a Restricted Investment and on account of the Company’s or any Restricted Subsidiary’s Investment in such Person prior to the time it became a Restricted Subsidiary or the time of such merger or consolidation,
the Company or any of its Restricted Subsidiaries from sales of Equity Interests (other than Disqualified Stock) to directors, employees, management or consultants or advisors of the Company or any Restricted Subsidiary of the Company that occur after the Issue Date (to the extent such net cash proceeds have not otherwise been applied to the payment of Restricted Payments pursuant to clause (C)(ii) of Section 4.08(a)) and (ii) the net cash proceeds of key man life insurance policies received by the Company or any of its Restricted Subsidiaries after the Issue Date; provided that the Company may elect to apply all or any portion of the aggregate increase contemplated by clauses (i) and (ii) above in any calendar year; and provided, further , that cancellation of Indebtedness owing to the Company or any Restricted Subsidiary from any existing or former directors, employees, management or consultants or advisors of the Company or any Restricted Subsidiary of the Company in connection with the repurchase of Equity Interests of the Company or any Restricted Subsidiary will not be deemed to constitute a Restricted Payment for purposes of this Section 4.08 or any other provision of this Indenture;
(5) the purchase, redemption, defeasance or other acquisition or retirement for value of Equity Interests deemed to occur upon the exercise or conversion of stock options, warrants, rights to acquire Equity Interests or other convertible securities, to the extent such Equity Interests represent a portion of the exercise or conversion price thereof;
(6) the purchase, redemption, defeasance or other acquisition or retirement for value of Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officers, directors, employees, management or consultants or advisors of the Company or any of its Restricted Subsidiaries in connection with the exercise or vesting of any equity compensation (including, without limitation, stock options, restricted stock and phantom stock) in order to satisfy any tax withholding obligation with respect to such exercise or vesting;
(7) the purchase, redemption, defeasance or other acquisition or retirement of any Subordinated Indebtedness (i) at a purchase price not greater than 101.0% of the principal amount of such Indebtedness in the event of a Change of Control in accordance with provisions similar to Section 4.15 or (ii) at a purchase price not greater than 100.0% of the principal amount of such Indebtedness in the event of an Asset Sale in accordance with provisions similar to Section 4.16; provided that, prior to or simultaneously with such purchase, redemption, defeasance or other acquisition or retirement, the Company (or a third party to the extent permitted by this Indenture) has made the Change of Control Offer or Asset Sale Offer, as applicable, with respect to the Notes as a result of such Change of Control or Asset Sale, as applicable, and has completed the repurchase or redemption of all Notes validly tendered for payment and not withdrawn in connection with such Change of Control Offer or Asset Sale Offer, as applicable;
(8) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiaries or any class or series of Preferred Stock of any Non-Guarantor Subsidiary that is a Restricted Subsidiary of the Company issued on or after the Issue Date in accordance with the Fixed Charge Coverage Ratio test set forth in Section 4.09(a), to the extent such dividends are included in the definition of “Fixed Charges”;
(9) payments of cash, dividends, distributions, advances or other Restricted Payments by the Company or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares (or to allow for the purchase by the Company or any of its Restricted Subsidiaries of fractional shares) upon the exercise, conversion or exchange of any
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stock options, warrants, other rights to purchase Equity Interests or other convertible or exchangeable securities ( provided that any such payment is not for the purpose of evading the limitations of this Section 4.08);
(10) other Restricted Payments in an aggregate amount since the Issue Date not to exceed the greater of (i) $50.0 million and (ii) 1.5% of the Company’s Consolidated Tangible Assets determined as of the date of such Restricted Payment;
(11) other Restricted Payments, so long as the Leverage Ratio of the Company and its Restricted Subsidiaries on a consolidated basis is no greater than 2.50:1.00, determined on a pro forma basis for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date for which such Restricted Payment is being made;
(12) the declaration and payment of dividends on the Company’s common Equity Interests, not to exceed (i) within the first calendar year ending after the Issue Date, $93.0 million in the aggregate (such amount or such greater amount to which such amount is increased pursuant to the following subclause (ii), the “ Maximum Annual Dividend Amount ”) and (ii) within any subsequent calendar year, (x) the Maximum Annual Dividend Amount for the immediately preceding calendar year plus (y) an amount equal to 10% of the Maximum Annual Dividend Amount for the immediately preceding calendar year;
(13) any Restricted Payments attributable to or arising in connection with, (i) the Transactions and (ii) any other transactions pursuant to agreements or arrangements in effect on the Issue Date or pursuant to the Separation Documents on substantially the terms described in the Offering Memorandum or any amendment, modification or supplement thereto or replacement thereof, as long as the terms of such agreement or arrangement, as so amended, modified, supplemented or replaced is not materially more disadvantageous to the Company and its Restricted Subsidiaries, taken as a whole, than the terms of such agreement or arrangement described in the Offering Memorandum; and
(14) the repurchase or retirement of Equity Interests of the Company in an aggregate amount not to exceed $20.0 million since the Issue Date;
provided , however , that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (8), (10) and (11), no Default shall have occurred and be continuing or would occur as a consequence thereof.
(c) For purposes of determining compliance with this Section 4.08, in the event that a Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in clauses (1) through (14) of Section 4.08(b) or as a Permitted Investment or pursuant to clause (C) of Section 4.08(a), the Company will be permitted to divide or classify (or later divide, classify or reclassify in whole or in part in its sole discretion) such Restricted Payment in any manner that complies with this Section 4.08.
(d) The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or any Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
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(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Debt); provided, however , that the Company and any of its Restricted Subsidiaries may Incur Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries (on a consolidated basis) for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred at the beginning of such four-quarter period.
(b) The provisions of Section 4.09(a) will not prohibit the Incurrence of any of the following items (collectively, “ Permitted Debt ” ):
(1) the Incurrence by the Company and any Guarantors of Indebtedness under (and Guarantees in respect of) one or more Debt Facilities in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed the greater of (i) $1,650.0 million and (ii) the sum of $500.0 million and 25.0% of the Company’s Consolidated Tangible Assets;
(2) the Incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness;
(3) the Incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees (other than any Additional Notes and their related Guarantees);
(4) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings, industrial revenue bonds, purchase money obligations or other Indebtedness, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, in each case whether through the direct purchase of such assets or through the purchase of Equity Interests of any Person owning such assets, in an aggregate principal amount, including all Permitted Refinancing Indebtedness Incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness Incurred pursuant to this clause (4), not to exceed the greater of (i) $300.0 million and (ii) 10.0% of the Company’s Consolidated Tangible Assets at any time outstanding;
(5) the Incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge, in whole or in part, any Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be Incurred under Section 4.09(a) or clauses (2), (3), this clause (5) or (10) of this Section 4.09(b);
(6) the Incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided , however , that:
(A) if the Company is the obligor on such Indebtedness and the payee is not a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes;
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Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock .
(B) if a Guarantor is the obligor on such Indebtedness and the payee is not the Company or a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Note Guarantee; and
(C) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being beneficially held by a Person other than the Company or a Restricted Subsidiary of the Company or (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary of the Company will be deemed, in each case, to constitute an Incurrence (as of the date of such issuance, sale or transfer) of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
(7) the issuance by any of the Company’s Restricted Subsidiaries to the Company or to any of its Restricted Subsidiaries of shares of Preferred Stock; provided, however , that:
(A) any subsequent issuance or transfer of Equity Interests that results in any such Preferred Stock being held by a Person other than the Company or a Restricted Subsidiary of the Company; and
(B) any sale or other transfer of any such Preferred Stock to a Person that is not either the Company or a Restricted Subsidiary of the Company,
will be deemed, in each case, to constitute an issuance of such Preferred Stock by such Restricted Subsidiary that was not permitted by this clause (7);
(8) the Incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of business and not for speculative purposes;
(9) any Guarantee of Indebtedness of the Company or a Restricted Subsidiary to the extent that the guaranteed Indebtedness was permitted to be Incurred by another provision of this Section 4.09; provided that if the Indebtedness being guaranteed is subordinated or pari passu with the Notes, the Guarantee must be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed;
(10) Permitted Acquisition Indebtedness;
(11) Indebtedness in respect of workers’ compensation claims, public liability insurance, unemployment insurance, property, casualty or liability insurance, self-insurance obligations or completion, performance, bid performance, appeal or surety bonds in the ordinary course of business, including Guarantees (not for borrowed money) or obligations with respect to letters of credit supporting such workers’ compensation claims, public liability insurance, unemployment insurance, property, casualty or liability insurance, self-insurance obligations or completion, performance, bid performance, appeal or surety bonds;
(12) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however , that such Indebtedness is extinguished within five Business Days of Incurrence;
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(13) Indebtedness of the Company or any of its Restricted Subsidiaries consisting of the financing of insurance premiums;
(14) Indebtedness of the Company or any of its Restricted Subsidiaries in respect of Treasury Management Arrangements, Incurred in the ordinary course of business; and
(15) the Incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness Incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness Incurred pursuant to this clause (15), not to exceed the greater of (i) $150.0 million and (ii) 5.0% of the Company’s Consolidated Tangible Assets determined as of the date of such Incurrence.
(c) For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) of Section 4.09(b), or is entitled to be Incurred pursuant to Section 4.09(a), the Company will be permitted to divide and classify such item of Indebtedness, Disqualified Stock or Preferred Stock, as applicable, on the date of its Incurrence, or later re-divide and reclassify all or a portion of such item of Indebtedness, Disqualified Stock or Preferred Stock, as applicable, in any manner that complies with this Section 4.09. Indebtedness under Debt Facilities (including the Senior Credit Facilities, but excluding the Notes and the related Note Guarantees) outstanding on the Issue Date will be deemed to have been Incurred on such date in reliance on the exception provided by clause (1) of Section 4.09(b) and not Section 4.09(a) or the exception provided by clause (2) of Section 4.09(b), and may not later be reclassified.
(d) The accrual of interest or Preferred Stock dividends, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of Preferred Stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Preferred Stock or Disqualified Stock in the form of additional shares of the same class of Preferred Stock or Disqualified Stock will not be deemed to be an Incurrence of Indebtedness or an issuance of Preferred Stock or Disqualified Stock for purposes of this Section 4.09; provided , in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued.
(e) The reclassification of any lease or other liability of the Company or any of its Restricted Subsidiaries as Indebtedness due to a change of accounting principles after the Issue Date will not be deemed an Incurrence of Indebtedness for purposes of this Section 4.09.
(f) For purposes of determining any particular amount of Indebtedness under this Section 4.09, Guarantees or Liens supporting Indebtedness otherwise included in the determination of such particular amount shall not be included so long as incurred by a Person that could have Incurred such Indebtedness.
(g) For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be utilized, calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the
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applicable U.S. dollar-dominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-dominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may Incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The principal amount of any Permitted Refinancing Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such Permitted Refinancing Indebtedness is denominated that is in effect on the date of such refinancing.
(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of its property or assets, or income or profits therefrom, or assign or convey any right to receive income therefrom, whether owned on the Issue Date or thereafter acquired, which Lien is securing any Indebtedness, unless contemporaneously with the Incurrence of such Liens (1) in the case of Liens securing Subordinated Indebtedness, the Notes and the related Note Guarantees are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens or (2) in all other cases, the Notes and the related Note Guarantees are equally and ratably secured or are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens.
(b) Any Lien on any property or assets of the Company or any of its Restricted Subsidiaries created for the benefit of the Holders pursuant to Section 4.10(a) shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged at such time as there are no other Liens of any kind (other than Permitted Liens) on such property or assets securing Indebtedness.
(a) If any Restricted Subsidiary that is a Non-Guarantor Subsidiary (i) Incurs Indebtedness (including by Guaranteeing Indebtedness) under the Senior Credit Facilities or (ii) Guarantees any Indebtedness in an amount of at least $25.0 million in principal amount of the Company or any Guarantor after the Issue Date, then that Restricted Subsidiary shall become a Guarantor within 30 days of the date on which it Incurred or Guaranteed such Indebtedness by executing and delivery to the Trustee a supplemental indenture substantially in the form of Exhibit C hereto.
(b) Notwithstanding anything to the contrary contained herein, a Note Guarantee provided pursuant to the terms hereof by a Restricted Subsidiary of the Company organized in a jurisdiction other than the United States, the Cayman Islands, the Netherlands or Brazil, including a Note Guarantee existing on the Issue Date, may be (or may be modified to become) a Limited Guarantee if the Company, in consultation with local counsel, makes a reasonable determination that such limitations are required due to legal requirements within such jurisdiction.
(c) Each Note Guarantee shall be released in accordance with the provisions of Section 10.06.
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Section 4.10 Liens .
Section 4.11 Additional Guarantees .
(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to the Company or any of its Restricted Subsidiaries or pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries (it being understood that the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Capital Stock shall not be deemed a restriction on the ability to make dividends or distributions on Capital Stock);
(2) make loans or advances to the Company or any of its Restricted Subsidiaries (it being understood that the subordination of the loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness Incurred by the Company or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or
(3) sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries (it being understood that such transfers shall not include any type of transfer described in clause (1) or (2) of this Section 4.12(a)).
(b) Notwithstanding the foregoing, Section 4.12(a) will not apply to encumbrances or restrictions existing under or by reason of:
(1) agreements (including agreements governing Existing Indebtedness and Debt Facilities (including the Senior Credit Facilities)) as in effect on the Issue Date and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Issue Date, as determined by the Company in its reasonable and good faith judgment;
(2) this Indenture, the Notes and the Note Guarantees and documentation related to each of the foregoing and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements. refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in this Indenture, the Notes and the Note Guarantees and related documentation on the Issue Date, as determined by the Company in its reasonable and good faith judgment;
(3) agreements or other documents governing other Indebtedness permitted to be Incurred pursuant to Section 4.09 and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that either (A) the provisions relating to such encumbrance or restriction contained in such agreements or other documents are not materially more restrictive, taken as a whole, as determined by the Company in its reasonable and good faith judgment, than those in effect on the Issue Date or contained in this Indenture, the Notes, the Note Guarantees or documentation
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Section 4.12 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries .
related to the foregoing or (B) any such encumbrance or restriction contained in such agreements or documents does not prohibit (except upon a default or an event of default thereunder) the payment of dividends in a manner that, as determined by the Company in good faith, would result in the Company being unable to, to make principal and interest payments on the Notes as and when they come due;
(4) applicable law, rule, regulation, approval, permit or order;
(5) any agreement or instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was Incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be Incurred; and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or instruments; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions, than those contained in those agreements governing such Indebtedness or Capital Stock, as determined by the Company in its reasonable and good faith judgment;
(6) any agreement or instrument relating to property or assets acquired after the Issue Date, so long as such encumbrance or restriction relates only to the property or assets so acquired and is not and was not created in in anticipation of such acquisition and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or instruments; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements or instruments, as determined by the Company in its reasonable and good faith judgment;
(7) customary non-assignment provisions in contracts, leases, licenses and other agreements entered into in the ordinary course of business;
(8) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations permitted under this Indenture, in each case, that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.12(a); and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of agreements governing such purchase money obligations or Capital Lease Obligations; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in agreements governing such purchase money obligations or Capital Lease Obligations, as determined by the Company in its reasonable and good faith judgment;
(9) any agreement for the sale or other disposition of Capital Stock or assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending such sale or other disposition;
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(10) in the case of clause (3) of Section 4.12(a), Liens permitted to be Incurred pursuant to Section 4.10, that limit the right of the debtor to dispose of the assets subject to such Liens;
(11) provisions limiting the disposition or distribution of assets or property in joint venture agreements, partnership agreements, limited liability company agreements, asset sale agreements, sale and leaseback agreements, stock sale agreements and other similar agreements (including agreements entered into in connection with a Restricted Investment) entered (i) in the ordinary course of business or (ii) into with the approval of the Company’s Board of Directors, which limitation is applicable only to the assets that are the subject of such agreements;
(12) restrictions on cash or other deposits or net worth imposed by customers or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business; and
(13) encumbrances or restrictions with respect to property under a charter, lease or other agreement that has been entered into in the ordinary course for the employment, charter or other hire of such property.
(a) The Board of Directors of the Company may designate any Restricted Subsidiary of the Company to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under Section 4.08 or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default.
(b) Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors of the Company giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.08. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary will be deemed to be Incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be Incurred as of such date under Section 4.09, the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a), calculated on a pro forma basis as if such designation had occurred at the beginning of the applicable reference period; (2) all Liens of such Unrestricted Subsidiary outstanding immediately following such designation as a Restricted Subsidiary would, if Incurred at such time, have been permitted to be Incurred for all purposes of this Indenture; and (3) no Default or Event of Default would be in existence following such designation.
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Section 4.13 Designation of Restricted and Unrestricted Subsidiaries .
(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any properties or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate of the Company (each, an “ Affiliate Transaction ”) involving aggregate payments or consideration to or from the Company or a Restricted Subsidiary in excess of $25.0 million, unless:
(1) the Affiliate Transaction is on terms that are not materially less favorable to the Company or the relevant Restricted Subsidiary, as the case may be, than those that could reasonably be expected to have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person on an arm’s-length basis or, if in the good faith judgment of the Company’s Board of Directors, no comparable transaction is available with which to compare such Affiliate Transaction, such Affiliate Transaction is otherwise fair to the Company or the relevant Restricted Subsidiary from a financial point of view; and
(2) the Company delivers to the Trustee:
(A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration to or from the Company or a Restricted Subsidiary in excess of $35.0 million but no greater than $50.0 million, an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this Section 4.14; and
(B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $50.0 million, a resolution of the Board of Directors of the Company set forth in an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this Section 4.14 and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors of the Company.
(b) The following will not be deemed to be Affiliate Transactions and, therefore, Section 4.14(a) will not apply to:
(1) any employment agreement, severance agreement, consulting agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;
(2) transactions between or among the Company and/or its Restricted Subsidiaries;
(3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of customary compensation (including bonuses) to, and the provision of customary indemnity and other benefits (including pursuant to any employment agreement or any retirement, health, stock option or stock ownership or other benefit plan) on behalf of, officers, directors, employees or consultants of the Company or any of its Restricted Subsidiaries;
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Section 4.14 Transactions with Affiliates .
(5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to, or receipt of capital contributions from, Affiliates of the Company;
(6) Restricted Payments that are permitted under Section 4.08 and Permitted Investments permitted under this Indenture;
(7) transactions between the Company or any of its Restricted Subsidiaries and any Person that would not otherwise constitute an Affiliate Transaction except for the fact that one director of such other Person is also a director of the Company or such Restricted Subsidiary, as applicable; provided that such director abstains from voting as a director of the Company or such Restricted Subsidiary, as applicable, on any matter involving such other Person;
(8) any transaction in which the Company or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an accounting, appraisal or investment banking firm of national standing stating that such transaction is fair to the Company or such Restricted Subsidiary from a financial point of view or that such transaction meets the requirements of clause (1) of Section 4.14(a);
(9) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case, in the ordinary course of business and otherwise in compliance with the terms of this Indenture; provided that in the reasonable determination of the Board of Directors or the senior management of the Company, such transactions are on terms not materially less favorable to the Company or the relevant Restricted Subsidiary than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate of the Company;
(10) any transaction where the only consideration paid by the Company or the relevant Restricted Subsidiary is Qualifying Equity Interests of the Company; and
(11) transactions pursuant to agreements or arrangements in effect on the Issue Date or pursuant to the Separation Documents, or, in each case, any amendment, modification, or supplement thereto or replacement thereof, as long as such agreement or arrangement, as so amended, modified, supplemented or replaced is not materially more disadvantageous to the Company and the Restricted Subsidiaries, taken as a whole, than the agreement or arrangement in existence on the Issue Date or, in the case of the Separation Documents, as described in the Offering Memorandum.
(a) If a Change of Control occurs, each Holder will have the right to require the Company to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of that Holder’s Notes pursuant to an offer (a “ Change of Control Offer ”) on the terms set forth in this Indenture. In the Change of Control Offer, the Company will offer a payment in cash (the “ Change of Control Payment ”) equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest, if any, on the Notes repurchased to the date of repurchase, which will be no earlier than 30 days nor later than 60 days from the date such notice is mailed or delivered, as applicable (the “ Change of Control Purchase Date ”), subject to the rights of Holders on a Record Date to receive interest due on the Change of Control Purchase Date. Within 30 days following any Change of Control,
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Section 4.15 Offer to Repurchase Upon Change of Control .
the Company will send a notice of such Change of Control Offer to each Holder or otherwise deliver notice in accordance with the applicable procedures of the Depositary, in each case, with a copy to the Trustee, with the following information:
(1) that a Change of Control Offer is being made pursuant to this Section 4.15, and that all Notes properly tendered pursuant to such Change of Control Offer will be accepted by the Company;
(2) the purchase price and the Change of Control Purchase Date;
(3) that any Note not properly tendered will remain outstanding and continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Purchase Date;
(5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled “Option of Holder to Elect Purchase” on the reverse of the Notes completed, to the Paying Agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Purchase Date;
(6) that Holders will be entitled to withdraw their tendered Notes and their election to require the Company to purchase such Notes; provided that the Paying Agent receives, not later than the expiration of the Change of Control Offer, a facsimile, transmission or letter setting forth the name of the Holder, the principal amount of Notes tendered for purchase, and a statement that such Holder is withdrawing its tendered Notes and its election to have such Notes purchased;
(7) if such notice is delivered prior to the occurrence of a Change of Control, stating that the Change of Control Offer is conditional upon the occurrence of such Change of Control; and
(8) the other instructions, as determined by the Company, consistent with this Section 4.15, that a Holder must follow.
The notice, if mailed or otherwise delivered in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. If (A) the notice is mailed in a manner herein provided and (B) any Holder fails to receive such notice or a Holder receives such notice but it is defective, such Holder’s failure to receive such notice or such defect shall not affect the validity of the proceedings for the purchase of the Notes as to all other Holders that properly received such notice without defect.
(b) Promptly following the expiration of the Change of Control Offer on the Change of Control Purchase Date, the Company will, to the extent lawful, (1) accept for payment all Notes or portions of Notes (in integral multiples of $1,000) properly tendered and not withdrawn pursuant to the Change of Control Offer, provided that if, following repurchase of a portion of a Note, the remaining principal amount of such Note outstanding immediately after such repurchase would be less than $2,000, then the portion of such Note so repurchased shall be reduced so that the remaining principal amount of such Note outstanding immediately after such repurchase is $2,000; (2) deposit with the Paying Agent an amount equal to the aggregate Change of Control Payment in respect of all Notes or portions of Notes
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properly tendered and not withdrawn and (3) deliver or cause to be delivered to the Trustee for cancellation the Notes properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company in accordance with this Section 4.15;
(c) Payment of the Change of Control Payment for a Note properly tendered and not withdrawn prior to the expiration of the Change of Control Offer is conditioned upon delivery of such Note (together with necessary endorsements) to the Paying Agent (whether prior to, on or after the Change of Control Purchase Date), which delivery may be in book-entry form in accordance with the procedures of the Depositary for Global Notes. The Change of Control Payment for such Note will be made promptly following the later of the Business Day following the Change of Control Purchase Date or the time of delivery of such Note.
(d) In the event that the Company makes a Change of Control Payment, the Paying Agent will promptly mail (or otherwise deliver in accordance with the applicable procedures of the Depositary) to each Holder of Notes properly tendered and not withdrawn the Change of Control Payment for such Notes (or if all Notes are then in global form, make such payment through the facilities of Depositary), and the Trustee will promptly authenticate and mail (or otherwise deliver in accordance with the applicable procedures of the Depositary) (or cause to be transferred by book entry) to each Holder a new Note of the applicable series equal in principal amount to any unpurchased portion of the Notes of such series surrendered, if any; provided, however , that each new Note of such series will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess of $2,000.
(e) If the Change of Control Purchase Date is on or after a Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest to the Change of Control Purchase Date will be paid on the Change of Control Purchase Date to the Person in whose name a Note is registered at the close of business on such Record Date.
(f) The Company will not be required to make a Change of Control Offer with respect to a series of Notes upon a Change of Control if (1) a third party makes the Change of Control Offer with respect to such series in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, (2) notice of redemption with respect to such series has been given pursuant to this Indenture pursuant to Sections 3.03 and 3.07, unless and until there is a default in payment of the applicable redemption price or (3) in connection with or in contemplation of any Change of Control, the Company has made an offer to purchase (an “ Alternate Offer ”) any and all Notes of such series validly tendered at a cash price equal to or higher than the Change of Control Payment and has purchased all Notes properly tendered in accordance with the terms of the Alternate Offer. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made.
(g) In the event that not less than 90% of the aggregate principal amount of the then outstanding 2022 notes or 2024 notes, as applicable, are properly tendered and not withdrawn under a Change of Control Offer and the Company, or any third party making a Change of Control Offer in lieu of the Company as described above, purchases all of such Notes of such series, the Company will have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following the Change of Control Purchase Date to redeem all of the 2022 notes or 2024 notes, as applicable, that remain outstanding following such purchase at a redemption price equal to the Change of Control Payment plus, to the extent not included in the Change of Control Payment, accrued and unpaid interest on the Notes of such series that remain outstanding, to the date of redemption.
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(h) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those requirements, laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of under this Indenture by virtue of such compliance.
(i) The Change of Control provisions described in this Section 4.15 that require the Company to make a Change of Control Offer following a Change of Control may be waived, amended or modified with respect to that series with the written consent of the Holders of a majority in principal amount of the Notes of such series then outstanding.
(j) Other than as specifically provided in this Section 4.15, any purchase pursuant to this Section 4.15 shall be made pursuant to the provisions of Sections 3.02, 3.05 and 3.06.
(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale, unless :
(1) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of consummation of such Asset Sale at least equal to the Fair Market Value (which may be measured as of the date of the definitive agreement with respect to such Asset Sale) of the assets or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the total consideration from such Asset Sale and all other Asset Sales on a cumulative basis since the Issue Date received by the Company or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents; provided that for purposes of this clause (2) of this Section 4.16(a) only and no other purpose, each of the following will be deemed to be cash (without duplication):
(A) any liabilities, as shown on the Company’s most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than Disqualified Stock, contingent liabilities and other liabilities that are by their terms subordinated in right of payment to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a novation or indemnity agreement that releases the Company or such Restricted Subsidiary from or indemnifies the Company or such Restricted Subsidiary against further liability;
(B) Indebtedness (other than Disqualified Stock, contingent liabilities and liabilities that are by their terms subordinated to the Notes or a Note Guarantee) of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Sale; provided that the Company and each other Restricted Subsidiary are released from any Guarantee of such Indebtedness in connection with such Asset Sale;
(C) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are, within 180 days after receipt thereof, converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or Cash Equivalents received in that conversion;
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Section 4.16 Asset Sales .
(D) any stock or assets of the kind referred to in clauses (3) and (4) of Section 4.16(b); and
(E) any Designated Non-cash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (e) that is at the time outstanding, not to exceed the greater of (x) $100.0 million and (y) 3.0% of the Company’s Consolidated Tangible Assets at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received without giving effect to subsequent changes in value);
provided that in the case of any Asset Sale pursuant to a condemnation, seizure, appropriation or similar taking, including by deed in lieu of condemnation, or any casualty, actual or constructive total loss or an agreed or compromised total loss, such Asset Sale shall not be required to satisfy the requirements of clauses (1) and (2) of this Section 4.16(a).
(b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company or any of its Restricted Subsidiaries may apply such Net Proceeds at its option to any combination of the following:
(1) to permanently reduce (and permanently reduce commitments with respect thereto): (i) Secured Indebtedness under the Senior Credit Facilities, (ii) Secured Indebtedness of the Company (other than any Disqualified Stock or Subordinated Indebtedness) or Secured Indebtedness of a Guarantor (other than any Disqualified Stock or Subordinated Indebtedness) or (iii) Indebtedness of a Non-Guarantor Subsidiary, in each case, other than Indebtedness owed to the Company or a Restricted Subsidiary;
(2) to permanently repay or reduce other Indebtedness that is pari passu with the Notes (“ Pari Passu Indebtedness ”), other than Disqualified Stock and Indebtedness owed to the Company or a Restricted Subsidiary; provided that if the Company shall so reduce any such Pari Passu Indebtedness, the Company shall equally and ratably reduce Obligations under the Notes as provided either, at the Company’s option, under Section 3.07, through open-market purchases (to the extent such purchases are at or above 100% of the principal amount thereof) or by making an offer (in accordance with the procedures set forth in this Section 4.16 for an Asset Sale Offer) to all Holders to purchase their Notes at 100% of the principal amount thereof, plus the amount of accrued but unpaid interest, if any, on the amount of Notes that would otherwise be paid;
(3) to acquire all or substantially all of the assets of, or any Capital Stock of, another Person engaged in a Permitted Business, if, in the case of any such acquisition of Capital Stock, such Person is or becomes a Restricted Subsidiary of the Company after giving effect to such acquisition; or
(4) to make a capital expenditure or to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business;
provided , that the requirement of clause (3) or (4) of Section 4.16(b) shall be deemed to be satisfied with respect to any Asset Sale if, within 365 days after such Asset Sale, the Company or the
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applicable Restricted Subsidiary, as the case may be, shall have entered into a binding commitment with respect to an acquisition, expenditure or investment, in compliance with such clause (3) or (4), and that acquisition, expenditure or investment is substantially completed no later than one year and six months after the date of such Asset Sale.
(c) Pending the final application of any Net Proceeds, the Company or the applicable Restricted Subsidiary may apply such Net Proceeds temporarily to reduce the Indebtedness outstanding under a revolving credit facility or otherwise invest the Net Proceeds in any manner that is not prohibited by this Indenture.
(d) Any Net Proceeds from Asset Sales that are not applied or invested as provided in Section 4.16(b) will constitute “ Excess Proceeds .” When the aggregate amount of Excess Proceeds exceeds $50.0 million, within five days thereof the Company will make an offer (an “ Asset Sale Offer ”) to all Holders and, to the extent required by the terms of any outstanding Pari Passu Indebtedness, to all holders of other Pari Passu Indebtedness (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, Incurred in connection therewith) that may be purchased, prepaid or redeemed out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase, prepayment or redemption, and will be payable in cash (subject to the right of Holders of record on a Record Date to receive interest due on the Asset Sale Purchase Date), in accordance with the procedures set forth in Section 3.09 or the agreements governing the Pari Passu Indebtedness, as applicable. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture and they will no longer constitute Excess Proceeds.
If the aggregate principal amount of Notes and other Pari Passu Indebtedness tendered in (or required to be prepaid or redeemed in connection with) such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company will select the Notes of each series and such other Pari Passu Indebtedness to be purchased on a pro rata basis (except that any Global Notes will be selected by such method as DTC or its nominee or successor may require or, where the nominee or successor is the Trustee, a method that most nearly approximates pro rata selection as the Trustee deems fair and appropriate), based on the amounts tendered or required to be prepaid or redeemed (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $2,000, or an integral multiple of $1,000 in excess thereof, will be purchased). Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
(e) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those requirements, laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of this Indenture by virtue of such compliance.
(a) If on any date after the Issue Date (such date, a “ Suspension Date ”):
(1) the Notes have an Investment Grade Rating from both of the Rating Agencies; and
(2) no Default or Event of Default has occurred and is continuing under this Indenture,
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Section 4.17 Effectiveness of Covenants .
the Company and its Restricted Subsidiaries will not be subject to the provisions of Sections 4.08, 4.09, 4.12, 4.13, 4.14, 4.16, 4.18 and 5.01(a)(4) (collectively, the “ Suspended Covenants ”).
(b) If at any time the Notes do not have an Investment Grade Rating from at least one of the Rating Agencies or if a Default or Event of Default occurs and is continuing, then the Suspended Covenants will thereafter be reinstated (such date of reinstatement, the “ Reinstatement Date ”) and be applicable pursuant to the terms of this Indenture (including in connection with performing any calculation or assessment to determine compliance with the terms of this Indenture), unless and until the occurrence of any subsequent Suspension Date; provided , however , that no Default, Event of Default or breach of any kind shall be deemed to exist under this Indenture, the Notes or the Note Guarantees with respect to the Suspended Covenants based on, and none of the Company or any of its Subsidiaries shall bear any liability for, any actions taken or events occurring during the Suspension Period, regardless of whether such actions or events would have been permitted if the applicable Suspended Covenants remained in effect during such period. The period of time between any Suspension Date and the corresponding Reinstatement Date is referred to as the “ Suspension Period .”
(c) On each Reinstatement Date, all Indebtedness Incurred during the Suspension Period will be classified to have been Incurred pursuant to Section 4.09(a) or one of the clauses set forth in Section 4.09(b) (in each case to the extent such Indebtedness would be permitted to be Incurred thereunder as of the Reinstatement Date and after giving effect to Indebtedness Incurred prior to the Suspension Period and outstanding on the Reinstatement Date). To the extent such Indebtedness would not be so permitted to be Incurred pursuant to Section 4.09(a) or (b), such Indebtedness will be deemed to have been outstanding on the Issue Date, so that it is classified under clause (2) of Section 4.09(b). Calculations made after any Reinstatement Date of the amount available to be made as Restricted Payments under Section 4.08 will be made as though Section 4.08 had been in effect since the Issue Date and throughout the Suspension Period. Accordingly, Restricted Payments made during any Suspension Period will reduce the amount available to be made as Restricted Payments under Section 4.08(a).
(d) During any Suspension Period, the Board of Directors of the Company may not designate any of the Company’s Subsidiaries as Unrestricted Subsidiaries pursuant to this Indenture.
(e) Promptly following the occurrence of any Suspension Date or Reinstatement Date, the Company will provide an Officers’ Certificate to the Trustee regarding such occurrence. The Trustee shall have no obligation to independently determine or verify if a Suspension Date or Reinstatement Date has occurred or notify the Holders of any Suspension Date or Reinstatement Date. The Trustee may provide a copy of such Officers’ Certificate to any Holder upon request.
The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole (as determined by the Board of Directors of the Company).
The Company will use its commercially reasonable efforts to maintain the listing of the Notes on the Exchange for so long as such Notes are outstanding; provided that if at any time the
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Section 4.18 Business Activities .
Section 4.19 Maintenance of Listing .
Company determines that it will not maintain such listing, it will obtain prior to the delisting of the Notes from the Exchange, and thereafter use its best efforts to maintain, a listing of such Notes on another “recognised stock exchange” as defined in Section 1005 of the Income Tax Act 2007 of the United Kingdom.
(a) All payments made by the Company or any Guarantor under or with respect to the Notes will be made free and clear of and without withholding or deduction for, or on account of, any present or future tax, duty, assessment, or other governmental charge of whatever nature imposed, levied, collected, withheld or assessed (including any penalties and interest related thereto) (“ Taxes ”) unless the withholding or deduction of such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of (i) any jurisdiction in which the Company, (including any Successor Company) or any Guarantor (or any Successor Guarantor), are then incorporated, engaged in business, organized or otherwise resident for tax purposes or any political subdivision or governmental authority thereof or therein having the power to tax or (ii) any jurisdiction from or through which payment is made by or on behalf of the Company (including, without limitation, the jurisdiction of any Paying Agent) (each of (i) and (ii), a “ Tax Jurisdiction ”), will at any time be required to be made from any payments made under or with respect to the Notes, including, without limitation, payments of principal, redemption price, purchase price, interest or premium, the Company (or the applicable Guarantor) will pay such additional amounts (the “ Additional Amounts ”) as may be necessary in order that the net amounts received in respect of such payments by each Holder or Beneficial Owner of Notes after such withholding or deduction (including any such withholding or deduction from such Additional Amounts) will equal the respective amounts that would have been received in respect of such payments in the absence of such withholding or deduction; provided, however , that no Additional Amounts will be payable with respect to:
(1) any Taxes to the extent such Taxes would not have been imposed but for the Holder or the Beneficial Owner of the Notes being a citizen or resident or national of, or incorporated in, the relevant Tax Jurisdiction in which such Taxes are imposed or having any other present or former connection with the relevant Tax Jurisdiction other than the mere acquisition, holding, exercise or enforcement of rights, or receipt of payment in respect of the Notes or under the applicable Note Guarantee;
(2) any Taxes to the extent such Taxes are imposed or withheld as a result of the failure of the Holder of the Note or Beneficial Owner of the Notes to comply, to the extent such Holder is legally entitled, with any reasonable written request, made by the Company or any Guarantor to that Holder or Beneficial Owner in writing at least 90 days before any such withholding or deduction would be payable, (i) to provide information concerning the nationality, residence or identity of such Holder or Beneficial Owner or (ii) to make any valid and timely declaration or similar claim or satisfy any certification information or other reporting requirement, which, in either case, is required or imposed by a statute, treaty, regulation or administrative practice of the relevant Tax Jurisdiction as a precondition to any exemption from or reduction in all or part of such Taxes;
(3) any Taxes to the extent such Taxes were imposed as a result of the presentation of a Note for payment (where presentation is required) more than 30 days after the relevant payment is first made available for payment to the Holder (except to the extent that the Holder would have been entitled to Additional Amounts had the Note been presented on the last day of such 30 day period);
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Section 4.20 Payment of Additional Amounts .
(4) any estate, inheritance, gift, sale, transfer, excise, personal property or similar Taxes;
(5) any Taxes imposed on or with respect to any payments to any Holder who is a fiduciary, partnership or other person other than the sole Beneficial Owner of such payment to the extent that the Beneficial Owner of such fiduciary, partnership or other person would not have been entitled to the payment of Additional Amounts had such Beneficial Owner been the Holder of the Note;
(6) any Taxes withheld, deducted or imposed on a payment to an individual that are required to be made pursuant to Council Directive 2003/48/EC of 3 June 2003 (as amended, modified or replaced from time to time, including by Council Directive 2014/48/EU of 24 March 2014) or any other directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directives;
(7) any Taxes payable other than by deduction or withholding from payments under or with respect to, the Notes or under the Note Guarantee; or
(8) any combination of items (1) through (7) above.
(b) The Company or a Guarantor, as applicable, will also pay and indemnify the Holder for any present or future stamp, issue, registration, value added, court or documentary Taxes, or any other excise or property taxes, charges or similar levies (including penalties, interest and any other reasonable expenses related thereto) or Taxes which are levied by any Tax Jurisdiction on the execution, delivery, registration or enforcement of any of the Notes, this Indenture, any Note Guarantee, or any other document or instrument referred to therein or the receipt of payments with respect thereto.
(c) If the Company or any Guarantor become obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes or any Note Guarantee, the Company or any Guarantor, as applicable, will deliver to the Trustee on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises after the 30th day prior to that payment date, in which case the Company will notify the Trustee promptly after such obligation arises (and in any event within five Business Days thereof)) an Officers’ Certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. The Officers’ Certificate must also set forth any other information reasonably necessary to enable the Paying Agents to pay Additional Amounts to Holders on the relevant payment date. The Trustee shall be entitled to rely solely on such Officers’ Certificate as conclusive proof that such payments are necessary. The Company or any Guarantor, as applicable, will provide the Trustee with documentation reasonably satisfactory to the Trustee evidencing the payment of Additional Amounts.
(d) The Company or any Guarantor, as applicable, will make all withholdings and deductions required by law and will remit the full amount deducted or withheld to the relevant governmental authority in accordance with applicable law. Upon request, the Company or any Guarantor, as applicable, will provide to the Trustee an official receipt or, if official receipts are not obtainable, other documentation reasonably satisfactory to the Trustee evidencing the payment of any Taxes so deducted or withheld and will attach to each official receipt or other documentation an Officers’ Certificate stating the amount of such Taxes paid per $1,000 principal amount of the Notes then outstanding. Upon request, copies of those official receipts or other documentation, as the case may be, will be made available by the Trustee to the Holders of the Notes.
(e) This Section 4.20 will survive termination, defeasance pursuant to Article 8 or discharge pursuant to Article 11 of this Indenture, any transfer by a Holder or Beneficial Owner of its
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Notes and will apply mutatis mutandis to any jurisdiction in which any successor person to the Company or any Guarantor is incorporated, engaged in business or resident for tax purposes or any jurisdiction from or through which such person makes any payment on the Notes (or any Note Guarantee) and any department or political subdivision thereof or therein.
ARTICLE 5
SUCCESSORS
(a) The Company will not: (1) consolidate or merge with or into or wind up into another Person (whether or not the Company is the surviving Person), or (2) directly or indirectly sell, assign, transfer, convey, lease or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries, taken as a whole, in one or more related transactions, to another Person, unless :
(1) (a) in the case of a consolidation, merger or winding up (including, in each case, in connection with a Redomestication), the Company is the resulting or surviving Person or (b) the resulting or surviving Person (if other than the Company) of any such consolidation, merger or winding up or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made (including, in each case, in connection with a Redomestication) (the “ Successor Company ”) is (i) an entity organized or existing under the laws of the United States, any state of the United States or the District of Columbia (and, if such entity is not a corporation, a co-obligor of the Notes is a corporation organized or existing under any such laws) or (ii) an entity organized or existing under the laws of a Permitted Foreign Jurisdiction;
(2) the Successor Company (if other than the Company) expressly assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture or other agreements in form reasonably satisfactory to the Trustee;
(3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;
(4) the Successor Company would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period,
(A) be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); or
(B) have had a Fixed Charge Coverage Ratio greater than or equal to the actual Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries (on a consolidated basis) for such four-quarter period;
(5) in the case of clause (1)(b)(ii) above, in the event that the Successor Company is organized in a jurisdiction that is different from the jurisdiction in which the obligor on the Notes was organized immediately before giving effect to the transaction:
(A) such Successor Company has delivered to the Trustee an Opinion of Counsel satisfactory to the Trustee stating (i) that the obligations of such Successor
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Section 5.01 Merger, Consolidation or Sale of All Assets .
Company under this Indenture are enforceable under the laws of such Permitted Foreign Jurisdiction of its formation subject to customary exceptions and (ii) the Holders will not recognize any income, gain or loss for U.S. federal income tax purposes as a result of the transaction and will be subject to U.S. federal income tax on the same amount and at the same times as would have been the case if such transaction had not occurred;
(B) such Successor Company has agreed in writing to submit to New York jurisdiction and appoints an agent for the service of process in New York, each under terms reasonably satisfactory to the Trustee; and
(C) the Company’s Board of Directors or the comparable governing body of the Successor Company determines in good faith that such transaction will not adversely affect the interests of the Holders in any material respect and a board resolution to that effect is delivered to the Trustee;
(6) each Guarantor (unless it is the other party to the transactions described above, in which case clause (1) of Section 5.01(c) shall apply) shall have by supplemental indenture confirmed that its Note Guarantee shall apply to such Successor Company’s obligations under this Indenture and the Notes; and
(7) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or disposition and such supplemental indenture (if any) comply with this Indenture.
(b) This Section 5.01 does not apply to any sale, assignment, transfer, conveyance, lease or other disposition of properties or assets between or among the Company and its Restricted Subsidiaries. Clause (3) of Section 5.01(a) does not apply to any merger or consolidation of a Restricted Subsidiary of the Company with or into the Company. Clause (4) of Section 5.01(a) does not apply to any merger or consolidation of:
(1) a Restricted Subsidiary of the Company with or into the Company for any purpose, so long as no Capital Stock of the Restricted Subsidiary is distributed to any Person other than the Company; or
(2) the Company with or into an Affiliate solely for the purpose of reorganizing or reincorporating the Company in another jurisdiction, so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby.
(c) The Company will not permit any Guarantor to (i) consolidate or merge with or into or wind up into another Person (whether or not the Guarantor is the surviving Person), or (ii) directly or indirectly sell, assign, transfer, convey, lease or otherwise dispose of all or substantially all of such Guarantor’s properties or assets, in one or more related transactions, to another Person, unless , either:
(1) (A) (i) in the case of a consolidation, merger or winding up (including, in each case, in connection with a Redomestication), the Guarantor is the resulting or surviving Person or (ii) the resulting or surviving Person (if other than the Guarantor) of any such consolidation, merger or winding up or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made (including, in each case, in connection with a Redomestication) (the “ Successor Guarantor ”) is (a) an entity organized or existing under the laws of the United States, any state of the United States or the District of Columbia or (b) an entity organized or existing under the laws of a Permitted Foreign Jurisdiction;
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(B) the Successor Guarantor (if other than such Guarantor) expressly assumes all the obligations of such Guarantor under the Notes, this Indenture and such Guarantor’s Note Guarantee pursuant to a supplemental indenture or other agreements in form reasonably satisfactory to the Trustee;
(C) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;
(D) in the case of clause (1)(A)(ii)(b) above, in the event that the Successor Guarantor is organized in a jurisdiction that is different from the jurisdiction in which the obligor on the Notes was organized immediately before giving effect to the transaction:
(i) such Successor Guarantor has delivered to the Trustee an Opinion of Counsel satisfactory to the Trustee stating (A) that the obligations of such Successor Guarantor under this Indenture are enforceable under the laws such Permitted Foreign Jurisdiction of its formation subject to customary exceptions and (B) the Holders will not recognize any income, gain or loss for U.S. federal income tax purposes as a result of the transaction and will be subject to U.S. federal income tax on the same amount and at the same times as would have been the case if such transaction had not occurred;
(ii) such Successor Guarantor has agreed in writing to submit to New York jurisdiction and appoints an agent for the service of process in New York, each under terms reasonably satisfactory to the Trustee; and
(iii) the Guarantor’s Board of Directors or the comparable governing body of the Successor Guarantor determines in good faith that such transaction will not adversely affect the interests of the Holders in any material respect and a board resolution to that effect is delivered to the Trustee; and
(E) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or disposition and such supplemental indenture (if any) comply with this Indenture, or
(2) in the event the transaction results in the release of the Note Guarantee under clauses (1)(A) or (1)(B) of Section 10.06(a), the transaction is made in compliance with Section 4.16 (it being understood that only such portion of the Net Proceeds as is required to be applied on the date of such transaction in accordance with the terms of this Indenture needs to be applied in accordance therewith at such time).
(d) Notwithstanding the foregoing, any Guarantor may merge with or into or transfer all or part of its properties and assets to a Guarantor or merge with a Restricted Subsidiary of the Company, so long as the resulting entity remains or becomes a Guarantor.
Upon any consolidation or merger or any sale, assignment, transfer, conveyance, lease or other disposition of all or substantially all of the assets of the Company or a Guarantor in accordance with Section 5.01, the Successor Company and the Successor Guarantor, as the case may be, shall succeed to, and be substituted for, and may exercise every right and power of, the Company or a Guarantor, as the case may be, under this Indenture, the Notes and such Note Guarantee, with the same effect as if such Successor Company or Successor Guarantor, as the case may be, had been named as the Company or a
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Section 5.02 Successor Entity Substituted .
Guarantor, as the case may be, in this Indenture, and thereafter, the Company and the Guarantor, as applicable, will be relieved of all obligations and covenants under this Indenture and the Notes or its Note Guarantee, as the case may be; provided that, in the case of a lease of all or substantially all of its assets, the Company will not be released from the obligation to pay the principal of and interest on the Notes and a Guarantor will not be released from its obligations under its Note Guarantee.
ARTICLE 6
DEFAULTS AND REMEDIES
(a) Each of the following is an “ Event of Default ” with respect to the 2022 notes or the 2024 notes, as applicable:
(1) default for 30 days in the payment when due of interest on the applicable series of Notes;
(2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the applicable series of Notes;
(3) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under Section 5.01 or to consummate a purchase of Notes when required pursuant to Section 4.15 and Section 4.16;
(4) failure by the Company for 120 days after notice to the Company by the Trustee or the Holders of 25% in aggregate principal amount of the applicable series of Notes then outstanding voting as a single class to comply with the provisions described under Section 4.06;
(5) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the applicable series of Notes then outstanding voting as a single class to comply with any of the other agreements in this Indenture (including the provisions described under Section 4.15 and Section 4.16 to the extent not described in clause (3) of this Section 6.01(a);
(6) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists or is created after the Issue Date, if that default:
(A) is caused by a failure to pay principal of, premium or interest, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “ Payment Default ”); or
(B) results in the acceleration of such Indebtedness prior to its Stated Maturity;
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $75.0 million or more; provided , however , that if any such Payment Default is cured or waived or any such acceleration rescinded, or such Indebtedness is repaid and the Notes have not been accelerated, such Event of Default shall be automatically rescinded, so long as such rescission does not conflict with any judgment or decree;
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Section 6.01 Events of Default and Remedies .
(7) failure by the Company or any of its Restricted Subsidiaries to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $75.0 million (to the extent not covered by insurance by a reputable and creditworthy insurer as to which the insurer has not disclaimed coverage), which judgments are not paid in accordance with the terms thereof, discharged or stayed, for a period of 60 consecutive days;
(8) except as permitted by this Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Note Guarantee, in each case with respect to any Guarantor that is a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary of the Company; and
(9) (i) the Company or any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:
(A) commences proceedings to be adjudicated bankrupt or insolvent;
(B) consents to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking an arrangement of debt, reorganization, dissolution, winding up or relief under applicable Bankruptcy Law;
(C) consents to the appointment of a receiver, interim receiver, receiver and manager, liquidator, assignee, trustee, sequestrator or other similar official of it or for all or substantially all of its property;
(D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing that it generally is not paying its debts as they become due and payable; or
(ii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Company, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary, in a proceeding in which the Company, any such Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary, is to be adjudicated bankrupt or insolvent;
(B) appoints a receiver, interim receiver, receiver and manager, liquidator, assignee, trustee, sequestrator or other similar official of the Company, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
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taken together (as of the date of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary; or
(C) orders the liquidation, dissolution or winding up of the Company, or any Restricted Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together (as of the date of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
(a) If an Event of Default (other than an Event of Default described in clause (9) of Section 6.01(a)) occurs and is continuing, the Trustee by written notice to the Company, specifying the Event of Default, or the Holders of at least 25% in aggregate principal amount of the then outstanding applicable series of Notes by notice to the Company and the Trustee, may, and the Trustee at the request of such Holders shall, declare the principal, premium, if any, and accrued and unpaid interest, if any, on all the Notes to be due and payable. Upon such declaration, such principal, premium, if any, and accrued and unpaid interest, if any, will be due and payable.
The Trustee shall have no obligation to accelerate the applicable series of Notes if and so long as a committee of its Responsible Officers, in good faith, determines acceleration is not in the best interest of the Holders. The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the applicable series of Notes unless a written notice of such Default or Event of Default shall have been given to an officer of the Trustee with direct responsibility for the administration of the Indenture and the applicable series of Notes, by the Company or any Holder of the applicable series of Notes.
(b) In case an Event of Default described in clause (9) of Section 6.01(a) occurs and is continuing, the principal of, premium, if any, and accrued and unpaid interest, if any, on all the applicable series of Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders.
(c) In the event of a declaration of acceleration of the applicable series of Notes because an Event of Default described in clause (6) of Section 6.01(a) has occurred and is continuing, the declaration of acceleration of the Notes shall be automatically annulled if:
(1) the default triggering such Event of Default pursuant to clause (6) of Section 6.01(a) shall be remedied or cured by the Company or a Restricted Subsidiary or waived by the holders of the relevant Indebtedness within 20 days after the declaration of acceleration with respect thereto; and
(2) (A) the annulment of the acceleration of the applicable series of Notes would not conflict with any judgment or decree of a court of competent jurisdiction and (B) all existing Events of Default, except nonpayment of principal, premium, if any, or interest on the Notes that became due solely because of the acceleration of the applicable series of Notes, have been cured or waived.
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Section 6.02 Acceleration .
(d) The Holders of a majority in principal amount of the outstanding applicable series of Notes may waive all past Events of Default (except with respect to nonpayment of principal, premium or interest) and rescind any acceleration with respect to the applicable series of Notes and its consequences if (1) such rescission would not conflict with any judgment or decree of a court of competent jurisdiction, (2) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the applicable series of Notes that have become due solely by such declaration of acceleration, have been cured or waived and (3) there had been paid to or deposited with the Trustee a sum sufficient to pay all amounts due to the Trustee and to reimburse the Trustee for any and all fees, expenses and disbursements advanced by the Trustee, its agents and its counsel incurred in connection with such Default.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the applicable series of Notes or to enforce the performance of any provision of the applicable series of Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the applicable series of Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
The Holders of a majority in aggregate principal amount of the then outstanding applicable series of Notes by written notice to the Trustee may, on behalf of the Holders of all of the applicable series of Notes, waive any existing Default and its consequences hereunder, except:
(1) a continuing Default in the payment of the principal, premium, if any, or interest on any Note held by a non-consenting Holder (including in connection with an Asset Sale Offer or a Change of Control Offer); and
(2) a Default with respect to a provision that under Section 9.02 cannot be amended without the consent of each Holder affected,
provided that, subject to Section 6.02, the Holders of a majority in principal amount of the then outstanding applicable series of Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
The Holders of a majority in principal amount of the outstanding applicable series of Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law, this Indenture, the Notes or any Note Guarantee, or that the Trustee determines in good faith is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability.
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Section 6.03 Other Remedies .
Section 6.04 Waiver of Past Defaults .
Section 6.05 Control by Majority .
Subject to Section 6.07, no Holder may pursue any remedy with respect to this Indenture or the Notes unless :
(1) such Holder has previously given the Trustee written notice that an Event of Default is continuing;
(2) Holders of at least 25% in aggregate principal amount of the then outstanding applicable series of Notes make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer and, if requested, provide to the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with such request within 60 days after receipt of the request and the offer of security or indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with such request.
A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.
Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on its Note, on or after the respective due dates expressed or provided for in such Note (including in connection with an Asset Sale Offer or a Change of Control Offer), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
If an Event of Default specified in Section 6.01(a)(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company and any other obligor on the Notes for the whole amount of principal, premium, if any, and interest remaining unpaid on the Notes, together with interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceedings, the Company, the Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted.
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Section 6.06 Limitation on Suits .
Section 6.07 Rights of Holders to Receive Payment .
Section 6.08 Collection Suit by Trustee .
Section 6.09 Restoration of Rights and Remedies .
The Trustee may file proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes, including the Guarantors), its creditors or its property and is entitled and empowered to participate as a member in any official committee of creditors appointed in such matter and to collect, receive and distribute any money or other property payable or deliverable on any such claims. Any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, and any other amounts due the Trustee under Section 7.07. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money and property in the following order:
(1) to the Trustee and its agents and attorneys for amounts due under Section 7.07, including payment of all reasonable compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;
(2) to Holders for amounts due and unpaid on the Notes for principal, premium, if any, and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest, respectively; and
(3) to the Company or to such party as a court of competent jurisdiction shall direct, including a Guarantor, if applicable.
The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.11. Promptly after any record date is set pursuant to this Section 6.11, the Trustee shall cause notice of such record date and payment date to be given to the Company and to each Holder in the manner set forth in Section 12.02.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in such suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party
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Section 6.10 Trustee May File Proofs of Claim .
Section 6.11 Priorities .
Section 6.12 Undertaking for Costs .
litigant. This Section 6.12 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in aggregate principal amount of the outstanding Notes.
ARTICLE 7
TRUSTEE
(a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved in a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) Subject to this Article 7, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under this Indenture, the Notes and the Note Guarantees at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it in its sole discretion against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
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Section 7.01 Duties of Trustee .
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine in good faith to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
(b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel or both subject to the other provisions of this Indenture. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or a Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor.
(f) None of the provisions of this Indenture shall require the Trustee to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory in its sole discretion to it against such risk or liability is not assured to it.
(g) The Trustee shall not be deemed to have notice or knowledge of any Default or Event of Default unless written notice of any event which is in fact such a Default is received by a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee, and such notice references the existence of a Default or Event of Default, the Notes and this Indenture.
(h) In no event shall the Trustee be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
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Section 7.02 Rights of Trustee .
(j) The Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any Person authorized to sign an Officers’ Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.
(k) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.
(l) The permissive rights of the Trustee enumerated herein shall not be construed as duties.
The Trustee or any Agent in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee or such Agent. However, in the event that the Trustee acquires any conflicting interest within the meaning of Trust Indenture Act Section 310(b) it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company’s use of the proceeds from the Notes or any money paid to the Company or upon the Company’s direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication on the Notes.
If a Default occurs and is continuing and is known to the Trustee, the Trustee will mail to each Holder a notice of the Default within 90 days after it occurs. Except in the case of an Event of Default specified in clauses (1) or (2) of Section 6.01(a), the Trustee may withhold from the Holders notice of any continuing Default if the Trustee determines in good faith that withholding the notice is in the interest of the Holders.
(a) Within 60 days after each May 15, beginning with the first May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with Trust Indenture Act Section 313(a) (but if no event described in Trust Indenture Act Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with Trust Indenture Act Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by Trust Indenture Act Section 313(c).
(b) A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with each national securities exchange on which the Notes are listed in accordance with Trust Indenture Act Section 313(d). The Company shall promptly notify the Trustee in writing in the event the Notes are listed on any national securities exchange or delisted therefrom.
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Section 7.03 Individual Rights of Trustee .
Section 7.04 Trustee’s Disclaimer .
Section 7.05 Notice of Defaults .
Section 7.06 Reports by Trustee to Holders of the Notes .
(a) The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree in writing from time to time. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel. The Trustee shall provide the Company reasonable notice of any expenditure not in the ordinary course of business.
(b) The Company and the Guarantors, jointly and severally, shall indemnify the Trustee for, and hold each of the Trustee and any predecessor harmless against, any and all loss, damage, claims, liability or expense (including reasonable attorneys’ fees and expenses) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder (including the costs and expenses of enforcing this Indenture against the Company or any Guarantor (including this Section 7.07)) or defending itself against any claim whether asserted by any Holder, the Company or any Guarantor, or liability in connection with the acceptance, exercise or performance of any of its powers or duties hereunder), except to the extent set forth in the last sentence of this clause (b). The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company and the Guarantors need not (i) pay for any settlement made without the consent of the Company (which consent will not be unreasonably withheld) or (ii) reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee’s own willful misconduct, negligence or bad faith.
(c) The obligations of the Company and the Guarantors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee.
(d) To secure the payment obligations of the Company and the Guarantors in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(a)(9) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.08. The Trustee may resign in writing at any time by giving 30 days’ prior notice of such resignation to the Company and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
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Section 7.07 Compensation and Indemnity .
Section 7.08 Replacement of Trustee .
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a receiver or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(b) If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the successor Trustee to replace it with another successor Trustee appointed by the Company.
(c) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the Company’s expense), the Company or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(e) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee; provided that all sums owing to the Trustee hereunder have been paid and such transfer shall be subject to the Lien provided for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company’s obligations under Section 7.07 shall continue for the benefit of the retiring Trustee.
(f) As used in this Section 7.08, the term “Trustee” shall also include each Agent.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the successor corporation or national banking association without any further act shall be the successor Trustee, subject to Section 7.10.
(a) There shall at all times be a Trustee hereunder that is a corporation or national banking association organized and doing business under the laws of the United States or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50.0 million as set forth in its most recent published annual report of condition.
(b) This Indenture shall always have a Trustee who satisfies the requirements of Trust Indenture Act Sections 310(a)(1), (2) and (5). The Trustee is subject to Trust Indenture Act Section 310(b).
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Section 7.09 Successor Trustee by Merger, etc .
Section 7.10 Eligibility; Disqualification .
The Trustee is subject to Trust Indenture Act Section 311(a), excluding any creditor relationship listed in Trust Indenture Act Section 311(b). A Trustee who has resigned or been removed shall be subject to Trust Indenture Act Section 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at any time, pursuant to a resolution of its Board of Directors set forth in an Officers’ Certificate, elect to have either Section 8.02 or Section 8.03 applied to all outstanding Notes of a series upon compliance with the conditions set forth below in this Article 8.
(a) Upon the Company’s exercise under Section 8.01 of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04, be deemed to have been discharged from their obligations with respect to the Indenture, all outstanding Notes of the applicable series and the related Note Guarantees on the date the conditions set forth below are satisfied (“ Legal Defeasance ”). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding applicable series of Notes and related Note Guarantees, which shall thereafter be deemed to be “outstanding” only for the purposes of Section 8.05 and the other Sections of this Indenture referred to in clauses (1) through (4) below, and to have satisfied all of its other obligations under such Notes, Note Guarantees and this Indenture including that of the Guarantors (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), and this Indenture shall cease to be of further effect as to all Notes of such series and related Note Guarantees, except for the following provisions which shall survive until otherwise terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes of such series to receive payments in respect of the principal of, and premium, interest or Additional Amounts, if any, on such Notes when such payments are due from the trust created pursuant to this Indenture referred to in Section 8.04;
(2) the Company’s obligations with respect to the Notes of such series under Sections 2.03, 2.04, 2.06, 2.07, 2.10, 4.02;
(3) the rights, powers, trusts, duties and immunities of the Trustee under this Indenture, and the Company’s and the Guarantors’ obligations in connection therewith; and
(4) this Section 8.02.
(b) Following the Company’s exercise of its Legal Defeasance option, payment of the Notes of the applicable series may not be accelerated because of an Event of Default.
(c) Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03.
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Section 7.11 Preferential Collection of Claims Against the Company .
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance .
Section 8.02 Legal Defeasance and Discharge .
Upon the Company’s exercise under Section 8.01 of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04, be released from their obligations under the covenants contained in Sections 3.09, 4.03, 4.05, 4.06, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 and clause (4) of Section 5.01(a) with respect to the outstanding Notes of the applicable series, and the Guarantors shall be deemed to have been discharged from their obligations with respect to the related Note Guarantees, on and after the date the conditions set forth in Section 8.04 are satisfied (“ Covenant Defeasance ”), and the applicable series of Notes shall thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed “outstanding” for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to this Indenture and the outstanding Notes of the applicable series, the Company or any of its Subsidiaries may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01, but, except as specified above, the remainder of this Indenture and such Notes of the applicable series shall be unaffected thereby. In addition, upon the Company’s exercise under Section 8.01 of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04, an Event of Default specified in Section 6.01(a)(3) that resulted solely from the failure of the Company to comply with clause (4) of Section 5.01(a), Sections 6.01(a)(4), 6.01(a)(5) (only with respect to covenants that are released as a result of such Covenant Defeasance), 6.01(a)(6), 6.01(a)(7), 6.01(a)(8) and 6.01(a)(9) (solely with respect to Significant Subsidiaries or any group of Restricted Subsidiaries that would constitute a Significant Subsidiary), in each case, shall not constitute an Event of Default.
(a) The following shall be the conditions to the exercise of either the Legal Defeasance option under Section 8.02 or the Covenant Defeasance option under Section 8.03 with respect to the applicable series of Notes:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of such series of Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in amounts as will be sufficient, in the opinion (except in the case of cash) of a nationally recognized investment bank, appraisal firm or firm of independent public accountants selected by the Company, to pay the principal of, premium, if any, on, interest, if any, on, and Additional Amounts, if any, on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes of such series are being defeased to such stated date for payment or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that
(A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or
(B) since the Issue Date, there has been a change in the applicable federal income tax law,
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Section 8.03 Covenant Defeasance .
Section 8.04 Conditions to Legal or Covenant Defeasance .
in either case to the effect that, and based thereon such Opinion of Counsel will confirm that the Holders of the outstanding Notes of such series will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes of such series will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit (and any similar concurrent deposit relating to other Indebtedness), and the granting of Liens to secure such borrowings);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture and the agreements governing any other Indebtedness being defeased, discharged or replaced) to which the Company or any of the Guarantors is a party or by which the Company or any of the Guarantors is bound;
(6) the Company must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes of such series over the other creditors of the Company, any Guarantor or others, with the intent of defeating, hindering, delaying or defrauding any creditors of the Company, any Guarantor or others;
(7) the Company must deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and
(8) the Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes of such series at maturity or the redemption date, as the case may be (which instructions may be contained in the Officers’ Certificate referred to in clause (7) above).
(a) Subject to Section 8.06, all money and Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05 and Section 11.02, the “ Trustee ”) pursuant to Section 8.04 in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company or any Restricted Subsidiary acting as Paying Agent) as the Trustee may determine, to the Holders of all sums due and to become due thereon in respect of principal, premium, if any, and interest on the Notes, but such money need not be segregated from other funds except to the extent required by law.
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Section 8.05 Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions .
(b) The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or Government Securities deposited pursuant to Section 8.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders.
(c) Anything in this Article 8 to the contrary notwithstanding, the Trustee will deliver or pay to the Company from time to time upon the request of the Company any money or Government Securities held by it as provided in Section 8.04 which, in the opinion of an nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a)(1)), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Subject to any applicable abandoned property law, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided , however , that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times or The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company.
If the Trustee or Paying Agent is unable to apply any U.S. dollars or Government Securities in accordance with Section 8.02 or Section 8.03, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company’s and the Guarantors’ obligations under this Indenture, the applicable series of Notes and the related Note Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or Section 8.03 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or Section 8.03, as the case may be; provided that, if the Company makes any payment of principal, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders to receive such payment from the money held by the Trustee or Paying Agent.
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Section 8.06 Repayment to the Company .
Section 8.07 Reinstatement .
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
(a) Notwithstanding Section 9.02, without the consent of any Holder, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the applicable series of Notes and the Note Guarantees:
(1) to cure any ambiguity, omission, defect, omission, mistake or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3) to provide for the assumption of the Company’s or a Guarantor’s obligations to Holders of Notes of such series and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Company’s or such Guarantor’s assets, as applicable, in accordance Article 5;
(4) to make any change that would provide any additional rights or benefits to the Holders of Notes of such series or that does not adversely affect the legal rights under this Indenture of any Holder, including, without limitation, to secure the Notes of the applicable series or the Note Guarantees pursuant to the requirements of Section 4.10;
(5) to conform the text of this Indenture, the Notes of such series or the Note Guarantees to any provision of the “Description of Notes” section of the Offering Memorandum to the extent that the Trustee has received an Officers’ Certificate stating that such text constitutes an unintended conflict with, or is inconsistent with, the description of the corresponding provision in the “Description of Notes” section of the Offering Memorandum;
(6) to provide for the issuance of Additional Notes of the applicable series of Notes in accordance with the limitations set forth in this Indenture as of the Issue Date;
(7) to add any additional Guarantor or to evidence the release of any Guarantor from its Note Guarantee, in each case as provided in this Indenture;
(8) to evidence or provide for the acceptance of appointment under this Indenture of a successor Trustee; provided that the successor Trustee is otherwise qualified and eligible to act as such under the terms of this Indenture; or
(9) to comply with the requirements of the SEC to effect or maintain the qualification of this Indenture under the TIA.
(b) Upon the request of the Company, and upon receipt by the Trustee of the documents described in Section 12.04, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Notwithstanding the foregoing, no Opinion of Counsel shall be required in connection with the addition of a Guarantor under this Indenture
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Section 9.01 Without Consent of Holders .
upon execution and delivery by such Guarantor and the Trustee of a supplemental indenture to this Indenture, the form of which is attached as Exhibit C, and delivery of an Officers’ Certificate, except as provided in Section 5.01(c).
(a) Except as provided in Section 9.01 and this Section 9.02, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the applicable series of Notes and the Note Guarantees with the consent of the Holders of a majority in aggregate principal amount of the applicable series of Notes then outstanding (including, without limitation, Additional Notes of the applicable series of Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the applicable series of Notes) and, subject to Section 6.04 and Section 6.07, any existing Default or Event of Default or compliance with any provision of this Indenture, the applicable series of Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the applicable series of Notes then outstanding (including, without limitation, Additional Notes of the applicable series of Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Section 2.08 and Section 2.09 shall determine which Notes are considered to be “outstanding” for the purposes of this Section 9.02.
(b) Upon the request of the Company, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 12.04, the Trustee shall join with the Company and the Guarantors in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture.
(c) It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver. It shall be sufficient if such consent approves the substance of such proposed amendment, supplement or waiver.
(d) After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will give to the Holders a notice briefly describing such amendment, supplement or waiver. However, the failure of the Company to give such notice to all the Holders, or any defect in the notice, will not impair or affect the validity of any such amendment, supplement or waiver.
(e) Without the consent of each affected Holder, an amendment, supplement or waiver under this Section 9.02 may not:
(1) reduce the percentage of principal amount of Notes of such series whose Holders must consent to an amendment, supplement or waiver;
(2) reduce any premium payable upon redemption of any Notes of such series or change the date on which any Notes of such series are subject to redemption (other than the notice provisions) or waive any payment with respect to the redemption of the Notes of such series; provided, however, that, solely for the avoidance of doubt, and without any other implication, any purchase or repurchase of the Notes of such series (including pursuant to Section 4.15 and Section 4.16 shall not be deemed a redemption of such Notes;
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Section 9.02 With Consent of Holders .
(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note of such series;
(4) waive a Default or Event of Default in the payment of principal of, or premium, interest or Additional Amounts, if any, on, the notes of such series (except as described in Section 6.01 a rescission of acceleration of the Notes of such series by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes of such series and a waiver of the payment default that resulted from such acceleration);
(5) make any Note of such series payable in money other than that stated in the Notes of such series;
(6) impair the right of any Holder to receive payment of principal of, or interest on, such Holders’ Notes of such series on or after the due dates therefrom or to institute suit for the enforcement of any payment on, or with respect to, such Holders’ Notes of such series;
(7) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes of such series to receive payments of principal of, or premium, interest or Additional Amounts, if any, on, the Notes of such series (other than waivers permitted by clause (8) below);
(8) waive a redemption or repurchase payment with respect to any Note of such series (other than a payment required by Section 4.15 or Section 4.16);
(9) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture;
(10) make any change in this Section 9.02; or
(11) make any change to or modify any provision of this Indenture with respect to such series of Notes to affect the ranking of any such Note of such series or Note Guarantee in a manner that would adversely affect Holders of the Notes of such series.
A consent to any amendment, supplement or waiver of this Indenture, the Notes or the Note Guarantee by any Holder given in connection with a tender of such Holder’s Notes will not be rendered invalid by such tender.
If this Indenture is qualified under the Trust Indenture Act, every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental indenture that complies with the Trust Indenture Act as then in effect.
(a) Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
(b) The Company may, but shall not be obligated to, fix a record date pursuant to Section 1.05 for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver.
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Section 9.03 Compliance with Trust Indenture Act .
Section 9.04 Revocation and Effect of Consents .
(a) The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
(b) Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 9 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. In executing any amendment, supplement or waiver, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, in addition to the documents required by Section 12.04, an Officers’ Certificate and an Opinion of Counsel, each stating that the execution of such amendment, supplement or waiver is authorized or permitted by this Indenture and that such amendment, supplement or waiver is the legal, valid and binding obligation of the Company and any Guarantor party thereto, enforceable against them in accordance with its terms, subject to customary exceptions.
For so long as the Notes are listed on the Exchange, to the extent required by the rules of such exchange, the Company shall inform the Exchange of any amendments, supplements and waivers pursuant to this Article 9 and provide, if necessary, a supplement to the Offering Memorandum setting forth reasonable details in connection with any such amendments, supplements or waivers. Furthermore, for so long as the Notes are listed on the Exchange and the rules of such exchange so require, the Company shall publish notice of any amendment, supplement and waiver on the official website of the Exchange or in a daily newspaper with general circulation in Luxembourg (which is expected to be the Luxemburger Wort ).
ARTICLE 10
GUARANTEES
(a) Subject to this Article 10, each of the Guarantors hereby, jointly and severally, irrevocably and unconditionally guarantees, on a senior unsecured basis, to each Holder and to the Trustee and its successors and permitted assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (1) the principal of and premium, if any, on and interest on the Notes shall be promptly paid in full when due, whether at Stated Maturity, by acceleration, redemption or otherwise, and interest on the overdue principal and
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Section 9.05 Notation on or Exchange of Notes .
Section 9.06 Trustee to Sign Amendments, etc .
Section 9.07 Exchange Notices .
Section 10.01 Guarantee .
interest on the Notes, if any, if lawful, and all other Obligations of the Company to the Holders or the Trustee hereunder or under the Notes shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise collectively, the “ Guaranteed Obligations ”. Failing payment by the Company when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
(b) The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture, or pursuant to Section 10.06.
(c) Subject to Section 6.06, each of the Guarantors also agrees, jointly and severally, to pay any and all costs and expenses (including reasonable attorneys’ fees and expenses) Incurred by any Holder in enforcing any rights under this Section 10.01.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to the Company or the Guarantors, any amount paid by any of them either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
(e) Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantees.
(f) Each Note Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company’s assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes or the Note Guarantees, whether as a “voidable preference,” “fraudulent transfer” or otherwise, all as though such payment or performance had not been made. In the event that any payment or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
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(g) In case any provision of any Note Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(h) Each payment to be made by a Guarantor in respect of its Note Guarantee shall be made without set-off, counterclaim, reduction or diminution of any kind or nature.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent conveyance or a fraudulent transfer for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law. Each Guarantor that makes a payment under its Note Guarantee will be entitled upon payment in full of all Guaranteed Obligations under this Indenture to a contribution from each other Guarantor in an amount equal to such other Guarantor’s pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment, determined in accordance with GAAP.
(a) To evidence its Note Guarantee set forth in Section 10.01, each Guarantor hereby agrees that this Indenture shall be executed on behalf of such Guarantor by an Officer or person holding an equivalent title or position.
(b) Each Guarantor hereby agrees that its Note Guarantee set forth in Section 10.01 shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Note Guarantee on the Notes.
(c) If an Officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates the Note, the Note Guarantees shall be valid nevertheless.
(d) The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors.
(e) If required by Section 4.11, the Company shall cause any newly created or acquired Restricted Subsidiary to comply with the provisions of Section 4.11 and this Article 10, to the extent applicable.
Each Guarantor shall be subrogated to all rights of Holders against the Company in respect of any amounts paid by any Guarantor pursuant to the provisions of Section 10.01; provided that, if an Event of Default has occurred and is continuing, no Guarantor shall be entitled to enforce or receive any payments arising out of, or based upon, such right of subrogation until all amounts then due and payable by the Company under this Indenture or the Notes shall have been paid in full.
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Section 10.02 Limitation on Guarantor Liability .
Section 10.03 Execution and Delivery .
Section 10.04 Subrogation .
Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the guarantee and waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
(a) A Note Guarantee by a Guarantor shall be automatically and unconditionally released and discharged, and no further action by such Guarantor, the Company or the Trustee shall be required for the release of such Guarantor’s Note Guarantee, upon:
(1) (A) any sale or other disposition of all or substantially all of the assets of that Guarantor by way of merger, consolidation or otherwise, to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition is made in compliance with Section 4.16 (it being understood that only such portion of the Net Proceeds as is required to be applied on or before the date of such release in accordance with the terms of this Indenture needs to be applied in accordance therewith at such time); provided that all the obligations of such Guarantor under all other Indebtedness of the Company and its Restricted Subsidiaries terminate upon consummation of such transaction;
(B) any sale or other disposition of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition is made in compliance with Section 4.16 (it being understood that only such portion of the Net Proceeds as is required to be applied on or before the date of such release in accordance with the terms of this Indenture needs to be applied in accordance therewith at such time) and the Guarantor ceases to be a Restricted Subsidiary of the Company as a result of the sale or other disposition;
(C) the designation of any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of this Indenture;
(D) Legal Defeasance, Covenant Defeasance or satisfaction and discharge pursuant to Article 11 of this Indenture;
(E) the release or discharge of such Guarantor from the guarantee of Indebtedness that resulted in the obligation of such Guarantor to guarantee the Notes (including the Senior Credit Facilities) (except as a result of payment under any such Guarantee or direct obligation); provided that if such Guarantor has Incurred any Indebtedness in reliance on its status as a Guarantor under Section 4.09, such Guarantor’s obligations under such Indebtedness, as the case may be, so Incurred are satisfied in full and discharged or are otherwise permitted to be Incurred by a Restricted Subsidiary (other than a Guarantor) under Section 4.09; or
(F) such Guarantor consolidating with, merging into or transferring all of its assets to the Company or another Guarantor, and as a result of, or in connection with, such transaction such Guarantor dissolving or otherwise ceasing to exist; and
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Section 10.05 Benefits Acknowledged .
Section 10.06 Release of Note Guarantees .
(2) such Guarantor delivering to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for in this Indenture relating to such transaction or release have been complied with.
(b) At the written request of the Company, the Trustee shall execute and deliver any documents reasonably required in order to evidence such release, discharge and termination in respect of the applicable Note Guarantee.
(c) In the event that any released Guarantor thereafter borrows or Guarantees Indebtedness under the Senior Credit Facilities or Guarantees certain other Indebtedness of the Company or any Guarantor, such former Guarantor will, if it is a Restricted Subsidiary, again provide a Guarantee of the Notes, in accordance with and to the extent required by this Indenture.
(a) If and to the extent that a Guarantor incorporated under the laws of Switzerland (a “ Swiss Guarantor ”) becomes liable under this Indenture or otherwise in connection with the Notes for Obligations of its Affiliates (other than its Subsidiaries) and if complying with such Obligations would constitute a repayment of capital ( Einlagerückgewähr ), a violation of the legally protected reserves ( gesetzlich geschützte Reserven ) or the payment of a (constructive) dividend ( Gewinnausschüttung ) by the Swiss Guarantor or would otherwise be restricted under then applicable Swiss law (the “Swiss Restricted Obligations”), the aggregate liability of the Swiss Guarantor for Swiss Restricted Obligations shall be limited to the amount of unrestricted equity capital available for distribution as dividends to the shareholders of the Swiss Guarantor at the time the Swiss Guarantor is required to perform the Swiss Restricted Obligations (the “ Swiss Maximum Amount ”).
(b) In the event that the Swiss Guarantor is required to make a payment under this Indenture or otherwise in connection with the Notes for Obligations and such payment is subject to the limitations set out in paragraph (a) above, the Swiss Guarantor shall pay to the Trustee up to the Swiss Maximum Amount (less, if required, the Swiss Federal Withholding Tax as described in paragraph (c) below), to be applied against the Obligations.
(c) If so required under applicable law (including double tax treaties) at the time the Swiss Guarantor is required to make a payment under this Indenture or otherwise in connection with the Notes for Obligations, the Swiss Guarantor:
(1) may deduct from such payment the Swiss Federal Withholding Tax at the rate of 35 per cent (or such other rate as is in force at that time); and
(2) may pay the Swiss Federal Withholding Tax to the Swiss Federal Tax Administration; and
(3) shall notify and provide evidence to the Trustee that the Swiss Federal Withholding Tax has been paid to the Swiss Federal Tax Administration.
(d) For the avoidance of doubt, the Swiss Guarantor shall not be required to make a gross-up or indemnification for the deduction of the Swiss Federal Withholding Tax in accordance with paragraph (c) above to the extent and for as long as that would cause the Swiss Maximum Amount to be exceeded.
(e) The Swiss Guarantor shall use its reasonable efforts to ensure that any Affiliate which is, as a result of a payment under this Indenture or otherwise in connection with the Notes, entitled
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Section 10.07 Swiss Limitation .
to a full or partial refund of the Swiss Federal Withholding Tax, will (i) request a refund of the Swiss Federal Withholding Tax under any applicable law (including double tax treaties) to be applied against the Obligations.
The maximum liability and exposure of the Guarantors organized in Luxembourg (a “ Luxembourg Guarantor ”), under or in connection with the Notes and the Senior Credit Facilities (collectively, the “ Luxembourg Guaranteed Obligations ”) shall be limited so that the maximum amount payable by any such Luxembourg Guarantor for the Luxembourg Guaranteed Obligations of the Company or any other Guarantor, which is not a direct or indirect Wholly-Owned Subsidiary of such Luxembourg Guarantor, shall be limited at any time, with no double counting, to an aggregate amount not exceeding the sum of:
(a) an amount equal to all moneys received directly or indirectly by that Luxembourg Guarantor or any direct or indirect Wholly-Owned Subsidiaries of that Luxembourg Guarantor which have been funded with (i) borrowings made under the Senior Credit Facilities or (ii) issuance proceeds of the Notes; plus
(b) an amount equal to 90% of the higher of:
(1) the Luxembourg Guarantor’s own funds ( capitaux propres ) as referred to in article 34 of the Luxembourg law of 19 December 2002 on the Luxembourg Register of Commerce and Companies and the accounting and annual accounts of undertakings, as amended (the “ 2002 Law ”) and its subordinated debts (as referred to in article 34, Passif, Section B ( Dettes Subordonnées ) of the 2002 Law), as reflected in its last approved annual accounts available at the time a guarantee is called or a security interest is enforced under (x) the Notes and/or (y) the Senior Credit Facilities; and
(2) the Luxembourg Guarantor’s own funds ( capitaux propres ) (as referred to in article 34 of the 2002 Law) and its subordinated debt (as referred to in article 34, Passif, Section B ( Dettes Subordonnées ) of the 2002 Law), as reflected in its last approved annual accounts available as at the date of this Indenture.
(c)
ARTICLE 11
SATISFACTION AND DISCHARGE
(a) This Indenture will be discharged and will cease to be of further effect as to all Notes of a series, when:
(1) either
(A) Notes of such series that have been authenticated except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Company), have been delivered to the Trustee for cancellation; or
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Section 10.08 Luxembourg Limitation .
Section 11.01 Satisfaction and Discharge .
(B) all Notes of such series that have not been delivered to the Trustee for cancellation have become due and payable by reason of the giving of a notice of redemption or otherwise, or will become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes of such series not delivered to the Trustee for cancellation for principal of, premium, if any, on, interest, if any, on and Additional Amounts, if any, on the Notes of such series, to the date of maturity or redemption, as the case may be;
(2) in respect of subclause (B) of clause (1) of this Section 11.01, no Default or Event of Default has occurred and is continuing with respect to such series of Notes on the date of the deposit or will occur as a result of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and any similar deposit relating to other Indebtedness and, in each case, the granting of Liens to secure such borrowings) and the deposit will not result in a breach or violation of, or constitute a default under, any instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound (other than with respect to the borrowing of funds to be applied concurrently to make the deposit required to effect such satisfaction and discharge and any similar concurrent deposit relating to other Indebtedness, and in each case the granting of Liens to secure such borrowings);
(3) the Company or any Guarantor has paid or caused to be paid all sums payable by the Company under this Indenture with respect to such series of Notes; and
(4) the Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes of such series at maturity or the redemption date, as the case may be.
(b) In addition, the Company shall deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions) each stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of Section 11.01(a), the provisions of Section 11.02 and Section 8.06 shall survive.
(a) Subject to the provisions of Section 8.06, all money and Government Securities deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal, premium, if any, and interest for whose payment such money or Government Securities has been deposited with the Trustee, but such money or Government Securities need not be segregated from other funds except to the extent required by law.
(b) If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 by reason of any legal proceeding or by reason of any order
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Section 11.02 Application of Trust Money .
or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s and any Guarantor’s obligations under this Indenture, the Notes of the applicable series and the related Note Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01; provided that if the Company has made any payment of principal, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent, as the case may be.
ARTICLE 12
MISCELLANEOUS
(a) Any notice or communication to the Company, any Guarantor or the Trustee is duly given if in writing and (1) delivered in person, (2) mailed by first-class mail (certified or registered, return receipt requested), postage prepaid, or overnight air courier guaranteeing next day delivery or (3) sent by facsimile or electronic transmission, to its address:
if to the Company or any Guarantor:
c/o Paragon Offshore plc 3151 Briarpark Drive, Suite 700, Houston, Texas 77042 Fax No.: (832) 201-7433 Email: [email protected] Attention: Legal Department
with a copy to: Baker Botts L.L.P. 910 Louisiana Street, Houston, Texas 77002 Fax No: (713) 229-7708 Email: [email protected] Attention: Hillary H. Holmes
if to the Trustee:
Deutsche Bank Trust Company Americas Trust & Agency Services 60 Wall Street, 16th Floor Mail Stop: NYC60-1630 New York, New York 10005 Attn: Corporates Team Deal Manager – Paragon Offshore PLC Fax: 732-578-4635
with a copy to: Deutsche Bank Trust Company Americas c/o Deutsche Bank National Trust Company Trust & Agency Services 100 Plaza One, Mailstop JCY03-0699 Jersey City, New Jersey 07311 Attn: Corporates Team Deal Manager – Paragon Offshore PLC Fax: 732-578-4635
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Section 12.01 [RESERVED] .
Section 12.02 Notices .
The Company, any Guarantor or the Trustee, by like notice, may designate additional or different addresses for subsequent notices or communications.
(b) All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; on the first date of which publication is made, if by publication; five calendar days after being deposited in the mail, postage prepaid, if mailed by first-class mail; the next Business Day after timely delivery to the courier, if mailed by overnight air courier guaranteeing next day delivery; when receipt acknowledged, if sent by facsimile or electronic transmission; provided that any notice or communication delivered to the Trustee shall be deemed effective upon actual receipt thereof.
(c) Any notice or communication to a Holder shall be mailed by first-class mail (certified or registered, return receipt requested) or by overnight air courier guaranteeing next day delivery to its address shown on the Note Register or by such other delivery system as the Trustee agrees to accept. Any notice or communication shall also be so mailed to any Person described in Trust Indenture Act Section 313(c), to the extent required by the Trust Indenture Act. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
(d) Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
(e) Notwithstanding any other provision herein, where this Indenture provides for notice of any event to any Holder of an interest in a Global Note (whether by mail or otherwise), such notice shall be sufficiently given if given to the Depositary for such Note (or its designee), according to the applicable procedures of such Depositary, if any, prescribed for the giving of such notice.
(f) The Trustee agrees to accept and act upon notice, instructions or directions pursuant to this Indenture sent by unsecured facsimile or electronic transmission; provided , however , that (1) the party providing such written notice, instructions or directions, subsequent to such transmission of written instructions, shall provide the originally executed instructions or directions to the Trustee in a timely manner, and (2) such originally executed notice, instructions or directions shall be signed by an authorized representative of the party providing such notice, instructions or directions. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reasonable reliance upon and compliance with such notice, instructions or directions notwithstanding such notice, instructions or directions conflict or are inconsistent with a subsequent notice, instructions or directions.
(g) If a notice or communication is sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
(h) If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.
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Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of Trust Indenture Act Section 312(c).
Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantor, as the case may be, shall furnish to the Trustee:
(1) an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05) stating that, in the opinion of the signer(s), all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with; provided that (A) subject to Section 5.01(c), no Opinion of Counsel shall be required in connection with the addition of a Guarantor under this Indenture upon execution and delivery by such Guarantor and the Trustee of a supplemental indenture to this Indenture, the form of which is attached as Exhibit C, and (B) no Opinion of Counsel pursuant to this Section shall be required in connection with the issuance of Notes on the Issue Date.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to Section 4.07 or Trust Indenture Act Section 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with (and, in the case of an Opinion of Counsel, may be limited to reliance on an Officers’ Certificate as to matters of fact); and
(4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
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Section 12.03 Communication by Holders with Other Holders .
Section 12.04 Certificate and Opinion as to Conditions Precedent .
Section 12.05 Statements Required in Certificate or Opinion .
Section 12.06 Rules by Trustee and Agents .
No past, present or future director, officer, employee, incorporator or shareholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
THIS INDENTURE, THE NOTES AND ANY NOTE GUARANTEE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
EACH OF THE COMPANY, THE GUARANTORS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES, THE NOTE GUARANTEES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused by, directly or indirectly, forces beyond its reasonable control, including without limitation strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software or hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Restricted Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
All agreements of the Company in this Indenture and the Notes shall bind its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns. All agreements of each Guarantor in this Indenture shall bind its successors and assigns, except as otherwise provided in Section 10.06.
In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
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Section 12.07 No Personal Liability of Directors, Officers, Employees and Shareholders .
Section 12.08 Governing Law .
Section 12.09 Waiver of Jury Trial .
Section 12.10 Force Majeure .
Section 12.11 No Adverse Interpretation of Other Agreements .
Section 12.12 Successors .
Section 12.13 Severability .
The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
The exchange of copies of this Indenture and of signature pages by facsimile or portable document format (“ PDF ”) transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. PATRIOT Act, the Trustee is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the U.S.A. PATRIOT Act.
In any case where any Interest Payment Date, redemption date or repurchase date or the Stated Maturity of the Notes shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of principal of, premium, if any, on or interest on the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, redemption date or repurchase date, or at the Stated Maturity of the Notes, provided that no interest will accrue for the period from and after such Interest Payment Date, redemption date, repurchase date or Stated Maturity, as the case may be.
The Company and any Guarantor not organized in the United States hereby irrevocably designates and appoints CT Corporation System as its agent for service of process in any suit, action or proceeding with respect to the Notes and the Note Guarantees and for actions brought under the U.S. federal or state securities laws brought in any U.S. federal or state court located in the Borough of Manhattan in the City of New York. In relation to any legal action or proceedings arising out of or in connection with this Indenture, the Notes and the Guarantees, the Company and each Guarantor hereby irrevocably submit to the non-exclusive jurisdiction of the U.S. federal and state courts in the Borough of Manhattan in the City of New York, County and State of New York, United States of America.
To the extent that the Company or any Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process with respect to itself or its property, to the extent permitted by applicable law, it hereby irrevocably waives such immunity in respect of its obligations under each of this Indenture, the Notes and the Note Guarantees. In addition, to the extent
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Section 12.14 Counterpart Originals .
Section 12.15 Table of Contents, Headings, etc .
Section 12.16 Facsimile and PDF Delivery of Signature Pages .
Section 12.17 U.S.A. PATRIOT Act .
Section 12.18 Payments Due on Non-Business Days .
Section 12.19 Consent to Jurisdiction and Service .
permitted by applicable law, the Company and each Guarantor irrevocably waives and agrees not to assert, by way of motion, as a defense, or otherwise in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of the above-mentioned courts for any reason whatsoever, that such suit, action or proceeding is brought in an inconvenient forum or that the venue for such suit is improper, or that this Indenture, the Notes or the Note Guarantees or the subject matter hereof or thereof may not be enforced in such courts.
The Company and the Guarantors agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 12.19 shall affect the right of the Trustee to serve legal process in any other manner permitted by law or affect the right of the Trustee to bring any action or proceeding against the Company or any Guarantor or its property in the courts of any other jurisdictions.
Except as otherwise expressly provided in this Indenture, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that in the event that any Accounting Change occurs and such change would result in a change in the method of calculation of covenants, standards or terms as determined in good faith by the Company, then at the Company’s election, upon written notice of the Company to the Trustee, such covenants, standards or terms shall be calculated prior to giving effect to such Accounting Change as if such Accounting Change had not occurred.
[ Signatures on following page ]
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Section 12.20 Accounting Provisions .
[ Signature page to Indenture for [ ]% Senior Notes due 2022 and [ ]% Senior Notes due 2024 ]
PARAGON OFFSHORE PLC, as the Company
By: Name: Title:
Guarantors:
PARAGON INTERNATIONAL FINANCE COMPANY
By: Name: Title:
PARAGON OFFSHORE FINANCE COMPANY
By: Name: Title:
PARAGON OFFSHORE CONTRACTING GMBH PARAGON OFFSHORE LEASING (SWITZERLAND) GMBH
By: Name: Title:
PARAGON HOLDING NCS 2 S.À R.L. Société à responsabilité limitée 46A, Avenue J.F. Kennedy L-1855 Luxembourg R.C.S. Luxembourg : B 179911 Share Capital : USD 153,602
By: Name: Title:
[ Signature page to Indenture for [ ]% Senior Notes due 2022 and [ ]% Senior Notes due 2024 ]
PARAGON OFFSHORE (LUXEMBOURG) S.À R.L. Société à responsabilité limitée 46A, Avenue J.F. Kennedy L-1855 Luxembourg R.C.S. Luxembourg : B 163511 Share Capital : USD 20,000
By: Name: Title:
PARAGON OFFSHORE LEASING (LUXEMBOURG) S.À R.L. Société à responsabilité limitée 46A, Avenue J.F. Kennedy L-1855 Luxembourg R.C.S. Luxembourg : B 148690 Share Capital : USD 7,724,000
By: Name: Title:
PARAGON DRILLING SERVICES 7 LLC PARAGON LEONARD JONES LLC
By: Name: Title:
[ Signature page to Indenture for [ ]% Senior Notes due 2022 and [ ]% Senior Notes due 2024 ]
PARAGON OFFSHORE INTERNATIONAL LTD. PARAGON DUCHESS LTD. PARAGON (MIDDLE EAST) LIMITED PARAGON ASSET COMPANY LTD. PARAGON ASSET (ME) LTD. PARAGON FDR HOLDINGS LTD. PARAGON HOLDING SCS 1 LTD. PARAGON HOLDING SCS 2 LTD. PARAGON OFFSHORE (NORTH SEA) LTD. PARAGON ASSET (UK) LTD.
By: Name: Title:
PGN OFFSHORE DRILLING (MALAYSIA) SDN. BHD. PARAGON OFFSHORE (LABUAN) PTE. LTD.
By: Name: Title:
PARAGON OFFSHORE HOLDINGS US INC. PARAGON OFFSHORE DRILLING LLC
By: Name: Title:
PARAGON OFFSHORE DO BRASIL LTDA.
By: Name: Title:
PARAGON OFFSHORE (NEDERLAND) B.V.
By: Name: Title:
[ Signature page to Indenture for [ ]% Senior Notes due 2022 and [ ]% Senior Notes due 2024 ]
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee By: DEUTSCHE BANK NATIONAL TRUST COMPANY
By: Name: Title:
By: Name: Title:
APPENDIX A
PROVISIONS RELATING TO INITIAL NOTES AND ADDITIONAL NOTES
(a) Capitalized Terms .
Capitalized terms used but not defined in this Appendix A have the meanings given to them in this Indenture. The following capitalized terms have the following meanings:
“ Applicable Procedures ” means, with respect to any transfer or transaction involving a Global Note or beneficial interest therein, the rules and procedures of the Depositary for such Global Note, Euroclear or Clearstream, in each case to the extent applicable to such transaction and as in effect from time to time.
“ Clearstream ” means Clearstream Banking, Société Anonyme, or any successor securities clearing agency.
“ Distribution Compliance Period ,” with respect to any Note, means the period of 40 consecutive days beginning on and including the later of (a) the day on which such Note is first offered to persons other than distributors (as defined in Regulation S) in reliance on Regulation S, notice of which day shall be promptly given by the Company to the Trustee, and (b) the date of issuance with respect to such Note or any predecessor of such Note.
“ Euroclear ” means Euroclear Bank S.A./N.Y., as operator of Euroclear systems Clearance System or any successor securities clearing agency.
“ IAI ” means an institution that is an “accredited investor” as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act and is not a QIB.
“ QIB ” means a “qualified institutional buyer” as defined in Rule 144A.
“ Regulation S ” means Regulation S promulgated under the Securities Act.
“ Rule 144 ” means Rule 144 promulgated under the Securities Act.
“ Rule 144A ” means Rule 144A promulgated under the Securities Act.
“ Unrestricted Global Note ” means any Note in global form that does not bear or is not required to bear the Restricted Notes Legend.
“ U.S. person ” means a “U.S. person” as defined in Regulation S.
(b) Other Definitions .
Section 1.1 Definitions .
Term : Defined in Section :
“ Agent Members” 2.1(c) “ Definitive Notes Legend” 2.2(e)
(a) The Initial Notes issued on the date hereof shall be (i) offered and sold by the Company to the initial purchasers thereof and (ii) resold, initially only to (1) QIBs in reliance on Rule 144A (“ Rule 144A Notes ”) and (2) Persons other than U.S. persons in reliance on Regulation S (“ Regulation S Notes ”). Additional Notes may also be considered to be Rule 144A Notes or Regulation S Notes, as applicable.
(b) Global Notes . Rule 144A Notes shall be issued initially in the form of one or more permanent global Notes in definitive, fully registered form, numbered RA-1 upward (collectively, the “ Rule 144A Global Note ”) and Regulation S Notes shall be issued initially in the form of one or more global Notes, numbered RS-1 upward (collectively, the “ Regulation S Global Note ”), in each case without interest coupons and bearing the Global Notes Legend and Restricted Notes Legend, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided in the Indenture. One or more global Notes in definitive, fully registered form without interest coupons and bearing the Global Notes Legend and the Restricted Notes Legend, numbered RIAI-1 upward (collectively, the “ IAI Global Note ”) shall also be issued on the Issue Date, deposited with the Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided in this Indenture to accommodate transfers of beneficial interests in the Notes to IAIs subsequent to the initial distribution. The Rule 144A Global Note, the IAI Global Note, the Regulation S Global Note and any Unrestricted Global Note are each referred to herein as a “ Global Note ” and are collectively referred to herein as “ Global Notes .” Each Global Note shall represent such of the outstanding Notes as shall be specified in the “Schedule of Exchanges of Interests in the Global Note” attached thereto and each shall provide that it shall represent the aggregate principal amount of Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as applicable, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 of this Indenture and Section 2.2(c) of this Appendix A.
(c) Book-Entry Provisions . This Section 2.1(c) shall apply only to a Global Note deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this Section 2.1(c) and Section 2.02 of this Indenture and pursuant to an order of the Company signed by one Officer of the
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Term : Defined in Section :
“ ERISA Legend” 2.2(e) “ Global Note” 2.1(b) “ Global Notes Legend” 2.2(e) “ IAI Global Note” 2.1(b) “ Regulation S Global Note” 2.1(b) “ Regulation S Notes” 2.1(a) “ Restricted Notes Legend” 2.2(e) “ Rule 144A Global Note” 2.1(b) “ Rule 144A Notes” 2.1(a)
Section 2.1 Form and Dating
Company, authenticate and deliver initially one or more Global Notes that (i) shall be registered in the name of the Depositary for such Global Note or Global Notes or the nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary’s instructions or held by the Trustee as Custodian.
Members of, or participants in, the Depositary (“ Agent Members ”) shall have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary or by the Trustee as Custodian or under such Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Note.
(d) Definitive Notes . Except as provided in Section 2.2 or Section 2.3 of this Appendix A, owners of beneficial interests in Global Notes shall not be entitled to receive physical delivery of Definitive Notes.
(a) Transfer and Exchange of Definitive Notes for Definitive Notes . When Definitive Notes are presented to the Registrar with a request:
(i) to register the transfer of such Definitive Notes; or
(ii) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided , however , that the Definitive Notes surrendered for transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and
(2) in the case of Transfer Restricted Notes, they are being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to Section 2.2(b) of this Appendix A or otherwise in accordance with the Restricted Notes Legend, and are accompanied by a certification from the transferor in the form provided on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable, for exchange or registration of transfers and, as applicable, delivery of such legal opinions, certifications and other information as may be requested pursuant thereto.
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Section 2.2 Transfer and Exchange .
(b) Restrictions on Transfer of a Definitive Note for a Beneficial Interest in a Global Note . A Definitive Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, together with:
(i) a certification from the transferor in the form provided on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable, for exchange or registration of transfers and, as applicable, delivery of such legal opinions, certifications and other information as may be requested pursuant thereto; and
(ii) written instructions directing the Trustee to make, or to direct the Custodian to make, an adjustment on its books and records with respect to such Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, such instructions to contain information regarding the Depositary account to be credited with such increase,
the Trustee shall cancel such Definitive Note and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased by the aggregate principal amount of the Definitive Note to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Note equal to the principal amount of the Definitive Note so canceled. If the applicable Global Note is not then outstanding, the Company shall issue and the Trustee shall authenticate, upon an Authentication Order, a new applicable Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes .
(i) The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depositary, in accordance with the Indenture (including applicable restrictions on transfer set forth in Section 2.2(d) of this Appendix A, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Note shall deliver to the Registrar a written order given in accordance with the Depositary’s procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Note, or another Global Note and such account shall be credited in accordance with such order with a beneficial interest in the applicable Global Note and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Note being transferred.
(ii) If the proposed transfer is a transfer of a beneficial interest in one Global Note to a beneficial interest in another Global Note, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of the Global Note from which such interest is being transferred.
(iii) Notwithstanding any other provisions of this Appendix A (other than the provisions set forth in Section 2.3 of this Appendix A), a Global Note may not be transferred except as a whole and not in part if the transfer is by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary.
(d) Restrictions on Transfer of Global Notes; Voluntary Exchange of Interests in Transfer Restricted Global Notes for Interests in Unrestricted Global Notes .
(i) Transfers by an owner of a beneficial interest in a Rule 144A Global Note or an IAI Global Note to a transferee who takes delivery of such interest through another Transfer Restricted Global Note shall be made in accordance with the Applicable Procedures and the Restricted Notes Legend and only upon receipt by the Trustee of a certification from the transferor in the form provided on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable, for exchange or registration of
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transfers and, as applicable, delivery of such legal opinions, certifications and other information as may be requested pursuant thereto. In addition, in the case of a transfer of a beneficial interest in either a Regulation S Global Note or a Rule 144A Global Note for an interest in an IAI Global Note, the transferee must furnish a signed letter substantially in the form of Exhibit B-1 or B-2, as applicable, to the Trustee.
(ii) Prior to the expiration of the Distribution Compliance Period, (A) the Regulation S Global Note shall be a temporary global security for purposes of Rules 903 and 904 under the Securities Act, whether or not designated as such on the face of such Note, and (B) interests in the Regulation S Global Note may only be held through Euroclear or Clearstream. During the Distribution Compliance Period, beneficial ownership interests in the Regulation S Global Note may only be sold, pledged or transferred through Euroclear or Clearstream in accordance with the Applicable Procedures, the Restricted Notes Legend on such Regulation S Global Note and any applicable securities laws of any state of the U.S. Prior to the expiration of the Distribution Compliance Period, transfers by an owner of a beneficial interest in the Regulation S Global Note to a transferee who takes delivery of such interest through a Rule 144A Global Note or an IAI Global Note shall be made only in accordance with the Applicable Procedures and the Restricted Notes Legend and upon receipt by the Trustee of a written certification from the transferor of the beneficial interest in the form provided on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable, for exchange or registration of transfers. Such written certification shall no longer be required after the expiration of the Distribution Compliance Period. Upon the expiration of the Distribution Compliance Period, beneficial ownership interests in the Regulation S Global Note shall be transferable in accordance with applicable law and the other terms of the Indenture.
(iii) Upon the expiration of the Distribution Compliance Period, beneficial interests in the Regulation S Global Note may be exchanged for beneficial interests in an Unrestricted Global Note upon certification in the form provided on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable, for an exchange from a Regulation S Global Note to an Unrestricted Global Note.
(iv) Beneficial interests in a Transfer Restricted Note that is a Rule 144A Global Note or an IAI Global Note may be exchanged for beneficial interests in an Unrestricted Global Note if the Holder certifies in writing to the Registrar that its request for such exchange is in respect of a transfer made in reliance on Rule 144 (such certification to be in the form set forth on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable) and/or upon delivery of such legal opinions, certifications and other information as the Company or the Trustee may reasonably request.
(v) If no Unrestricted Global Note is outstanding at the time of a transfer contemplated by the preceding clauses (iii) and (iv), the Company shall issue and the Trustee shall authenticate, upon an Authentication Order, a new Unrestricted Global Note in the appropriate principal amount.
(e) Legends .
(i) Except as permitted by Section 2.2(d) and this Section 2.2(e) of this Appendix A, each Note certificate evidencing the Global Notes and the Definitive Notes (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only) (“ Restricted Notes Legend ”):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
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ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) THAT IS [ IN THE CASE OF RULE 144A NOTES: ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF, THE ORIGINAL ISSUE DATE OF THE ISSUANCE OF ANY ADDITIONAL NOTES AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY)] [ IN THE CASE OF REGULATION S NOTES: 40 DAYS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF, THE ORIGINAL ISSUE DATE OF THE ISSUANCE OF ANY ADDITIONAL NOTES AND THE DATE ON WHICH THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) WAS FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN RULE 902 OF REGULATION S UNDER THE SECURITIES ACT) IN RELIANCE ON REGULATION S], ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER AND THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF SECURITIES OF $250,000 OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. [ IN THE CASE OF REGULATION S NOTES: BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.]
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Each Definitive Note shall bear the following additional legend (“ Definitive Notes Legend ”):
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
Each Global Note shall bear the following additional legend (“ Global Notes Legend ”):
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
Each Note shall bear the following additional legend (“ ERISA Legend ”):
BY ITS ACQUISITION OF THIS SECURITY, THE HOLDER THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (1) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OF A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) OR PROVISIONS UNDER ANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF ERISA OR THE CODE (“SIMILAR LAWS”), OR OF AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE “PLAN ASSETS” OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENT, OR (2) THE ACQUISITION AND HOLDING OF THIS SECURITY OR ANY INTEREST HEREIN WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAWS.
(ii) Upon any sale or transfer of a Transfer Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a Definitive Note that does not bear the Restricted Notes Legend and the Definitive Notes Legend and rescind any restriction on the transfer of such Transfer Restricted Note if the Holder certifies in writing to the Registrar that its request for such exchange is in respect of a transfer made in reliance on Rule 144 (such
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certification to be in the form set forth on the reverse side of the Form of Note in Exhibit A-1 or Exhibit A-2, as applicable) and provides such legal opinions, certifications and other information as the Company or the Trustee may reasonably request.
(v) Any Additional Notes sold in a registered offering shall not be required to bear the Restricted Notes Legend.
(f) Cancellation or Adjustment of Global Note . At such time as all beneficial interests in a Global Note have either been exchanged for Definitive Notes, transferred in exchange for an interest in another Global Note, redeemed, repurchased or canceled, such Global Note shall be returned by the Depositary to the Trustee for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Definitive Notes, transferred in exchange for an interest in another Global Note, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Note shall be reduced and an adjustment shall be made on the books and records of the Registrar (if it is then the Custodian for such Global Note) with respect to such Global Note, by the Registrar or the Custodian, to reflect such reduction.
(g) Obligations with Respect to Transfers and Exchanges of Notes .
(i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate, Definitive Notes and Global Notes at the Registrar’s request.
(ii) No service charge shall be imposed in connection with any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06, 3.09, 4.15, 4.16, 4.20 and 9.05 of this Indenture).
(iii) Prior to the due presentation for registration of transfer of any Note, the Company, the Trustee, the Paying Agent or the Registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal, premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary.
(iv) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.
(v) In order to effect any transfer or exchange of an interest in any Transfer Restricted Note for an interest in a Note that does not bear the Restricted Notes Legend and has not been registered under the Securities Act, if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel, in form reasonably acceptable to the Registrar to the effect that no registration under the Securities Act is required in respect of such exchange or transfer or the re-sale of such interest by the beneficial holder thereof, shall be required to be delivered to the Registrar and the Trustee.
(h) No Obligation of the Trustee .
(i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depositary or any other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member,
8
beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to the registered Holders (which shall be the Depositary or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants, members or beneficial owners in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
(a) A Global Note deposited with the Depositary or with the Trustee as Custodian pursuant to Section 2.1 may be transferred to the beneficial owners thereof in the form of Definitive Notes in an aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note, only if such transfer complies with Section 2.2 of this Appendix A and (i) the Depositary notifies the Company that it is unwilling or unable to continue as a Depositary for such Global Note or if at any time the Depositary ceases to be a “clearing agency” registered under the Exchange Act and, in each case, a successor depositary is not appointed by the Company within 90 days of such notice or after the Company becomes aware of such cessation or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository. In addition, any Affiliate of the Company or any Guarantor that is a beneficial owner of all or part of a Global Note may have such Affiliate’s beneficial interest transferred to such Affiliate in the form of a Definitive Note by providing a written request to the Company and the Trustee and such Opinions of Counsel, certificates or other information as may be required by this Indenture or the Company or Trustee. Notwithstanding anything to the contrary in this Section 2.3. no Regulation S Global Note may be exchanged for a Definitive Note until the end of the Distribution Compliance Period applicable to such Regulation S Global Note and receipt by the Trustee and the Company of any certificates required by either of them pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act.
(b) Any Global Note that is transferable to the beneficial owners thereof pursuant to this Section 2.3 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Note, an equal aggregate principal amount of Definitive Notes of authorized denominations. Any portion of a Global Note transferred pursuant to this Section 2.3 shall be executed, authenticated and delivered only in denominations of $2,000 and integral multiples of $1,000 in excess thereof and registered in such names as the Depositary shall direct. Any Definitive Note delivered in exchange for an interest in a Global Note that is a Transfer Restricted Note shall, except as otherwise provided by Section 2.2(e) of this Appendix A, bear the Restricted Notes Legend.
(c) The registered Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.
9
Section 2.3 Definitive Notes .
(d) In the event of the occurrence of any of the events specified in Section 2.3(a) of this Appendix A, the Company shall promptly make available to the Trustee a reasonable supply of Definitive Notes in fully registered form without interest coupons.
10
EXHIBIT A- 1
[FORM OF FACE OF NOTE]
[Insert the Restricted Notes Legend, if applicable, pursuant to the provisions of the Indenture]
[Insert the Global Notes Legend, if applicable, pursuant to the provisions of the Indenture]
[Insert the Definitive Notes Legend, if applicable, pursuant to the provisions of the Indenture]
[Insert the ERISA Legend, if applicable, pursuant to the provisions of the Indenture.]
A-1-1
CUSIP [ ] ISIN [ ] 1
[RULE 144A][REGULATION S][IAI][GLOBAL] NOTE
6.75% Senior Notes due 2022
PARAGON OFFSHORE PLC
promises to pay to [CEDE & CO.] 3 [ ] or registered assigns the principal sum [set forth on the Schedule of Exchanges of Interests in the Global Note attached hereto] 4 [of $ ( Dollars)] 5 on July 15, 2022.
Interest Payment Dates: January 15 and July 15
Record Dates: January 1 and July 1
A-1-2
No. [RA- ] [RS- ] [RIAI- ] [Up to] 2 [$ ]
1 Rule 144A Note CUSIP: [ ] Rule 144A Note ISIN: [ ] Regulation S Note CUSIP: [ ] Regulation S Note ISIN: [ ] IAI Note CUSIP: [ ] IAI Note ISIN: [ ] 2 Include in Global Notes 3 Include in Global Notes 4 Include in Global Notes 5 Include in Definitive Notes
IN WITNESS HEREOF, the Company has caused this instrument to be duly executed.
Dated:
A-1-3
PARAGON OFFSHORE PLC
By: Name: Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture:
Dated:
A-1-4
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee
By: DEUTSCHE BANK NATIONAL TRUST COMPANY
By: Authorized Signatory
[Reverse Side of Note]
6.75% Senior Notes due 2022
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Paragon Offshore plc, a public limited company incorporated under the laws of England and Wales (the “ Company ”), promises to pay interest on the principal amount of this Note at 6.75% per annum until but excluding maturity. The Company shall pay interest semi-annually in arrears on January 15 and July 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “ Interest Payment Date ”). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including [ ]; provided that the first Interest Payment Date shall be [ ]. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the interest rate on the Notes to the extent lawful. Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes to the Persons who are registered holders of Notes at the close of business on the January 1 or July 1 (whether or not a Business Day), as the case may be, immediately preceding the related Interest Payment Date, even if such Notes are canceled after such Record Date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest and premium, if any, may be made by check mailed to the Holders at their respective addresses set forth in the Note Register; provided that payment by wire transfer of immediately available funds shall be required with respect to principal, premium, if any, and interest on all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent at least five Business Days prior to the applicable payment date. Such payment shall be in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Deutsche Bank Trust Company Americas, the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Restricted Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture, dated as of July [ ], 2014 (as amended or supplemented from time to time, the “ Indenture ”), among Paragon Offshore plc, the Guarantors named therein and the Trustee. This Note is one of a duly authorized issue of Notes of the Company designated as its 6.75% Senior Notes due 2022. The Company shall be entitled to issue Additional Notes pursuant to Section 2.01 and 4.09 of the Indenture. The Notes and any Additional Notes issued under the Indenture shall be treated as a single class of securities as the applicable series of Notes under the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of such terms. Any term used in this Note that is defined in the Indenture shall have the meaning assigned to it in the Indenture. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.
A-1-5
5. REDEMPTION AND REPURCHASE. The Notes are subject to optional redemption, and may be the subject of an Asset Sale Offer or a Change of Control Offer, each as further described in the Indenture. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
6. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents, and Holders shall be required to pay any taxes and fees required by law or by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption or tendered for repurchase in connection with a Change of Control Offer or Asset Sale Offer, except for the unredeemed portion of any Note being redeemed or repurchased in part.
7. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
8. AMENDMENT, SUPPLEMENT AND WAIVER. The Indenture, the Note Guarantees or the Notes may be amended or supplemented as provided in the Indenture.
9. DEFAULTS AND REMEDIES. The Events of Default relating to the Notes are defined in Section 6.01 of the Indenture. Upon the occurrence of an Event of Default, the rights and obligations of the Company, the Guarantors, the Trustee and the Holders shall be as set forth in the applicable provisions of the Indenture.
10. AUTHENTICATION. This Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of the Trustee.
11. GOVERNING LAW. THIS NOTE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
12. CUSIP AND ISIN NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP and ISIN numbers to be printed on the Notes, and the Trustee may use CUSIP and ISIN numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Company at the following address:
c/o Paragon Offshore plc 3151 Briarpark Drive, Suite 700
Houston, Texas 77042 Fax No.: (832) 201-7433
Email: [email protected] Attention: Legal Department
A-1-6
ASSIGNMENT FORM
To assign this Note, fill in the form below:
A-1-7
(I) or (we) assign and transfer this Note to: (Insert assignee’s legal name)
(Insert assignee’s soc. sec. or tax I.D. no.)
(Print or type assignee’s name, address and zip code)
and irrevocably appoint to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFERS OF TRANSFER RESTRICTED NOTES
This certificate relates to $ principal amount of Notes held in (check applicable space) book-entry or definitive form by the undersigned.
The undersigned (check one box below):
In connection with any transfer of any of the Notes evidenced by this certificate, the undersigned confirms that such Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided , however , that if box (5), (6), (7) or (8) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other
A-1-8
� has requested the Trustee by written order to deliver in exchange for its beneficial interest in a Global Note held by the Depositary a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above) in accordance with the Indenture; or
� has requested the Trustee by written order to exchange or register the transfer of a Note or Notes.
(1) � to the Company or subsidiary thereof; or
(2) � to the Registrar for registration in the name of the Holder, without transfer; or
(3) � pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “ Securities Act ” ); or
(4)
�
to a Person that the undersigned reasonably believes is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act (“ Rule 144A ”)) that purchases for its own account or for the account of a qualified institutional buyer and to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A; or
(5)
�
pursuant to offers and sales to non-U.S. persons in an offshore transaction within the meaning of Regulation S under the Securities Act (and if the transfer is being made prior to the expiration of the Distribution Compliance Period, the Notes shall be held immediately thereafter through Euroclear or Clearstream); or
(6)
�
to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements; or
(7) � pursuant to Rule 144 under the Securities Act; or
(8) � pursuant to another available exemption from registration under the Securities Act.
information as the Company or the Trustee has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.
A-1-9
Your Signature
Date:
Signature of Signature Guarantor
Dated:
NOTICE:
To be executed by an executive officer
Name: Title:
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
TO BE COMPLETED IF THE HOLDER REQUIRES AN EXCHANGE FROM A REGULATION S GLOBAL NOTE TO AN UNRESTRICTED GLOBAL NOTE, PURSUANT TO SECTION 2.2(d)(iii) OF APPENDIX A TO THE INDENTURE 6
The undersigned represents and warrants that either:
A-1-10
� the undersigned is not a dealer (as defined in the Securities Act) and is a non-U.S. person (within the meaning of Regulation S under the Securities Act); or
� the undersigned is not a dealer (as defined in the Securities Act) and is a U.S. person (within the meaning of Regulation S under the Securities Act) who purchased interests in the Notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements under the Securities Act; or
� the undersigned is a dealer (as defined in the Securities Act) and the interest of the undersigned in this Note does not constitute the whole or a part of an unsold allotment to or subscription by such dealer for the Notes.
Dated: Your Signature
6 Include only for Regulation S Global Notes.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box below:
� Section 4.15 � Section 4.16
If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased:
A-1-11
$
(integral multiples of $1,000, provided that the unpurchased portion must be in a minimum principal amount of $2,000)
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The initial outstanding principal amount of this Global Note is $ . The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
A-1-12
Date of Exchange
Amount of decrease in Principal Amount of
this Global Note
Amount of increase
in Principal Amount of
this Global Note
Principal Amount of
this Global
Note
following such
decrease or
increase
Signature of authorized signatory
of Trustee,
Depositary or Custodian
* This schedule should be included only if the Note is issued in global form.
EXHIBIT A- 2
[FORM OF FACE OF NOTE]
[Insert the Restricted Notes Legend, if applicable, pursuant to the provisions of the Indenture]
[Insert the Global Notes Legend, if applicable, pursuant to the provisions of the Indenture]
[Insert the Definitive Notes Legend, if applicable, pursuant to the provisions of the Indenture]
[Insert the ERISA Legend, if applicable, pursuant to the provisions of the Indenture.]
A-2-1
CUSIP [ ] ISIN [ ] 7
[RULE 144A][REGULATION S][IAI][GLOBAL] NOTE
7.25% Senior Notes due 2024
PARAGON OFFSHORE PLC
promises to pay to [CEDE & CO.] 9 [ ] or registered assigns the principal sum [set forth on the Schedule of Exchanges of Interests in the Global Note attached hereto] 10 [of $ ( Dollars)] 11 on August 15, 2024.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Rule 144A Note ISIN: [ ] Regulation S Note CUSIP: [ ] Regulation S Note ISIN: [ ] IAI Note CUSIP: [ ] IAI Note ISIN: [ ]
A-2-2
No. [RA- ] [RS- ] [RIAI- ] [Up to] 8 [$ ]
7 Rule 144A Note CUSIP: [ ]
8 Include in Global Notes. 9 Include in Global Notes 10 Include in Global Notes 11 Include in Definitive Notes
IN WITNESS HEREOF, the Company has caused this instrument to be duly executed.
Dated:
A-2-3
PARAGON OFFSHORE PLC
By: Name: Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture:
Dated:
A-2-4
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee
By: DEUTSCHE BANK NATIONAL TRUST COMPANY
By: Authorized Signatory
[Reverse Side of Note]
7.25% Senior Notes due 2024
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Paragon Offshore plc, a public limited company incorporated under the laws of England and Wales (the “ Company ”), promises to pay interest on the principal amount of this Note at 7.25% per annum until but excluding maturity. The Company shall pay interest semi-annually in arrears on February 15 and August 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “ Interest Payment Date ”). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including [ ]; provided that the first Interest Payment Date shall be [ ]. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the interest rate on the Notes to the extent lawful. Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes to the Persons who are registered holders of Notes at the close of business on the February 1 or August 1 (whether or not a Business Day), as the case may be, immediately preceding the related Interest Payment Date, even if such Notes are canceled after such Record Date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest and premium, if any, may be made by check mailed to the Holders at their respective addresses set forth in the Note Register; provided that payment by wire transfer of immediately available funds shall be required with respect to principal, premium, if any, and interest on all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent at least five Business Days prior to the applicable payment date. Such payment shall be in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Deutsche Bank Trust Company Americas, the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Restricted Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture, dated as of July [ ], 2014 (as amended or supplemented from time to time, the “ Indenture ”), among Paragon Offshore plc, the Guarantors named therein and the Trustee. This Note is one of a duly authorized issue of Notes of the Company designated as its 7.25% Senior Notes due 2024. The Company shall be entitled to issue Additional Notes pursuant to Section 2.01 and 4.09 of the Indenture. The Notes and any Additional Notes issued under the Indenture shall be treated as a single class of securities as the applicable series of Notes under the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of such terms. Any term used in this Note that is defined in the Indenture shall have the meaning assigned to it in the Indenture. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.
A-2-5
5. REDEMPTION AND REPURCHASE. The Notes are subject to optional redemption, and may be the subject of an Asset Sale Offer or a Change of Control Offer, each as further described in the Indenture. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes.
6. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents, and Holders shall be required to pay any taxes and fees required by law or by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption or tendered for repurchase in connection with a Change of Control Offer or Asset Sale Offer, except for the unredeemed portion of any Note being redeemed or repurchased in part.
7. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
8. AMENDMENT, SUPPLEMENT AND WAIVER. The Indenture, the Note Guarantees or the Notes may be amended or supplemented as provided in the Indenture.
9. DEFAULTS AND REMEDIES. The Events of Default relating to the Notes are defined in Section 6.01 of the Indenture. Upon the occurrence of an Event of Default, the rights and obligations of the Company, the Guarantors, the Trustee and the Holders shall be as set forth in the applicable provisions of the Indenture.
10. AUTHENTICATION. This Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of the Trustee.
11. GOVERNING LAW. THIS NOTE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
12. CUSIP AND ISIN NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP and ISIN numbers to be printed on the Notes, and the Trustee may use CUSIP and ISIN numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Company at the following address:
c/o Paragon Offshore plc 3151 Briarpark Drive, Suite 700
Houston, Texas 77042 Fax No.: (832) 201-7433
Email: [email protected] Attention: Legal Department
A-2-6
ASSIGNMENT FORM
To assign this Note, fill in the form below:
A-2-7
(I) or (we) assign and transfer this Note to: (Insert assignee’s legal name)
(Insert assignee’s soc. sec. or tax I.D. no.)
(Print or type assignee’s name, address and zip code)
and irrevocably appoint to transfer this Note on the books of the Company. The agent may substitute another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFERS OF TRANSFER RESTRICTED NOTES
This certificate relates to $ principal amount of Notes held in (check applicable space) book-entry or definitive form by the undersigned.
The undersigned (check one box below):
In connection with any transfer of any of the Notes evidenced by this certificate, the undersigned confirms that such Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided , however , that if box (5), (6), (7) or (8) is checked, the Company or the Trustee may require, prior
A-2-8
� has requested the Trustee by written order to deliver in exchange for its beneficial interest in a Global Note held by the Depositary a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above) in accordance with the Indenture; or
� has requested the Trustee by written order to exchange or register the transfer of a Note or Notes.
(1) � to the Company or subsidiary thereof; or
(2) � to the Registrar for registration in the name of the Holder, without transfer; or
(3) � pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “ Securities Act ” ); or
(4)
�
to a Person that the undersigned reasonably believes is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act (“ Rule 144A ”)) that purchases for its own account or for the account of a qualified institutional buyer and to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A; or
(5)
�
pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act (and if the transfer is being made prior to the expiration of the Distribution Compliance Period, the Notes shall be held immediately thereafter through Euroclear or Clearstream); or
(6)
�
to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements; or
(7) � pursuant to Rule 144 under the Securities Act; or
(8) � pursuant to another available exemption from registration under the Securities Act.
to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Company or the Trustee has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.
A-2-9
Your Signature
Date:
Signature of Signature Guarantor
Dated:
NOTICE:
To be executed by an executive officer
Name: Title:
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
TO BE COMPLETED IF THE HOLDER REQUIRES AN EXCHANGE FROM A REGULATION S GLOBAL NOTE TO AN UNRESTRICTED GLOBAL NOTE, PURSUANT TO SECTION 2.2(d)(iii) OF APPENDIX A TO THE INDENTURE 12
The undersigned represents and warrants that either:
A-2-10
� the undersigned is not a dealer (as defined in the Securities Act) and is a non-U.S. person (within the meaning of Regulation S under the Securities Act); or
� the undersigned is not a dealer (as defined in the Securities Act) and is a U.S. person (within the meaning of Regulation S under the Securities Act) who purchased interests in the Notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements under the Securities Act; or
� the undersigned is a dealer (as defined in the Securities Act) and the interest of the undersigned in this Note does not constitute the whole or a part of an unsold allotment to or subscription by such dealer for the Notes.
Dated: Your Signature
12 Include only for Regulation S Global Notes.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box below:
� Section 4.15 � Section 4.16
If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased:
A-2-11
$
(integral multiples of $1,000, provided that the unpurchased portion must be in a minimum principal amount of $2,000)
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:
Signature Guarantee*:
* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The initial outstanding principal amount of this Global Note is $ . The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
A-2-12
Date of Exchange
Amount of decrease in Principal Amount of
this Global Note
Amount of increase
in Principal Amount of
this Global Note
Principal Amount of
this Global
Note
following such
decrease or
increase
Signature of authorized signatory
of Trustee,
Depositary or Custodian
* This schedule should be included only if the Note is issued in global form.
EXHIBIT B- 1
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Paragon Offshore plc 3153 Briarpark Drive, Suite 700, Houston, Texas 77042 Fax No.: ( ) - Email: @ .com Attention: [ ]
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $[ ] principal amount of the 6.75% Senior Notes due 2022 (the “ Notes ”) of Paragon Offshore plc (the “ Company ”).
Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows:
The undersigned represents and warrants to you that:
1. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the “ Securities Act ”)), purchasing for our own account or for the account of such an institutional “accredited investor” at least $250,000 principal amount of the Notes, and we are acquiring the Notes, for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we invest in or purchase securities similar to the Notes in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date that is one year after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the “ Resale Restriction Termination Date ”) only in accordance with the Restricted Notes Legend (as such term is defined in the indenture under which the Notes were issued) on the Notes and any applicable securities laws of any state of the United States. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes with respect to applicable transfers described in the Restricted Notes Legend to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee.
B-1-1
Name:
Address:
Taxpayer ID Number:
B-2-2
TRANSFEREE: ,
by:
EXHIBIT B- 2
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Paragon Offshore plc 3153 Briarpark Drive, Suite 700, Houston, Texas 77042 Fax No.: ( ) - Email: @ .com Attention: [ ]
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $[ ] principal amount of the 7.25% Senior Notes due 2024 (the “ Notes ”) of Paragon Offshore plc (the “ Company ”).
Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows:
The undersigned represents and warrants to you that:
1. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the “ Securities Act ”)), purchasing for our own account or for the account of such an institutional “accredited investor” at least $250,000 principal amount of the Notes, and we are acquiring the Notes, for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we invest in or purchase securities similar to the Notes in the normal course of our business. We, and any accounts for which we are acting, are each able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date that is one year after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the “ Resale Restriction Termination Date ”) only in accordance with the Restricted Notes Legend (as such term is defined in the indenture under which the Notes were issued) on the Notes and any applicable securities laws of any state of the United States. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes with respect to applicable transfers described in the Restricted Notes Legend to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee.
B-2-1
Name:
Address:
Taxpayer ID Number:
B-2-2
TRANSFEREE: ,
by:
EXHIBIT C
FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS
Supplemental Indenture (this “ Supplemental Indenture ”), dated as of [ ] [ ], 20[ ], among [ ] (the “ Guaranteeing Subsidiary ”), a subsidiary of Paragon Offshore plc, a public limited company incorporated under the laws of England and Wales (the “ Company ”), Deutsche Bank Trust Company Americas, as trustee (the “ Trustee ”) and the Company.
W I T N E S S E T H
WHEREAS, each of the Company and the Guarantors (as defined in the Indenture referred to below) has heretofore executed and delivered to the Trustee an indenture (the “ Indenture ”), dated as of July [ ], 2014, providing for the issuance of an unlimited aggregate principal amount of 6.75% Senior Notes due 2022 and 7.25% Senior Notes due 2024 (the “ Notes ”);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally Guarantee all of the Company’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
1. Capitalized Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Guarantor . The Guaranteeing Subsidiary hereby agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including Article 10 thereof.
3. Governing Law . THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4. Waiver of Jury Trial . EACH OF THE GUARANTEEING SUBSIDIARY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE INDENTURE, THE NOTES, THE NOTE GUARANTEES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
5. Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or portable document format (“ PDF ”) transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
C-1
6. Headings . The headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. The Trustee shall not be responsible in any manner whatsoever for or in respect or the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and the Guaranteeing Subsidiary.
7. The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect or the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and the Guaranteeing Subsidiary.
C-2
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
C-3
PARAGON OFFSHORE PLC, as the Company
By: Name: Title:
[NAME OF GUARANTEEING SUBSIDIARY]
By: Name: Title:
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee
By: DEUTSCHE BANK NATIONAL TRUST COMPANY
By: Name: Title:
By: Name: Title:
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Exhibit 99.1
NOBLE CORPORATION plc Devonshire House 1 Mayfair Place
London W1J 8AJ England
July [ � ], 2014
To the Shareholders of Noble Corporation:
I am pleased to inform you that, on July 11, 2014, the board of directors of Noble Corporation plc approved the spin-off of Paragon Offshore plc, or Paragon Offshore, an indirect, wholly-owned subsidiary of Noble, through a pro rata share distribution to the holders of ordinary shares of Noble. Paragon Offshore’s assets and businesses generally consist of Noble’s standard specification drilling business. The spin-off of Paragon Offshore to our shareholders enables Noble and Paragon Offshore to each have a more focused business and operational strategy. We believe the spin-off will provide Noble the opportunity to move forward as an industry-leading high specification and deepwater drilling company, and will position Paragon Offshore to leverage its fleet and substantial backlog to focus on the drivers of its particular business segment. Each company will have the assets and personnel that should allow the two companies to optimally market their fleets for the benefit of its shareholders.
In the spin-off, each Noble shareholder will receive one ordinary share of Paragon Offshore for every three ordinary shares of Noble held as of 5:00 p.m. New York City time on July 23, 2014, the record date for the spin-off distribution. The distribution of Paragon Offshore shares is expected to occur on August 1, 2014. You do not need to take any action to receive Paragon Offshore ordinary shares in the spin-off. The distribution is subject to several conditions as described in the information statement. Paragon Offshore ordinary shares will be issued in book-entry form only, which means that no physical share certificates representing interests in Paragon Offshore will be issued. A book-entry account statement reflecting your ownership of Paragon Offshore ordinary shares will be mailed to you, or your brokerage account will be credited for the shares on or about August 1, 2014.
We intend for the spin-off to be tax-free to our shareholders for U.S. federal income tax purposes (except to the extent cash is received in lieu of fractional shares). To that end, we have obtained private letter rulings regarding the spin-off from the U.S. Internal Revenue Service. In addition, it is a condition to completing the spin-off that we receive an opinion of counsel substantially to the effect that the spin-off will qualify under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended, for U.S. federal income tax purposes. The private letter rulings are, and the tax opinion will be, subject to certain qualifications and limitations. Further, there should not be any U.K. tax consequences of receiving the dividend of Paragon Offshore ordinary shares for shareholders who are not tax resident in the U.K. and who do not carry on a trade in the U.K. through a permanent establishment with which their holding of ordinary shares of Noble is associated. You should, of course, consult your own tax advisor as to the particular consequences of the spin-off to you, which may result in the spin-off being taxable to you. If you sell or otherwise transfer your Noble ordinary shares prior to or on the
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distribution date, you may also be selling your right to receive Paragon Offshore ordinary shares. You are encouraged to consult with your broker or financial advisor regarding the specific implications of transferring your Noble ordinary shares prior to or on the distribution date.
Following the spin-off, Noble ordinary shares will continue to trade on the New York Stock Exchange under the ticker symbol “NE.” Paragon Offshore has applied to list its ordinary shares on the New York Stock Exchange under the ticker symbol “PGN.” You do not need to take any action to receive your Paragon Offshore ordinary shares. You do not need to pay any consideration for your Paragon Offshore ordinary shares or surrender or exchange your Noble ordinary shares.
I encourage you to read the enclosed information statement, which is being mailed to all Noble shareholders. It describes the spin-off in detail and contains important information about Paragon Offshore, including financial statements.
I believe the spin-off is a positive event for our shareholders, and I look forward to your continued support as a shareholder of Noble. We remain committed to working on your behalf to build long-term shareholder value.
Sincerely,
David W. Williams Chairman, President and Chief Executive Officer Noble Corporation plc
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3151 Briarpark Drive, Suite 700 Houston, Texas 77042
July [ � ], 2014
To Shareholders of Paragon Offshore plc:
It is my pleasure to welcome you as a shareholder of Paragon Offshore plc. Following the spin-off, we will continue our business as a pure-play global provider of standard specification offshore drilling rigs. Our strategy is to deliver our services in an efficient and cost-effective manner. Our primary business is to contract our rigs, related equipment and work crews to conduct oil and gas drilling and workover operations for our exploration and production customers on a dayrate basis around the world.
Our strategy as an independent company is to maximize the profitability of our operations by (1) focusing on standard specification drilling operations, (2) maintaining and investing in our current fleet of standard specification rigs, (3) capitalizing on increased exploration and development activity, (4) leveraging strategic relationships with high-quality, long-term customers, (5) pursuing strategic growth opportunities and (6) remaining financially disciplined and returning capital to shareholders. As an independent pure-play standard specification offshore drilling company, we believe we can more effectively focus on our standard specification drilling business, and thus bring more value to you as a shareholder.
We have applied to list Paragon Offshore ordinary shares on the New York Stock Exchange under the symbol “PGN.”
We thank you in advance for your support as a shareholder of Paragon Offshore, and I invite you to learn more about us by reviewing the enclosed information statement.
Sincerely,
Randall D. Stilley President and Chief Executive Officer Paragon Offshore plc
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Information contained herein is subject to completion or amendment. A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Subject to Completion, dated July 11, 2014
INFORMATION STATEMENT
Paragon Offshore plc Ordinary Shares
(par value $0.01 per share)
This information statement is being furnished in connection with the distribution by Noble Corporation plc, or Noble, to its shareholders of all of the outstanding ordinary shares of Paragon Offshore plc, or Paragon Offshore. As of the date of this information statement, Noble owns all of Paragon Offshore’s outstanding ordinary shares.
On July 11, 2014, after consultation with financial and other advisors, Noble’s board of directors approved the distribution of 100% of Noble’s interest in Paragon Offshore. You, as a holder of ordinary shares of Noble, will be entitled to receive one ordinary share of Paragon Offshore for every three ordinary shares of Noble that you hold as of 5:00 p.m., New York City time, on the record date for the distribution, July 23, 2014. The distribution date for the spin-off will be August 1, 2014.
You will not be required to pay any cash or other consideration for the Paragon Offshore ordinary shares that will be distributed to you or to surrender or exchange your Noble ordinary shares in order to receive Paragon Offshore ordinary shares in the spin-off. The distribution will not affect the number of Noble ordinary shares that you hold. You are not being asked for a proxy and you are requested not to send a proxy.
As discussed under “The Spin-Off—Trading of Noble Ordinary Shares After the Record Date and Prior to the Distribution,” if you sell your Noble ordinary shares in the “regular way” market after the record date and on or prior to the distribution date, you also will be selling your right to receive Paragon Offshore ordinary shares in connection with the spin-off. You are encouraged to consult with your broker or financial advisor regarding the specific implications of selling your Noble ordinary shares on or prior to the distribution date.
There currently is no trading market for Paragon Offshore ordinary shares. However, we expect that a limited market, commonly known as a “when-issued” trading market, for Paragon Offshore ordinary shares will begin on or around the record date and will continue up to and including the distribution date, and we expect that “regular way” trading of Paragon Offshore ordinary shares will begin the first day of trading following the distribution date. Paragon Offshore has applied to list its ordinary shares on the New York Stock Exchange under the symbol “PGN.”
In reviewing this information statement, you should carefully consider the matters described under the caption “ Risk Factors ” beginning on page 22.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
Noble first mailed this information statement to its shareholders on or about July [•], 2014.
The date of this information statement is July [•], 2014.
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Introduction
In this information statement, unless the context requires otherwise or we specifically indicate otherwise, the terms “Paragon Offshore,” “our business,” “we,” “our” or “us” or similar terms (a) when used in the historical context, refer to the standard specification drilling business (as defined below) as owned and operated by Noble (as defined below), which business is our Predecessor for accounting purposes, and (b) when used in the present or future context, refer to Paragon Offshore plc, a public limited company incorporated under the laws of England and Wales, together with, where appropriate, its consolidated subsidiaries after the completion of the Transactions (as defined below). “Noble” refers to Noble Corporation plc, a public limited company incorporated under the laws of England and Wales (NYSE: NE) and its subsidiaries. We refer to the ownership and operation of the standard specification offshore drilling rigs and related assets and liabilities of Noble as the “standard specification drilling business.” Our business will include all of Noble’s standard specification drilling business other than three rigs to be retained by Noble. Please read “Business—Our Fleet.”
The transaction in which Noble will distribute Paragon Offshore ordinary shares to Noble shareholders is referred to in this information statement as the “Distribution.” The transactions in which Paragon Offshore will be separated from Noble and will become an independent, publicly traded company, including the Distribution, are referred to in this information statement collectively as the “spin-off.”
This information statement is being furnished solely to provide information to Noble shareholders who will receive Paragon Offshore ordinary shares in the spin-off. It is not provided as an inducement or encouragement to buy or sell any securities of Noble or Paragon Offshore. This information statement describes our business, our relationship with Noble, and how the spin-off affects Noble and its shareholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of Paragon Offshore ordinary shares that you will receive in the spin-off. You should be aware of certain risks relating to the spin-off, our business and ownership of Paragon Offshore ordinary shares, which are described under the heading “Risk Factors.” Changes to the information contained in this information statement may occur after the date set forth on the front cover, and we undertake no obligation to update the information contained in this information statement, unless we are required by applicable securities laws to do so.
i
Page QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF 1 SUMMARY 7 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA 19 RISK FACTORS 22 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS 47 THE SPIN-OFF 48 CAPITALIZATION 57 DIVIDEND POLICY 58 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 59 SELECTED HISTORICAL COMBINED FINANCIAL DATA 66 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 68 INDUSTRY 86 BUSINESS 91 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 105 MANAGEMENT 110 EXECUTIVE COMPENSATION 116 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 138 DESCRIPTION OF SHARE CAPITAL 140 DESCRIPTION OF CERTAIN INDEBTEDNESS 152 WHERE YOU CAN FIND MORE INFORMATION 157 INDEX TO FINANCIAL STATEMENTS F-1
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QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF
For more information, please read “The Spin-Off—Reasons for the Spin-Off.”
1
Q: What is the spin-off?
A: The spin-off involves the separation of our business from Noble and Noble’s pro rata distribution to its shareholders of all of our outstanding ordinary shares. Noble will separate its existing rig fleet into high specification and deepwater and ultra-deepwater assets, which will remain with Noble, and most of its standard specification assets, which will comprise Paragon Offshore’s fleet. Following the spin-off, we will be a separate, publicly traded company, and Noble will not retain any ownership interest in our company. You do not have to pay any consideration, give up any of your Noble ordinary shares or take any other action to receive Paragon Offshore ordinary shares in the spin-off.
Q: Why is Noble separating Paragon Offshore from Noble’s business?
A: Noble’s board and management team believe the benefits of the spin-off will include:
• allow each company to have a more focused business and operational strategy;
• enhance each company’s growth potential and the overall value of its assets;
• provide each company with greater ability to make business and operational decisions in the best interests of its particular business
and to allocate capital and corporate resources with a focus on achieving its strategic priorities;
• better utilize the professionalism and skills of Noble’s team (including those who will become part of the Paragon Offshore team) and culture to deliver excellent service, safety and operational integrity to customers of Noble and Paragon Offshore;
• improve each company’s ability to attract and retain individuals with the appropriate skill sets as well as to better align compensation and incentives with the performance of these different businesses; and
• allow the financial markets and investors to evaluate each company more effectively.
Q: What is being distributed in the spin-off?
A: Noble will distribute one Paragon Offshore ordinary share for every three ordinary shares of Noble outstanding as of the record date for the Distribution. In the spin-off, 84,753,393 ordinary shares of Paragon Offshore will be distributed by Noble, which will constitute all of our issued and outstanding ordinary shares. For more information on the shares being distributed in the spin-off, please read “Description of Share Capital.”
Q: What is the record date for the Distribution, and when will the spin-off occur?
A: The record date for the Distribution is July 23, 2014, and ownership is determined as of 5:00 p.m. New York City time on that date. Paragon Offshore ordinary shares will be distributed on August 1, 2014, which we refer to as the “Distribution Date.”
Q: As a holder of ordinary shares of Noble as of the record date, what do I have to do to participate in the spin-off?
A: Nothing. You will receive one Paragon Offshore ordinary share for every three ordinary shares of Noble you hold as of the record date and retain through the Distribution Date. You may also participate in the spin-off if you purchase Noble ordinary shares in the “regular way” market and retain your Noble ordinary shares through the Distribution Date. Please read “The Spin-Off—Trading of Noble Ordinary Shares After the Record Date and Prior to the Distribution.”
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2
Q: If I sell my Noble ordinary shares before or on the Distribution Date, will I still be entitled to receive Paragon Offshore ordinary shares in the spin-off?
A: If you sell your Noble ordinary shares prior to or on the Distribution Date, you may also be selling your right to receive Paragon Offshore ordinary shares. See “The Spin-Off—Trading of Noble Ordinary Shares After the Record Date and Prior to the Distribution.” You are encouraged to consult with your broker or financial advisor regarding the specific implications of selling your Noble ordinary shares prior to or on the Distribution Date.
Q: How will fractional shares be treated in the spin-off?
A: Noble will not distribute any fractional Paragon Offshore ordinary shares to Noble shareholders. Any fractional ordinary share of Paragon Offshore otherwise issuable to you will be sold automatically on your behalf, and you will receive a cash payment with respect to that fractional share. For an explanation of how the cash payments for fractional shares will be determined, please read “The Spin-Off—Treatment of Fractional Shares.”
Q: Will the spin-off affect the number of shares of Noble I currently hold?
A: No. The number of Noble ordinary shares held by a shareholder will be unchanged. The market value of each Noble share, however, is expected to decline to reflect the impact of the spin-off.
Q: What are the U.S. federal income tax consequences of the spin-off to me?
A: Noble has obtained private letter rulings from the U.S. Internal Revenue Service (the “IRS”) and intends to obtain a legal opinion of Baker Botts L.L.P. (which opinion will rely, in part, on the continued validity of the private letter rulings), in each case, substantially to the effect that, for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the “Code”). The private letter rulings are, and the tax opinion will be, subject to certain qualifications and limitations. Assuming the spin-off and certain related transactions so qualify, for U.S. federal income tax purposes, generally no gain or loss would be recognized by you, and no amount would be included in your taxable income (other than with respect to cash received in lieu of fractional shares), as a result of the spin-off. Non-U.S. shareholders also may be subject to tax on the spin-off in jurisdictions other than the United States. The material U.S. federal income tax consequences of the spin-off are described in more detail under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.” Information regarding tax matters in this information statement is for general information purposes only and does not constitute tax advice. SHAREHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS REGARD ING THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THEM.
Q: How will I determine the tax basis I will have in the Paragon Offshore shares I receive in the spin-off?
A: Generally, your aggregate basis in the ordinary shares you hold in Noble and the ordinary shares of Paragon Offshore you will receive in the spin-off (including any fractional shares to which you otherwise would be entitled) will equal the aggregate basis of Noble ordinary shares held by you immediately before the Distribution. This aggregate basis should be allocated between your Noble ordinary shares and Paragon Offshore ordinary shares you receive in the spin-off (including any fractional shares to which you otherwise would be entitled) in proportion to the relative fair market values of each immediately after the Distribution. You should consult your tax advisor about how this allocation will work in your situation (including a situation where you have purchased Noble shares at different times or for different amounts) and regarding any particular consequences of the spin-off to you, including the application of any U.S. federal, state, local and non-U.S. tax laws. The material U.S. federal income tax consequences of the spin-off are described in more detail under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”
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3
Q: What are the U.K. income tax consequences of the spin-off to me?
A: Based on current U.K. tax legislation and current practice of HM Revenue & Customs, the Distribution should have no U.K. tax consequences for shareholders who are not tax residents in the U.K. and who do not carry on a trade in the U.K. through a permanent establishment with which their holding of Noble shares is associated. Please read “The Spin-Off—Material U.K. Tax Consequences of the Spin-Off.” Information regarding tax matters in this information statement is for general information purposes only and does not constitute tax advice. SHAREHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TA X ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO THEM .
Q: Will I receive a share certificate for Paragon Offshore shares distributed as a result of the spin-off?
A: No. Registered holders of ordinary shares of Noble who are entitled to participate in the spin-off will receive a book-entry account statement reflecting their ownership of Paragon Offshore ordinary shares. For additional information, registered shareholders in the United States should contact Noble’s transfer agent, Computershare Trust Company, N.A., at (800) 884-4225, or through its website at www.computershare.com . From outside the United States, shareholders may call (781) 575-2879. Please read “The Spin-Off—When and How You Will Receive Paragon Offshore Shares.”
Q: What if I hold my Noble ordinary shares through a broker, bank or other nominee?
A: Noble shareholders who hold their Noble ordinary shares through a broker, bank or other nominee will have their brokerage account credited with Paragon Offshore ordinary shares. For additional information, those shareholders are encouraged to contact their broker, bank or nominee directly.
Q: What if I have share certificates reflecting my Noble shares? Should I send them to the transfer agent or to Noble?
A: No. You should not send your share certificates to the transfer agent or to Noble. You will receive Paragon Offshore ordinary shares in addition to the Noble ordinary shares you already own. Accordingly, you should retain your Noble share certificates.
Q: What are the conditions to the spin-off?
A: The spin-off is subject to a number of conditions, including, among others: (1) the continued effectiveness of the private letter rulings received by Noble from the IRS and an opinion of counsel (which opinion will rely, in part, on the continued validity of the private letter rulings), in each case, substantially to the effect that, for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Code; (2) the SEC’s declaring effective the registration statement of which this information statement forms a part; (3) approval of our ordinary shares for listing on the New York Stock Exchange and acceptance of our ordinary shares by DTC; (4) our acquisition of the standard specification business from Noble and our incurrence of certain indebtedness, which we expect to incur through a new term loan (the “Term Loan Facility”) and issuance of senior debt securities (the “Debt Securities”), to fund the repayment of indebtedness of Paragon Offshore to Noble incurred in connection therewith; (5) receipt of a solvency opinion regarding Paragon Offshore; and (6) receipt and continued effectiveness of all material consents necessary to consummate the spin-off. However, even if all of the conditions have been satisfied, Noble may amend, modify or abandon any and all terms of the spin-off and the related transactions at any time prior to the Distribution Date. Please read “The Spin-Off—Spin-Off Conditions and Termination.”
Q: Will Paragon Offshore incur any debt prior to or at the time of the spin-off?
A: We expect to incur indebtedness prior to the completion of the spin-off and use the proceeds therefrom to repay intercompany indebtedness incurred as partial consideration for the standard specification assets
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We also have entered a revolving credit facility, under which we will not borrow in connection with the Transactions.
Nothing in this information statement shall be deemed an offer to sell or a solicitation of an offer to buy any debt securities of Paragon Offshore.
Each outstanding Noble equity-based compensation award that is held by an individual who remains with Noble will remain outstanding in accordance with its terms.
Each outstanding option to purchase Noble ordinary shares that is held by an individual who transfers to Paragon will become fully vested, and remain outstanding and be exercisable for five years or, if shorter, the option’s remaining term.
Each outstanding Noble restricted stock units award comprised of time-vested restricted stock units (“TVRSUs”), that is held by an individual who will transfer to Paragon will be cancelled. In replacement of any cancelled Noble TVRSU award, Paragon will grant the individual a Paragon TVRSU award pursuant to its equity compensation program that will be established prior to the spin-off. In addition, the vesting schedule that applied to the cancelled Noble TVRSU will apply with respect to the replacement Paragon TVRSU award.
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transferred from Noble to us in the spin-off. We expect to incur this indebtedness under the Term Loan Facility and through our issuance of the Debt Securities. Collectively, we refer to these transactions as the “Debt Financing.” Please read “Capitalization” and “Description of Material Indebtedness.”
Q: Are there risks to owning Paragon Offshore ordinary shares?
A: Yes. Paragon Offshore’s business is subject both to general and specific business risks relating to its operations, business and industry. In addition, the spin-off involves specific risks, including risks relating to Paragon Offshore being an independent, publicly traded company. Please read “Risk Factors.”
Q: Does Paragon Offshore plan to pay cash dividends?
A: We expect to pay a regular quarterly cash dividend on Paragon Offshore ordinary shares. However, the timing, declaration, amount and payment of these dividends falls within the discretion of our board of directors, and we expect the agreements governing certain of our indebtedness to restrict the amount of dividends we may pay. There can be no assurance that we will pay, or continue to pay, any dividend. Please read “Dividend Policy.”
Q: Will the Paragon Offshore ordinary shares trade on a stock market?
A: Currently, there is no public market for Paragon Offshore ordinary shares. We have applied to list Paragon Offshore ordinary shares on the New York Stock Exchange under the symbol “PGN.” We anticipate that limited trading in shares of Paragon Offshore ordinary shares will begin on a “when-issued” basis on or about the record date and will continue up to and including the Distribution Date and that “regular-way” trading in shares of Paragon Offshore ordinary shares will begin on the first trading day following the Distribution Date. The “when-issued” trading market will be a market for Paragon Offshore ordinary shares that will be distributed to Noble shareholders on the Distribution Date. If you owned Noble ordinary shares at the close of business on the record date, you would be entitled to Paragon Offshore ordinary shares distributed pursuant to the spin-off. You may trade this entitlement to Paragon Offshore ordinary shares, without the Noble ordinary shares you own, on the “when-issued” market. We cannot predict the trading prices or volume for Paragon Offshore ordinary shares before, on or after the Distribution Date. Please read “Risk Factors—Risks Relating to Ownership of our Ordinary Shares.”
Q: What will happen to Noble stock options and restricted stock units?
A: We currently expect that Noble’s outstanding equity-based compensation awards will generally be treated as follows:
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Each outstanding Noble restricted stock units award comprised of performance-vested restricted stock units (“PVRSUs”), that is held by an individual who will transfer to Paragon will be continued, in part, and cancelled, in part. The portion of each Noble PVRSU award that will be continued (as a Noble PVRSU award) will be based on the portion of the performance period that has elapsed as of the spin-off. The remainder of each Noble PVRSU award that is not continued pursuant to the foregoing will be cancelled. In replacement of the cancelled portion of a Noble PVRSU award, Paragon will either grant the individual a Paragon PVRSU award with the same vesting schedule that applied to the cancelled portion of the Noble award or provide the individual compensation of equivalent value to the benefit the individual would have received had the cancelled portion of the Noble award remained in effect.
All awards described above will be adjusted, as necessary, to generally preserve the intrinsic value of the original award or the portions thereof, as applicable, that are continued or cancelled and replaced in accordance with the foregoing.
For additional information on the treatment of Noble equity-based compensation awards, please read “The Spin-Off—Treatment of Share-Based Awards.”
250 Royall Street Canton, Massachusetts 02021-1011 www.computershare.com
250 Royall Street Canton, Massachusetts 02021-1011 www.computershare.com
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Q: What will be the relationship between Noble and Paragon Offshore following the spin-off?
A: After the spin-off, Noble will not own any Paragon Offshore ordinary shares. Each of Noble and Paragon Offshore will be an independent, publicly traded company with its own board of directors and management team; however, Julie J. Robertson, the Executive Vice President and Corporate Secretary of Noble, will serve as a member of our board of directors for a period of up to one year after the Distribution Date. In connection with the spin-off, we will enter into various agreements to complete the separation of our business from Noble and govern our various interim and ongoing relationships, including, among others, a master separation agreement, an employee matters agreement, a tax sharing agreement, a transition services agreement relating to services provided to each other on an interim basis and a transition services agreement relating to Noble’s offshore Brazil operations. Please read “Certain Relationships and Related Party Transactions.”
Q: Will I have appraisal rights in connection with the spin-off?
A: No. Holders of ordinary shares of Noble are not entitled to appraisal rights in connection with the spin-off.
Q: Will Paragon Offshore incur any material costs in connection with the separation of its business from Noble and the spin-off?
A: The master separation agreement between us and Noble relating to the separation will provide for an allocation of out-of-pocket costs and expenses incurred in connection with the separation of our business from Noble. Noble will be responsible for all costs and expenses of the separation and the Distribution other than debt issuance costs, which will be borne by us and are estimated to be approximately $39 million.
Q: Who is the transfer agent for your Paragon Offshore ordinary shares?
A: Computershare Trust Company, N.A.
Q: Who is the distribution agent for the spin-off?
A: Computershare Trust Company, N.A.
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Computershare Trust Company, N.A. 250 Royall Street Canton, Massachusetts 02021-1011 Telephone: (877) 373-6374 www.computershare.com
Before the spin-off, if you have questions relating to the spin-off, you should contact:
Jeffrey L. Chastain, Vice President – Investor Relations and Corporate Communications Noble Drilling Services Inc. Telephone: (281) 276-6383
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Q: Whom can I contact for more information?
A: If you have questions relating to the mechanics of the distribution of Paragon Offshore shares, you should contact the distribution agent:
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SUMMARY
The following is a summary of material information discussed in this information statement. This summary may not contain all the details concerning our business, our shares or other information that may be important to you. You should carefully review this entire information statement, including the “Risk Factors” section and our financial statements and the related notes included elsewhere in this information statement. Some of the statements in this summary constitute forward-looking statements. Please read “Cautionary Statement Concerning Forward-Looking Statements.”
Our Company
We are a pure-play global provider of standard specification offshore drilling rigs. Our drilling fleet consists solely of standard specification rigs and includes 34 jackups and eight floaters (five drillships and three semisubmersibles). This focus on a single specification supports our strategy to deliver our services in an efficient and cost-effective manner. Our primary business is to contract our rigs, related equipment and work crews to conduct oil and gas drilling and workover operations for our exploration and production, or E&P, customers on a dayrate basis around the world.
We believe that the scale of our geographically diverse fleet, well-established customer relationships and multi-year contract backlog position us to take advantage of strong market dynamics in the offshore drilling industry. We operate in significant hydrocarbon-producing geographies throughout the world, including Mexico, Brazil, the North Sea, West Africa, the Middle East, India and Southeast Asia. Our current shallow water, midwater and deepwater operations span 12 countries on five continents and provide services to approximately 16 customers. We have well-established relationships with many of our customers, including Petróleo Brasileiro S.A., or Petrobras; Petróleos Mexicanos, or Pemex; Oil and Natural Gas Corporation Limited, or ONGC; Total S.A., or Total; Nexen Energy ULC, or Nexen; and Centrica plc, or Centrica. In addition, in the five-year period ended March 31, 2014, 22 of our rigs have worked an average of approximately 4.6 years for their current customers. As of March 31, 2014, our pro forma contract backlog was over $2.6 billion and included contracts with leading national, international and independent oil and gas companies. Over 75% of our pro forma contract backlog is attributable to customers with investment grade ratings.
We classify all rigs as either “high specification” rigs or “standard specification” rigs. Our rig classification is based on a number of factors, including age, technological capabilities, size, water depth and load capacity. Standard specification rigs are generally 15 or more years old, have a “hook load,” or derrick hoisting capacity, of less than two million pounds, and have drilling equipment operated by mechanical, rather than electronic, means. Standard specification jackups are generally capable of operating in water depths of up to 390 feet. Standard specification drillships and semisubmersibles are generally capable of operating in water depths of up to 7,500 feet, conducting a single drilling procedure (as compared to a dual-activity or other dual-derrick rigs, which may conduct multiple well-related operations simultaneously) and use moorings or a less advanced dynamic positioning system to maintain position while drilling. Standard specification rigs operate in the same worldwide markets and environments as high specification rigs, subject to their technical capabilities.
We have one of the largest diversified fleets of standard specification offshore drilling rigs in the world. Our jackups provide drilling services in shallow water with capabilities up to a maximum water depth of 390 feet. All of our jackups are independent leg and cantilevered, or ILC, which provides customers greater operational flexibility than some other jackup designs, such as mat-slot, mat-cantilever and independent-slot jackup designs. Seven of our jackups are also capable of operations in harsh environments, which typically command higher dayrates than operations conducted in other environments. Our drillships and semisubmersibles, which we refer to collectively as “floaters,” provide drilling services in midwater and deepwater, with the capability to drill in a maximum water depth of 7,200 feet. Noble has actively invested in our assets through a disciplined capital expenditure program, spending a total of approximately $1.8 billion since January 1, 2010 to refurbish, upgrade
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and extend the lives of our rigs. We believe that Noble’s consistent investment in our fleet has allowed us to provide safe, reliable and effective offshore drilling services for our customers and has made our rigs more competitive in the global marketplace.
Our pro forma operating revenues were $456 million and $1.70 billion for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively. Our pro forma operating income was $120 million and $352 million for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively. For more information, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”
Our Market Opportunity
We believe the following trends in the oil and gas industry will support our contract drilling services business:
• Global energy demand is expected to continue to increase. According to the International Energy Agency, or IEA, the total global energy requirement is expected to grow to approximately 349 million barrels of oil-equivalent, or BOE, per day in 2035, increasing the demand for oil and gas by approximately 27% from 2011 levels. We believe an overall continued rise in the demand for energy, coupled with natural production decline rates from producing oil and gas reserves, correlates with positive demand for contract drilling services.
• Global E&P spending has increased and a significant portion of future spending is expected to be in water depths we serve. According to Cowen and Company, global E&P capital spending (onshore and offshore) increased from approximately $328 billion in 2003 to over $660 billion in 2013. Oil and gas consultancy Infield Systems Ltd., or Infield, predicts that global offshore E&P spending between 2013 and 2017 in water depths of less than 4,900 feet will total more than $400 billion, representing approximately 74% of the global offshore E&P capital spending. We believe this E&P spending will continue to increase and we will benefit from increased E&P activity offshore.
• Significant oil and gas reserves are present offshore . The 2013 BP Statistical Review of World Energy estimates that current worldwide proved oil and gas reserves total approximately 2.9 trillion BOE. Many regions in which we have an operating presence, such as Mexico, Brazil, the North Sea, West Africa and the Middle East, have major offshore hydrocarbon producing basins which contribute to the proved reserve base. Infield predicts that more than 1,335 new offshore fields will be brought on-stream between 2013 and 2017 with more than 60% of these fields in water depths less than approximately 4,900 feet. We believe that this activity will create exploration and development work opportunities for our rigs.
• Oil prices have supported investment in the offshore E&P industry. Over the past decade, on an inflation-adjusted basis, West Texas Intermediate, or WTI, oil prices have increased from approximately $30 per barrel to more than $90 per barrel and have exceeded $100 per barrel multiple times. According to IEA, oil production costs for conventional oil developments, including shallow water and deepwater resources, range from approximately $10 to $70 per barrel. We believe oil prices would have to decrease significantly from current levels for a meaningful period of time before offshore drilling activity, particularly in shallow water, would be materially impacted.
• We expect the customer base for offshore drilling services to continue to include national, international and independent oil and gas companies. Offshore oil and gas E&P activities are conducted by national, international, and independent oil and gas companies. Offshore E&P activity is a core focus of many of these companies given the attractive full-cycle break-even prices for economic production of offshore oil developments. We believe the variety of types of companies with diverse strategies engaged in offshore oil and gas E&P activities provides us an attractive current and future customer base, making the demand for our services more predictable.
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Our Fleet
Our drilling fleet consists solely of standard specification rigs. Our rigs are widely deployed in the global offshore drilling rig market. Our rigs feature proven, reliable technology and processes, utilizing mechanical features with lower operating costs compared to newer, higher specification units. Within their given water depth capabilities, our rigs are suitable for the majority of our customers’ offshore drilling operations.
Our total fleet comprises 42 standard specification offshore drilling rigs, including 34 jackups, eight floaters (five drillships and three semisubmersibles) and one floating production storage and offloading unit, or FPSO. We also provide drilling and maintenance services (but do not provide a rig) on the Hibernia Project in the Canadian Atlantic under a five-year contract with a joint venture in which ExxonMobil Corporation, or Exxon, is the primary operator.
The following charts illustrate pro forma operating revenues generated by our jackups and floaters for the three months ended March 31, 2014, and our pro forma contract backlog attributable to our jackups and floaters as of March 31, 2014.
Jackups are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established for support. All of our jackups are ILC jackups, allowing each leg to be raised or lowered independently of any other, and permitting the drilling platform to be extended out from the hull to perform drilling or workover operations over certain types of preexisting platforms or structures. We
• The jackup market is robust. According to RigLogix, for the month of May 2014, global utilization of non-U.S. standard specification ILC jackups was approximately 79%, with an average dayrate of $110,000. These statistics represent increases in both utilization and dayrates since 2011 and reflect ongoing demand for standard specification jackups in the global marketplace despite an increase in supply from the delivery of 71 new ILC jackups between 2011 and 2013. We believe that we are well-positioned to benefit from this demand given our geographically diverse and well-maintained fleet and its history of operating safety.
• The industry is fragmented and may present acquisition opportunities. The offshore drilling industry is a large and highly fragmented industry comprising more than 100 offshore drilling contractors of which no single contractor has a dominant market share. A number of these contractors may consider divesting some or all of their standard specification rigs, and we believe this market environment may present an opportunity to expand our fleet through value-adding, accretive acquisitions of capable standard specification rigs.
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believe these design features provide greater operational flexibility and are generally considered more desirable than alternative designs. Our jackups are capable of drilling in water depths of up to 390 feet. Twenty-one of our 34 jackups can operate in water depths of 300 feet or greater. Seven of our jackups are capable of operating in harsh environments.
Drillships are self-propelled vessels that maintain their position over the well through the use of either a computer-controlled dynamic positioning system or a fixed mooring system. Our drillships are capable of drilling in water depths of up to 7,200 feet.
Semisubmersibles are floating platforms which, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the hull is below the water surface during drilling operations in order to improve stability. Our semisubmersibles maintain their position over the well through the use of a fixed mooring system. Our semisubmersibles are capable of drilling in water depths of up to 4,000 feet.
Our Competitive Strengths
We believe we have a number of competitive strengths that will allow us to execute our business strategies successfully:
• Significant scale, size and expertise. We are one of the world’s largest contractors of standard specification offshore drilling rigs. We are one of the primary providers of jackups in Mexico, the North Sea and West Africa and a substantial provider of floaters in Brazil. We believe the established history that our rigs and employees have with national, international and independent oil companies contributes to our credibility and distinguishes us from smaller and regional operators of standard specification offshore drilling rigs.
• Well-maintained “ workhorse” fleet of rigs. Our fleet comprises well-maintained drilling rigs with proven technology and operating capabilities. Noble has actively invested in capital expenditures for maintenance, rig reactivations, major projects and upgrades to our fleet, spending a total of approximately $1.8 billion since January 1, 2010, including approximately $0.9 billion for floater-specific major upgrades that we do not expect to incur again for those rigs. We believe that the quality of our fleet and our well-developed maintenance program result in low downtime and strengthen our ability to secure contracts.
• Strong backlog coupled with a well-established customer base and diverse standard specification fleet. As of March 31, 2014, our pro forma contract backlog was over $2.6 billion and included contracts with leading national, international and independent oil and gas companies, including Petrobras, Pemex, ONGC, Total, Nexen and Centrica. As of March 31, 2014, our jackups provided 52% of our pro forma contract backlog, and our floaters provided the remaining 48% of our pro forma contract backlog, which extends into 2017 and provides cash flow stability. Our current operations span 12 countries on five continents, providing services to approximately 16 customers. We believe that because dayrates and demand in different geographic regions and water depths may change independently of each other, our operational and geographic diversity provide greater opportunity, stability and downside protection.
• Commitment to safety and quality. We believe that customers recognize our commitment to safety and that our performance history and reputation for safe operations provide us with a competitive advantage. For the year ended December 31, 2013, the total recordable incident rate, or TRIR, for our rigs was 0.41 as compared to the International Association of Drilling Contractors, or IADC, average of 0.81. For the year ended December 31, 2012, the TRIR for our rigs was 0.50 as compared to the IADC average of 0.61. We believe that safety and operational excellence promote stronger relationships with multiple important stakeholders, including our employees, our customers and the local communities in which we operate, and reduce both downtime and costs.
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Our Business Strategies
Our principal business objective is to increase shareholder value. We expect to achieve this objective through the following strategies:
• Focus on standard specification drilling operations . We focus entirely on standard specification drilling operations in shallow water, midwater and deepwater up to 7,200 feet. Based on operating revenues, we are the leader among the self-identified pure-play providers of standard specification offshore drilling rigs. We believe that our dedicated focus enables us to secure attractive customer contracts for our fleet through targeted marketing efforts and conduct our operations in an efficient and cost-effective manner.
• Maintain and invest in our current fleet of standard specification drilling rigs . We currently have a large, well-maintained and diversified fleet of standard specification drilling rigs. We intend to continue to invest capital to maintain, refurbish and strategically upgrade our assets. By investing in our fleet, we believe that we can prolong our rigs’ lives, reduce operational downtime and generate better returns for our shareholders.
• Capitalize on increased exploration and development activity . We believe the market outlook for offshore drilling remains favorable as worldwide E&P spending has increased since the beginning of 2011. We intend to continue identifying core basins and expansion areas for which our rigs’ capabilities are best suited in order to strategically position our fleet to most effectively capitalize on increasing demand for contract drilling services.
• Leverage strategic relationships with high-quality, long-term customers . We are committed to maintaining and leveraging the geographic diversity of our operations and the quality and longevity of our customer relationships. Our current operations span 12 countries on five continents, and we provide services to approximately 16 customers. We believe that our geographic diversity and strong customer relationships will reduce our exposure to market volatility and position us well to identify, react quickly to and benefit from positive market dynamics.
• Pursue strategic growth opportunities . We plan to consider opportunistic, value-adding acquisitions of rigs, especially rigs with contracted backlog, that add to our fleet’s average capability, customer base and geographic diversification. The offshore drilling industry is a large and highly fragmented industry. Given our large operating and geographic footprint and strong balance sheet, we believe we are well positioned to take advantage of acquisition opportunities around the world.
• Remain financially disciplined and return capital to shareholders . We intend to maintain a responsible capital structure and appropriate levels of liquidity. We also intend to implement a dividend policy in order to return capital to our shareholders as described in “Dividend Policy.” We intend to make investment decisions, including refurbishments, maintenance, upgrades and acquisitions, in a disciplined and diligent manner, carefully evaluating these investments based on their ability to maintain or improve our competitive position and strengthen our financial profile while returning capital to our shareholders.
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Formation of Our Company and Our Relationship with Noble
We are an indirect, wholly-owned subsidiary of Noble. Noble is a leading offshore drilling contractor for the oil and gas industry. We were formed as a limited company incorporated under the laws of England and Wales, which we refer to as “U.K. law,” in December 2013. In connection with the spin-off, we and Noble expect to engage in a series of transactions through which we will acquire from Noble our standard specification drilling business. Our standard specification drilling business will include all of Noble’s standard specification drilling business except for three rigs to be retained by Noble. We collectively refer to these transactions as summarized below throughout this information statement as the “Transactions”:
Prior to the completion of the spin-off, we will enter into a master separation agreement and other arrangements with Noble, including, among others, an employee matters agreement, a tax sharing agreement, a transition services agreement relating to services provided to each other on an interim basis and a transition services agreement relating to Noble’s offshore Brazil operations. The agreements between us and Noble will govern our various interim and ongoing relationships. The master separation agreement will provide for, among other things, our responsibility for liabilities relating to our business and the responsibility of Noble for liabilities related to its, and in certain limited cases, our, business. The master separation agreement will also contain indemnification obligations and ongoing commitments by us and Noble. The employee matters agreement will allocate liabilities and responsibilities between us and Noble relating to employment, compensation and benefits and related employment matters. The tax sharing agreement will provide for the allocation of taxes and tax benefits between us and Noble and other matters relating to taxes. Under two transition services agreements, Noble will continue to provide various interim support services to us, and we will provide various interim support services to Noble, including to Noble’s continuing offshore Brazil operations. The terms of our separation from Noble, the related agreements and other transactions with Noble were determined by Noble, and thus may be less favorable to us than the terms we could have obtained from an unaffiliated third party. Please read “Certain Relationships and Related Party Transactions” for a description of these agreements.
Risk Factors
Our business is subject to numerous risks, as discussed more fully in the section entitled “Risk Factors.” In particular:
• Noble expects to transfer the standard specification drilling business to us in exchange for our shares and intercompany indebtedness in an aggregate principal amount of approximately $1.7 billion.
• We expect to incur approximately $1.7 billion of indebtedness under the Term Loan Facility and the Debt Securities from unaffiliated third-parties and lenders.
• We expect to use the proceeds from the Term Loan Facility borrowing and the Debt Securities to repay the intercompany
indebtedness to Noble described above on or about the date we receive such proceeds.
• Our business depends on the level of activity in the oil and gas industry. Adverse developments affecting the industry, including
a decline in oil or gas prices, reduced demand for oil and gas products and increased regulation of drilling and production, could have a material adverse effect on our business, financial condition and results of operations.
• The contract drilling industry is a highly competitive and cyclical business. If we are unable to compete successfully, our profitability may be reduced.
• An over-supply of jackup rigs may lead to a reduction in dayrates and demand for our rigs and therefore may materially impact our profitability.
• Our standard specification rigs are at a relative disadvantage to higher specification rigs.
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Corporate Information
Our principal executive offices are located at 3151 Briarpark Drive, Suite 700, Houston TX 77042. Our website is located at www.paragonoffshore.com. The content of our website is not part of this information statement.
• The majority of our drilling rigs are more than 30 years old and may require significant amounts of capital for upgrades and refurbishment.
• Our business involves numerous operating hazards.
• Our inability to renew or replace expiring contracts or the loss of a significant customer or contract could have a material adverse effect on our financial results.
• We are exposed to risks relating to operations in international locations.
• Changes in, compliance with, or our failure to comply with certain laws and regulations may negatively impact our operations and could have a material adverse effect on our results of operations.
• We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Noble.
• Our historical combined and unaudited pro forma combined financial information are not necessarily indicative of our future
financial condition, future results of operations or future cash flows nor do they reflect what our financial condition, results of operations or cash flows would have been as an independent public company during the periods presented.
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Summary of the Spin-Off
The following is a brief summary of the terms of the spin-off. Please read “The Spin-Off” for a more detailed description of the matters described below.
Distributing company Noble, which is the indirect parent company of Paragon Offshore. After the spin-off, Noble will not retain any Paragon Offshore ordinary shares.
Distributed company Paragon Offshore, which is currently an indirect, wholly-owned subsidiary of Noble. After the spin-off, Paragon Offshore will be an independent, publicly traded company.
Distribution ratio Each registered holder of ordinary shares of Noble will receive one Paragon Offshore ordinary share for every three ordinary shares of Noble held on the record date. In the spin-off, 84,753,393 ordinary shares of Paragon Offshore will be distributed by Noble, which will constitute all of our issued and outstanding ordinary shares. For more information on the shares being distributed in the spin-off, see “Description of Share Capital.”
Fractional shares The transfer agent identified below will automatically aggregate fractional ordinary shares into whole ordinary shares of Paragon Offshore and sell them on behalf of shareholders in the open market at prevailing market prices and distribute the proceeds pro rata to each Noble shareholder who otherwise would have been entitled to receive a fractional share in the spin-off. You will not be entitled to any interest on the amount of payment made to you in lieu of a fractional share. See “The Spin-Off—Treatment of Fractional Shares.”
Distribution procedures On or about the Distribution Date, the distribution agent identified below will distribute Paragon Offshore ordinary shares by crediting those shares to book-entry accounts established by the transfer agent for persons who were registered shareholders of Noble as of 5:00 p.m., New York City time, on the record date. Paragon Offshore ordinary shares will be issued only in book-entry form. No paper share certificates will be issued. You will not be required to make any payment or surrender or exchange your Noble ordinary shares or take any other action to receive your Paragon Offshore ordinary shares. However, as discussed below, if you sell Noble ordinary shares in the “regular way” market between the record date and the Distribution Date, you will be selling your right to receive the associated Paragon Offshore ordinary shares in the spin-off. Registered shareholders will receive additional information from the transfer agent shortly after the Distribution Date. Beneficial shareholders will receive information from their brokerage firms.
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Distribution agent, transfer agent and registrar for Paragon Offshore ordinary shares
Computershare Trust Company, N.A.
Record date 5:00 p.m., New York City time, on July 23, 2014.
Distribution date August 1, 2014.
Trading Noble ordinary shares prior to or on the Distribution Date
It is anticipated that, beginning on or around the record date, Noble’s shares will trade in two markets on the New York Stock Exchange, a “regular way” market and an “ex-distribution” market. Investors will be able to purchase Noble ordinary shares without the right to receive Paragon Offshore ordinary shares in the “ex-distribution” market for Noble ordinary shares. Any holder of ordinary shares of Noble who sells Noble ordinary shares in the “regular way” market on or before the Distribution Date will also be selling the right to receive Paragon Offshore ordinary shares in the spin-off. You are encouraged to consult with your broker or financial advisor regarding the specific implications of selling Noble ordinary shares prior to or on the Distribution Date.
Assets and liabilities of the distributed company Prior to completion of the spin-off, we and Noble will enter into a master separation agreement that contains the key provisions relating to the separation of our business from Noble and the distribution of Paragon Offshore ordinary shares. The master separation agreement identifies the assets transferred, liabilities assumed and contracts assigned either to us by Noble or by us to Noble in the spin-off and describes when and how these transfers, assumptions and assignments will occur.
Relationship with Noble after the spin-off Before the Distribution Date, we and Noble will enter into agreements to define various continuing relationships between Noble and us in various contexts. The master separation agreement will provide for, among other things, our responsibility for liabilities relating to our business and the responsibility of Noble for liabilities related to its, and in certain limited cases, our, business. The master separation agreement will also contain indemnification obligations and ongoing commitments by us and Noble. The employee matters agreement will allocate liabilities and responsibilities between us and Noble relating to employment, compensation and benefits and related employment matters. The tax sharing agreement will provide for the allocation of taxes and tax benefits between us and Noble and other matters relating to taxes. Under two transition services agreements, Noble will continue to provide various interim support services to us, and we will provide various interim support services to Noble, including to Noble’s continuing offshore Brazil operations. The terms of our separation from Noble, the related agreements and other transactions with Noble were determined by Noble, and thus may be less favorable to us than the terms we could have obtained from an unaffiliated third party. Please read “Certain Relationships and Related Party Transactions” for a description of these agreements.
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Indemnities Under the terms of the tax sharing agreement we will enter into in connection with the spin-off, we generally will be required to indemnify Noble for all taxes attributable to our business, whether accruing before, on or after the date of the spin-off and for any taxes arising from the spin-off or certain related transactions that are imposed on us, Noble or its other subsidiaries, to the extent such taxes result from certain actions or failures to act by us that occur after the effective date of the tax sharing agreement. Please read “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.” Please see also “Certain Relationships and Related Party Transactions—Tax Sharing Agreement.” Under the master separation agreement entered into in connection with the spin-off, we will indemnify Noble and its remaining subsidiaries against claims and liabilities relating to the operation of our business and Noble will indemnify us against claims and liabilities relating to the operation of their business. Under the transition services agreements entered into in connection with the spin-off, we and Noble will indemnify each other in connection with services performed under such agreements.
U.S. federal income tax consequences Noble obtained private letter rulings from the IRS and expects to obtain an opinion of counsel (which opinion will rely, in part, on the continued validity of the private letter rulings), in each case, substantially to the effect that, for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Code. Assuming the spin-off and such related transactions so qualify, for U.S. federal income tax purposes, you generally will recognize no gain or loss or include any amount in taxable income (other than with respect to cash received in lieu of fractional shares) as a result of the spin-off. In addition, we and Noble generally will not recognize gain or loss on the spin-off, other than with respect to any intercompany items or excess loss accounts required to be taken into account under U.S. Treasury regulations relating to U.S. consolidated returns. The material U.S. federal income tax consequences of the spin-off are described in more detail under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”
Conditions to the spin-off We expect that the spin-off will be effective on August 1, 2014, provided that the conditions set forth under the caption “The Spin-Off—Spin-Off Conditions and Termination,” have been satisfied in Noble’s sole and absolute discretion. However, even if all of the conditions have been satisfied, Noble may amend, modify or abandon any and all terms of the spin-off and the related transactions at any time prior to the Distribution Date.
Reasons for the spin-off Noble’s board and management believe the benefits of the spin-off will include:
• allow each company to have a more focused business and operational strategy;
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• enhance each company’s growth potential and the overall value of its assets;
• provide each company with greater ability to make business and operational
decisions in the best interests of its particular business and to allocate capital and corporate resources with a focus on achieving its strategic priorities;
• better utilize the professionalism and skills of Noble’s team (including those who will become part of the Paragon Offshore team) and culture to deliver excellent service, safety and operational integrity to customers of Noble and Paragon Offshore;
• improve each company’s ability to attract and retain individuals with the
appropriate skill sets as well as to better align compensation and incentives with the performance of these different businesses; and
• allow the financial markets and investors to evaluate each company more effectively.
For more information, please read “The Spin-Off—Reasons for the Spin-Off.”
Trading Currently there is no public market for Paragon Offshore ordinary shares. We have applied to list Paragon Offshore ordinary shares on the New York Stock Exchange, or the NYSE, under the symbol “PGN.” We anticipate that limited trading in Paragon Offshore ordinary shares will begin on a “when-issued” basis on or around the record date and will continue up to and including the Distribution Date and that “regular-way” trading in Paragon Offshore ordinary shares will begin on the first trading day following the Distribution Date. “When-issued” trading refers to a transaction made conditionally because the security has been authorized but not yet issued. On the first trading day following the distribution of Paragon Offshore ordinary shares in the spin-off, “when-issued” trading in respect of Paragon Offshore ordinary shares will end and “regular way” trading will begin. “Regular way” trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of the transaction. We cannot predict the trading prices or volume of Paragon Offshore ordinary shares following the spin-off. In addition, Noble ordinary shares will remain outstanding and will continue to trade on the NYSE.
Dividend policy We expect to pay a regular quarterly cash dividend on Paragon Offshore ordinary shares. Initially, we expect that the amount of this dividend will be between approximately $20 million and $22.5 million in the aggregate per quarter, or between approximately $80 million and $90 million in the aggregate on an annualized basis. Under U.K. law, we will generally only be able to declare dividends
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out of distributable profits. In connection with the spin-off, we expect to create at least $1.0 billion of distributable profits. We expect the first such quarterly dividend to be declared and paid in the fourth quarter of 2014. However, the timing, declaration, amount and payment of these dividends falls within the discretion of our board of directors, and we expect the agreements governing certain of our indebtedness to restrict the amount of dividends we may pay. There can be no assurance that we will pay, or continue to pay, any dividend. Please read “Dividend Policy” and “Description of Share Capital.”
Risk factors You should carefully review the risks relating to the spin-off, our industry and our business and ownership of Paragon Offshore ordinary shares described in this information statement. Please read “Risk Factors.”
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table shows summary historical and pro forma financial data of Noble’s standard specification drilling business, which is our Predecessor for accounting purposes, as of the dates and for the periods indicated. The summary historical statement of operations data for the years ended December 31, 2013, 2012 and 2011 and the balance sheet data as of December 31, 2013 and 2012 have been derived from the audited combined financial statements of our Predecessor included elsewhere in this information statement. The summary balance sheet data as of December 31, 2011 have been derived from the audited combined financial statements of our Predecessor not included elsewhere in this information statement. The summary historical statement of operations data for the three months ended March 31, 2014 and 2013 and the balance sheet data as of March 31, 2014 were derived from the unaudited combined financial statements of our Predecessor included elsewhere in this information statement, which include all adjustments, consisting of normal recurring adjustments, which management considers necessary for a fair presentation of our Predecessor’s financial position and the results of operations for such periods. Results for the interim periods may not necessarily be indicative of results for the full year.
Our Predecessor’s historical combined financial statements include expenses of Noble that were allocated to us for certain administrative and operational support functions which were performed by Noble and certain of its subsidiaries. These expenses were allocated in our Predecessor’s historical results of operations in a manner consistent with Noble’s internal reporting for evaluation purposes. We consider the expense-allocation methodology and results to be reasonable for all periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent publicly traded company during the periods prior to the spin-off nor are they representative of the costs which we will incur in the future.
The historical financial data included in this information statement may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we operated as a standalone public company during the periods presented, including changes that will occur in our operations and capital structure as a result of the Transactions, including the spin-off. The historical financial data include three standard specification drilling rigs to be retained by Noble as well as one jackup and two cold stacked submersibles that were sold by Noble in July 2013 and January 2014, respectively.
The summary unaudited pro forma combined financial data of Paragon Offshore have been derived from the application of pro forma adjustments to our Predecessor’s historical combined financial statements included elsewhere in this information statement. The summary unaudited pro forma combined statements of operations give effect to the Transactions as if they had occurred on January 1, 2013. The summary unaudited pro forma combined balance sheet gives effect to the Transactions as if they had occurred on March 31, 2014. Please read “Unaudited Pro Forma Combined Financial Statements” for additional information. The pro forma adjustments are based upon available information and certain assumptions which we believe to be reasonable. The summary unaudited pro forma combined financial information does not purport to represent what our results of operations or financial position would have been if we had operated as a public company during the periods presented and may not be indicative of our future performance. The summary unaudited combined pro forma financial data are presented for informational purposes only.
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The following tables should be read together with, and are qualified in their entirety by reference to, the historical and unaudited pro forma combined financial statements and the accompanying notes included elsewhere in this information statement. Among other things, the historical combined financial statements include more detailed information regarding the basis of presentation for the information in the following table. The tables should also be read together with the sections entitled “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions” included elsewhere in this information statement.
Predecessor Historical
Paragon Offshore Pro Forma and net income per share
Year Ended December 31, Three Months Ended
March 31,
Three Months Ended
March 31, Year Ended
December 31, 2013 2012 2011 2014 2013 2014 2013 (unaudited) (unaudited) (In thousands, except for dayrates, utilization and net income per share) Statement of Income Data: Operating revenues $ 1,893,002 $ 1,541,857 $ 1,370,557 $ 514,590 $ 454,070 $ 455,982 $ 1,696,149
Operating income 453,745 176,712 136,947 147,461 102,601 120,289 351,577 Net income per share
Basic N/A N/A N/A N/A N/A 0.89 2.01 Diluted N/A N/A N/A N/A N/A 0.89 2.01
Weighted average shares outstanding Basic N/A N/A N/A N/A N/A 84,753 84,753 Diluted N/A N/A N/A N/A N/A 84,753 84,753
Balance Sheet Data (at end of period): Cash and cash equivalents (1) $ 36,581 $ 70,538 $ 75,767 $ 32,225 N/A $ 72,225 N/A Property and equipment, net 3,459,684 3,551,813 3,373,817 3,404,782 N/A 2,916,543 N/A Total assets 3,982,799 4,118,072 3,866,756 3,930,922 N/A 3,527,058 N/A Long-term debt (2) 1,561,141 339,809 975,000 1,983,543 N/A 1,730,000 N/A Total debt (2) (3) 1,561,141 339,809 975,000 1,983,543 N/A 1,730,000 N/A Equity 2,005,333 3,365,232 2,441,823 1,583,530 N/A 1,334,870 N/A Cash Flows Data: Cash flows from operating activities $ 822,475 $ 405,484 $ 466,100 $ 199,623 $ 49,010 N/A N/A Cash flows from investing activities (317,726 ) (540,867 ) (493,255 ) (55,461 ) (97,333 ) N/A N/A Cash flows from financing activities (538,706 ) 130,154 26,030 (148,518 ) 14,049 N/A N/A Other Data (4): Working capital $ 217,450 $ 253,816 $ 123,004 $ 272,113 N/A $ 221,439 N/A Average dayrate
Jackups $ 102,974 $ 88,120 $ 79,257 $ 112,340 $ 97,730 $ 111,898 $ 103,689 Floaters 261,827 236,767 233,052 299,234 243,754 280,015 248,822
Average utilization (5) Jackups 90 % 81 % 77 % 83 % 92 % 83 % 90 % Floaters 66 % 62 % 61 % 78 % 68 % 75 % 62 %
Total capital expenditures (6) $ 366,361 $ 532,404 $ 518,455 $ 42,524 $ 101,329 $ 41,305 $ 358,794 (1) Consists of cash and cash equivalents as reported on our combined balance sheet. (2) Predecessor Historical Long-term debt and Total debt represents outstanding indebtedness under Noble’s commercial paper program, which is expected to be
repaid with the payments from Paragon Offshore to Noble in connection with the spin-off. (3) Consists of long-term debt and current portion of long-term debt.
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(4) Other Data for our Predecessor includes results from two standard specification jackups and one standard specification floater to be retained by Noble and one jackup sold by Noble in July 2013 and two submersibles sold by Noble in January 2014. Our pro forma Other Data, excluding these rigs, was as follows:
Paragon Offshore Pro Forma Year Ended December 31, Three Months Ended March 31, 2013 2012 2011 2014 2013 Average dayrate Jackups $ 103,689 $ 88,941 $ 79,518 $ 111,898 $ 98,424 Floaters 248,822 228,629 263,792 280,015 239,541 Average utilization Jackups 90 % 79 % 77 % 83 % 91 % Floaters 62 % 57 % 56 % 75 % 64 % Total capital expenditures (in thousands) (6) $ 358,794 $ 522,300 $ 493,107 $ 41,305 $ 100,739
(5) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period.
(6) Capital expenditures for 2011-2013 include approximately $0.7 billion for floater-specific major upgrades that we do not expect to incur again for those rigs.
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RISK FACTORS
You should carefully consider each of the following risks and all of the other information contained in this information statement. Some of these risks relate principally to our spin-off from Noble, while others relate principally to our business and the industry in which we operate or to the securities markets generally and ownership of Paragon Offshore ordinary shares. Our business, financial condition and results of operations could be materially adversely affected by any of these risks, and, as a result, the trading price of Paragon Offshore ordinary shares could materially decline.
Risks Related to Our Business
Our business depends on the level of activity in the oil and gas industry. Adverse developments affecting the industry, including a decline in oil or gas prices, reduced demand for oil and gas products and increased regulation of drilling and production, could have a material adverse effect on our business, financial condition and results of operations.
Demand for drilling services depends on a variety of economic and political factors and the level of activity in offshore oil and gas exploration and development and production markets worldwide. Commodity prices, and market expectations of potential changes in these prices, may significantly affect this level of activity, as well as dayrates for our services. However, higher current prices do not necessarily translate into increased drilling activity because our clients’ expectations of future commodity prices typically drive demand for our rigs. Oil and gas prices and the level of activity in offshore oil and gas exploration and development are volatile and are affected by numerous factors beyond our control, including:
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• the cost of exploring for, developing, producing and delivering oil and gas;
• potential acceleration in the development, and the price and availability, of alternative fuels;
• increased supply of oil and gas resulting from growing onshore hydraulic fracturing activity and shale development;
• worldwide production and demand for oil and gas, which are impacted by changes in the rate of economic growth in the global economy;
• worldwide financial instability or recessions;
• regulatory restrictions or any moratorium on offshore drilling;
• expectations regarding future energy prices;
• the discovery rate of new oil and gas reserves;
• the rate of decline of existing and new oil and gas reserves;
• available pipeline and other oil and gas transportation capacity;
• oil refining capacity;
• the ability of oil and gas companies to raise capital;
• the level of spending on E&P programs;
• advances in exploration, development and production technology;
• technical advances affecting energy consumption;
• merger and divestiture activity among oil and gas producers;
• the availability of, and access to, suitable locations from which our customers can produce hydrocarbons;
• rough seas and adverse weather conditions, including hurricanes and typhoons;
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Adverse developments affecting the industry as a result of one or more of these factors, including a decline in oil or gas prices, a global recession, reduced demand for oil and gas products and increased regulation of drilling and production, particularly if several developments were to occur in a short period of time as in 2008 and 2009, could have a material adverse effect on our business, financial condition and results of operations.
The contract drilling industry is a highly competitive and cyclical business. If we are unable to compete successfully, our profitability may be reduced.
The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and operating costs and evolving operational capability of newer rigs. Drilling contracts are traditionally awarded on a competitive bid basis. Intense price competition, rig availability, location and suitability, experience of the workforce, efficiency, safety performance record, technical capability and condition of equipment, operating integrity, reputation, industry standing and client relations are all factors in determining which contractor is awarded a job. Our future success and profitability will partly depend upon our ability to keep pace with our customers’ demands with respect to these factors. Other drilling companies, including those with both high specification and standard specification rigs, may have greater financial, technical and personnel resources that allow them to upgrade equipment and implement new technical capabilities before we can. If current competitors or new market entrants implement new technical capabilities, services or standards that are more attractive to our customers, it could have a material adverse effect on our operations.
In addition to intense competition, our industry is highly cyclical. It has been especially cyclical with respect to the jackup market, where market conditions are subject to rapid change. There have been periods of high demand, short rig supply and high dayrates, followed by periods of lower demand, excess rig supply and low dayrates. Periods of low demand or excess rig supply intensify the competition in the industry and may result in some of our rigs being idle or earning substantially lower dayrates for long periods of time. Additionally, drilling contracts for our jackups generally have shorter terms than contracts for our floaters, meaning that most of our fleet does not have the benefit of the price protection that longer-term contracts provide. The volatility of the industry, coupled with the short-term nature of many of our contracts could have a material adverse effect on our business, financial condition and results of operations.
An over-supply of jackup rigs may lead to a reduction in dayrates and demand for our rigs and therefore may materially impact our profitability.
During the recent period of high utilization and high dayrates, industry participants have increased the supply of drilling rigs by building new drilling rigs, including some drilling rigs that have not yet entered service. Historically, this has often resulted in an oversupply of drilling rigs, which has contributed to a decline in utilization and dayrates, sometimes for extended periods of time. New fixtures for both standard specification and high specification floaters have recently come under pressure as a result of a recent reduction in customer spending and the anticipated delivery of more than 90 new floating units.
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• tax laws, regulations and policies;
• laws and regulations related to environmental matters, including those addressing alternative energy sources and the risks of global climate change;
• the political environment of oil-producing regions, including uncertainty or instability resulting from civil disorder, an outbreak or escalation of armed hostilities or acts of war or terrorism;
• the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels and pricing;
• the level of production in non-OPEC countries; and
• the laws and regulations of governments regarding exploration and development of their oil and gas reserves or speculation regarding future laws or regulations.
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The increase in supply created by the number and types of rigs being built, as well as changes in our competitors’ drilling rig fleets, could intensify price competition and require higher capital investment to keep our rigs competitive. According to RigLogix, as of June 21, 2014, the total non-U.S. jackup fleet comprised 472 units (15 of which were cold stacked). An additional 126 jackup drilling rigs were under construction or on order, which could bring the total non-U.S. jackup fleet to 598 units (assuming no further newbuilds are ordered and delivered and there is no attrition of the current fleet). To the extent that the drilling rigs currently under construction or on order have not been contracted for future work, there may be increased price competition as such vessels become operational, which could lead to a reduction in dayrates. Lower utilization and dayrates would adversely affect our revenues and profitability. Prolonged periods of low utilization or low dayrates could also result in the recognition of impairment charges on our drilling rigs if future cash flow estimates, based upon information available to management at the time, indicate that the carrying value of these drilling rigs may not be recoverable.
Our standard specification rigs are at a relative disadvantage to higher specification rigs.
Our standard specification rigs do not have certain capabilities and technology that can be found on higher specification rigs and that may increase the operating parameters and efficiency of higher specification drilling rigs. If the demand for offshore drilling rigs were to decrease for any reason, it is possible that higher specification rigs may begin to compete with standard specification rigs for the same contracts. In that case, higher specification rigs would have an advantage over standard specification rigs in securing those contracts and demand for and utilization of standard specification rigs may decrease. Such a decrease in demand for and utilization of standard specification rigs could have a material adverse effect on our business, financial condition and results of operations.
Many of our competitors have fleets that include high specification rigs, making these competitors more operationally diverse. Some of our customers have expressed a preference for newer rigs and, in some areas, higher specification rigs may be more likely to obtain contracts than standard specification rigs such as ours. Our rigs are further constrained by the water depths in which they are capable of operating. In recent years, an increasing amount of E&P expenditures has been concentrated in deepwater drilling programs and deeper formations, requiring higher specification jackup rigs, semisubmersibles or drillships. This trend could result in a decline in demand for standard specification rigs like ours, which could have a material adverse effect on our business, financial condition and results of operations.
The majority of our drilling rigs are more than 30 years old and may require significant amounts of capital for upgrades and refurbishment.
The majority of our drilling rigs were initially put into service during the years 1976 to 1982 and may require significant capital investment to continue operating in the future, particularly as compared to their newer high specification counterparts. From time to time, some of our customers, including Pemex, express a preference for newer rigs. We may be required to spend significant capital on upgrades and refurbishment to maintain the competitiveness of our fleet in the offshore drilling market. Our rigs typically do not generate revenue while they are undergoing refurbishment and upgrades. Rig upgrade or refurbishment projects for older assets such as ours could increase our indebtedness or reduce cash available for other opportunities. Further, such projects may require proportionally greater capital investments as a percentage of total rig value, which may make such projects difficult to finance on acceptable terms. To the extent we are unable to fund such projects, we will have fewer rigs available for service or our rigs may not be attractive to potential or current customers. Such demands on our capital or reductions in demand for our fleet could have a material adverse effect on our business, financial condition and results of operations.
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Our business involves numerous operating hazards.
Our operations are subject to many hazards inherent in the drilling business, including:
These hazards could cause personal injury or loss of life, suspend drilling operations, result in regulatory investigation or penalties, seriously damage or destroy property and equipment, result in claims by employees, customers or third parties, cause environmental damage and cause substantial damage to oil and gas producing formations or facilities. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services or personnel shortages. Accordingly, the occurrence of any of the hazards we face could have a material adverse effect on our business, financial condition and results of operations.
Our inability to renew or replace expiring contracts or the loss of a significant customer or contract could have a material adverse effect on our financial results.
Our ability to renew our customer contracts or obtain new contracts and the terms of any such contracts will depend on many factors beyond our control, including market conditions, the global economy and our customers’ financial condition and drilling programs. Moreover, any concentration of customers increases the risks associated with any possible termination or nonperformance of drilling contracts. For the three months ended March 31, 2014 and year ended December 31, 2013, our five largest customers in the aggregate accounted for approximately 60% and 59%, respectively, of our pro forma consolidated operating revenues. We expect Pemex and Petrobras, which accounted for approximately 17% and 25% of our pro forma consolidated operating revenues for the three months ended March 31, 2014, respectively, and 21% and 18% of our pro forma consolidated operating revenues for the year ended December 31, 2013, respectively, to continue to be significant customers in 2014. Our pro forma contract drilling backlog for 2014 as of March 31, 2014 includes $340 million, or approximately 27%, and $223 million, or approximately 18%, attributable to contracts with Petrobras and Pemex, respectively, for operations offshore Brazil and Mexico. Our floaters working for Petrobras are under contracts that expire beginning in 2015. Petrobras has announced a program to construct 29 newbuild floaters, which may reduce or eliminate its need for our rigs. These new drilling units, if built, would compete with, and could displace, our floaters completing contracts and could materially adversely affect our utilization rates, particularly in Brazil. Further, some national oil companies have considered regulations limiting the age of rigs in operation. Such reforms, if adopted, could significantly increase our costs or render some of our rigs ineligible for contracts with such companies.
Our customers may generally terminate our term drilling contracts if a drilling rig is destroyed or lost or if we have to suspend drilling operations for a specified period of time as a result of a breakdown of major equipment or, in some cases, due to other events beyond the control of either party. In the case of nonperformance and under certain other conditions, our drilling contracts generally allow our customers to
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• well blowouts;
• fires;
• collisions or groundings of offshore equipment;
• punch-throughs;
• mechanical or technological failures;
• failure of our employees to comply with our internal environmental, health and safety guidelines;
• pipe or cement failures and casing collapses, which could release oil, gas or drilling fluids;
• geological formations with abnormal pressures;
• spillage handling and disposing of materials; and
• adverse weather conditions, including hurricanes, typhoons, winter storms and rough seas.
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terminate without any payment to us. The terms of some of our drilling contracts permit the customer to terminate the contract after specified notice periods by tendering contractually specified termination amounts. These termination payments may not fully compensate us for the loss of a contract. Our drilling contracts with our largest customer, Pemex, allow early cancellation with 30 days or less notice to us without any early termination payment. Our second largest customer, Petrobras, has the right to terminate its contracts in the event of downtime that exceeds certain thresholds. The early termination of a contract may result in a rig being idle for an extended period of time and a reduction in our contract backlog and associated revenue, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, during periods of depressed market conditions, we may be subject to an increased risk of our customers seeking to repudiate their contracts. Our customers’ ability to perform their obligations under drilling contracts with us may also be adversely affected by restricted credit markets and economic downturns. If our customers cancel or are unable to renew some of their contracts and we are unable to secure new contracts on a timely basis and on substantially similar terms, if contracts are disputed or suspended for an extended period of time or if a number of our contracts are renegotiated, it could have a material adverse effect on our business, financial condition and results of operations.
We are exposed to risks relating to operations in international locations.
We operate in various regions throughout the world that may expose us to political and other uncertainties, including risks of:
Further, we operate in certain less-developed countries with legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. Examples of challenges of operating in these countries include:
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• seizure, nationalization or expropriation of property or equipment;
• monetary policies, government credit rating downgrades and potential defaults, and foreign currency fluctuations and devaluations;
• limitations on the ability to repatriate income or capital;
• complications associated with repairing and replacing equipment in remote locations;
• repudiation, nullification, modification or renegotiation of contracts;
• limitations on insurance coverage, such as war risk coverage, in certain areas;
• import-export quotas, wage and price controls, imposition of trade barriers and other forms of government regulation and economic conditions that are beyond our control;
• delays in implementing private commercial arrangements as a result of government oversight;
• financial or operational difficulties in complying with foreign bureaucratic actions;
• changing taxation rules or policies;
• other forms of government regulation and economic conditions that are beyond our control and that create operational uncertainty;
• governmental corruption;
• piracy; and
• terrorist acts, war, revolution and civil disturbances.
• potential restrictions presented by local content regulations in Nigeria;
• ongoing changes in Brazilian laws related to the importation of rigs and equipment that may impose bonding, insurance or duty-payment requirements;
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Our ability to mobilize our drilling rigs between locations and the time and costs of such mobilization may be material to our business.
Our ability to mobilize our drilling rigs to more desirable locations may be impacted by governmental regulation and customs practices, the significant costs of moving a drilling rig, weather, political instability, civil unrest, military actions and the technical capability of the drilling rig to relocate and operate in various environments. In addition, as our rigs are mobilized from one geographic location to another, labor and other operating and maintenance costs can vary significantly. If we relocate a rig to another geographic location without a customer contract, we will incur costs that will not be reimbursable by future customers, and even if we relocate a rig with a customer contract, we may not be fully compensated during the mobilization period. These impacts of rig mobilization could have a material adverse effect on our business, results of operations and financial condition.
Operating and maintenance costs of our operating rigs and costs relating to idle rigs may be significant and may not correspond to revenue earned.
Our operating expenses and maintenance costs depend on a variety of factors including crew costs, costs of provisions, equipment, insurance, maintenance and repairs, and shipyard costs, many of which are beyond our control. Our total operating costs are generally related to the number of drilling rigs in operation and the cost level in each country or region where such drilling rigs are located. Equipment maintenance costs fluctuate depending upon the type of activity that the drilling rig is performing and the age and condition of the equipment. Operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues. While operating revenues may fluctuate as a function of changes in dayrate, costs for operating a rig may not be proportional to the dayrate received and may vary based on a variety of factors, including the scope and length of required rig preparations and the duration of the contractual period over which such expenditures are amortized. Any investments in our rigs may not result in an increased dayrate for or income from such rigs. A disproportionate amount of operating and maintenance costs in comparison to dayrates could have a material adverse effect on our business, financial condition and results of operations.
During idle periods, to reduce our costs, we may decide to “warm stack” a rig, which means the rig is kept fully operational and ready for redeployment, and maintains most of its crew. As a result, our operating expenses during a warm stacking will not be substantially different than those we would incur if the rig remained active. We may also decide to cold stack the rig, which means the rig is neither operational nor ready for deployment, does not maintain a crew and is stored in a harbor, shipyard or a designated offshore area. However, reductions in costs following the decision to cold stack a rig may not be immediate, as a portion of the crew may be required to prepare the rig for such storage. Currently, three of our rigs and our FPSO are cold stacked. Our cold stacked rigs may require significant capital expenditures to return them to operation, making reactivation of such assets more financially demanding.
Any violation of anti-bribery or anti-corruption laws, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act, or similar laws and regulations could result in significant expenses, divert management attention, and otherwise have a negative impact on us.
We operate in countries known to have a reputation for corruption. We are subject to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, or FCPA, the United Kingdom Bribery Act 2010, or U.K. Bribery Act, and similar laws in other countries.
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• procedural requirements for temporary import permits, which may be difficult to obtain; and
• the effect of certain temporary import permit regimes, such as in Nigeria, where the duration of the permit does not coincide with the general term of the drilling contract.
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In 2007, Noble began, and voluntarily contacted the SEC and the U.S. Department of Justice, or DOJ, to advise them of, an internal investigation of the legality under the FCPA and local laws of certain reimbursement payments made by Noble’s Nigerian affiliate to our customs agents in Nigeria. In 2010, Noble finalized settlements of this matter and paid fines and penalties to the DOJ and the SEC. Any violation of the FCPA, the U.K. Bribery Act or other applicable anti-corruption laws could result in substantial fines, sanctions, civil or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. Actual or alleged violations could also damage our reputation and ability to do business. Further, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
Changes in, compliance with, or our failure to comply with the certain laws and regulations may negatively impact our operations and could have a material adverse effect on our results of operations.
Our operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to:
Legal and regulatory proceedings relating to the energy industry, and the complex government regulations to which our business is subject, have at times adversely affected our business and may do so in the future. Governmental actions and initiatives by OPEC may continue to cause oil price volatility. In some areas of the world, this activity has adversely affected the amount of exploration and development work done by major oil companies, which may continue. In addition, some governments favor or effectively require the awarding of drilling contracts to local contractors, require use of a local agent or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete and our results of operations.
Public and regulatory scrutiny of the energy industry has resulted in increased regulations being either proposed or implemented. In addition, existing regulations might be revised or reinterpreted, new laws, regulations and permitting requirements might be adopted or become applicable to us, our rigs, our customers, our vendors or our service providers, and future changes in laws and regulations could significantly increase our costs and could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be required to post additional surety bonds to secure performance, tax, customs and other obligations relating to our rigs in jurisdictions where bonding requirements are already in effect and in other jurisdictions where we may operate in the future. These requirements would increase the cost of operating in these countries, which could materially adversely affect our business, financial condition and results of operations.
Adverse effects may continue as a result of the uncertainty of ongoing inquiries, investigations and court proceedings, or additional inquiries and proceedings by federal or state regulatory agencies or private plaintiffs. In addition, we cannot predict the outcome of any of these inquiries or whether these inquiries will lead to additional legal proceedings against us, civil or criminal fines or penalties, or other regulatory action, including legislation or increased permitting requirements. Legal proceedings or other matters against us, including environmental matters, suits, regulatory appeals, challenges to our permits by citizen groups and similar matters, might result in adverse decisions against us. The result of such adverse decisions, either individually or in the aggregate, could be material and may not be covered fully or at all by insurance.
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• the importing, exporting, equipping and operation of drilling rigs;
• repatriation of foreign earnings;
• currency exchange controls;
• oil and gas exploration and development;
• taxation of offshore earnings and earnings of expatriate personnel; and
• use and compensation of local employees and suppliers by foreign contractors.
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Shipyard projects are subject to risks, including delays and cost overruns, which could have an adverse impact on our results of operations and financial condition.
We may make significant repairs, refurbishments and upgrades to our fleet from time to time, particularly given the age of our fleet. Some of these expenditures will be unplanned. In addition, we may decide to construct new rigs or acquire rigs under construction. These projects and other efforts of this type are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following:
The failure to complete a rig repair, refurbishment or upgrade on time, or at all, may result in loss of revenues, penalties, or delay, renegotiation or cancellation of a drilling contract or the recognition of an asset impairment. Additionally, capital expenditures for rig upgrade, refurbishment, repair and newbuild projects could materially exceed our planned capital expenditures. Moreover, our rigs undergoing upgrade, refurbishment and repair typically do not earn a dayrate during the period they are out of service. If we experience substantial delays and cost overruns in our shipyard projects, it could have a material adverse effect on our business, financial condition and results of operations.
We can provide no assurance that our current backlog of contract drilling revenue will be ultimately realized.
As of March 31, 2014, our pro forma contract backlog was over $2.6 billion for contracted future work extending, in some cases, until 2017, with approximately 47% expected to be earned in 2014. Generally, contract backlog only includes future revenues under firm commitments; however, from time to time, we may report anticipated commitments for which definitive agreements have not yet been, but are expected to be, executed. In addition, we may not receive some or all of the bonuses that we include in our backlog. We can provide no assurance that we will be able to perform under these contracts due to events beyond our control or that we will be able to ultimately execute a definitive agreement in cases where one does not currently exist. In addition, we
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• shortages of equipment, materials or skilled labor;
• work stoppages and labor disputes;
• unscheduled delays in the delivery of ordered materials and equipment;
• local customs strikes or related work slowdowns that could delay importation of equipment or materials;
• weather interferences;
• difficulties in obtaining necessary permits or approvals or in meeting permit or approval conditions;
• design and engineering problems;
• inadequate regulatory support infrastructure in the local jurisdiction;
• latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions;
• unforeseen increases in the cost of equipment, labor and raw materials, particularly steel;
• unanticipated actual or purported change orders;
• client acceptance delays;
• disputes with shipyards and suppliers;
• delays in, or inability to obtain, access to funding;
• shipyard availability, failures and difficulties, including as a result of financial problems of shipyards or their subcontractors; and
• failure or delay of third-party equipment vendors or service providers.
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generally do not expect to recontract our floaters, which accounted for 48% of our backlog at March 31, 2014, until later in their contract terms. Due to the higher dayrates earned by our floaters, until these rigs are recontracted, our total backlog may decline, which may have a material adverse effect on our business and financial condition. Moreover, we can provide no assurance that our customers will be able to or willing to fulfill their contractual commitments to us. Our inability to perform under our contractual obligations or to execute definitive agreements or our customers’ inability or unwillingness to fulfill their contractual commitments to us may have a material adverse effect on our business, financial condition and results of operations.
If we are unable to make acquisitions on economically acceptable terms, or at all, our future growth will be limited, and any acquisitions we may make could have an adverse effect on our results of operations.
Part of our strategy to grow our business is dependent on our ability to make acquisitions that result in an increase in revenues and customer contracts. The consummation and timing of any future acquisitions will depend upon, among other things, the availability of attractive targets in the marketplace, our ability to negotiate acceptable purchase agreements and our ability to obtain financing on acceptable terms, and we can offer no assurance that we will be able to consummate any future acquisition.
Our debt agreements may restrict our ability to make acquisitions involving the payment of cash or the incurrence of indebtedness. If we are unable to make acquisitions, our future growth will be limited. Furthermore, even if we do consummate acquisitions that we believe will be accretive, they may in fact produce less revenue than expected as a result of incorrect assumptions in our evaluation of such acquisitions or unforeseen consequences or other external events beyond our control. If we consummate any future acquisitions, shareholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in evaluating any such acquisitions.
Operational interruptions or maintenance or repair work may cause our customers to suspend or reduce payment of dayrates until operation of the respective drilling rig is resumed, which may lead to loss of revenue or termination or renegotiation of the drilling contract.
If our drilling rigs are idle for reasons that are not related to the ability of the rig to operate, our customers are entitled to pay a waiting, or standby, rate lower than the full operational rate. In addition, if our drilling rigs are taken out of service for maintenance and repair for a period of time exceeding the scheduled maintenance periods set forth in our drilling contracts, we will not be entitled to payment of dayrates until the rig is able to work. Several factors could cause operational interruptions, including:
If the interruption of operations were to exceed a determined period due to an event of force majeure, our customers have the right to pay a rate that is significantly lower than the waiting rate for a period of time, and, thereafter, may terminate the drilling contracts related to the subject rig. Suspension of drilling contract payments, prolonged payment of reduced rates or termination of any drilling contract as a result of an interruption of operations as described herein could materially adversely affect our business, financial condition and results of operations, and our ability to make distributions to our shareholders.
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• breakdowns of equipment and other unforeseen engineering problems;
• work stoppages, including labor strikes;
• shortages of material and skilled labor;
• delays in repairs by suppliers;
• surveys by government and maritime authorities;
• periodic classification surveys;
• inability to obtain permits;
• severe weather, strong ocean currents or harsh operating conditions; and
• force majeure events.
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Our debt instruments could limit our operations and our debt level may limit our flexibility to obtain financing and to pursue business opportunities.
At the completion of the spin-off, we expect to have total long-term indebtedness of approximately $1.7 billion. Following the spin-off, we will have the ability to incur additional debt, subject to limitations in our debt agreements. Certain of our debt agreements may contain covenants requiring us to maintain certain financial ratios. Any debt instruments that we enter into in the future may include, among other things, additional or more restrictive limitations that could adversely affect our ability to finance our future operations or capital needs or engage in, expand or pursue our business activities.
In addition, our degree of leverage could have important consequences to us, including the following:
Our ability to service our debt will depend on, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, it may be necessary to take actions such as reducing dividends, reducing or delaying our planned capital expenditures or other business activities.
In addition, our failure to comply with certain covenants in certain of our debt agreements may result in an event of default in other of our debt agreements. An event of default may result in the acceleration of certain of our indebtedness and could have a material adverse effect on our available liquidity.
As a result of our cash flow requirements, we may be required to incur additional indebtedness, or delay or cancel discretionary capital expenditures.
Our currently anticipated cash flow needs, both in the short-term and long-term, may include the following:
In order to fund our capital expenditures, we may need funding beyond the amount available to us from cash generated by our operations, cash on hand and borrowings under our credit facilities. We may raise such additional capital in a number of ways, including accessing capital markets, obtaining additional lines of credit or disposing of assets. However, we can provide no assurance that any of these options will be available to us on terms acceptable to us or at all.
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• our ability to obtain additional financing, if necessary, for working capital, letters of credit or other forms of guarantees, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;
• our funds available for operations, future business opportunities and distributions to unit holders will be reduced by that portion of our cash flow required to make interest payments on our debt;
• we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally;
• our flexibility in responding to changing business and economic conditions may be limited;
• we may be subjected to increased sensitivity to interest rate increases; and
• we may be placed at a disadvantage to competitors that have less debt than we have.
• normal recurring operating expenses;
• committed capital expenditures;
• discretionary capital expenditures;
• payment of dividends; and
• servicing and repayment of debt.
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Our ability to obtain financing or access the capital markets may be limited by our financial condition at the time of any such financing and the covenants in our debt agreements, as well as by adverse market conditions resulting from, among other things, general economic conditions and uncertainties that are beyond our control. Worldwide instability in financial markets or another recession could reduce the availability of liquidity and credit to fund the continuation and expansion of industrial business operations worldwide. Even if we are successful in obtaining additional capital through debt financings, incurring additional indebtedness may significantly increase our interest expense and may reduce our ability to respond to changing business and economic conditions or to fund working capital needs, because we will require additional funds to service our outstanding indebtedness.
We may delay or cancel discretionary capital expenditures, even if previously announced, which could have certain adverse consequences including delaying repairs, refurbishments or equipment purchases that could make the affected rigs less competitive, adversely affect customer relationships and negatively impact our ability to contract such rigs.
A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could result in a higher tax rate on our worldwide earnings, which could result in a material adverse effect on our financial condition.
Income tax returns that we file will be subject to review and examination. We will not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially and result in a material adverse effect on our financial condition.
We may record losses or impairment charges related to rigs that we sell or idle rigs.
Prolonged periods of low utilization or low dayrates, the cold stacking of idle assets, the sale of assets below their then carrying value or the decline in market value of our assets may cause us to experience losses. These events could result in the recognition of an impairment charge, such as the impairment charge that we recorded on our FPSO at December 31, 2013 (see Note 5 to the Predecessor’s audited financial statements included elsewhere in this information statement), if future cash flow estimates, based upon information available to management at the time, indicate that the carrying value of these rigs may not be recoverable or if we sell assets at below their then carrying value.
We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all of the risks and hazards we face.
We do not procure insurance coverage for all of the potential risks and hazards we may face. Furthermore, no assurance can be given that we will be able to obtain insurance against all of the risks and hazards we face or that we will be able to obtain or maintain adequate insurance at rates and with deductibles or retention amounts that we consider commercially reasonable.
Our insurance carriers may interpret our insurance policies such that they do not cover losses for which we make claims. Our insurance policies may also have exclusions of coverage for some losses. Uninsured exposures may include expatriate activities prohibited by U.S. laws, radiation hazards, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes. Furthermore, the damage sustained to offshore oil and gas assets as a result of hurricanes in recent years has negatively impacted the energy insurance market, resulting in more restrictive and expensive coverage for U.S. named windstorm perils. If one or more future significant weather-related events occur in any geographic area in which we operate, we may experience increases in insurance costs, additional coverage restrictions or unavailability of certain insurance products.
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Under our drilling contracts, liability with respect to personnel and property is customarily assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. Although our drilling contracts generally provide for indemnification from our customers for certain liabilities, including liabilities resulting from pollution or contamination originating below the surface of the water and damage or loss of reservoir. Enforcement of these contractual rights to indemnity may be limited by public policy and other considerations and, in any event, may not adequately cover our losses from such incidents. There can also be no assurance that those parties with contractual obligations to indemnify us will necessarily be in a financial position to do so.
Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could adversely affect our business, financial condition or results of operations.
Government proposals in the U.K. would increase our effective tax rate and other possible changes in tax laws could adversely affect us and our shareholders.
We operate through various subsidiaries in numerous countries throughout the world. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.K., the U.S. and other jurisdictions in which we or any of our subsidiaries operate or are incorporated. Changes in existing laws or the enactment or adoption of new tax laws or regulations may materially increase our cost of operating in certain countries and reduce our net income. For example, draft legislation recently published by the U.K. government could restrict deductions on certain related party transactions, such as those relating to the bareboat charter agreements used in connection with our U.K. continental shelf operations. If enacted as currently drafted, the proposed legislation would become effective retroactively from April 1, 2014 and would result in an increase in the effective tax rate on our consolidated operations. Such an increase in tax expense would reduce our net income.
Tax laws, treaties and regulations are highly complex and subject to interpretation. Our income tax expense is based upon our interpretation of the tax laws, treaties and regulations in effect in various countries at the time that the expense was incurred. If any laws, treaties or regulations change or taxing authorities do not agree with our interpretation of such laws, treaties and regulations, this could have a material adverse effect on us, including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions.
In addition, the manner in which our shareholders are taxed on distributions on, and dispositions of, our shares could be affected by changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.K., the U.S. or other jurisdictions in which our shareholders are resident. Any such changes could result in increased taxes for our shareholders and affect the trading price of our shares.
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Our operations are subject to numerous laws and regulations relating to the protection of the environment and of human health and safety, and compliance with these laws and regulations could impose significant costs and liabilities that exceed our current expectations.
Substantial costs, liabilities, delays and other significant issues could arise from environmental, health and safety laws and regulations covering our operations, and we may incur substantial costs and liabilities in maintaining compliance with such laws and regulations. Our operations are subject to extensive international conventions and treaties, and national or federal, state and local laws and regulations, governing environmental protection, including with respect to the discharge of materials into the environment and the security of chemical and industrial facilities. These laws govern a wide range of environmental issues, including:
Various governmental authorities have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws, regulations and permits, or the release of oil or other materials into the environment, may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the imposition of stricter conditions on or revocation of permits, the issuance of moratoria or injunctions limiting or preventing some or all of our operations, delays in granting permits and cancellation of leases, or could affect our relationship with certain consumers.
There is inherent risk of the incurrence of environmental costs and liabilities in our business, some of which may be material, due to the handling of our customers’ hydrocarbon products as they are gathered, transported, processed and stored, air emissions related to our operations, historical industry operations, and water and waste disposal practices. Joint, several or strict liability may be incurred without regard to fault under certain environmental laws and regulations for the remediation of contaminated areas and in connection with past, present or future spills or releases of natural gas, oil and wastes on, under, or from past, present or future facilities. Private parties may have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage arising from our operations. In addition, increasingly strict laws, regulations and enforcement policies could materially increase our compliance costs and the cost of any remediation that may become necessary. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us.
Our business may be adversely affected by increased costs due to stricter pollution control equipment requirements or liabilities resulting from non-compliance with required operating or other regulatory permits. Also, we might not be able to obtain or maintain from time to time all required environmental regulatory approvals for our operations. If there is a delay in obtaining any required environmental regulatory approvals, or if we fail to obtain and comply with them, the operation or construction of our facilities could be prevented or become subject to additional costs. In addition, the steps we could be required to take to bring certain facilities into regulatory compliance could be prohibitively expensive, and we might be required to shut down, divest or alter the operation of those facilities, which might cause us to incur losses.
We make assumptions and develop expectations about possible expenditures related to environmental conditions based on current laws and regulations and current interpretations of those laws and regulations. If the
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• the release of oil, drilling fluids, natural gas or other materials into the environment;
• air emissions from our drilling rigs or our facilities;
• handling, cleanup and remediation of solid and hazardous wastes at our drilling rigs or our facilities or at locations to which we have sent wastes for disposal;
• restrictions on chemicals and other hazardous substances; and
• wildlife protection, including regulations that ensure our activities do not jeopardize endangered or threatened animals, fish and plant species, nor destroy or modify the critical habitat of such species.
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interpretation of laws or regulations, or the laws and regulations themselves, change, our assumptions may change, and new capital costs may be incurred to comply with such changes. In addition, new environmental laws and regulations might adversely affect our operations, as well as waste management and air emissions. For instance, governmental agencies could impose additional safety requirements, which could affect our profitability. Further, new environmental laws and regulations might adversely affect our customers, which in turn could affect our profitability.
Finally, although some of our drilling rigs will be separately owned by our subsidiaries, under certain circumstances a parent company and all of the unit-owning affiliates in a group under common control engaged in a joint venture could be held liable for damages or debts owed by one of the affiliates, including liabilities for oil spills under environmental laws. Therefore, it is possible that we could be subject to liability upon a judgment against us or any one of our subsidiaries.
We are subject to risks associated with climate change and climate change regulation.
There is an ongoing debate that emissions of greenhouse gases, or GHGs, may be linked to climate change. Climate change and the costs that may be associated with its impacts and the regulation of GHGs have the potential to affect our business in many ways, including negatively impacting the costs we incur in providing our services, the demand for and consumption of our services (due to change in both costs and weather patterns), and the economic health of the regions in which we operate, all of which can create financial risks. In addition, legislative and regulatory responses related to GHGs and climate change create the potential for financial risk. There have been international efforts seeking legally binding reductions in emissions of GHGs. In addition, increased public awareness and concern may result in more state, regional or federal requirements to reduce or mitigate GHG emissions.
The passage or promulgation of any new climate change laws or regulations by the United Nations’ International Maritime Organization, or IMO, at the international level, or by national or regional legislatures in the jurisdictions in which we operate, including the European Union, could result in increased costs to (i) operate and maintain our facilities, (ii) install new emission controls on our facilities and (iii) administer and manage any GHG emissions program. If we are unable to recover or pass through a significant level of our costs related to complying with climate change regulatory requirements imposed on us, it could have a material adverse effect on our results of operations and financial condition. To the extent financial markets view climate change and GHG emissions as a financial risk, this could negatively impact our cost of and access to capital. Legislation or regulations that may be adopted to address climate change could also affect the markets for our services by making our services more or less desirable than services associated with competing sources of energy.
Finally, some scientists have concluded that increasing GHG concentrations in the atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of hurricanes and other storms, which could have a material adverse effect on our business, financial condition and results of operations.
Failure to attract and retain skilled personnel or an increase in personnel costs could adversely affect our operations.
We require skilled personnel to operate and provide technical services and support for our drilling rigs. As the demand for drilling services and the size of the worldwide industry fleet increases, shortages of qualified personnel have occurred from time to time. These shortages could result in our loss of qualified personnel to competitors, impair our ability to attract and retain qualified personnel for our drilling rigs, impair the timeliness and quality of our work and create upward pressure on personnel costs, any of which could adversely affect our operations.
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Any failure to comply with the complex laws and regulations governing international trade could adversely affect our operations.
The shipment of goods, services and technology across international borders subjects our business to extensive trade laws and regulations. Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. U.S. sanctions, in particular, are targeted against certain countries that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, seizure of shipments and loss of import and export privileges.
Currently, we do not, nor do we intend to, operate in countries that are subject to significant sanctions and embargoes imposed by the U.S. government or identified by the U.S. government as state sponsors of terrorism, such as Cuba, Iran, Sudan and Syria. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. Although we believe that we will be in compliance with all applicable sanctions and embargo laws and regulations at the closing of the spin-off, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into drilling contracts with individuals or entities in countries subject to significant U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments.
Our operations present hazards and risks that require significant and continuous oversight, and we depend upon the security and reliability of our technologies, systems and networks in numerous locations where we conduct business.
Our floaters utilize certain technologies that make us vulnerable to cyber attacks that we may not be able to adequately protect against. These cybersecurity risks could disrupt certain of our operations for an extended period of time and result in the loss of critical data and in higher costs to correct and remedy the effects of such incidents. If our systems for protecting against information technology and cybersecurity risks prove to be insufficient, we could be materially adversely affected by having our business and financial systems compromised, our proprietary information altered, lost or stolen, or our business operations and safety procedures disrupted.
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Fluctuations in exchange rates and nonconvertibility of currencies could result in unfavorable impacts on us.
We may experience unfavorable currency exchange impacts where revenues are received or expenses are paid in nonconvertible currencies or where we do not hedge an exposure to a foreign currency. 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, controls over currency exchange or controls over the repatriation of income or capital.
We are subject to litigation that could have an adverse effect on us.
We are, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, asbestos and other toxic tort claims, environmental claims or proceedings, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and there can be no assurance as to the ultimate outcome of any litigation. Litigation may have an adverse effect on us because of potential negative outcomes, costs of attorneys, the allocation of management’s time and attention, and other factors.
We are a holding company, and we are dependent upon cash flow from subsidiaries to meet our obligations.
We currently conduct our operations through both U.S. and foreign subsidiaries, and our operating income and cash flow are generated by our subsidiaries. As a result, cash we obtain from our subsidiaries is the principal source of funds necessary to meet our debt service obligations. Contractual provisions or laws, as well as our subsidiaries’ financial condition and operating requirements, may limit our ability to obtain cash from our subsidiaries that we require to pay our debt service obligations. Applicable tax laws may also subject such payments to us by our subsidiaries to further taxation.
The inability of our subsidiaries to transfer cash to us may mean that, even though we may have sufficient resources on a consolidated basis to meet our obligations, we may not be permitted to make the necessary transfers from subsidiaries to us in order to provide funds for the payment of our obligations.
Risks Relating to the Spin-Off
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Noble.
By separating from Noble, our results of operations and cash flows may be susceptible to greater volatility due to fluctuations in our business levels and other factors that may adversely affect our operating and financial performance. As part of the Noble group of companies, we have historically enjoyed certain benefits of Noble’s operating diversity, purchasing power and opportunities to pursue integrated strategies. In addition, we have enjoyed certain benefits from Noble’s financial resources, including substantial borrowing capacity and capital for investment. Following the Distribution, as an independent, publicly-traded company, we will no longer participate in cash management and funding arrangements with Noble.
Because Noble’s other operations will no longer be available to offset any volatility in our results of operations and cash flows, after the Distribution, volatility in our earnings may be more pronounced than our peers. In addition, we may not have similar diversity or integration opportunities and purchasing power and investors and securities analysts may not place a greater value on our business as an independent public company than on our business as a part of Noble.
After our separation from Noble, Noble’s financial and other resources will no longer be available to us and we may be required to make significant ongoing capital investments to maintain the competitiveness of our fleet. Our debt ratings may be restrained by the age of our fleet and by our fleet’s older-generation standard capabilities. As a result, our access to the debt markets may be limited, we may have a greater cost of capital and our financial covenants will be more restrictive than prior to our separation from Noble.
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Our historical combined and unaudited pro forma combined financial statements are not necessarily indicative of our future financial condition, future results of operations or future cash flows nor do they reflect what our financial condition, results of operations or cash flows would have been as an independent public company during the periods presented.
The historical combined financial information we have included in this information statement does not reflect what our financial condition, results of operations or cash flows would have been as an independent public company during the periods presented and is not necessarily indicative of our future financial condition, future results of operations or future cash flows. This is primarily a result of the following factors:
The pro forma adjustments are based on available information and assumptions that we believe are factually supportable. However, it is possible that our assumptions may prove to be inaccurate. In addition, our unaudited pro forma combined financial statements do not give effect to certain on-going additional costs that we expect to incur in connection with being an independent public company. Accordingly, our unaudited pro forma combined financial statements do not reflect what our financial condition or results of operations would have been as an independent public company and are not necessarily indicative of our future financial condition or future results of operations. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Statements” and our historical combined financial statements and the notes to those statements included in this information statement.
We have been dependent on Noble for business functions and we may encounter difficulties in making the changes necessary to operate as an independent public company.
We have historically used Noble’s infrastructure to support our business functions, including the following functions:
If Noble does not support our business functions and perform the transition services pursuant to the transition services agreement relating to our business following the separation, we may not be able to operate our business effectively and our profitability may decline. In addition, we may be unable to replace in a timely
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• our Predecessor’s historical combined financial information reflects allocations of expenses for services historically provided by
Noble, and those allocations may be significantly lower than the comparable expenses we would have incurred as an independent public company;
• our cost of debt and other capitalization may be significantly different from that reflected in our historical combined financial statements;
• our Predecessor’s historical combined financial information does not reflect the changes that will occur in our cost structure,
management, financing arrangements and business operations as a result of our separation from Noble, including the costs related to being an independent public company;
• our Predecessor’s historical combined financial information does not reflect the effects of certain liabilities that will be assumed by our company, and reflects the effects of certain assets and liabilities to be retained by Noble; and
• our Predecessor’s historical combined financial information includes three standard specification drilling rigs to be retained by Noble as well as one jackup and two cold stacked submersibles that were sold by Noble in July 2013 and January 2014, respectively.
• accounting and financial reporting;
• information technology and communications;
• legal;
• human resources and employee benefits;
• tax administration; and
• treasury and corporate finance.
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manner or on comparable terms the services or other benefits that Noble previously provided to us that are not specified in such transition services agreement. Following the expiration of such transition services agreement with Noble, we will no longer have access to Noble’s infrastructure, and we will need to establish our own. We expect to incur substantial costs to establish the necessary infrastructure to enable us to establish these business functions. If we are unable to establish the necessary infrastructure to enable us to perform these functions or if we experience a significant increase in the costs of performing or outsourcing these functions, it would materially adversely affect our business, financial condition and results of operations.
We will incur increased ongoing costs as a result of being a standalone publicly traded company.
We have no history operating as a publicly traded company separate from Noble. After the Distribution, as a publicly traded company, we will incur significant legal, accounting and other expenses. In connection with the spin-off, we expect our shares to be listed on the NYSE. Accordingly, if our shares are approved for listing, we will be subject to SEC and NYSE rules and regulations, which will increase our legal and financial compliance costs and make activities more time-consuming and costly. For example, as a result of becoming a publicly traded company, we will be required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our publicly traded company reporting requirements. It is possible that our actual incremental costs of being a publicly traded company will be materially higher than our current estimate of $8 million per year.
Our operation as an independent public company and resulting changes in management may negatively impact our customer base.
Following our separation from Noble, some of our customers, prospective customers, suppliers or other companies with whom we conduct business may prefer to work with larger companies or different management teams. They may also need assurances that our financial stability on a standalone basis is sufficient to satisfy their requirements for doing or continuing to do business with them. Any failure of parties to be satisfied with our management or financial credibility could have a material adverse effect on our business, financial condition and results of operations.
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the separation and may strain our resources.
Our financial results previously were included within the combined results of Noble, and our reporting and control systems were appropriate for those of subsidiaries of a public company. However, we were not directly subject to reporting and other requirements of the Exchange Act. As a result of our separation from Noble, we will be directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. If the Distribution occurs in 2014, the Sarbanes-Oxley Act of 2002 will require, beginning with the filing of our Annual Report on Form 10-K for the year ending December 31, 2015, annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and internal control requirements, in addition to U.K. statutory obligations, will place significant demands on our management and administrative and operational resources, including accounting resources.
To comply with these requirements, we anticipate that we will need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses related to these steps and, among other things, directors and officers liability insurance, director fees, SEC reporting, transfer agent fees, increased auditing and legal fees and similar expenses, which expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information
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technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have an adverse effect on our business, financial condition and results of operations.
The terms of our separation from Noble, the related agreements and other transactions with Noble were determined by Noble and thus may be less favorable to us than the terms we could have obtained from an unaffiliated third party.
Prior to the completion of the Distribution, we will enter into various agreements to complete the separation of our business from Noble and govern our ongoing relationships, including, among others, a master separation agreement, employee matters agreement, a tax sharing agreement, a transition services agreement relating to services provided to each other on an interim basis and a transition services agreement relating to Noble’s offshore Brazil operations.
Under one of the transition services agreements, Noble will continue to provide various interim corporate support services to us and we will provide various interim support services to Noble. Under the transition services agreement for Brazil, we will be providing both rig-based and shore-based support services for Noble’s continuing offshore Brazil operations through the term of the existing rig contracts. The master separation agreement will provide for, among other things, our responsibility for liabilities relating to our business and the responsibility of Noble for liabilities unrelated to our business. Among other things, the master separation agreement will contain indemnification obligations and ongoing commitments of us and Noble designed to make our company financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the separation. If we are required to indemnify Noble under the circumstances set forth in the master separation agreement, we may be subject to substantial liabilities.
For a description of these agreements and the other agreements that we will enter into with Noble, please read “Certain Relationships and Related Party Transactions.”
Our interests may conflict with those of Noble with respect to business relationships, and we may not be able to resolve these conflicts in a manner favorable to us.
Following the Distribution, our interests may conflict with those of Noble in a number of areas relating to our past and ongoing relationships, including:
We may not be able to resolve any potential conflicts with Noble, and even if we do, the resolution may not be favorable to us. The master separation agreement provides that Noble has no duty to refrain from engaging in activities or lines of business similar to ours and may compete with us and that Noble and its officers, directors and employees will not be liable to us or our shareholders for failing to present specified corporate opportunities to us.
The corporate opportunity provisions in our master separation agreement could enable Noble to benefit from corporate opportunities that might otherwise be available to us.
The master separation agreement will contain provisions related to corporate opportunities that may be of interest to both Noble and us. The master separation agreement will provide that if a corporate opportunity is
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• the settlement of issues relating to matters for which we have indemnified Noble or for which Noble has indemnified us;
• agreements with Noble and its affiliates relating to transition services that may be material to our business;
• the solicitation and hiring of employees from each other; and
• business opportunities that may be presented to Noble and to one of the members of our board of directors who will also be an executive officer of Noble.
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offered to one member of our board of directors, while she is also an officer of Noble, that opportunity will belong to Noble unless expressly offered to that person primarily in her capacity as our director, in which case such opportunity will belong to us.
In addition, the master separation agreement will provide that any corporate opportunity that belongs to Noble or to us, as the case may be, may not be pursued by the other, unless and until the party to whom the opportunity belongs determines not to pursue the opportunity and so informs the other party. These provisions create the possibility that a corporate opportunity that may be pertinent to us may be used for the benefit of Noble. Please read “Certain Relationships and Related Party Transactions.”
The spin-off could result in substantial tax liability.
Noble has obtained private letter rulings from the IRS substantially to the effect that, for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Code. The continued effectiveness of the private letter rulings is a condition to the completion of the spin-off. If the factual assumptions or representations made in the private letter ruling requests are inaccurate or incomplete in any material respect, then we will not be able to rely on the rulings. Furthermore, the IRS will not rule on whether a distribution such as the spin-off satisfies certain requirements of Section 355 of the Code. Rather, the private letter rulings are based on representations by Noble that those requirements have been satisfied, and any inaccuracy in those representations could invalidate the rulings.
The spin-off is also conditioned on Noble’s receipt of a legal opinion of Baker Botts L.L.P., in form and substance satisfactory to Noble, substantially to the effect that, for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Code. The opinion will rely on, among other things, the continuing validity of the private letter rulings and various assumptions and representations as to factual matters made by Noble and us which, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion. The opinion will not be binding on the IRS or the courts, and there can be no assurance that the IRS or the courts will not challenge the conclusions stated in the opinion or that any such challenge would not prevail.
Neither we nor Noble are aware of any facts or circumstances that would cause the assumptions or representations relied on in the private letter rulings or that will be relied on in the opinion to be inaccurate or incomplete in any material respect. If, notwithstanding receipt of the private letter rulings and opinion, the spin-off were determined not to qualify under Sections 355 and 368 of the Code, we and Noble and our initial public shareholders could be subject to significant liabilities relating to taxes. In general, with respect to the spin-off, our initial public shareholders generally would be treated as receiving a taxable distribution of property in an amount equal to the fair market value of Paragon Offshore ordinary shares received. That distribution would be a dividend to the extent of Noble’s current earnings and profits as of the end of the year in which the distribution occurs and any accumulated earnings and profits. For each such shareholder, any amount that exceeded Noble’s earnings and profits would be treated first as a non-taxable return of capital to the extent of such shareholder’s tax basis in its Noble ordinary shares with any remaining amount generally being taxed as a capital gain. Please read “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”
Potential liabilities associated with certain obligations under the tax sharing agreement cannot be precisely quantified at this time.
Under the terms of the tax sharing agreement we will enter into in connection with the spin-off, we generally will be responsible for all taxes attributable to our business, whether accruing before, on or after the date of the spin-off and Noble generally will be responsible for any taxes arising from the spin-off or certain related transactions that are imposed on us, Noble or its other subsidiaries. However, we would be responsible for any such taxes to the extent resulting from certain actions or failures to act by us that occur after the effective
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date of the tax sharing agreement. Our liabilities under the tax sharing agreement could have a material adverse effect on us. At this time, we cannot precisely quantify the amount of liabilities we may have under the tax sharing agreement and there can be no assurances as to their final amounts.
The tax sharing agreement may limit our ability to engage in certain strategic corporate transactions and equity issuances.
Under the tax sharing agreement, we and our affiliates covenant not to take any action, or fail to take any action, after the effective date of the tax sharing agreement, which action or failure to act is inconsistent with the spin-off qualifying as tax free under Sections 355 and 368(a)(1)(D) of the Code. In particular, we might determine to continue to operate certain of our business operations for the foreseeable future even if a sale or discontinuance of such business might otherwise have been advantageous. Moreover, in light of the requirements of Section 355(e) of the Code, we might determine to forgo certain transactions, including share repurchases, stock issuances, certain asset dispositions or other strategic transactions for some period of time following the spin-off. In addition, our indemnity obligation under the tax sharing agreement might discourage, delay or prevent a change of control transaction for some period of time following the spin-off.
For a more detailed discussion, please read “Certain Relationships and Related Party Transactions—Tax Sharing Agreement.”
Potential indemnification liabilities to Noble pursuant to the master separation agreement could materially adversely affect our company.
The master separation agreement with Noble will provide for, among other things, the principal corporate transactions required to effect the spin-off, certain conditions to the spin-off and provisions governing the relationship between our company and Noble with respect to and resulting from the spin-off. For a description of the expected terms of the master separation agreement, please read “Certain Relationships and Related Party Transactions—Master Separation Agreement.” Among other things, we expect the master separation agreement to provide for indemnification obligations designed to make our company financially responsible for substantially all liabilities that may exist relating to our business activities whenever incurred. If we are required to indemnify Noble under the circumstances set forth in the master separation agreement, we may be subject to substantial liabilities.
In connection with our separation from Noble, Noble will indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Noble’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the master separation agreement, tax sharing agreement, transition services agreement and transition services agreement relating to Noble’s offshore Brazil operations, Noble has agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that Noble has agreed to retain, and there can be no assurance that the indemnity from Noble will be sufficient to protect us against the full amount of such liabilities, or that Noble will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Noble any amounts for which we are held liable, we may be temporarily required to bear these losses. If Noble is unable to satisfy its indemnification obligations, the underlying liabilities could have a material adverse effect on our business, financial condition and results of operations.
Several members of our board and management may have conflicts of interest because of their ownership of Noble ordinary shares.
Following the spin-off, several members of our board and management will continue to own Noble ordinary shares because of their prior relationships with Noble. This share ownership could create, or appear to create, potential conflicts of interest when our directors and executive officers are faced with decisions that could have different implications for our company and Noble. Please read “Management.”
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Risks Relating to Ownership of Our Shares
There is no existing market for our shares and we do not know if one will develop, which could impede your ability to sell your shares and depress the market price of our shares.
Prior to the spin-off, there has not been a trading market for our shares. We cannot assure you that an active trading market will develop or be sustained or how liquid that market might become for our shares after the spin-off, nor can we predict the prices at which our shares will trade after the spin-off. An active trading market for our shares may not develop as a result of the spin-off or may not be sustained in the future. The lack of an active market for our ordinary shares may make it difficult for you to sell our shares and could lead to our share price being depressed or volatile.
The price of our shares may fluctuate significantly.
Volatility in the market price of our ordinary shares may prevent you from being able to sell your shares at an acceptable price. The market price of our shares could fluctuate significantly due to a number of factors, many of which are beyond our control, including those described above and the following:
These factors may materially reduce the market price of our shares, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our shares is low.
If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our shares could decline.
Future sales or the availability for sale of substantial amounts of our shares in the public market could adversely affect the prevailing market price of our shares and could impair our ability to raise capital through future sales of equity securities. Upon consummation of the spin-off, 8,975,339 shares will be reserved for issuance under our equity compensation plans, and we may issue equity in offerings to fund acquisitions and other expenditures, which may decrease the value of our shareholders’ investment in us. Any decline in the price of our shares might impede our ability to raise capital through the issuance of additional shares or other equity securities. We may also grant registration
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• fluctuations in our quarterly or annual earnings results or those of other companies in our industry;
• failures of our operating results to meet the estimates of securities analysts or the expectations of our shareholders or changes by securities analysts in their estimates of our future earnings;
• announcements by us or our customers, suppliers or competitors;
• changes in laws or regulations which adversely affect our industry or us;
• changes in accounting standards, policies, guidance, interpretations or principles;
• the public’s reaction to our press releases, other public announcements and filings with the SEC;
• changes in earnings estimates or recommendations by securities analysts who track our shares;
• changes in dividend amounts or our dividend policy or our failure to pay a dividend, if declared;
• market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
• strategic actions by us or our competitors, such as acquisitions or restructurings;
• arrival and departure of key personnel;
• the number of shares to be publicly traded after the spin-off;
• sale of shares by members of our management team;
• adverse resolution of new or pending litigation against us;
• general economic, industry and stock market conditions; and
• future sales of our shares by us or our shareholders.
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rights covering shares issued in connection with any acquisition or investment. Prior to the completion of the spin-off, our sole shareholder is expected to adopt resolutions permitting our board of directors to issue up to $1,017,040 nominal value of shares (or 101,704,071 shares, which equals approximately 120% of our ordinary shares outstanding as of the Distribution Date) within the following five years without further shareholder approval, and such issuances would not be subject to shareholder preemptive rights.
If securities analysts do not publish research or reports about our company, or issue unfavorable commentary about us or downgrade our shares, the price of our shares could decline.
The trading market for our shares will depend in part on the research and reports that third-party securities analysts publish about our company and our industry. Because our ordinary shares will initially be distributed to the public through the spin-off, there will not be a marketing effort relating to the initial distribution of our shares of the type that would typically be part of an initial public offering of shares. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of our company, we could lose visibility in the market. In addition, one or more of these analysts could use estimation or valuation methods that we do not agree with, downgrade our shares or issue other negative commentary about our company or our industry. As a result of one or more of these factors, the trading price of our shares could decline.
We have no obligation to, and may not be able to, declare or pay dividends on our shares. If we do not declare and pay dividends on our shares, our share price could decline.
We intend to declare and pay dividends on our shares based on our financial condition and results of operations, although we have no obligation under U.K. law or our articles of association to do so. Additionally, we may not be able to declare and pay dividends on our shares. Dividends can be declared either by our directors or by the passing of an ordinary shareholder resolution (i.e., passed with a majority of the votes cast). The total amount of dividends on our shares is limited to the amount of our “distributable profits,” as defined under U.K. law. We may need to create distributable profits sufficient to pay our desired amount of dividends through a court approved reduction of capital or other customary means which may not be successful and which could result in substantial costs. Please read “Description of Share Capital—Dividends.” In addition, agreements governing certain of our indebtedness may restrict our ability to pay dividends. If we do not pay dividends as expected, our share price could decline.
Substantial sales of our shares by us or our shareholders could cause our share price to decline and issuances by us will dilute your ownership in our company.
Any sales of substantial amounts of our shares in the public market after the separation, or the perception that these sales might occur, could lower the market price of our shares and impede our ability to raise capital through the issuance of equity securities. Our largest shareholders could sell the shares they receive in the Distribution for various reasons. For example, such shareholders may not believe that our business profile or level of market capitalization as an independent public company fits their investment objectives. Further, if we issue additional equity securities to raise additional capital, your ownership interest in our company will be diluted and the value of the shares you hold may be reduced. Prior to the completion of the spin-off, our sole shareholder is expected to adopt resolutions permitting our board of directors to issue up to $1,017,040 nominal value of shares (or 101,704,071 shares, which equals approximately 120% of our ordinary shares outstanding as of the Distribution Date) within the following five years without further shareholder approval, and such issuances would not be subject to shareholder preemptive rights.
Transfers of our shares may be subject to stamp duty or stamp duty reserve tax in the U.K., which would increase the cost of dealing in our shares.
Stamp duty or stamp duty reserve tax (SDRT) are imposed in the U.K. on certain transfers of chargeable securities (which include shares in companies incorporated in the U.K.) at a rate of 0.5% of the consideration
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paid for the transfer. Certain issues or transfers of shares to depositories or into clearance systems may be charged at a higher rate of 1.5%.
You are strongly encouraged to hold your shares in book entry form through the facilities of DTC. Transfers of shares held in book entry form through DTC will not attract a charge to stamp duty or SDRT in the U.K. A transfer of title in the shares from within the DTC system out of DTC and any subsequent transfers that occur entirely outside the DTC system, including repurchase by us, will attract a charge to stamp duty or SDRT at a rate of 0.5% of any consideration, which is payable by the transferee of the shares. Any such duty must be paid (and the relevant transfer document, if any, stamped by HMRC) before the transfer can be registered in the books of Paragon Offshore. However, if those shares are redeposited into DTC, the redeposit will attract stamp duty or SDRT at the rate of 1.5% to be paid by the transferor.
In connection with the completion of the spin-off, we expect to put in place arrangements to require that shares held in certificated form cannot be transferred into the DTC system until the transferor of the shares has first delivered the shares to a depositary specified by us so that SDRT may be collected in connection with the initial delivery to the depositary. Any such shares will be evidenced by a receipt issued by the depositary. Before the transfer can be registered in our books, the transferor will also be required to put the depositary in funds to settle the resultant liability to SDRT, which will be charged at a rate of 1.5% of the value of the shares.
If our shares are not eligible for deposit and clearing within the facilities of DTC, then transactions in our securities may be disrupted.
The facilities of DTC are a widely-used mechanism that allow for rapid electronic transfers of securities between the participants in the DTC system, which include many large banks and brokerage firms. Our shares will be eligible for deposit and clearing within the DTC system. We expect to enter into arrangements with DTC whereby we will agree to indemnify DTC for any stamp duty or SDRT that may be assessed upon it as a result of its service as a depository and clearing agency for our shares. We expect these actions, among others, will result in DTC agreeing to accept the shares for deposit and clearing within its facilities.
DTC is not obligated to accept the shares for deposit and clearing within its facilities at the closing and, even if DTC does initially accept the shares, it will generally have discretion to cease to act as a depository and clearing agency for the shares. If DTC determined prior to the completion of the spin-off that the shares are not eligible for clearance within the DTC system, then we would not expect to complete the Transactions contemplated by this information statement in their current form. However, if DTC determined at any time after the completion of the spin-off that the shares were not eligible for continued deposit and clearance within its facilities, then we believe the shares would not be eligible for continued listing on a U.S. securities exchange or inclusion in the Standard & Poor’s 500 Index and trading in the shares would be disrupted. While we would pursue alternative arrangements to preserve our listing and maintain trading, any such disruption could have a material adverse effect on the trading price of the shares.
Provisions in our articles of association are intended to have anti-takeover effects that could discourage an acquisition of us by others, and may prevent attempts by shareholders to replace or remove our current management.
Certain provisions in our articles of association are intended to have the effect of delaying or preventing a change in control of us or changes in our management. For example, we expect that our articles of association will include provisions that establish an advance notice procedure for shareholder resolutions to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. U.K. law also prohibits the passing of written shareholder resolutions by public companies. Our board of directors will have the necessary corporate authority, without further action of our shareholders for a period of five years, but subject to our statutory and fiduciary duties, to give effect to a shareholder rights plan and to determine the terms thereof. Under a shareholder rights plan, rights to subscribe for or acquire newly issued shares in Paragon Offshore may be granted to all shareholders. The exercise of these rights would not be dependent on our having a need for new capital. Pursuant to a shareholder rights plan, the board of directors may
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decide that after a person or group of affiliated or associated persons or persons acting in concert acquires beneficial ownership of 15 percent or more of our outstanding shares, the rights granted pursuant to the shareholder rights plan would become exercisable by all holders thereof (other than the acquiring person, group of affiliated or associated persons or persons acting in concert). Each such holder of a right would, upon the right becoming exercisable, have the right to receive upon exercise shares with a market value greater than the exercise price. As a result, such a plan could make it more difficult for another party to obtain control of Paragon Offshore by threatening to dilute a potential acquirer’s ownership interest in the company under certain circumstances. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management, even if these events would be beneficial for our shareholders. Please read “Description of Share Capital.”
The enforcement of civil liabilities against us may be more difficult than the enforcement of civil liabilities against a U.S. corporation.
Because we will be a public limited company incorporated under U.K. law, investors could experience more difficulty enforcing judgments obtained against us in U.S. courts than would be the case for U.S. judgments obtained against a U.S. corporation. In addition, it may be more difficult or impossible to bring some types of claims against us in courts in the U.K. than it would be to bring similar claims against a U.S. company in a U.S. court.
As a result of shareholder approval requirements, we may have less flexibility as a U.K. public limited company than as a U.S. corporation with respect to certain aspects of capital management.
Under Delaware law, directors may issue, without further shareholder approval, any shares authorized in the certificate of incorporation of a Delaware corporation that are not already issued or reserved. Delaware law also provides substantial flexibility in establishing the terms of preferred shares. However, U.K. law provides that, subject to certain limited exceptions, a board of directors may only allot shares with the prior authorization of shareholders, such authorization being up to the aggregate nominal amount of shares and for a maximum period of five years, each as specified in the articles of association or relevant shareholder resolution. This authorization would need to be renewed by our shareholders upon or before its expiration (i.e., at least every five years).
U.K. law also generally provides shareholders with preemptive rights when new shares are issued for cash; however, it is possible for the articles of association, or shareholders in general meeting, to exclude preemptive rights. Such an exclusion of preemptive rights may be for a maximum period of up to five years from the date of adoption of the articles of association, if the exclusion is contained in the articles of association, or from the date of the shareholder resolution, if the exclusion is by shareholder resolution. In either case, this exclusion would need to be renewed upon or before its expiration (i.e., at least every five years). Prior to the completion of the spin-off, our sole shareholder is expected to adopt resolutions permitting our board of directors to allot up to $1,017,040 nominal value of shares (or 101,704,071 shares, which equals approximately 120% of our ordinary shares outstanding as of the Distribution Date) within the following five years without further shareholder approval and to waive preemptive rights with respect to such shares.
U.K. law also prohibits a company from repurchasing its own shares without the prior approval of a shareholder resolution. For a public company, such approval may last for a maximum period of up to five years and only permits shares to be repurchased using distributable profits or the proceeds of a new issue of shares. Prior to the consummation of the spin-off, our sole shareholder is expected to adopt ordinary resolutions permitting our board of directors to repurchase up to 16,950,678 of our shares (which equals approximately 20% of our ordinary shares outstanding as of the Distribution Date). We do not expect to repurchase any shares in the near future after the Distribution.
We cannot assure you that situations will not arise where such shareholder approval requirements for any of these actions would deprive our shareholders of substantial capital management benefits.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STA TEMENTS
This information statement contains forward-looking statements within the meaning of the federal securities laws. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “predict,” “project” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this information statement, including those entitled “Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.
Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this information statement. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this information statement under the heading “Risk Factors,” as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this information statement in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this information statement are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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THE SPIN-OFF
General
The board of directors of Noble regularly reviews the various operations conducted by Noble to ensure that resources are deployed and activities are pursued in the best interest of its shareholders. On September 24, 2013, Noble announced that its board of directors had approved in principle a plan involving the pro rata distribution of all of Paragon Offshore ordinary shares to Noble’s shareholders in a distribution intended to be tax-free to Noble, Paragon Offshore and such shareholders for U.S. federal income tax purposes (other than with respect to any cash received in lieu of fractional shares). On July 11, 2014, Noble’s board of directors approved the spin-off. The spin-off is subject to, among other things, final approval by the Noble board of directors and the conditions described below under “—Spin-Off Conditions and Termination.”
Our company is currently an indirect, wholly-owned subsidiary of Noble. After giving effect to the spin-off, we will own the assets and be obligated on the liabilities comprising most of Noble’s standard specification drilling business.
Noble will accomplish our separation through a pro rata distribution of 100% of our outstanding ordinary shares to Noble’s shareholders, which we refer to as the Distribution, on August 1, 2014, the Distribution Date. In the spin-off, each registered holder of ordinary shares of Noble as of 5:00 p.m. New York City time on July 23, 2014, the record date, will be entitled to:
Noble shareholders will not be required to pay for Paragon Offshore ordinary shares received in the spin-off or to surrender or exchange Noble ordinary shares in order to receive Paragon Offshore ordinary shares or to take any other action in connection with the spin-off. At the annual general meeting in June 2014, Noble shareholders approved an amendment to the articles of association of Noble to permit the distribution. No further vote will be required or sought in connection with the spin-off, and Noble shareholders will have no appraisal rights in connection with the spin-off.
Reasons for the Spin-Off
Noble’s board and management believe that our separation from Noble will provide the following benefits:
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• receive one Paragon Offshore ordinary share for every three ordinary shares of Noble owned by such holder; and
• retain such holder’s Noble shares.
• allow each company to have a more focused business and operational strategy;
• enhance each company’s growth potential and the overall value of its assets;
• provide each company with greater ability to make business and operational decisions in the best interests of its particular business
and to allocate capital and corporate resources with a focus on achieving its strategic priorities;
• better utilize the professionalism and skills of Noble’s team (including those who will become part of the Paragon Offshore team) and culture to deliver excellent service, safety and operational integrity to customers of Noble and Paragon Offshore;
• improve each company’s ability to attract and retain individuals with the appropriate skill sets as well as to better align compensation and incentives with the performance of these different businesses; and
• allow the financial markets and investors to evaluate each company more effectively.
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Results of the Spin-Off
After the spin-off, we will be an independent public company. Immediately following the spin-off, 84,753,393 of our ordinary shares will be issued and outstanding. We also expect to have approximately 30 shareholders of record, based on the number of shareholders of record of ordinary shares of Noble on July 11, 2014.
We and Noble will enter into a number of agreements that govern the spin-off and our future relationship. For a more detailed description of these agreements, please read “Certain Relationships and Related Party Transactions.”
You will not be required to make any payment for the Paragon Offshore ordinary shares you receive, nor will you be required to surrender or exchange your Noble ordinary shares or take any other action in order to receive the Paragon Offshore ordinary shares to which you are entitled. The spin-off will not affect the number of outstanding Noble ordinary shares or any rights of Noble shareholders, although it will affect the market value of the outstanding Noble ordinary shares.
Manner of Effecting the Spin-Off
The general terms and conditions relating to the spin-off will be set forth in a master separation agreement between Noble and us. For a description of the expected terms of that agreement, please read “Certain Relationships and Related Party Transactions —Master Separation Agreement.” Under the master separation agreement, the spin-off will be effective on the Distribution Date. In the spin-off, each Noble shareholder will be entitled to receive one Paragon ordinary share for every three ordinary shares of Noble owned on the record date. As discussed under “—Trading of Noble Ordinary Shares After the Record Date and Prior to the Distribution,” if a holder of record of ordinary shares of Noble sells those shares in the “regular way” market after the record date and on or prior to the Distribution Date, that shareholder also will be selling the right to receive Paragon Offshore ordinary shares in the spin-off. The Distribution will be made in book-entry form. For registered Noble shareholders, our transfer agent will credit their Paragon Offshore ordinary shares to book-entry accounts established to hold their Paragon Offshore ordinary shares. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For shareholders who own Noble ordinary shares through a bank or brokerage firm, their Noble ordinary shares will be credited to their accounts by the bank or broker. Please read “—When and How You Will Receive Paragon Offshore Shares” below. Each of the Paragon Offshore ordinary shares that is distributed will be validly issued, fully paid and nonassessable. Please read “Description of Share Capital.”
When and How You Will Receive Paragon Offshore Shares
On the Distribution Date, Noble will release 84,753,393 ordinary shares of Paragon Offshore for distribution by Computershare Trust Company, N.A., the distribution agent. The distribution agent will cause the Paragon Offshore ordinary shares to which you are entitled to be registered in your name or in the “street name” of your bank or brokerage firm.
“Street Name” Holders . Many Noble shareholders hold Noble ordinary shares through an account with a bank or brokerage firm. If this applies to you, that bank or brokerage firm is the registered holder that holds the shares on your behalf. For shareholders who hold their Noble ordinary shares in an account with a bank or brokerage firm, the Paragon Offshore ordinary shares distributed to you will be registered in the “street name” of your bank or broker, who in turn will electronically credit your account with the Paragon Offshore ordinary shares that you are entitled to receive in the spin-off. We anticipate that banks and brokers will generally credit their customers’ accounts with Paragon Offshore ordinary shares on or shortly after the Distribution Date. We encourage you to contact your bank or broker if you have any questions regarding the mechanics of having Paragon Offshore ordinary shares credited to your account.
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Registered Holders. If you are the registered holder of ordinary shares of Noble and hold your Noble ordinary shares either in physical form or in book-entry form, the Paragon Offshore ordinary shares distributed to you will be deposited into DTC, registered in your name and you will become the holder of record of that number of Paragon Offshore ordinary shares. Our distribution agent will send you a statement reflecting your ownership of Paragon Offshore ordinary shares.
Direct Registration System . As part of the spin-off, we will be adopting a direct registration system for book-entry share registration and transfer of Paragon Offshore ordinary shares. Paragon Offshore ordinary shares to be distributed in the spin-off will be distributed as uncertificated shares registered in book-entry form through the direct registration system. No certificates representing your shares will be mailed to you in connection with the spin-off. Under the direct registration system, instead of receiving share certificates, you will receive a statement reflecting your ownership interest in our shares. Contact information for our transfer agent and registrar is provided under “Questions and Answers About the Spin-Off.” The distribution agent will begin mailing book-entry account statements reflecting your ownership of shares promptly after the Distribution Date. You can obtain more information regarding the direct registration system by contacting our transfer agent and registrar.
Treatment of Fractional Shares
The transfer agent will not deliver any fractional ordinary shares of Paragon Offshore in connection with the spin-off. Instead, the transfer agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon as practicable after the Distribution Date. Those holders will then receive a cash payment in the form of a check in an amount equal to their pro rata share of the total gross proceeds of those sales. We expect that checks will generally be distributed to shareholders within one to two weeks after the Distribution Date. Broker selling expenses in connection with these sales will be paid by Noble.
It is expected that all fractional shares held in street name will be aggregated and sold by brokers or other nominees according to their standard procedures. You should contact your broker or other nominee for additional details.
None of Noble, our company or the transfer agent will guarantee any minimum sale price for the fractional ordinary shares of Paragon Offshore. Neither we nor Noble will pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient shareholders. Please read “—Material U.S. Federal Income Tax Consequences of the Spin-Off.”
Market for Our Ordinary Shares
There is currently no public market for Paragon Offshore ordinary shares. A condition to the spin-off is the listing on the NYSE of Paragon Offshore ordinary shares. We have applied to list Paragon Offshore ordinary shares on the NYSE under the symbol “PGN.” We anticipate that trading of Paragon Offshore ordinary shares will commence on a when-issued basis on or about the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. On the first trading day following the Distribution Date, when-issued trading with respect to Paragon Offshore ordinary shares will end and regular way trading will begin. Regular way trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of the transaction. Neither we nor Noble can assure you as to the trading price of Paragon Offshore ordinary shares after the spin-off or as to whether the trading price of one Noble ordinary share after the spin-off plus the trading price of one Paragon Offshore ordinary share distributed for three ordinary shares of Noble will not, in the aggregate, be less than the trading price of one Noble ordinary share before the spin-off. The trading price of Paragon Offshore ordinary shares is likely to fluctuate significantly, particularly until an orderly market develops. See “Risk Factors—Risks Relating to Ownership of Our Ordinary Shares.” In addition, we cannot predict any change that may occur in the trading price or volume of Noble’s ordinary shares as a result of the spin-off.
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Trading of Noble Ordinary Shares After the Record Date and Prior to the Distribution
Beginning on or about the record date and through the Distribution Date, there will be two concurrent markets in which to trade Noble ordinary shares: a regular way market and an ex-distribution market. Noble ordinary shares that trade in the regular way market will trade with an entitlement to Paragon Offshore ordinary shares distributed in connection with the spin-off. Shares that trade in the ex-distribution market will trade without an entitlement to Paragon Offshore ordinary shares distributed in connection with the spin-off. Therefore, if you owned Noble ordinary shares at 5:00 p.m., New York City time, on the record date and sell those shares in the regular way market on or prior to the Distribution Date, you also will be selling your right to receive Paragon Offshore ordinary shares that would have been distributed to you in connection with the spin-off. If you sell those Noble ordinary shares in the ex-distribution market prior to or on the Distribution Date, you will still receive Paragon Offshore ordinary shares that were to be distributed to you in connection with the spin-off as a result of your ownership of Noble ordinary shares.
Immediately following the spin-off, 84,753,393 of our ordinary shares will be issued and outstanding. Paragon Offshore ordinary shares distributed to Noble shareholders will be freely transferable, except for shares received by persons who may be deemed to be our “affiliates” under the Securities Act of 1933, as amended, or the Securities Act. Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by, or are under common control with us, and may include some or all of our directors and executive officers. Our affiliates will be permitted to sell Paragon Offshore ordinary shares only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144.
Treatment of Stock-Based Awards
In connection with the spin-off, we currently expect that Noble’s outstanding equity-based compensation awards will generally be treated as described below.
Each outstanding Noble restricted stock unit award and option to purchase Noble ordinary shares that is held by a director, officer or employee of Noble who will remain a director, officer or employee of Noble will remain outstanding in accordance with its terms and be adjusted, as necessary, so as to generally preserve the intrinsic value of the award.
Each outstanding option to purchase Noble ordinary shares under Noble’s 1991 Stock Option and Restricted Stock Plan, or 1991 Plan, that is held by an individual who is or will be an officer or employee of Paragon Offshore upon the spin-off will become fully vested and will, as necessary, be adjusted so as to generally preserve the intrinsic value of the option. In addition, each such option will remain outstanding and exercisable as an option to purchase Noble ordinary shares for five years following the spin-off, or if shorter, the remainder of the option’s term.
Each outstanding Noble restricted stock unit award comprised of time-vested restricted stock units, or TVRSUs, under the 1991 Plan that is held by an individual who is or will be an officer or employee of Paragon Offshore upon the spin-off will be cancelled. In replacement of any such cancelled Noble TVRSU award, Paragon Offshore will grant its applicable officers and employees a TVRSU award with respect to Paragon Offshore pursuant to its equity compensation program that will be established prior to the spin-off. This replacement Paragon TVRSU award will have a generally equivalent intrinsic value as compared to the cancelled Noble TVRSU award, as in effect immediately prior to the spin-off. In addition, the vesting schedule that applied to the cancelled Noble TVRSU award will apply with respect to the replacement Paragon TVRSU award.
Each outstanding Noble restricted stock unit award comprised of performance-vested restricted stock units, or PVRSUs, under the 1991 Plan and held by an individual who is or will be an officer or employee of Paragon Offshore upon the spin-off will be continued, in part, and cancelled, in part. The portion of each Noble PVRSU award that will be cancelled is the number of PVRSUs originally granted multiplied by a fraction, (i) the
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numerator of which is the number of months remaining in the performance period after the date of the spin-off, and (ii) the denominator of which is 36. After applying the above fraction, the remainder of each Noble PVRSU award that is not cancelled pursuant to the foregoing will be continued. The continued portion of each Noble PVRSU award will be adjusted, as necessary, so as to generally preserve the intrinsic value of the continued portion of the award. With respect to the cancelled portion of a Noble PVRSU award, Paragon Offshore will either grant the individual a Paragon PVRSU award with the same vesting schedule and same general intrinsic value that applied to the cancelled portion of the Noble award or provide the individual compensation of equivalent value to the benefit the individual would have received had the cancelled portion of the Noble award remained in effect.
Adjustments with respect to Noble’s equity-based compensation awards, or the portion thereof, that remain outstanding or are otherwise continued will be based on the ratio of (i) Noble’s “regular way with due bills” average closing stock price for the 10 trading days ending on the spin-off, to (ii) Noble’s “regular way” average closing stock price for the 10 trading days after the spin-off. In order to determine the number of ordinary shares or restricted share units that should be subject to the award after the spin-off, this ratio is multiplied by the number of ordinary shares or units that were subject to the award immediately prior to the spin-off. In order to determine the exercise price, if applicable, that should apply to the award after the spin-off, the exercise price that was in effect immediately prior to the spin-off is divided by this adjustment ratio.
Adjustments with respect to Paragon Offshore’s equity-based compensation awards, or the portion thereof, that relate to the Noble awards that are cancelled will be based on the ratio of (i) Noble’s “regular way with due bills” average closing stock price for the 10 trading days preceding the spin-off, to (ii) Paragon Offshore’s “regular way” average closing stock price for the 10 trading days after the spin-off. In order to determine the number of restricted share units that should be subject to the award after the spin-off, this ratio is multiplied by the number of units that were subject to the award immediately prior to the spin-off.
In addition, to the extent a dividend equivalent payment would have otherwise been paid by Noble for the third quarter of 2014 (or in certain instances, the fourth quarter of 2014) with respect to a Noble equity-based compensation award (or the portion thereof) that is cancelled (“Cancelled Award”) had such Cancelled Award remained in effect, Paragon Offshore will pay a cash bonus to the officer or employee of Paragon Offshore who held such Cancelled Award. The amount of the bonus payment will equal the dividend equivalent payment that would have otherwise been paid by Noble with respect to such Cancelled Award, if such Cancelled Award had remained in effect.
We will provide more details regarding the treatment of equity awards as a result of the spin-off in this information statement when available.
Spin-Off Conditions and Termination
We expect that the spin-off will be effective on August 1, 2014, provided that, among other things:
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• the SEC has declared effective our registration statement on Form 10, of which this information statement is a part, under the
Exchange Act, with no stop order in effect with respect to the Form 10, and this information statement has been mailed to Noble’s shareholders;
• the actions and filings necessary under securities and blue sky laws of the states of the United States and any comparable laws under any foreign jurisdictions have been taken and become effective;
• no order, injunction, decree or regulation issued by any court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the completion of the spin-off is in effect and no other event outside Noble’s control has occurred or failed to occur that prevents the completion of the spin-off;
• Paragon Offshore ordinary shares have been approved for listing on the New York Stock Exchange, subject to official notice of issuance and shall have been accepted for inclusion in the DTC’s depository and book-entry transfer services;
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Noble may waive one or more of these conditions in its sole and absolute discretion, and the determination by Noble regarding the satisfaction of these conditions will be conclusive. The fulfillment of these conditions will not create any obligation on Noble’s part to effect the Distribution, and Noble has reserved the right to amend, modify or abandon any and all terms of the Distribution and the related transactions at any time prior to the Distribution Date.
Material U.S. Federal Income Tax Consequences of the Spin-Off
The following is a summary of material U.S. federal income tax consequences relating to the spin-off. This summary is based on the Code, related U.S. Treasury regulations, and interpretations of the Code and the U.S. Treasury regulations by the courts and the IRS, in effect as of the date of this information statement, and all of which are subject to change, possibly with retroactive effect. This summary does not discuss all the tax considerations that may be relevant to Noble shareholders in light of their particular circumstances. This summary also does not address the consequences to Noble shareholders subject to special treatment under the U.S. federal income tax laws, including, but not limited to, the following:
This summary is limited to Noble shareholders that are U.S. holders, as defined below, and that hold their Noble ordinary shares as capital assets, within the meaning of Section 1221 of the Code. Finally, this summary does not address any state, local or foreign tax consequences or the tax on certain net investment income imposed under Section 1411 of the Code.
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• the private letter rulings obtained from the IRS with respect to the tax treatment of the spin-off have not been revoked or modified by the IRS in any material respect, and Noble has received an opinion from its tax counsel regarding the tax treatment of the spin-off as of the Distribution Date (see “—Material U.S. Federal Income Tax Consequences of the Spin-Off” for more information regarding the private letter rulings and opinion of tax counsel);
• the separation of the standard specification business from Noble, including our borrowing under the Term Loan Facility and the sale
of the Debt Securities and repayment to Noble of intercompany indebtedness in connection with the separation, shall have been completed;
• Noble has received an opinion, in form and substance acceptable to it, as to our solvency following the spin-off;
• each of the ancillary agreements related to the spin-off have been entered into before the spin-off and have not been materially breached by any party thereto;
• all material governmental approvals and material consents to be received by Noble necessary to consummate the spin-off have been received and continue to be in full force and effect; and
• no other events or developments have occurred that, in the judgment of the board of directors of Noble, in its sole and absolute discretion, would result in the spin-off having a material adverse effect on Noble or its shareholders.
• insurance companies,
• dealers or brokers in securities or currencies,
• tax-exempt organizations,
• financial institutions,
• mutual funds,
• pass-through entities and investors in such entities,
• holders who hold their shares as a hedge or as part of a hedging, straddle, wash sale, conversion, synthetic security, integrated investment or other risk-reduction transaction,
• holders who are subject to alternative minimum tax, or
• holders who acquired their shares upon the exercise of employee stock options or otherwise as compensation.
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NOBLE SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN T AX ADVISORS CONCERNING THE U.S. FEDERAL, STATE AND LOCAL, AND FOREIGN TAX CONSEQUEN CES OF THE SPIN-OFF TO THEM.
As used herein, the term “U.S. holder” means a beneficial owner of Noble’s ordinary shares that is, for U.S. federal income tax purposes:
The spin-off is conditioned on the continued effectiveness of private letter rulings received by Noble from the IRS and Noble’s receipt of a legal opinion from Baker Botts L.L.P. (which opinion will rely, in part, on the continued effectiveness of the private letter rulings), in each case, substantially to the effect that the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Code.
Assuming the spin-off and such related transactions so qualify:
U.S. Treasury regulations also generally provide that if a Noble shareholder holds different blocks of Noble ordinary shares (generally Noble ordinary shares purchased or acquired on different dates or at different prices), the aggregate basis for each block of Noble ordinary shares purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the Paragon Offshore ordinary shares received in the spin-off in respect of such block of Noble ordinary shares and such block of Noble ordinary shares, in proportion to their respective fair market values, and the holding period of ordinary shares of Paragon Offshore received in the spin-off in respect of such block of Noble ordinary shares will include the holding period of such block of Noble ordinary shares. If a Noble shareholder is not able to identify which particular
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• an individual citizen or resident of the United States;
• a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof;
• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
• a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and (ii) one or
more United States persons have the authority to control all substantial decisions of the trust or if the trust has validly made an election to be treated as a United States person under applicable U.S. Treasury regulations.
• the spin-off and certain related transactions will not result in any income, gain or loss to Noble or to us, other than with respect to any
intercompany items or excess loss accounts required to be taken into account under U.S. Treasury regulations relating to U.S. consolidated returns;
• except as noted below, no gain or loss will be recognized by (and no amount will be included in the taxable income of) Noble shareholders on their receipt of Paragon Offshore ordinary shares in the spin-off;
• the holding period of Paragon Offshore ordinary shares received by each Noble shareholder will include the holding period at the time of the Distribution for the Noble ordinary shares on which the Distribution is made;
• the tax basis of the Noble ordinary shares held by each Noble shareholder immediately before the Distribution will be allocated
between such Noble ordinary shares and the Paragon Offshore ordinary shares received, including any fractional Paragon Offshore ordinary share deemed received in the spin-off, in proportion to the relative fair market value of each on the Distribution Date; and
• a Noble shareholder who receives cash for a fractional Paragon Offshore ordinary share will recognize gain or loss measured by the
difference between the amount of cash received and the basis of the fractional share interest in Paragon Offshore ordinary shares to which the shareholder would otherwise be entitled.
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Paragon Offshore ordinary shares are received in the spin-off with respect to a particular block of Noble ordinary shares, for purposes of applying the rules described above, the shareholder may designate which Paragon Offshore ordinary shares are received in the spin-off in respect of a particular block of Noble ordinary shares, provided that such designation is consistent with the terms of the spin-off. Holders of ordinary shares of Noble are urged to consult their own tax advisors regarding the application of these rules to their particular circumstances.
Although private letter rulings from the IRS generally are binding on the IRS, if the factual representations or assumptions made in the private letter ruling requests are inaccurate or incomplete in any material respect, we will not be able to rely on the private letter rulings. Furthermore, the IRS will not rule on whether a distribution such as the spin-off satisfies certain requirements of Section 355 of the Code. Rather, the private letter rulings are based on representations by Noble that these requirements have been satisfied, and any inaccuracy in such representations could invalidate the private letter rulings. In addition to the continued effectiveness of the private letter rulings from the IRS, Noble has made it a condition to the spin-off that Noble obtain a legal opinion of Baker Botts L.L.P. substantially to the effect that the spin-off and certain related transactions will qualify under Sections 355 and 368 of the Code. The opinion will address those matters upon which the IRS will not rule and will rely on the private letter rulings as to matters covered by the private letter rulings. In addition, the opinion will be based on, among other things, certain assumptions and representations made by Noble and us, which if incorrect or inaccurate in any material respect would jeopardize the conclusions reached by such counsel in its opinion. The opinion will not be binding on the IRS or the courts and will be subject to other qualifications and limitations.
Notwithstanding receipt by Noble of the private letter rulings and opinion of counsel, the IRS could assert that the spin-off and certain related transactions do not satisfy the requirements of Sections 355 and 368 of the Code. If the IRS were successful in making any such assertion, we and Noble and our initial public shareholders could be subject to significant liabilities relating to taxes. In general, with respect to the spin-off, our initial public shareholders generally would be treated as receiving a taxable distribution of property in an amount equal to the fair market value of Paragon Offshore ordinary shares received. That distribution would be a dividend to the extent of Noble’s current earnings and profits as of the end of the year in which the distribution occurs and any accumulated earnings and profits. For each such shareholder, any amount that exceeded Noble’s earnings and profits would be treated first as a non-taxable return of capital to the extent of such shareholder’s tax basis in its Noble ordinary shares with any remaining amount generally being taxed as a capital gain.
In connection with the spin-off, we and Noble will enter into a tax sharing agreement pursuant to which we will agree to be responsible for certain liabilities and obligations following the spin-off. Under the terms of the tax sharing agreement, we generally will be responsible for all taxes attributable to our business, whether accruing before, on or after the date of the spin-off and any taxes arising from the spin-off or certain related transactions that are imposed on us, Noble or its other subsidiaries to the extent such taxes result from certain actions or failures to act by us that occur after the effective date of the tax sharing agreement. See “Certain Relationships and Related Party Transactions—Tax Sharing Agreement.”
Under U.S. Treasury regulations, each Noble shareholder who, immediately before the Distribution, owns at least 5% of the total outstanding Noble ordinary shares must attach to such shareholder’s U.S. federal income tax return for the year in which the spin-off occurs a statement setting forth certain information relating to the spin-off. In addition, all shareholders are required to retain permanent records relating to the amount, basis and fair market value of our stock which they receive and to make those records available to the IRS on request of the IRS.
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THE FOREGOING IS A SUMMARY OF THE MATERIAL U.S. FED ERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS FOR GENERAL INFORMATIO N ONLY. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY T O PARTICULAR CATEGORIES OF SHAREHOLDERS. EACH NOBLE SHAREHOLDER SHOULD CONSULT ITS OWN TAX A DVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE SPIN-OFF TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT O F POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
Material U.K. Tax Consequences of the Spin-Off
There should not be any U.K. tax consequences of receiving the dividend of Paragon Offshore shares for shareholders who are not tax resident in the U.K. and who do not carry on a trade in the U.K. through a permanent establishment with which their holding of shares in Noble is associated.
The above statement is based on current U.K. tax legislation and current practice of HM Revenue & Customs. ANY PERSON WHO IS IN ANY DOUBT AS TO HIS OR HER TAX POSITION SHOULD C ONSULT HIS OR HER OWN PROFESSIONAL ADVISERS IMMEDIATELY.
Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to Noble shareholders who will receive Paragon Offshore ordinary shares in the spin-off. It is not to be construed as an inducement or encouragement to buy or sell any of our securities or any Noble securities. Changes may occur after the date set forth on the front cover and neither Noble nor we undertake any obligation to update the information, except to the extent applicable securities laws require us to do so.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and consolidated capitalization as of March 31, 2014:
You should read the following table in conjunction with the sections entitled “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and related notes included elsewhere in this information statement.
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• on a historical basis;
• on a pro forma basis to give effect to Noble’s transfer of our standard specification drilling business to us in exchange for intercompany indebtedness and ordinary shares as described in “Summary—Structure and Formation of Our Company” ; and
• on a pro forma basis as adjusted to give effect to the Debt Financing and the Distribution as described in “Summary—Structure and Formation of Our Company.”
(unaudited)
March 31, 2014
Predecessor
Actual
Paragon Offshore
Pro Forma
Paragon Offshore
Pro Forma As Adjusted
(In thousands, except share amounts) Cash and cash equivalents $ 32,225 $ 32,225 $ 72,225
Indebtedness: Long-term debt (1) $ 1,983,543 — $ 1,730,000 Intercompany debt (2) — 1,730,000 —
Total indebtedness $ 1,983,543 $ 1,730,000 $ 1,730,000
Equity: Net parent investment $ 1,583,572 $ 1,311,090 $ — Ordinary shares (nominal value $0.01 per share; 84,753,393 shares issued and outstanding) — — 848 Additional paid-in capital — — 1,373,985 Accumulated other comprehensive loss (42 ) (42 ) (39,963 )
Total equity 1,583,530 1,311,048 1,334,870
Total capitalization $ 3,567,073 $ 3,041,048 $ 3,064,870
(1) Predecessor Actual and Paragon Offshore Pro Forma long-term debt reflects the Noble commercial paper program balance that is expected
to be repaid with the proceeds from the Debt Financing. Paragon Offshore Pro Forma As Adjusted long-term debt reflects certain debt arrangements we intend to enter into in connection with the Transactions. Please read “Description of Certain Indebtedness.”
(2) On July 18, 2014, we expect to issue notes payable to certain of Noble’s subsidiaries in an aggregate amount of approximately $1.7 billion as consideration for the Separation. This intercompany indebtedness will be repaid with the proceeds from the Debt Financing.
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DIVIDEND POLICY
We expect to pay a regular quarterly cash dividend on Paragon Offshore ordinary shares. Initially, we expect that the amount of this dividend will be between approximately $20 million and $22.5 million in the aggregate per quarter, or between approximately $80 million and $90 million in the aggregate on an annualized basis. We expect that the first such quarterly dividend will be declared and paid in the fourth quarter of 2014.
The timing, declaration, amount and payment of these dividends to shareholders, including the initial quarterly dividend, falls within the discretion of our board of directors. The proposal or declaration of cash dividends by our board of directors, and the amount thereof, will depend on many factors, including our financial condition, earnings, future business prospects, opportunities, share price, capital requirements and any other factors our board of directors may deem relevant. In addition, we expect the agreements governing certain of our indebtedness to restrict the amount of dividends we may pay; however, we expect such agreements to permit payment of dividends in the amounts described above so long as we are not in default under any such agreement.
Under U.K. law, we will generally only be able to declare dividends out of distributable profits. “Distributable profits” are our accumulated, realized profits not previously utilized by distribution or capitalization, less accumulated, realized losses that have not been previously written off in a reduction or reorganization of capital, calculated on our standalone statutory balance sheet. We intend to undertake capital reductions to create distributable profits sufficient to pay the initial dividend we describe above. In connection with the spin-off, we expect to create at least $1.0 billion of distributable profits. Please read “Description of Share Capital—Dividends.”
There can be no assurance we will pay any dividend or that we will continue to pay any dividend even if we commence the payment of dividends. Please read “Risk Factors—Risks Related to The Spin-Off and Ownership of Our Shares—We have no obligation to, and may not be able to, declare or pay dividends on our shares. If we do not declare and pay dividends on our shares, our share price could decline.”
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On September 24, 2013, Noble Corporation plc (“Noble”) announced a plan to reorganize its business by means of a separation and spin-off of a newly-formed subsidiary, Paragon Offshore Limited (to be converted to Paragon Offshore plc) (“we” or “Paragon Offshore”), whose assets and liabilities would consist of most of Noble’s standard specification drilling business.
Set forth below are the unaudited pro forma combined balance sheet of Paragon Offshore as of March 31, 2014 and the unaudited pro forma combined statements of operations for Paragon Offshore for the three months ended March 31, 2014 and the year ended December 31, 2013. The unaudited pro forma combined financial data for Paragon Offshore has been derived by adjusting the historical combined financial statements of Noble’s standard specification drilling business, our predecessor for accounting purposes (our “Predecessor”).
The separation of Paragon Offshore from Noble is referred to in these pro forma financial statements as the “Separation.” The Separation is expected to be executed through the completion of the following steps:
Following the Separation, Noble intends to distribute its shares of Paragon Offshore to Noble shareholders in the Distribution. The Distribution of Paragon Offshore shares by Noble is expected to occur in the third quarter of 2014. The Distribution of Paragon Offshore shares by Noble has no impact to the pro forma results of Paragon Offshore.
The combined financial statements of our Predecessor were prepared on a stand-alone basis and are derived from Noble’s combined financial statements and accounting records. These combined financial statements include assets and liabilities that are specifically identifiable or have been allocated to our Predecessor. Costs directly related to our Predecessor have been included in the accompanying financial statements. Our Predecessor received service and support functions from Noble. The costs associated with these support functions have been allocated relative to Noble in its entirety, which is considered to be the most meaningful under the circumstances.
Our Predecessor’s fleet of mobile offshore drilling rigs consists of 37 jackups, five drillships, four semisubmersibles and two submersibles. The business and assets of our Predecessor also include one FPSO that is currently cold stacked and the provision of drilling and maintenance services (but not a rig) on the Hibernia Project in the Canadian Atlantic, under a five-year contract with a joint venture in which Exxon is the primary operator. Noble will retain its interest in two standard specification jackups and one standard specification semisubmersible drilling rig. Additionally, in July 2013, our Predecessor sold the Noble Lewis Dugger , a standard specification jackup. In January 2014, our Predecessor sold the Noble Joe Alford and the Noble Lester Pettus , two cold stacked submersibles. Pro forma adjustments to exclude these six rigs have been presented in the “Excluded or disposed standard-spec assets” column of the unaudited pro forma combined financial statements.
At the Separation, Paragon Offshore’s fleet will consist of 34 jackups, five drillships, three semisubmersibles and one floating production storage and offloading unit, as well as the Hibernia platform operations.
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(i) the transfer by Noble of the standard specification drilling business to us in exchange for intercompany indebtedness in an aggregate principal amount estimated to be approximately $1.7 billion and Paragon Offshore ordinary shares;
(ii) the issuance and sale of $1.08 billion of senior notes and borrowings of $650 million under the Term Loan Facility and the use of proceeds from such indebtedness to repay our intercompany indebtedness to Noble in connection with the Separation; and
(iii) the adjustment by Noble of our working capital in connection with the Separation as further described below.
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The following unaudited pro forma combined financial information sets forth:
The pro forma adjustments are based upon currently available information and certain estimates and assumptions, and actual results may differ from the pro forma adjustments. However, we believe that these estimates and assumptions provide a reasonable basis for presenting the significant effects of the contemplated transactions and that the pro forma adjustments are factually supportable and give appropriate effect to those estimates and assumptions and are properly applied in the unaudited pro forma combined financial statements.
As a result of the Distribution, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. We will be required to establish procedures and practices as a standalone public company in order to comply with our obligations under those laws and the related rules and regulations. As a result, we expect to incur approximately $8 million of incremental annual expenses related to being a public company, including internal and external audit, investor relations, share administration and regulatory compliance costs. The amount of these expenses will exceed the amount historically allocated to us from Noble for these types of expenses. No pro forma adjustments have been made for these incremental public company expenses.
The unaudited pro forma combined financial statements are presented for comparative purposes only and may not necessarily be indicative of what the actual financial position or results of operations of Paragon Offshore would have been as of, and for, the period presented, nor does it purport to represent the future financial position or results of operations of Paragon Offshore.
You should read our unaudited pro forma combined financial statements and the accompanying notes in conjunction with our Predecessor’s historical combined financial statements and related notes included elsewhere in this information statement and the financial and other information appearing elsewhere in this information statement, including information contained in “Risk Factors,” “Capitalization,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Certain Relationships and Related Party Transactions.”
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(i) the historical financial information of our Predecessor and the Excluded or disposed standard-spec assets as of March 31, 2014, for
the three months then ended, and for the year ended December 31, 2013, as derived from the unaudited combined financial statements of our Predecessor; and
(ii) the unaudited pro forma combined financial statements of Paragon Offshore assuming the Transactions described under “Summary—Formation of Our Company and Our Relationship with Noble” were completed as of March 31, 2014 for purposes of the unaudited pro forma combined balance sheet and as of January 1, 2013 for purposes of the unaudited pro forma combined statements of operations.
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Unaudited pro forma combined balance sheet as of March 31, 2014 (In thousands)
See accompanying notes to the unaudited pro forma combined financial statements.
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Predecessor Historical
Excluded or disposed
standard-spec
assets
Pre-financing
subtotal Financing
adjustments Separation
adjustments
Paragon Offshore
Pro Forma Note 1 Note 2 Note 3 ASSETS Current assets
Cash and cash equivalents $ 32,225 $ — $ 32,225 $ — $ 40,000 $ 72,225 Accounts receivable 353,933 (30,915 ) 323,018 — — 323,018 Prepaid and other current assets 65,590 (5,079 ) 60,511 — 50,929 111,440
Total current assets 451,748 (35,994 ) 415,754 — 90,929 506,683
Property and equipment, at cost 6,103,022 (685,153 ) 5,417,869 — — 5,417,869 Accumulated depreciation (2,698,240 ) 196,914 (2,501,326 ) — — (2,501,326 )
Property and equipment, net 3,404,782 (488,239 ) 2,916,543 — — 2,916,543
Other assets 74,392 (15,275 ) 59,117 38,654 6,061 103,832
Total assets $ 3,930,922 $ (539,508 ) $ 3,391,414 $ 38,654 $ 96,990 $ 3,527,058
LIABILITIES AND EQUITY Current liabilities
Accounts payable $ 94,908 $ (6,895 ) $ 88,013 $ — $ — $ 88,013 Accrued payroll and related costs 44,699 (4,385 ) 40,314 — — 40,314 Other current liabilities 40,028 (187 ) 39,841 — 117,076 156,917
Total current liabilities 179,635 (11,467 ) 168,168 — 117,076 285,244
Long-term debt 1,983,543 — 1,983,543 (253,543 ) — 1,730,000 Other liabilities 184,214 (2,016 ) 182,198 — (5,254 ) 176,944
Total liabilities 2,347,392 (13,483 ) 2,333,909 (253,543 ) 111,822 2,192,188
Commitments and contingencies Shareholders’ equity
Shares — — — — 848 848 Additional paid-in capital — — — — 1,373,985 1,373,985 Net parent investment 1,583,572 (526,025 ) 1,057,547 292,197 (1,349,744 ) — Accumulated other comprehensive loss (42 ) — (42 ) — (39,921 ) (39,963 )
Total equity 1,583,530 (526,025 ) 1,057,505 292,197 (14,832 ) 1,334,870
Total liabilities and equity $ 3,930,922 $ (539,508 ) $ 3,391,414 $ 38,654 $ 96,990 $ 3,527,058
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Unaudited pro forma combined statement of income for the three months ended March 31, 2014 (In thousands, except net income per share)
See accompanying notes to the unaudited pro forma combined financial statements.
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Predecessor
Historical
Excluded or disposed
standard-spec
assets
Pre-financing subtotal
Financing adjustments
Paragon Offshore
Pro Forma Note 1 Note 2 Operating revenues
Contract drilling services $ 491,963 $ (56,295 ) $ 435,668 $ — $ 435,668 Reimbursables 14,416 (2,313 ) 12,103 — 12,103 Labor contract drilling services 8,211 — 8,211 — 8,211
514,590 (58,608 ) 455,982 — 455,982
Operating costs and expenses Contract drilling services 226,462 (17,608 ) 208,854 — 208,854 Reimbursables 10,625 (1,523 ) 9,102 — 9,102 Labor contract drilling services 6,213 — 6,213 — 6,213 Depreciation and amortization 110,584 (11,026 ) 99,558 — 99,558 General and administrative 13,245 (1,279 ) 11,966 — 11,966
367,129 (31,436 ) 335,693 — 335,693
Operating income 147,461 (27,172 ) 120,289 — 120,289
Other income (expense) Interest expense, net of amount capitalized (3,300 ) — (3,300 ) (23,110 ) (26,410 ) Interest income and other, net 187 — 187 — 187
Income before income taxes 144,348 (27,172 ) 117,176 (23,110 ) 94,066 Income tax provision (19,782 ) 1,830 (17,952 ) — (17,952 )
Net income $ 124,566 $ (25,342 ) $ 99,224 $ (23,110 ) $ 76,114
Net income per share Basic N/A N/A N/A N/A $ 0.89 Diluted N/A N/A N/A N/A 0.89
Weighted-average shares outstanding Basic N/A N/A N/A N/A 84,753 Diluted N/A N/A N/A N/A 84,753
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Unaudited pro forma combined statement of income for the year ended December 31, 2013 (In thousands, except net income per share)
See accompanying notes to the unaudited pro forma combined financial statements.
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Predecessor Historical
Excluded or
disposed standard-
spec assets
Pre- financing subtotal
Financing adjustments
Paragon Offshore
Pro Forma Note 1 Note 2 Operating revenues Contract drilling services $ 1,807,952 $ (192,626 ) $ 1,615,326 $ — $ 1,615,326 Reimbursables 49,810 (4,227 ) 45,583 — 45,583 Labor contract drilling services 35,146 — 35,146 35,146 Other revenues 94 — 94 — 94
1,893,002 (196,853 ) 1,696,149 — 1,696,149
Operating costs and expenses Contract drilling services 914,702 (79,258 ) 835,444 — 835,444 Reimbursables 38,341 (3,201 ) 35,140 — 35,140 Labor contract drilling services 24,333 — 24,333 — 24,333 Depreciation and amortization 413,305 (46,001 ) 367,304 — 367,304 General and administrative 64,907 (6,477 ) 58,430 — 58,430 Loss on impairment 43,688 (3,585 ) 40,103 — 40,103 Gain on disposal of assets, net (35,646 ) 35,646 — — — Gain on contract settlements/extinguishments, net (24,373 ) 8,191 (16,182 ) — (16,182 )
1,439,257 (94,685 ) 1,344,572 — 1,344,572
Operating income 453,745 (102,168 ) 351,577 — 351,577
Other income (expense) Interest expense, net of amount capitalized (5,938 ) — (5,938 ) (99,703 ) (105,641 ) Interest income and other, net (1,897 ) (409 ) (2,306 ) — (2,306 )
Income before income taxes 445,910 (102,577 ) 343,333 (99,703 ) 243,630 Income tax provision (85,605 ) 14,362 (71,243 ) — (71,243 )
Net income $ 360,305 $ (88,215 ) $ 272,090 $ (99,703 ) $ 172,387
Net income per share Basic N/A N/A N/A N/A $ 2.01 Diluted N/A N/A N/A N/A 2.01 Weighted-average shares outstanding Basic N/A N/A N/A N/A 84,753 Diluted N/A N/A N/A N/A 84,753
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Notes to Unaudited Pro Forma Combined Financial Statements
Note 1. Removal of Excluded or Disposed Standard-Spec Assets Adjustments
The pro forma adjustments included in the accompanying unaudited pro forma combined financial statements include adjustments to assets, liabilities, revenues and costs that are specifically identifiable or have been allocated directly to the Excluded or disposed standard-spec assets. Shareholders’ equity for the Excluded or disposed standard-spec assets represents the Predecessor’s interest in the recorded net assets of the Excluded or disposed standard-spec assets and cumulative operating results.
General and Administrative Expenses
The Excluded or disposed standard-spec assets received service and support functions from Noble and certain of its subsidiaries. The costs associated with these support functions have been allocated relative to Noble in its entirety, which is considered to be the most meaningful under the circumstances. The costs were allocated using various allocation inputs, such as head count, services rendered and assets assigned to our Predecessor. These costs have been allocated to the Excluded or disposed standard-spec assets in the same manner they were allocated to our Predecessor.
Income Taxes
A reasonable allocation of income taxes to the Excluded or disposed standard-spec assets has been made in instances where the operations of the Excluded or disposed standard-spec assets were included in the filing of a consolidated or combined return of Noble or its subsidiaries.
Note 2. Financing Adjustments
We have adjusted the amounts of long-term debt pushed down to the Predecessor financial statements to reflect the $1.7 billion of long-term debt on the unaudited pro forma combined balance sheet and have included the related interest expense in the three months ended March 31, 2014 and the year ended December 31, 2013 unaudited pro forma combined statements of operations. This debt comprises $1.08 billion of Debt Securities and $650 million of borrowings under our Term Loan Facility, the proceeds of each of which will be used to repay our intercompany indebtedness to Noble as consideration for the Separation. The Debt Securities, consisting of $500 million of 6.75% senior notes due 2022 and $580 million of 7.25% senior notes due 2024, mature on July 15, 2022 and August 15, 2024, respectively. The Debt Securities will be issued without an original issue discount. Borrowings under the Term Loan Facility bear interest at an adjusted LIBOR rate plus 2.75% or a base rate plus 1.75%, at our option, and the Term Loan Facility matures in July 2021. The effect of a 1 ⁄ 8 % change in interest rate would impact pro forma interest by less than $1 million. The term loans will be issued with 0.5% original issue discount. In addition, we have adjusted for issuance costs for the Debt Securities and the Term Loan Facility of approximately $38.7 million, which will be amortized over the term of the associated debt and included in interest expense.
The pro forma adjustments do not include adjustments for capitalized interest for qualifying major projects. The impact of interest expense has not been tax adjusted in the unaudited pro forma combined statement of operations as we do not anticipate recognizing a tax benefit from such interest expense.
Note 3. Other Adjustments
Working Capital Adjustment
Prior to the Distribution, Noble will deliver to us $40 million in cash to increase our working capital.
Net Parent Investment
The balance accumulated in “Net parent investment” will be reclassified to “Shares” and “Additional paid-in capital” upon the Distribution.
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Income Tax Expense, Assets and Liabilities
Income taxes for our Predecessor were prepared on a separate return basis as if the Predecessor had been a standalone company. For purposes of these pro forma financials, adjustments have been made to our Predecessor financial statements to reflect the assets, liabilities and related indemnities which we ultimately will receive from Noble. The effective tax rate of Paragon Offshore could be different (either higher or lower) depending on activities subsequent to the Separation.
Accumulated Other Comprehensive Loss
Currency translation adjustments of $18 million associated with Noble legal entities that will be transferred to, and held by us, after the Separation will be included in “Accumulated other comprehensive loss.” Actuarial losses and prior service costs of $22 million related to Noble-sponsored pension plans and other employee benefit arrangements located in certain countries outside of the United States that will be transferred to and held by us after the Separation will be included in “Accumulated other comprehensive loss.” The assets and liabilities related to these pension plans and other employee benefit arrangements will be included in “Other assets” and “Other liabilities.”
Note. 4. Earnings per Share
The calculations of pro forma basic earnings per share and average shares outstanding for the periods presented are based on the number of Noble ordinary shares outstanding at July 11, 2014, adjusted for the distribution ratio of one Paragon ordinary share for every three Noble ordinary shares.
The calculations of pro forma diluted earnings per share and average shares outstanding for the periods presented are also based on the pro forma basic earnings per share and average shares outstanding, as the unvested share-based awards related to Paragon Offshore employees are not expected to be have a material effect on these calculations. These calculations may not be indicative of the dilutive effect that will actually result from Paragon Offshore share-based awards issued in connection with the adjustment of outstanding Noble share-based awards or the grant of new share-based awards. The number of dilutive shares underlying Paragon Offshore share-based awards issued in connection with the adjustment of outstanding Noble share-based awards will not be determined until after the Distribution Date.
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SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table presents selected historical combined financial data of our Predecessor as of the dates and for the periods indicated. The selected historical combined statement of income data for the years ended December 31, 2013, 2012 and 2011 and balance sheet data as of December 31, 2013 and 2012 have been derived from our Predecessor’s audited combined financial statements included elsewhere in this information statement. The selected historical combined statement of income data for the years ended December 31, 2010 and 2009 and balance sheet data as of December 31, 2011, 2010 and 2009 from our Predecessor’s combined financial statements are not included in this information statement. The selected historical combined statement of income data for the three months ended March 31, 2014 and 2013, and balance sheet data as of March 31, 2014, were derived from our Predecessor’s unaudited combined financial statements included elsewhere in this information statement, which include all adjustments, consisting of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position and the results of operations for such periods. Results for the interim periods may not necessarily be indicative of the results for the full year.
Our Predecessor’s historical combined financial information includes expenses of Noble that were allocated to us for certain administrative and operational support functions which were performed by Noble and certain of its subsidiaries. These expenses were allocated in our historical results of operations in a manner consistent with Noble’s internal reporting and evaluation purposes. We consider the expense-allocation methodology to be reasonable for all periods presented. However, these allocations may not necessarily be indicative of the actual expenses we would have incurred as an independent publicly traded company during the periods prior to the spin-off nor is it representative of the costs which we will incur in the future.
Our Predecessor’s historical combined financial information included in this information statement may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a standalone public company during the periods presented, including changes that will occur in our operations and capital structure as a result of the Transactions.
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The following tables should be read together with, and are qualified in their entirety by reference to, the historical combined financial statements and the related notes included elsewhere in this information statement. Among other things, the historical combined financial statements include more detailed information regarding the basis of presentation for the information in the following table. The tables should also be read together with the sections entitled “Capitalization,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions” included elsewhere in this information statement.
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Predecessor Historical
Year Ended December 31, Three Months Ended
March 31, 2013 2012 2011 2010 (1) 2009 2014 2013 (unaudited) (unaudited) (In thousands) Statement of Income Data: Operating revenues $ 1,893,002 $ 1,541,857 $ 1,370,557 $ 1,667,370 $ 2,342,980 $ 514,590 $ 454,070 Operating income 453,745 176,712 136,947 536,802 1,301,262 147,461 102,601
Operating income per share N/A N/A N/A N/A N/A N/A N/A
Balance Sheet Data (at end of period): Cash and cash equivalents (2) $ 36,581 $ 70,538 $ 75,767 $ 76,892 $ 77,476 $ 32,225 N/A Property and equipment, net 3,459,684 3,551,813 3,373,817 3,280,820 1,888,644 3,404,782 N/A Total assets 3,982,799 4,118,072 3,866,756 3,780,121 2,442,795 3,930,922 N/A Long-term debt 1,561,141 339,809 975,000 40,000 — 1,983,543 N/A Total debt (3) 1,561,141 339,809 975,000 40,000 — 1,983,543 N/A Equity 2,005,333 3,365,232 2,441,823 3,247,743 2,102,539 1,583,530 N/A (1) Balance sheet data for 2010 is unaudited. (2) Consists of cash and cash equivalents as reported on our Predecessor’s combined balance sheet. (3) Predecessor Historical long-term debt and total debt represents outstanding indebtedness under Noble’s commercial paper program, which
is expected to be repaid upon our repayment of the intercompany indebtedness to Noble in connection with the transfer by Noble of the standard specification drilling business to us.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL C ONDITION AND RESULTS OF OPERATIONS
The following discussion analyzes the historical financial condition and results of operations of Noble’s standard specification drilling business. The historical combined financial statements of Noble’s standard specification drilling business as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 and as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 appearing elsewhere in this information statement were prepared on a standalone basis from Noble and are intended to represent the financial results during those periods of Noble’s standard specification drilling business, which is our accounting predecessor (our “Predecessor”). With the exception of two jackups and one semisubmersible that will be retained by Noble, one jackup rig sold by Noble in July 2013 and two cold stacked submersibles sold by Noble in January 2014, all of our Predecessor’s standard specification drilling business will be transferred to Paragon Offshore as part of the Transaction.
You should read the following discussion of the historical financial condition and results of operations of our business in conjunction with our Predecessor’s historical combined financial statements and accompanying notes and our unaudited pro forma combined financial statements and accompanying notes statements included elsewhere in this information statement. This discussion includes forward-looking statements that are subject to risks and uncertainties that may result in actual results differing from statements we make. Please read “Cautionary Statement Concerning Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties that are discussed in “Risk Factors.”
Comparability of Historical Results and Our Relationship with Noble
Prior to completion of the Transaction, we operated within wholly-owned subsidiaries of Noble. The historical results discussed in this section are those of the standard specification drilling business of Noble, which is our Predecessor for accounting purposes. Our Predecessor’s combined financial statements included in this information statement have been derived from the combined financial statements and accounting records of Noble and include allocations for direct costs and indirect costs attributable to the operations of the standard specification drilling business of Noble. These combined financial statements do not purport to reflect what the results of operations, comprehensive income, financial position, equity or cash flows would have been had we operated as a standalone public company during the periods presented. For a detailed description of the basis of presentation and an understanding of the limitations of the predictive value of the historical combined financial statements, please read Note 1 in our Predecessor’s combined financial statements included elsewhere in this information statement.
Our Predecessor’s historical combined financial statements may also not be reflective of what our results of operations, comprehensive income, financial position, equity or cash flows might be in the future as a standalone public company as a result of the matters discussed below:
Contributed Assets and Liabilities
The historical financial and operating results of our Predecessor include two standard specification jackups and one standard specification semisubmersible that will not be transferred to us. The historical financial and operating results of our Predecessor also include the results associated with one standard specification jackup, Noble Lewis Dugger , which Noble sold in July 2013 and two cold stacked submersibles, the Noble Joe Alford and the Noble Lester Pettus , which Noble sold in January 2014.
Centralized Support Functions
Our Predecessor’s historical combined financial statements include expense allocations for certain support functions that were provided on a centralized basis within Noble, including, but not limited to, general corporate expenses related to communications, corporate administration, finance, legal, information technology, human
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resources, compliance, and employee benefits and incentives. These allocated costs are not necessarily indicative of the costs that we may incur in the future as a standalone public company. Following the spin-off, Noble will continue to provide us with some of the services related to these functions on a transitional basis pursuant to a transition services agreement relating to our business, and we expect to incur other costs to replace the services and resources that will not be provided by Noble. Please read “Certain Relationships and Related Party Transactions—Transition Services Agreements” for additional information on such transition services agreement.
During the period that Noble will provide services to us pursuant to such transition services agreement, we expect to incur higher costs for certain services than the allocated costs included in our Predecessor’s historical combined financial statements as we will incur additional expenses to continue staffing our organization to perform such functions internally in addition to the amounts we will pay Noble for such services.
Compensation and Benefit Plan Matters
During the periods presented in the historical combined financial statements of our Predecessor, most of our employees were eligible to participate in various Noble benefit programs. Our Predecessor’s historical combined financial statements include an allocation of the costs of such employee benefit plans. These costs were allocated based on our employee population for each of the periods presented. The allocated costs included in our Predecessor’s historical combined financial statements could differ from amounts that would have been incurred by us if we operated on a stand-alone basis and are not necessarily indicative of costs to be incurred in the future.
We expect to institute competitive compensation policies and programs as a standalone public company, the expense for which may differ from the compensation expense allocated by Noble in our Predecessor’s historical combined financial statements. Please read “Executive Compensation” for a detailed description of our current compensation policies as an indirect, wholly-owned subsidiary of Noble and anticipated compensation policies following the spin-off.
Public Company Expenses
As a result of the spin-off, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. We will be required to establish procedures and practices as a standalone public company in order to comply with our obligations under those laws and the related rules and regulations. As a result, we expect to incur approximately $8 million of additional costs annually, for functions including external and internal audit, investor relations, share administration and regulatory compliance. The amount of these expenses will exceed the amount historically allocated to us from Noble for these types of expenses.
Income Taxes
The operations of our business have been included in the consolidated U.S. federal income tax return and certain foreign income tax returns of Noble. The income tax provisions and related deferred tax assets and liabilities that have been reflected in our Predecessor’s historical combined financial statements have been computed as if we were a separate taxpayer using the “separate return” method. These amounts are not necessarily indicative of what our income tax provisions and related deferred tax assets and liabilities will be in the future following the completion of the spin-off. We intend to enter into a tax sharing agreement with Noble on or before the completion of the spin-off that will govern the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Our effective tax rate may be greater than Noble’s historical effective tax rate. For example, draft legislation recently published by the U.K. government could restrict deductions on certain related party transactions, such as those relating to the bareboat charter agreements used in connection with our U.K. continental shelf operations. If
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enacted as currently drafted, the proposed legislation would become effective retroactively from April 1, 2014 and would result in an increase in the effective tax rate on our consolidated operations. Such an increase in tax expense would reduce our net income.
For the impact of certain of these anticipated differences, please read “Unaudited Pro Forma Combined Financial Statements.” For additional information regarding the agreements that we will enter into with Noble to provide a framework for our ongoing relationship, please read “Certain Relationships and Related Party Transactions.”
Overview
The assets of our Predecessor’s fleet of standard specification offshore drilling rigs consists of 37 jackups, five drillships, four semisubmersibles and two submersibles. The business and assets of our Predecessor also include one FPSO that is currently cold stacked and the provision of drilling and maintenance services (but not a rig) on the Hibernia Project in the Canadian Atlantic, under a five-year contract with a joint venture in which Exxon is the primary operator.
The short-term business environment for offshore drillers during the first three months of 2014 has been challenging. While the price of Brent crude oil, a key factor in determining customer activity levels, remained generally steady throughout the period, there has been a decrease in contractual activity. The decrease in activity has focused particularly on deep and ultradeepwater floating rigs, including standard-spec floating rigs, as operators evaluate development costs. Many analysts project a decrease in the rate of global offshore exploration and development spending relative to previous years. In addition, supply has increased due to a significant number of newbuild units that are forecast to enter the market over the next 12 months. The jackup segment remains relatively robust. Nevertheless, a significant number of jackup newbuilds will enter the market over the next 18 months and could negatively impact the contracting environment. While we believe the short-term outlook has downside risks, we continue to have confidence in the long-term fundamentals for the industry. These fundamental factors include stable crude oil prices, strong exploration results, geographic expansion of deepwater drilling activities, a growing backlog of multi-year field development programs and greater access by our customers to promising offshore regions, as evidenced by the Australian government releasing 30 oil and gas blocks for bidding and energy reform legislation in Mexico that could potentially lead to an increase in drilling activity in Mexican waters.
During the recent period of high utilization and high dayrates, industry participants have increased the supply of drilling rigs by building new drilling rigs. Historically, this has often resulted in an oversupply of drilling rigs and has caused a subsequent decline in utilization and dayrates when new drilling rigs have entered the market, which has sometimes continued for extended periods of time. The increase in supply created by the number and types of rigs being built, as well as changes in our competitors’ drilling rig fleets, could intensify price competition and require higher capital investment to keep our rigs competitive. Please read “Risk Factors—Risks Related to Our Business—An over-supply of jackup rigs may lead to a reduction in dayrates and demand for our rigs and therefore may materially impact our profitability.”
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Pro Forma Contract Drilling Services Backlog
We maintain a backlog (as defined below) of commitments for contract drilling services. The following table sets forth as of March 31, 2014 the amount of our pro forma contract drilling services backlog and the percent of available operating days committed for the periods indicated:
Our pro forma contract drilling services backlog reported above reflects estimated future revenues attributable to both signed drilling contracts and letters of intent that we expect to realize. A letter of intent is generally subject to customary conditions, including the execution of a definitive drilling contract. It is possible that some customers that have entered into letters of intent will not enter into signed drilling contracts. As of March 31, 2014, our pro forma contract drilling services backlog did not include any letters of intent.
We calculate backlog for any given rig and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the contract term during the relevant period. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts.
The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the pro forma backlog amounts and pro forma backlog periods set forth in the table above due to various factors, including, but not limited to, shipyard and maintenance projects, unplanned downtime, achievement of bonuses, weather conditions and other factors that result in applicable dayrates lower than the full contractual operating dayrate. Amounts included in the pro forma backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our pro forma backlog as of any particular date may not be indicative of our actual
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Total
Year Ended December 31, 2014* 2015 2016 2017 2018 (In millions) Floaters (1) $ 1,262 $ 458 $ 439 $ 254 $ 111 $ — Jackups (2) 1,392 791 499 100 2 —
Total (3) (4) $ 2,654 1,249 $ 938 $ 354 $ 113 $ —
Percent of available days committed (5) 69 % 35 % 10 % 2 % — %
* Represents a nine-month period beginning April 1, 2014. (1) Our drilling contracts with Petrobras provide an opportunity for us to earn performance bonuses based on reaching targets for downtime
experienced for our rigs operating offshore Brazil. With respect to our rigs operating offshore Brazil for Petrobras, we have included in our backlog an amount equal to 50% of potential performance bonuses for such rigs, or $72 million.
(2) Pemex has the ability to cancel its drilling contracts on 30 days or less notice without Pemex’s making an early termination payment. At March 31, 2014, we had ten rigs contracted to Pemex in Mexico, and our backlog included approximately $388 million related to such contracts.
(3) Some of our drilling contracts provide the customer with certain early termination rights. (4) Excludes approximately $163 million of total backlog related to two jackups and one floater that will be retained by Noble. (5) Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such
period, or committed days, by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Committed days do not include the days that a rig is stacked or the days that a rig is expected to be out of service for significant overhaul, repairs or maintenance.
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operating results for the periods for which the backlog is calculated. In addition, we generally do not expect to recontract our floaters, which accounted for 48% of our backlog at March 31, 2014, until late in their contract terms. Due to the higher dayrates earned by our floaters, until these rigs are recontracted, our total pro forma backlog may decline. Please read “Risk Factors—Risks Related to Our Business—We can provide no assurance that our current backlog of contract drilling revenue will be ultimately realized.”
Results of Operations
As part of Noble, our Predecessor has not operated on a standalone basis. When we use the terms “we” or “our” in the following discussion, we are referring to the historical operations of our Predecessor.
For the Three Months Ended March 31, 2014 and 2013
Rig Utilization, Operating Days and Average Dayrates
The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the three months ended March 31, 2014 (“current quarter”) and 2013 ( “comparable quarter”):
Contract Drilling Services
The following table sets forth the operating results for our contract drilling services for the three months ended March 31, 2014 and 2013 (in thousands):
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Average Rig
Utilization (1) Operating Days (2)
Average Dayrates
2014 2013 2014 2013 % Change 2014 2013 % Change Jackups 83 % 92 % 2,701 3,058 -12 % $ 112,340 $ 97,730 15 % Floaters 78 % 68 % 630 552 14 % 299,234 243,754 23 % Other 0 % 0 % — — 0 % — — 0 %
Total 82 % 87 % 3,331 3,610 -8 % $ 147,687 $ 120,063 23 %
(1) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the
total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. (2) Information reflects the number of days that our rigs were operating under contract.
2014
2013
Change $ % (unaudited) Operating revenues:
Contract drilling services $ 491,963 $ 433,411 $ 58,552 14 % Reimbursables (1) 13,896 11,414 2,482 22 %
$ 505,859 $ 444,825 $ 61,034 14 %
Operating costs and expenses: Contract drilling services $ 226,462 $ 224,843 $ 1,619 1 % Reimbursables (1) 10,137 8,093 2,044 25 % Depreciation and amortization 110,563 98,685 11,878 12 % General and administrative 13,036 15,147 (2,111 ) -14 % Gain on contract settlements/extinguishments — (1,800 ) 1,800 * *
360,198 344,968 15,230 4 %
Operating income $ 145,661 $ 99,857 $ 45,804 46 %
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Operating Revenues . Changes in contract drilling services revenues for the current quarter as compared to the comparable quarter were driven by an increase in average dayrates and partially offset by a decrease in operating days. The 23 percent increase in average dayrates increased revenues by approximately $92 million, while the 8 percent decrease in operating days decreased revenue by $33 million.
The increase in contract drilling services revenues was due to a $54 million increase in revenues from our floaters and a $5 million increase in revenues from our jackups.
The 15 percent increase in jackup average dayrates resulted in a $40 million increase in revenues, which was offset by a 12 percent decrease in operating days, resulting in a $35 million decrease in revenues from the comparable quarter. The increase in average dayrates resulted from improved market conditions in the global shallow water market. The decrease in operating days was driven by the Noble Gus Androes and Noble Charlie Yester , which were off contract in the current quarter but experienced full utilization during the comparable quarter, coupled with increased shipyard time on the Noble Percy Johns and Noble John Sandifer during the current quarter. Additionally, the Noble Lewis Dugger , which was sold in July 2013, was fully utilized during the comparable quarter.
The increase in floater revenues in the current quarter was driven by a 23 percent increase in average dayrates coupled with a 14 percent increase in operating days which resulted in a $35 million and a $19 million increase in revenues, respectively, from the comparable quarter. The increase in both average dayrates and operating days was the result of the Noble Roger Eason returning to full operations during the current quarter, after receiving a reduced rate while in the shipyard to undergo its reliability upgrade project during the comparable quarter, coupled with the Noble Driller , which received a higher dayrate after starting a new contract.
Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $2 million for the current quarter as compared to the comparable quarter. The increase relates to $2 million increase in mobilization due to the amortization of certain rig moves.
The increase in depreciation and amortization in the current quarter over the comparable quarter was primarily attributable to the completion of the Noble Roger Eason shipyard upgrade which was completed during the fourth quarter of 2013.
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(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating
expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.
** Not a meaningful percentage.
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Other
The following table sets forth the operating results for our other services for the three months ended March 31, 2014 and 2013 (in thousands):
Operating Revenues and Costs and Expenses. Both operating revenue and operating costs and expenses remained substantially consistent from quarter to quarter. The change in operating costs and expenses primarily related to foreign currency exchange fluctuations coupled with an increase in labor costs during the current quarter.
For the Year Ended December 31, 2013 and 2012
Rig Utilization, Operating Days and Average Dayrates
The following table sets forth the average rig utilization, operating days and average dayrates for our rig fleet for the years ended December 31, 2013 (which we sometimes refer to as the “current period”) and 2012 (which we sometimes refer to as the “comparable period”):
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Change 2014 2013 $ % (unaudited) Operating revenues:
Labor contract drilling services $ 8,211 $ 8,782 $ (571 ) -7 % Reimbursables (1) 520 463 57 12 %
$ 8,731 $ 9,245 $ (514 ) -6 % Operating costs and expenses:
Labor contract drilling services $ 6,213 $ 5,713 $ 500 9 % Reimbursables (1) 488 451 37 8 % Depreciation and amortization 21 19 2 11 % General and administrative 209 318 (109 ) -34 %
6,931 6,501 430 7 %
Operating income $ 1,800 $ 2,744 $ (944 ) -34 %
(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating
expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.
Average Rig
Utilization (1) Operating Days (2)
Average Dayrates
2013 2012 2013 2012 % Change 2013 2012 % Change Jackups 90 % 81 % 12,032 10,985 10 % $ 102,974 $ 88,120 17 % Floaters 66 % 62 % 2,173 2,030 7 % 261,827 236,767 11 % Other 0 % 0 % — — — — — —
Total 80 % 73 % 14,205 13,015 9 % $ 127,275 $ 111,303 14 %
(1) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the
total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. (2) Information reflects the number of days that our rigs were operating under contract.
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Contract Drilling Services
The following table sets forth the operating results for our contract drilling services for the years ended December 31, 2013 and 2012 (in thousands):
Operating Revenues . Changes in contract drilling services revenues for the current period as compared to the comparable period were driven by increases in both operating days and average dayrates. The 14 percent increase in average dayrates increased revenues by approximately $227 million while the 9 percent increase in operating days increased revenue by $132 million.
The increase in contract drilling services revenues was due to a $271 million increase in revenues from our jackups and a $88 million increase in revenues from our floaters.
The 17 percent increase in jackup average dayrates resulted in a $179 million increase in revenues, which was coupled with a 10 percent increase in operating days, resulting in a $92 million increase in revenues from 2012. The increase in average dayrates resulted from improved market conditions in the global shallow water market. The increase in utilization primarily related to certain jackup rigs in Mexico and the Middle East, which experienced a full period of operations in 2013 after being warm stacked for a portion of 2012.
The increase in floater revenues in the current period was driven by an 11 percent increase in average dayrates coupled with a seven percent increase in operating days which resulted in a $54 million and a $34 million increase in revenues, respectively, from 2012. The Noble Duchess and the Noble Leo Segerius had a full period of operations during the current period after being off contract during the comparable period. These increases during the current period were partially offset by a decrease in revenues attributable to the Noble Roger Eason , which returned to work during the fourth quarter of 2013 after being in the shipyard for the majority of the year completing a major upgrade.
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Change 2013 2012 $ % (unaudited) Operating revenues:
Contract drilling services $ 1,807,952 $ 1,448,569 $ 359,383 25 % Reimbursables (1) 47,992 54,325 (6,333 ) -12 % Other 94 253 (159 ) -63 %
$ 1,856,038 $ 1,503,147 $ 352,891 23 %
Operating costs and expenses: Contract drilling services $ 914,702 $ 874,805 $ 39,897 5 % Reimbursables (1) 36,589 42,506 (5,917 ) -14 % Depreciation and amortization 413,219 367,730 45,489 12 % General and administrative 63,914 59,475 4,439 7 % Loss on impairment 43,688 — 43,688 * * Gain on disposal of assets, net (35,646 ) — (35,646 ) * * Gain on contract settlements/extinguishments, net (24,373 ) (4,869 ) (19,504 ) * *
1,412,093 1,339,647 72,446 5 %
Operating income $ 443,945 $ 163,500 $ 280,445 172 %
(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating
expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.
** Not a meaningful percentage.
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Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $40 million for the current period as compared to the comparable period. The increase from period to period is primarily a function of improvements in utilization for rigs returning to work in the comparable period. Increases were reflected in most expense categories, with the largest increases in agency fees, primarily in Mexico and the Middle East ($5 million), and charges for rental equipment ($5 million). Additionally, we recognized an increase in cost allocations to us by Noble for shorebase and operations support primarily due to salary increases ($33 million).
The increase in depreciation and amortization in the current period over the comparable period was primarily attributable to a full period of depreciation after shipyard projects on the Noble Leo Segerius , Noble Duchess and Noble Phoenix, which were placed in service during the latter part of 2012 coupled with the completion of the Noble Roger Eason major upgrade during the fourth quarter of 2013.
Loss on impairment during the current period related to an impairment charge of approximately $40 million on the FPSO, Noble Seillean , recognized during our annual asset impairment test, coupled with a $4 million impairment recorded in the third quarter of 2013 on two submersibles arising from the potential disposition of these assets to an unrelated third party. In January 2014, we completed the sale of these submersibles for a total sales price of $7 million.
Gain on disposal of assets, net, during the current period was attributable to the sale of the Noble Lewis Dugger to an unrelated third party in Mexico.
Gain on contract settlements/extinguishments, net, during the current period was attributable to the settlement of all claims against the former shareholders of FDR Holdings, Limited, which Noble acquired in July 2010, relating to alleged breaches of various representations and warranties contained in the purchase agreement. During the comparable period, we received $5 million from a claims settlement on the Noble David Tinsley , which experienced a “punch-through” while being positioned on location in 2009.
Other
The following table sets forth the operating results for our other services for the years ended December 31, 2013 and 2012 (in thousands):
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Change 2013 2012 $ % (unaudited) Operating revenues:
Labor contract drilling services $ 35,146 $ 36,591 $ (1,445 ) -4 % Reimbursables (1) 1,818 2,119 (301 ) -14 %
$ 36,964 $ 38,710 $ (1,746 ) -5 %
Operating costs and expenses: Labor contract drilling services $ 24,333 $ 22,006 $ 2,327 11 % Reimbursables (1) 1,752 2,029 (277 ) -14 % Depreciation and amortization 86 107 (21 ) -20 % General and administrative 993 1,356 (363 ) -27 %
27,164 25,498 1,666 7 %
Operating income $ 9,800 $ 13,212 $ (3,412 ) -26 %
(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating
expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.
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Operating Revenues and Costs and Expenses. Both operating revenue and operating costs and expenses remained substantially consistent from period to period. The change in operating costs and expenses primarily related to foreign currency exchange fluctuations during the period coupled with an increase in labor costs during the period.
Other Income and Expenses
Income Tax Provision. Our income tax provision increased $37 million in the current period primarily as a result of higher pre-tax income, partially offset by a lower effective tax rate during the current period. The increase in pre-tax earnings generated a $75 million increase in tax expense while the decrease in the income tax rate during the current period decreased the income tax provision by $38 million. The decrease in the income tax rate was a result of a change in our geographic revenue mix and favorable discrete events that occurred during 2013.
For the Year Ended December 31, 2012 and 2011
Utilization, Operating Days and Average Dayrates
The following table sets forth the average utilization, operating days and average dayrates for our fleet for the years ended December 31, 2012 and 2011:
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Average Fleet Utilization (1)
Operating Days (2)
Average Dayrates
2012 2011 2012 2011 % Change 2012 2011 % Change Jackups 81 % 77 % 10,985 10,373 6 % $ 88,120 $ 79,257 11 % Floaters 62 % 61 % 2,030 2,014 1 % 236,767 233,052 2 % Other units 0 % 0 % — — — —
Total 73 % 69 % 13,015 12,387 5 % $ 111,303 $ 104,261 7 %
(1) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the
total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. (2) Information reflects the number of days that our units were operating under contract.
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Contract Drilling Services
The following table sets forth the operating results for our contract drilling services for the years ended December 31, 2012 and 2011 (in thousands):
Operating Revenues. Changes in contract drilling services revenues for 2012 as compared to 2011 were driven by increases in both average dayrates and operating days. The 7 percent increase in average dayrates increased revenues by approximately $92 million while the 5 percent increase in operating days increased revenues by an additional $65 million.
The change in contract drilling services revenues was due to a $146 million increase in revenues from our jackups and an $11 million increase in revenues from our floaters.
The 11 percent increase in jackup average dayrates increased revenues by $97 million, and the 6 percent increase in jackup operating days increased revenues by $49 million in 2012 as compared to 2011. The increase in average dayrates resulted from improved market conditions in the global shallow water market throughout the jackup fleet. The increase in utilization primarily related to rigs in Mexico, West Africa and the Middle East, which experienced less downtime during 2012 as compared to 2011.
The $11 million increase in floater revenues in 2012 was driven by slight increases in both average dayrates and operating days. These improvements were partially offset by declines in revenues on the Noble Phoenix , which was substituted for the Noble Muravlenko in Brazil during 2012, and a reduced rate on the Noble Roger Eason while it was in the shipyard for its upgrade during the latter part of 2012.
Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $98 million for 2012 as compared to 2011. The increase from 2011 relates to a $40 million increase in labor due to salary increases and rigs returning to work, a $18 million increase in costs allocations due to shorebased salary increases, a $16 million increase in repairs and maintenance primarily for rigs returning to contract, a $10 million increase in safety and training costs, a $9 million increase in mobilization and transportation costs and a $5 million increase in insurance and other costs.
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Change 2012 2011 $ % Operating revenues:
Contract drilling services $ 1,448,569 $ 1,291,276 $ 157,293 12 % Reimbursables (1) 54,325 39,598 14,727 37 % Other revenues
253 497 (244 ) -
49 %
$ 1,503,147 $ 1,331,371 $ 171,776 13 %
Operating costs and expenses: Contract drilling services $ 874,805 $ 776,662 $ 98,143 13 % Reimbursables (1) 42,506 28,625 13,881 48 % Depreciation and amortization 367,730 347,624 20,106 6 % General and administrative 59,475 58,588 887 2 % Loss on impairment — 12,719 (12,719 ) * * Gain on contract settlements/extinguishments, net (4,869 ) (19,846 ) 14,977 * *
1,339,647 1,204,372 135,275 11 %
Operating income $ 163,500 $ 126,999 $ 36,501 29 %
(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating
expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.
** Not a meaningful percentage.
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Depreciation and amortization increased $20 million in 2012 over 2011, which is primarily attributable to assets placed in service during 2012, including the Noble Leo Segerius , Noble Duchess and the Noble Phoenix .
Loss on impairment during 2011 related to a $13 million impairment charge on our submersible fleet, primarily as a result of the declining market outlook for drilling services for this rig type.
Gain on contract settlements/extinguishments, net, during 2012 was attributable to our receipt of $5 million from a claims settlement on the Noble David Tinsley , which experienced a “punch-through” while being positioned on location in 2009. During 2011, we reached an agreement with Petrobras to substitute the Noble Phoenix for the Noble Muravlenko . In connection with the cancellation of the contract on the Noble Phoenix , we recognized a non-cash gain of $53 million, which represented the unamortized fair value of the in-place contract at acquisition. As a result of the substitution, we reached a decision not to proceed with the previously announced upgrade to the Noble Muravlenko that was scheduled to take place in 2013, and therefore, incurred a non-cash charge of $33 million in 2011 related to the termination of outstanding shipyard contracts.
Other
The following table sets forth the operating results for our other services for the years ended December 31, 2012 and 2011 (in thousands):
Operating Revenues and Costs and Expenses. The decrease in both operating revenues and operating costs and expenses in 2012 as compared to 2011 primarily related to foreign currency fluctuations resulting from our Canadian operations.
Other Income and Expenses
Income Tax Provision. Our income tax provision increased $19 million in 2012 as compared to 2011, primarily as a result of higher pre-tax income coupled with a higher effective tax rate during 2012. The increase in the tax rate generated a $10 million increase in tax expense, while an increase in pre-tax earnings increased the income tax provision by $9 million. The increase in the income tax rate was a result of a change in our geographic revenue mix during 2012.
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Change 2012 2011 $ % Operating revenues:
Labor contract drilling services $ 36,591 $ 37,269 $ (678 ) -2 % Reimbursables (1) 2,119 1,917 202 11 %
$ 38,710 $ 39,186 $ (476 ) -1 %
Operating costs and expenses: Labor contract drilling services 22,006 24,801 (2,795 ) -11 % Reimbursables (1) 2,029 1,851 178 10 % Depreciation and amortization 107 1,210 (1,103 ) -91 % General and administrative 1,356 1,376 (20 ) -1 %
25,498 29,238 (3,740 ) -13 %
Operating income $ 13,212 $ 9,948 $ 3,264 33 %
(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating
expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.
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Liquidity and Capital Resources
In connection with the Transactions, we have entered into a revolving credit agreement that contains, and we intend to enter into certain other debt agreements that will contain, customary covenants relating to, among other things, the incurrence of additional indebtedness, dividends and other restricted payments and mergers, consolidations or the sale of substantially all of our assets.
We expect our primary sources of liquidity in the future will be cash generated from operations, our revolving credit facility and any future financing arrangements, if necessary. Our principal uses of liquidity will be to fund our working capital and capital expenditures, including major projects, upgrades and replacements to drilling equipment, to service our outstanding indebtedness and to pay out future dividends. Our working capital and capital expenditure requirements have historically been part of the corporate-wide cash management program for Noble. As part of such program, Noble swept all available cash from our operating accounts periodically until June 30, 2014. Prior to the Distribution, Noble will deliver to us $40 million in cash to increase our working capital. After giving effect to this contribution, we estimate our working capital balance as of June 30, 2014 was more than $200 million.
After June 30, 2014, we have been solely responsible for the provision of funds to finance our working capital and other cash requirements. We believe our liquidity will be sufficient to fund our operations for at least the next 12 months. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flows from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our capital expenditures, sell assets, refrain from paying or reduce the amount of any dividends, obtain additional debt or equity or refinance all or a portion of our debt.
Financial Resources and Liquidity
Predecessor
The table below sets forth our Predecessor’s summary cash flow and capital expenditure information for the years ended December 31, 2013, 2012 and 2011 and for the three months ended March 31, 2014 and 2013 (in thousands):
Changes in cash flows from operating activities from period to period are primarily driven by changes in net income. Changes in cash flows from investing activities are dependent upon our Predecessor’s level of capital expenditures which vary based on the timing of projects, while changes in cash flows from financing activities
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Year Ended December 31, Three Months Ended
March 31, 2013 2012 2011 2014 2013 (unaudited) Cash flows provided by (used in) operations:
Operating activities $ 822,475 $ 405,484 $ 466,100 $ 199,623 $ 49,010 Investing activities (317,726 ) (540,867 ) (493,255 ) (55,461 ) (97,333 ) Financing activities (538,706 ) 130,154 26,030 (148,518 ) 14,049
Capital expenditures $ 366,361 $ 532,404 $ 518,455 $ 42,524 $ 101,329
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from period to period are based on activity under Noble’s commercial paper program and credit facilities and investments to and from Parent.
Paragon Offshore
Our currently anticipated cash flow needs following the spin-off may include the following:
We currently expect to fund these cash flow needs with cash generated by our operations, cash on hand, borrowings under potential new credit facilities, issuances of long-term debt, or asset sales.
For a discussion of our cash and cash equivalents on a pro forma basis as of December 31, 2013 and March 31, 2014 giving effect to the Transactions, please read “Unaudited Pro Forma Combined Financial Statements.”
Capital Expenditures
Our primary use of available liquidity during 2014 has been for capital expenditures. Capital expenditures, including maintenance, rig reactivations, major projects and upgrades to our fleet, totaled $43 million during the three months ended March 31, 2014 and $101 million during the three months ended March 31, 2013. As of March 31, 2014, we had approximately $68 million in capital commitments related to ongoing major projects, upgrades and replacements to drilling equipment. We currently expect total capital expenditures for 2014 to be approximately $300 million.
Our primary use of available liquidity during 2013 was for capital expenditures. Capital expenditures, including maintenance, rig reactivations, major projects and upgrades to our fleet, totaled $366 million during the year ended December 31, 2013. Of the total capital expenditures spent in the year ended December 31, 2013, upgrade projects related to the Noble Leo Segerius and Noble Roger Eason totaled $149 million.
Contractual Obligations and Commitments
Except as otherwise noted, our Predecessor’s contractual obligations as of March 31, 2014 were as follows (in thousands):
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• committed capital expenditures;
• normal recurring operating expenses;
• acquisitions;
• discretionary capital expenditures, including various capital upgrades; and
• dividends.
Year Ended December 31, Total 2014 2015 2016 2017 Thereafter Long-term debt obligations (1) $ 1,983,543 $ 1,983,543 $ — $ — $ — $ — Purchase commitments (2) $ 67,553 $ 67,553 — — — —
Total $ 2,051,096 $ 2,051,096 $ — $ — $ — $ —
(1) Represents borrowings outstanding under Noble’s commercial paper program. See Note 1 to our Predecessor’s audited financial statements included elsewhere in this
prospectus. Amounts exclude accrued interest. As of March 31, 2014, on a pro forma basis after giving effect to the Transactions, we would have had long-term debt obligations, including current portion and assumed interest, with respect to the years ended December 31, 2014, 2015, 2016, 2017 and thereafter, of approximately $79.9 million, $106.4 million, $106.1 million, $105.9 million and $2.2 billion, respectively. Please read Note 2 in the notes to the Unaudited Pro Forma Combined Financial Statements for additional information about the financing arrangements included in the Transactions.
(2) Purchase commitments consist of obligations outstanding to external vendors primarily related to purchases of various capital equipment.
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In connection with the Transactions, we expect to incur third-party indebtedness under financing arrangements in an aggregate principal amount of approximately $1.7 billion. Please read “Capitalization” and “Unaudited Pro Forma Combined Financial Statements.”
The following table summarizes the other commercial commitments of our Predecessor at March 31, 2014 (in thousands):
Critical Accounting Policies and Estimates
Our combined financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. Critical accounting policies and estimates that most significantly impact our combined financial statements are described below.
Property and Equipment, at cost
Property and equipment is stated at cost, reduced by provisions to recognize economic impairment in value whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. Major replacements and improvements are capitalized. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of our drilling equipment range from three to thirty years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to twenty-five years.
Scheduled maintenance of equipment is performed based on the number of hours operated in accordance with our preventative maintenance program. Routine repair and maintenance costs are charged to expense as incurred; however, the costs of the overhauls and asset replacement projects that benefit future periods and which typically occur every three to five years are capitalized when incurred and depreciated over an equivalent period. These overhauls and asset replacement projects are included in “Property and equipment, at cost” in our Predecessor’s combined balance sheets. Such amounts, net of accumulated depreciation, totaled $204 million at March 31, 2014 and $211 million and $160 million at December 31, 2013 and 2012, respectively. Depreciation expense related to overhauls and asset replacement totaled $22 million for the three months ended March 31, 2014 and $76 million, $66 million and $64 million for the years ended December 31, 2013, 2012 and 2011, respectively.
We evaluate the realization of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, on an annual basis, we complete an impairment analysis on all of our rigs. An impairment loss on our property and equipment exists when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the assets carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual result do not meet our estimated assumptions we may take an impairment loss in the future.
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Amount of Commitment Expiration Per Period Total 2014 2015 2016 2017 Thereafter Contractual Cash Obligations Letters of credit $ 24,395 $ 19,395 $ 5,000 $ — $ — $ — Surety bonds $ 116,412 $ 11,884 $ 43,929 $ 21,945 $ 38,654 —
Total commercial commitments $ 140,807 $ 31,279 $ 48,929 $ 21,945 $ 38,654 $ —
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Revenue Recognition
Our typical dayrate drilling contracts require our performance of a variety of services for a specified period of time. We determine progress towards completion of the contract by measuring efforts expended and the cost of services required to perform under a drilling contract, as the basis for our revenue recognition. Revenues generated from our dayrate-basis drilling contracts and labor contracts are recognized on a per day basis as services are performed and begin upon the contract commencement, as defined under the specified drilling or labor contract. Dayrate revenues are typically earned, and contract drilling expenses are typically incurred ratably over the term of our drilling contracts. We review and monitor our performance under our drilling contracts to confirm the basis for our revenue recognition. Revenues from bonuses are recognized when earned.
It is typical, in our dayrate drilling contracts, to receive compensation and incur costs for mobilization, equipment modification or other activities prior to the commencement of a contract. Any such compensation may be paid through a lump-sum payment or other daily compensation. Pre-contract compensation and costs are deferred until the contract commences. The deferred pre-contract compensation and costs are amortized, using the straight-line method, into income over the term of the initial contract period, regardless of the activity taking place. This approach is consistent with the economics for which the parties have contracted. Once a contract commences, we may conduct various activities, including drilling and well bore related activities, rig maintenance and equipment installation, movement between well locations or other activities.
Deferred revenues from drilling contracts totaled $21 million at March 31, 2014 and $22 million and $25 million at December 31, 2013 and 2012, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in our Predecessor’s combined balance sheets, based upon our expected time of recognition. Related expenses deferred under drilling contracts totaled $18 million at March 31, 2014 and $24 million at December 31, 2013 as compared to $38 million at December 31, 2012, and are included in either “Other current assets” or “Other assets” in our Predecessor’s combined balance sheets based upon our expected time of recognition.
We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses.
Income Taxes
Income taxes are prepared on a separate return basis as if we had been a standalone company. As a result, actual tax transactions that would not have occurred had we been a separate entity have been eliminated in the preparation of our Predecessor’s historical combined financial statements included elsewhere in this information statement.
Income taxes are based on the laws and rates in effect in the countries in which operations are conducted or in which we or our subsidiaries are considered resident for income tax purposes. Applicable income and withholding taxes have not been provided on undistributed earnings of our subsidiaries. We do not intend to repatriate such undistributed earnings except for distributions upon which incremental income and withholding taxes would not be material. In certain circumstances, we expect that, due to changing demands of the offshore drilling markets and the ability to redeploy our offshore drilling units, certain units will not reside in a location long enough to give rise to future tax consequences. As a result, no deferred tax asset or liability has been recognized in these circumstances. Should our expectations change regarding the length of time an offshore drilling unit will be used in a given location, we will adjust deferred taxes accordingly.
We operate through various subsidiaries in numerous countries throughout the world including the United States. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.S. or jurisdictions in which we or any of our subsidiaries operate or are resident. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If the U.S. Internal Revenue Service, or IRS, or other taxing authorities do not
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agree with our assessment of the effects of such laws, treaties and regulations, this could have a material adverse effect on us including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions.
Income taxes include results of the operations of the standard specification drilling units. In instances where the operations of standard specification drilling units were included in the filing of a consolidated or combined return with high specification units, an allocation of income taxes has been made.
Certain Significant Estimates and Contingent Liabilities
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our combined financial statements included elsewhere in this information statement.
New Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, which amends FASB Accounting Standards Codification (“ASC”) Topic 205, “Presentation of Financial Statements” and ASC Topic 360, “Property, Plant, and Equipment.” This ASU alters the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity’s operations and finances, and calls for more extensive disclosures about a discontinued operation’s assets, liabilities, income and expenses. The guidance is effective for all disposals, or classifications as held-for-sale, of components of an entity that occur within annual periods beginning on or after December 15, 2014. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential for loss due to a change in the value of a financial instrument as a result of fluctuations in interest rates, currency exchange rates or equity prices, as further described below.
Interest Rate Risk
Following the completion of the Transactions, a portion of our long-term debt portfolio will contain variable rate debt instruments.
For variable rate debt, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. Our pro forma interest expense for the three months ended March 31, 2014 after giving effect to the Transactions would have been $ . Holding other variables constant (such as foreign exchange rates and debt levels), a 1% point change in interest rates would have increased our pro forma interest expense for such period by approximately $ .
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Foreign Currency Risk
Although we are a U.K. corporation, we define foreign currency as any non-U.S. denominated currency. Our functional currency is primarily the U.S. dollar, which is consistent with the oil and gas industry. However, outside the U.S., some of our expenses are incurred in local currencies. Therefore, when the U.S. dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in U.S. dollars will increase (decrease).
We are exposed to risks on future cash flows to the extent that local currency expenses exceed revenues denominated in local currency that are other than the functional currency. To help manage this potential risk, we may enter into derivative instruments to manage our exposure to fluctuations in currency exchange rates, and we may conduct hedging activities in future periods to mitigate such exposure.
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INDUSTRY
Overview
The offshore contract drilling industry provides drilling, workover and well construction services to oil and gas E&P companies using mobile barges, jackup rigs, semisubmersible rigs, drillships and related equipment and work crews. The type of drilling unit utilized typically depends primarily on the water depth of the well and the depth of the well to be drilled. Generally, wells in shallow water tend to be serviced by jackups, while midwater, deepwater and ultra-deepwater wells tend to be serviced by semisubmersibles and drillships. We generally consider shallow water depths to be water depths of less than 1,000 feet, midwater depths to be water depths of 1,000 to 4,000 feet, deepwater depths to be water depths of 4,001 to 7,499 feet and ultra-deepwater depths to be water depths of 7,500 feet and greater.
Drilling services are marketed worldwide, as drilling rigs can move on a self-propelled basis or be towed from one region to another. In some cases, the cost of relocating a rig may result in significant short-term variations in regional supply and demand, but these variations are typically short-lived in comparison to contract duration and are generally less significant for jackups. Additionally, offshore drilling contractors typically operate their rigs under term contracts received either by submitting proposals in competition with other contractors or by direct negotiations with operating companies. These contracts typically range in duration from several months to several years. The rate of compensation specified in each contract depends on the number of available rigs capable of performing the work, the nature of the operations to be performed, the duration of the work, the amount and type of equipment and services provided, the geographic areas involved, market conditions and other variables. Generally, contracts specify daily rates of compensation, which are determined based on operational and other factors.
Jackup Rigs
Jackup rigs are mobile, bottom-supported, self-elevating drilling platforms that stand on three or four legs on the seabed. When a jackup rig moves from one location to another, it lowers its platform down on the water until it floats, and is towed by a supply vessel or similar watercraft to its next location, where it lowers its legs to the sea bottom and elevates its platform above sea level. Most jackup rigs, including all of the jackup rigs owned by us, are ILC. This means they have the ability to move their drill floors aft of their own hulls (cantilever), so that multiple wells can be drilled at open water locations or over wellhead platforms without re-positioning the rig and have the ability to move each leg independently. Other jackup designs include mat-slot, mat-cantilever and independent-slot designs.
Drillships
Drillships are ships with on-board propulsion machinery, often constructed for drilling in deepwater and ultra-deepwater. They are based on conventional ship hulls, but have certain modifications. Drilling operations are conducted through openings in the hull, or “moon pools.” Drillships normally have a higher load capacity, which is the ability to carry materials, than semisubmersible rigs and are well suited to offshore drilling in remote areas due to their mobility and high load capacity. Like semisubmersible rigs, drillships can be equipped with a conventional mooring system or a computerized dynamic positioning system, or DP system, which automatically maintains a vessel’s position and heading by using the DP system’s thrusters.
Semisubmersible Rigs
Semisubmersible rigs are floating platforms with columns and pontoons featuring a ballasting system, which allows these rigs to be submerged to a predetermined depth so that a substantial portion of the hull is below the water surface during drilling operations. Semisubmersible rigs maintain their position above the wellhead either by means of a conventional mooring system, consisting of anchors and chains or cables, or by a DP system.
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Semisubmersible rigs may range from having no propulsion capability or propulsion assistance (thereby requiring the use of a supply vessel or similar watercraft for towing the rig between locations) to being self-propelled, in which case the rig has the ability to relocate independently of a towing vessel.
Market Dynamics
The performance of the contract drilling sector is largely determined by supply and demand for available drilling rigs. Key drivers of demand are oil and gas prices and consumption, which in turn drive E&P spending. Spending by national oil companies is determined by national budgets with the aim of achieving government-established production targets and other goals. National oil companies tend to maintain consistent levels of drilling activities in both high and low oil and gas price environments. International and independent oil and gas companies seek to generate shareholder returns through exploration and development drilling activities while also growing reserves and production.
Favorable Oil Prices
Current oil prices are high relative to historical levels and have rebounded from their recent lows reached during the economic downturn of 2009. Generally, E&P capital spending is higher when oil prices are high due to implied higher expected returns of various projects. The chart below illustrates historical spot prices for WTI and Brent oil through February 2014 and NYMEX futures prices through 2017, as published by Bloomberg on February 28, 2014.
Increasing Global Consumption
In spite of an oil price environment that is robust by historical standards, the U.S. Energy Information Administration, or EIA, expects that worldwide demand for oil will continue to grow due to global economic growth. According to the EIA’s International Energy Outlook 2013 (as of July 13, 2013), worldwide use of petroleum and other liquid fuels is expected to grow from 87 million barrels per day in 2010 to 97 million barrels per day in 2020 to 115 million barrels per day in 2040, a cumulative increase of 32%. According to the EIA, a key driver of supply will be the exploration and development of new and existing reserves.
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Global Capital Expenditures of Oil and Gas Producers on the Rise
According to data provided by Cowen and Company in December 2013 and January 2014, global E&P capital spending (onshore and offshore) increased from approximately $328 billion in 2003 to over $660 billion in 2013. Cowen and Company’s January 2014 “Original E&P Spending Survey” of 466 oil and gas companies estimated global E&P spending to grow by 4.0% in 2014, and 80% of respondents expect their offshore spending to be the same or increase in 2014 relative to 2013. Furthermore, in a December 2013 forecast, Infield predicts that global offshore E&P spending between 2013 and 2017 in water depths of less than 4,900 feet will total more than $400 billion, representing approximately 74% of the global offshore E&P capital spending. We believe we will generally be beneficiaries of the ongoing and potentially increasing activity offshore.
Rig Supply
Jackup, semisubmersible and drillship supply is undergoing a newbuild cycle, as has the whole oil field services industry. According to RigLogix, as of June 21, 2014, there were 127 jackups rigs and 94 floaters on order or currently under construction. While a limited number of the newbuild jackups are designed or destined for niche markets or applications, such as drilling high pressure and high temperature wells, drilling in harsh environments or operating in closed or protected markets such as China and Iran, many will compete directly with our rigs. Newbuild floaters, while designed for deeper waters and harsher environments, are being put to work in all areas, including those areas that would traditionally be serviced by standard specification rigs.
Offsetting the increase in supply from newbuilds is an expected continuation of historical attrition of the fleet as rigs become older. According to RigLogix as of June 21, 2014, approximately 58% of currently working jackups and approximately 46% of currently working floaters are 15 years old or older. We define “working” to mean rigs that are not cold stacked and are not planned or under construction. We believe our ongoing investment in our fleet has extended the useful life of our rigs.
Utilization and Dayrates
The global offshore drilling industry is very competitive, with no single contractor having a dominant market share. In winning new contracts, price competition is generally the most important factor. Other factors include rig availability, rig operating features, customer relationships, workforce experience, operating efficiency, condition of equipment, safety record and reputation. Depending on market conditions and the needs of individual customers, these other factors are sometimes more important considerations than price. Supply and demand are the two most important aspects driving drilling contracts, dayrates, the rate at which rigs work, utilization rates and the percentage of time rigs are working. The following discussion focuses on non-U.S. standard specification ILC jackups and floaters initially placed in service prior to January 1, 1999.
Historically, the non-U.S. standard specification jackup and floater fleet has been able to maintain relatively high utilization rates despite changing global markets. According to RigLogix, from January 2003 through May 2014, standard specification jackup rigs with capabilities in depths of less than 300 feet had rig-by-rig utilization rates greater than 62%, while utilization for rigs capable of operating between 300 feet and 390 feet exceeded 63%. RigLogix defines rig-by-rig utilization as the number of rigs contracted divided by the total number of rigs, not including cold stacked rigs. Utilization rates have generally increased since mid-2011 and averaged approximately 79% in May 2014 for rigs with capabilities in depths of less than 300 feet and approximately 79% for rigs between 300 and 390 feet. According to RigLogix, from January 2003 through May 2014, non-U.S. standard specification floaters with capabilities up to 4,000 feet had utilization rates greater than 64% and rigs with capabilities from 4,001 feet to 7,499 feet had utilization rates greater than 62%. Utilizations for these two classes of floaters in May 2014 averaged approximately 74% and 70%, respectively.
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The graphs below demonstrate the historical non-U.S. standard specification ILC jackup and floater utilization rates from January 2003 through May 2014, based on data provided by RigLogix.
Dayrates depend on multiple factors, including, but not limited to, the country and region of operation, water depth, rig capabilities, technical specifications, contract length, overall contract terms and the utilization rate of the fleet or fleet category (the number of rigs under contract as a percentage of the total available fleet or fleet category). Among standard jackups over 15 years old, a key distinction in rig design is whether a jackup is supported by independent legs or has a lowered hull referred to as a “mat” attached to the lower portion of the legs. All of our jackups are ILC jackups. ILC jackups have historically commanded higher dayrates than mat supported jackups. For the 12-month period ended May 31, 2014, non-U.S. standard specification ILC jackups received an average premium of 25% compared to mat supported jackups over 15 years old, with average dayrates of approximately $109,000 compared with mat supported jackups which averaged dayrates of approximately $87,000. ILC jackups have demonstrated these robust spreads relative to mat supported jackups throughout market cycles, as illustrated in the graph below.
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Midwater and deepwater floaters able to operate in water depths of less than 7,500 feet have seen a steady increase in dayrates, with minimal disruption during the global recession, and are experiencing historically strong dayrates. Dayrates for non-U.S. standard specification floaters capable of operating in water depths of less than or equal to 4,000 feet have increased approximately 30% since January 2008 to approximately $320,000 per day while dayrates for floaters capable of operating in water depths between 4,001 and 7,499 feet have increased approximately 57% to approximately $362,000 per day. Nevertheless, new fixtures for both standard specification and high specification floaters have recently come under pressure as a result of a recent reduction in customer spending and the anticipated delivery of more than 90 new floating units.
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BUSINESS
Our Company
We are a pure-play global provider of standard specification offshore drilling rigs. Our drilling fleet consists solely of standard specification rigs and includes 34 jackups and eight floaters (five drillships and three semisubmersibles). This focus on a single specification supports our strategy to deliver our services in an efficient and cost-effective manner. Our primary business is to contract our rigs, related equipment and work crews to conduct oil and gas drilling and workover operations for our E&P customers on a dayrate basis around the world.
We believe that the scale of our geographically diverse fleet, well-established customer relationships and multi-year contract backlog position us to take advantage of strong market dynamics in the offshore drilling industry. We operate in significant hydrocarbon-producing geographies throughout the world, including Mexico, Brazil, the North Sea, West Africa, the Middle East, India and Southeast Asia. Our current shallow water, midwater and deepwater operations span 12 countries on five continents and provide services to approximately 16 customers. We have well-established relationships with many of our customers, including Petrobras, Pemex, ONGC, Total, Nexen and Centrica. In addition, in the five-year period ended March 31, 2014, 22 of our rigs have worked an average of approximately 4.6 years for their current customers. As of March 31, 2014, our pro forma contract backlog was over $2.6 billion and included contracts with leading national, international and independent oil and gas companies. Over 75% of our pro forma contract backlog is attributable to customers with investment grade ratings.
We have one of the largest diversified fleets of standard specification offshore drilling rigs in the world. Our jackups provide drilling services in shallow water with capabilities up to a maximum water depth of 390 feet. All of our jackups are ILC, which provides customers greater operational flexibility than some other jackup designs, such as mat-slot, mat-cantilever and independent-slot jackup designs. Seven of our jackups are also capable of operations in harsh environments, which typically command higher dayrates than operations conducted in other environments. Our floaters provide drilling services in midwater and deepwater, with capabilities up to a maximum water depth of 7,200 feet. Noble has actively invested in capital expenditures for maintenance, rig reactivations, major projects and upgrades to our fleet, spending a total of approximately $1.8 billion since January 1, 2010, including approximately $0.9 billion for floater-specific major upgrades that we do not expect to incur again for those rigs. We believe that Noble’s consistent investment in our fleet has allowed us to provide safe, reliable and effective offshore drilling services for our customers and has made our rigs more competitive in the global marketplace.
Our Market Opportunity
We believe the following trends in the oil and gas industry will support our contract drilling services business:
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• Global energy demand is expected to continue to increase. Worldwide energy demand is predicted to increase significantly in the coming years as global population and gross domestic product increase. According to IEA’s “World Energy Outlook 2013,” published in November 2013, worldwide energy demand is expected to grow approximately 33% from 2011 to 2035. IEA estimates that oil and gas met 52% of the world’s energy demand in 2011 which totaled approximately 262 million BOE per day. By 2035, IEA expects oil and gas to continue to be major components of energy supply, providing approximately the same proportion, 51%, of the predicted worldwide energy requirement. According to IEA, the total global energy requirement is expected to grow to approximately 349 million BOE per day in 2035, increasing the demand for oil and gas by approximately 27% from 2011 levels. This growth from 2011 base production is in addition to the production that must be replaced as today’s reserves are produced and consumed. IEA expects that much of this demand increase will come from emerging markets, such as the Middle East, where we have significant operations, and Asia, which is a potential area of expansion. We believe an overall continued rise in the demand for energy, coupled
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with natural production decline rates from producing oil and gas reserves, correlates with positive demand for contract drilling services.
• Global E&P spending has increased and a significant portion of future spending is expected to be in water depths we serve. According to data provided by Cowen and Company in December 2013 and January 2014, global E&P capital spending (onshore and offshore) increased from approximately $328 billion in 2003 to over $660 billion in 2013. Cowen and Company’s January 2014 “Original E&P Spending Survey” of 466 oil and gas companies estimated global E&P spending to grow by 4.0% in 2014. Furthermore, in a December 2013 forecast, Infield predicts that global offshore E&P spending between 2013 and 2017 in water depths of less than 4,900 feet will total more than $400 billion, representing approximately 74% of the global offshore E&P capital spending. We believe this E&P spending will continue to increase and we will benefit from increased E&P activity offshore.
• Significant oil and gas reserves are present offshore. The “BP Statistical Review of World Energy 2013,” published June 2013, estimates that current worldwide proved oil and gas reserves total approximately 2.9 trillion BOE. This does not include resources which have not yet been converted to proved reserves or are ‘yet to find.’ Many regions in which we have an operating presence, such as Mexico, Brazil, the North Sea, West Africa and the Middle East, have major offshore hydrocarbon producing basins which contribute to the proved reserve base. In addition, exploration activity in these countries and elsewhere provide potential for additional resource discoveries. Given increasing energy demand, the need to replace reserves which are currently being produced, and the high level of successful offshore exploration activity over the past decade, we expect additional petroleum resources to be discovered in all water depths. In a December 2013 forecast, Infield predicts that more than 1,335 new offshore fields will be brought on-stream between 2013 and 2017 with more than 60% of these fields in water depths less than approximately 330 feet. More than 400 additional fields are expected to be brought on-stream during the same period in water depths of approximately 330 to 4,900 feet. We believe that this activity will create exploration and development work opportunities for our rigs.
• Oil prices have supported investment in the offshore E&P industry. Increases in global E&P spending have generally correlated with rising crude oil prices. Since 2003, on an inflation-adjusted basis, WTI oil prices have increased from approximately $30 per barrel to more than $90 per barrel and have exceeded $100 per barrel multiple times. Although long-term price forecasts include significant volatility, industry consensus suggests relatively stable oil prices in the near-term. According to IEA, oil production costs for conventional oil developments, including shallow water and deepwater resources, range from approximately $10 to $70 per barrel. Ultra-deepwater (defined by IEA as greater than approximately 4,900 feet) costs are higher, ranging from approximately $70 to $90 per barrel. Costs vary by region and type of resource with remote, technically challenging resource developments at the high end of these cost ranges. Although dayrates and utilization may be impacted at prices above these levels based on particular customers and geographies, some of our largest customers are leading national oil companies that generally employ multi-year development programs that are less impacted by short-term commodity price fluctuations. We believe oil prices would have to decrease significantly from current levels for a meaningful period of time before offshore drilling activity, particularly in shallow water, would be materially impacted.
• We expect the customer base for offshore drilling services to continue to include national, international and independent oil and gas companies. Offshore oil and gas E&P activities are conducted by national, international, and independent oil and gas companies. National oil and gas companies typically set their drilling schedules based on national budgets with the aim of achieving government-established production targets and other goals. Their operations are focused on developing their domestic resources and tend to maintain consistent levels of drilling activity in both high and low commodity price environments. International oil and gas companies and independent oil and gas companies seek to grow their reserves and production through their exploration and development activities in order to generate attractive shareholder returns. Offshore E&P activity is a core focus of many of these companies given the attractive full-cycle break-even prices for economic production of
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Our Fleet
Our drilling fleet consists solely of standard specification rigs. We classify all rigs as either “high specification” rigs or “standard specification” rigs. Our rig classification is based on a number of factors, including age, technological capabilities, size, water depth and load capacity. Standard specification rigs are generally 15 or more years old, have a “hook load,” or derrick hoisting capacity, of less than two million pounds, and have drilling equipment operated by mechanical, rather than electronic, means. Standard specification jackups are generally capable of operating in water depths of up to 390 feet. Standard specification drillships and semisubmersibles are generally capable of operating in water depths of up to 7,500 feet, conducting a single drilling procedure (as compared to a dual-activity or other dual-derrick rigs, which may conduct multiple well-related operations simultaneously) and use moorings or a less advanced dynamic positioning system to maintain position while drilling. Standard specification rigs operate in the same worldwide markets and environments as high specification rigs, subject to their technical capabilities. Our rigs are widely deployed in the global offshore drilling rig market. Our rigs feature proven, reliable technology and processes, utilizing mechanical features with lower operating costs compared to newer, higher specification rigs. Within their given water depth capabilities, our rigs are suitable for the majority of our customers’ offshore drilling operations.
Our total fleet comprises 42 standard specification offshore drilling rigs, including 34 jackups, eight floaters (five drillships and three semisubmersibles) and one FPSO. We also provide drilling and maintenance services (but do not provide a rig) on the Hibernia Project in the Canadian Atlantic under a five-year contract with a joint venture in which Exxon is the primary operator.
Jackups are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established for support. All of our jackups are ILC jackups, allowing each leg to be raised or lowered independently of any other, and permitting the drilling platform to be extended out from the hull to perform drilling or workover operations over certain types of preexisting platforms or structures. We believe these design features provide greater operational flexibility and are generally considered more desirable than alternative designs. Our jackups are capable of drilling in water depths of up to 390 feet. Twenty-one of our 34 jackups can operate in water depths of 300 feet or greater. Seven of our jackups are capable of operating in harsh environments.
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offshore oil developments. We believe the variety of types of companies with diverse strategies engaged in offshore oil and gas E&P activities provides us an attractive current and future customer base, making the demand for our services more predictable.
• The jackup market is robust. According to RigLogix, for the month of May 2014, global utilization of non-U.S. standard specification ILC jackups was approximately 79%, with an average dayrate of $110,000, and has remained above 70% since September 2011, generally suggesting a strong market for drilling contractors who operate standard specification assets. According to RigLogix, the average dayrate for standard specification ILC jackup contracts increased from approximately $94,000 per day in 2011 to $110,000 in May 2014. These statistics represent increases in both utilization and dayrates since 2011 and reflect ongoing demand for standard specification jackups in the global marketplace despite an increase in supply from the delivery of 71 new ILC jackups between 2011 and 2013. We believe that we are well-positioned to benefit from this demand given our geographically diverse and well-maintained fleet and its history of operating safety.
• The industry is fragmented and may present acquisition opportunities. The offshore drilling industry is a large and highly fragmented industry comprising more than 100 offshore drilling contractors with annual aggregate revenues of over $45 billion, according to Spears & Associates, in which no single contractor has a dominant market share. A number of these contractors may consider divesting some or all of their standard specification rigs. Given our large operational footprint, financial flexibility, well-established global infrastructure and focus on standard specification rigs, we believe that this market environment may present an opportunity to expand our fleet through value-adding, accretive acquisitions of capable standard specification rigs.
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Drillships are self-propelled vessels that maintain their position over the well through the use of either a computer-controlled dynamic positioning system or a fixed mooring system. Our drillships are capable of drilling in water depths of up to 7,200 feet.
Semisubmersibles are floating platforms which, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the hull is below the water surface during drilling operations in order to improve stability. Our semisubmersibles maintain their position over the well through the use of a fixed mooring system. Our semisubmersibles are capable of drilling in water depths of up to 4,000 feet.
The following table sets forth certain information concerning our drilling fleet as of June 5, 2014.
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Jackups
Name Location Water Depth (1) Year Built/
Rebuilt Status Noble Bill Jennings Mexico 390 1975/1997 Active Noble Eddie Paul Mexico 390 1976/1995 Active Noble Leonard Jones Mexico 390 1972/1998 Active Noble Julie Robertson UK 390 1981/2001 Active Noble Al White UK 360 1982/2005 Active Noble Roy Rhodes UAE 300 1979/2009 Active Noble Byron Welliver UK 300 1982/ - Active Noble Charlie Yester UAE 300 1980/ - Active Noble Ed Holt India 300 1981/2003 Active Noble Gene Rosser Mexico 300 1977/1996 Active Noble George McLeod Malaysia 300 1981/1995 Active Noble Gus Androes UAE 300 1982/2004 Active Noble Harvey Duhaney Qatar 300 1976/2001 Active Noble Jimmy Puckett Qatar 300 1982/2002 Active Noble John Sandifer Mexico 300 1975/1995 Active Noble Johnnie Hoffman Mexico 300 1976/1993 Active Noble Kenneth Delaney India 300 1983/1998 Active Noble Percy Johns Cameroon 300 1981/1995 Active Noble Roy Butler Mexico 300 1982/1998 Active Noble Sam Noble Mexico 300 1982/ - Active Noble Tommy Craighead Benin 300 1982/2003 Active Noble Carl Norberg Mexico 250 1976/2003 Active Noble Chuck Syring Qatar 250 1976/1996 Active Noble Earl Frederickson Mexico 250 1979/1999 Active Noble Ed Noble Cameroon 250 1984/2003 Active Noble George Sauvageau Germany 250 1981/ - Active Noble Lloyd Noble Cameroon 250 1983/1990 Active Noble Tom Jobe Mexico 250 1982/ - Active Noble Lynda Bossler Netherlands 250 1982/ - Active Noble Piet van Ede Netherlands 250 1982/ - Active Noble Ronald Hoope Netherlands 250 1982/ - Active Dhabi II UAE 150 1982/2006 Active Noble Dick Favor UAE 150 1982/2004 Active Noble Don Walker Cameroon 150 1982/1992 Cold Stacked
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Our fleet includes one jackup, one drillship and one semisubmersible that are currently cold stacked and not being marketed and one FPSO that is currently cold stacked. These cold stacked units require minimal operating and maintenance expenditures. Cold stacked units are neither operational nor ready for deployment, do not maintain a crew and are stored in a harbor, shipyard or a designated offshore area.
Our Competitive Strengths
We believe we have a number of competitive strengths that will allow us to execute our business strategies successfully:
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Semisubmersibles
Name Location Water Depth (1) Year Built/
Rebuilt Status Noble Therald Martin Brazil 4,000 1977/2004 Active Noble Ton van Langeveld UK 1,500 1979/2000 Active Noble Lorris Bouzigard USA 4,000 1975/2003 Cold Stacked
Drillships
Name Location Water Depth (1) Year Built/
Rebuilt Status Noble Roger Eason Brazil 7,200 1977/2013 Active Noble Leo Segerius Brazil 5,600 1981/2012 Active Noble Phoenix Brazil 5,000 1979/2009 Active Noble Duchess India 1,500 1975/2012 Active Noble Muravlenko USA 4,900 1982/1997 Cold Stacked
Other Assets
Name Location Water Depth (1) Year Built/
Rebuilt Status Hibernia Platform (labor contract) Canada N/A N/A Active Noble Seillean (FPSO) USA 6,500 1989/2008 Cold Stacked (1) Operating design water depth (in feet).
• Significant scale, size and expertise. We are one of the world’s largest contractors of standard specification offshore drilling rigs, and we are a major competitor in most of the regions in which we operate. We are one of the primary providers of jackups in Mexico, the North Sea and West Africa and a substantial provider of floaters in Brazil. We believe our significant presence in these and other offshore drilling regions enables us to leverage efficiencies, economies of scale and operational flexibility to meet the needs of our customers. Given the demanding nature of and substantial capital involved in the offshore drilling industry, we believe that most national, international and independent oil and gas companies will continue to prefer contracting with proven drilling contractors like us. We believe the established history that our rigs and employees have with national, international and independent oil and gas companies contributes to our credibility and distinguishes us from smaller and regional operators of standard specification offshore drilling rigs.
• Well-maintained “workhorse” fleet of rigs . Our fleet comprises well-maintained drilling rigs with proven technology and operating capabilities. Noble has actively invested in capital expenditures for maintenance, rig reactivations, major projects and upgrades to our fleet, spending a total of approximately $1.8 billion since January 1, 2010, including approximately $0.9 billion for floater-specific major upgrades that we do not expect to incur again for those rigs. Recent upgrades have extended the useful lives and increased the operational capability and reliability of our rigs, making them more attractive to our customers. Our average jackup utilization, including our cold stacked rigs, exceeded 90% during 2013 and exceeded 75% in each of the preceding three years. We believe that the
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Our Business Strategies
Our principal business objective is to increase shareholder value. We expect to achieve this objective through the following strategies:
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quality of our fleet and our well-developed maintenance program result in low downtime and strengthen our ability to secure contracts.
• Strong backlog coupled with a well-established customer base and diverse standard specification fleet. Our diverse standard specification fleet and strong customer relationships allow us to secure backlog and generate revenues in distinct geographies and water depths up to 7,200 feet. As of March 31, 2014, our pro forma contract backlog was over $2.6 billion and included contracts with leading national, international and independent oil and gas companies, including Petrobras, Pemex, ONGC, Total, Nexen and Centrica. As of March 31, 2014, our jackups provided approximately 52% of our pro forma contract backlog, and our floaters provided the remaining 48% of our pro forma contract backlog, which extends into 2017 and provides cash flow stability. Our current operations span 12 countries on five continents, providing services to approximately 16 customers. For the three months ended March 31, 2014, jackups contributed 65% of our pro forma operating revenues and floaters contributed 35% of our pro forma operating revenues. We believe that because dayrates and demand in different geographic regions and water depths may change independently of each other, our operational and geographic diversity provide greater opportunity, stability and downside protection.
• Commitment to safety and quality. We believe that customers recognize our commitment to safety and that our performance history and reputation for safe operations provide us with a competitive advantage. As a key component of our commitment to safety and quality, we train our personnel in operational practices, safety standards and procedures. For the year ended December 31, 2013, the TRIR for our rigs was 0.41 as compared to the IADC average of 0.81. For the year ended December 31, 2012, the TRIR for our rigs was 0.50 as compared to the IADC average of 0.61. We believe that safety and operational excellence promote stronger relationships with multiple important stakeholders, including our employees, our customers and the local communities in which we operate, and reduce both downtime and costs.
• Focus on standard specification drilling operations . We focus entirely on standard specification drilling operations in shallow water, midwater and deepwater up to 7,200 feet. Based on operating revenues, we are the leader among the self-identified pure-play providers of standard specification offshore drilling rigs. We believe that our dedicated focus enables us to secure attractive customer contracts for our fleet through targeted marketing efforts while providing industry-leading, safe and reliable drilling operations to our customers. We continuously seek opportunities to lower our operating costs through equipment standardization, supply-chain management and efficient repair and maintenance operations. We believe our focus and expertise will enable us to market our services and conduct our operations in an efficient and cost-effective manner.
• Maintain and invest in our current fleet of standard specification drilling rigs . We currently have a large, well-maintained and diversified fleet of standard specification drilling rigs, which allows us to provide reliable and effective drilling services to our customers across multiple geographies and water depths. We intend to continue to invest capital to maintain, refurbish and strategically upgrade our assets in order to build on our fleet’s strong operational history. We also intend to continue to optimize the quality and performance profile of our standard specification fleet by investing in strategic upgrades to increase the longevity and competitive capabilities of our rigs. By investing in our fleet, we believe that we can prolong our rigs’ lives, reduce operational downtime and generate better returns for our shareholders.
• Capitalize on increased exploration and development activity . We believe the market outlook for offshore drilling remains
favorable as worldwide E&P spending has increased since the beginning of 2011. We believe we are well positioned to capitalize on increasing demand for contract drilling
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Drilling Contracts
We typically employ each drilling unit under an individual contract. Although the final terms of the contracts result from negotiations with our customers, many contracts are awarded based upon a competitive bidding process. Our drilling contracts generally contain the following terms:
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services, particularly in shallow water operations with our well-maintained jackups. We expect this growth will be complemented by steady demand for our floaters in midwater and deepwater. We intend to continue identifying core basins and expansion areas for which our rigs’ capabilities are best suited in order to strategically position our fleet to most effectively capitalize on increasing demand for contract drilling services.
• Leverage strategic relationships with high-quality, long-term customers . We are committed to maintaining and leveraging the geographic diversity of our operations and the quality and longevity of our customer relationships. Our fleet operates for leading national, international and independent oil and gas companies in some of the world’s most active shallow water and midwater hydrocarbon producing markets. Our current operations span 12 countries on five continents, and we provide services to approximately 16 customers. Our customers include Petrobras, the world’s largest consumer of floater services, and Pemex and ONGC, two of the world’s three largest consumers of jackup services. From March 31, 2009 to March 31, 2014, 22 of our rigs have worked an average of approximately 4.6 years for their current customers. In addition, we have provided services for six of our top ten customers for more than ten years. We believe that our geographic diversity and strong customer relationships will reduce our exposure to market volatility and position us well to identify, react quickly to and benefit from positive market dynamics.
• Pursue strategic growth opportunities . We plan to consider opportunistic, value-adding acquisitions of rigs, especially rigs with contracted backlog. The offshore drilling industry is a large and highly fragmented industry. Given our large operating and geographic footprint and strong balance sheet, we believe we are well positioned to take advantage of acquisition opportunities around the world. We intend to pursue acquisitions that add to our fleet’s average capability, customer base and geographic diversification.
• Remain financially disciplined and return capital to shareholders . We intend to maintain a responsible capital structure and appropriate levels of liquidity. We also intend to implement a dividend policy in order to return capital to our shareholders as described in “Dividend Policy.” We intend to make investment decisions, including refurbishments, maintenance, upgrades and acquisitions, in a disciplined and diligent manner, carefully evaluating these investments based on their ability to maintain or improve our competitive position and strengthen our financial profile while returning capital to our shareholders.
• contract duration extending over a specific period of time or a period necessary to drill a defined number wells;
• provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed or (ii) if operations are suspended for a specified period of time due to breakdown of equipment;
• provisions allowing the impacted party to terminate the contract if specified “force majeure” events beyond the contracting parties’
control occur for a defined period of time;
• payment of compensation to us (generally in U.S. dollars although some customers, typically national oil companies, require a part of the compensation to be paid in local currency) on a “daywork” basis, so that we receive a fixed amount for each day, or dayrate, that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control);
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The terms of some of our drilling contracts permit early termination of the contract by the customer, without cause, generally exercisable upon advance notice to us and in some cases without requiring an early termination payment to us. Our drilling contracts with Pemex, in Mexico, for example, allow early cancellation with 30 days or less notice to us without Pemex making an early termination payment. Please read “Risk Factors—Risks Related to Our Business—Our inability to renew or replace expiring contracts or the loss of a significant customer or contract could have a material adverse effect on our financial results.”
The terms of some of our drilling contracts permit us to earn bonus revenue incentive payments based on performance. Our drilling contracts with Petrobras, in Brazil, for example, contain these bonus provisions.
As our rigs are mobilized from one geographic location to another, labor and other operating and maintenance costs can vary significantly. If we relocate a rig to another geographic location without a customer contract, we will incur costs that will not be reimbursable by future customers, and even if we relocate a rig with a customer contract, we may not be fully compensated during the mobilization period.
For a discussion of our backlog of commitments for contract drilling services, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Pro Forma Contract Drilling Services Backlog.”
Contract Drilling Services
We conduct offshore contract drilling operations, which accounted for over 98% of our pro forma operating revenues for the three months ended March 31, 2014 and the years ended December 31, 2013, 2012 and 2011. We conduct our contract drilling operations principally in Mexico, Brazil, the North Sea, West Africa, the Middle East, India and Southeast Asia. Pro forma revenues from Petrobras and its affiliates accounted for approximately 25% of our total pro forma operating revenues for the three months ended March 31, 2014 and 21%, 20% and 25% of our total pro forma operating revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Pro forma revenues from Pemex and its affiliates accounted for approximately 17% of our total pro forma operating revenues for the three months ended March 31, 2014 and 18%, 22% and 18% of our total pro forma operating revenues for the years ended 2013, 2012 and 2011, respectively. No other single customer accounted for more than 10% of our total pro forma operating revenues for the three months ended March 31, 2014 or the years ended December 31, 2013, 2012 or 2011.
Labor Contracts
We provide drilling and maintenance services (but do not provide a rig) on the Hibernia Project in the Canadian Atlantic under a contract with Hibernia Management and Development Company Ltd. that extends through June 30, 2018 and in which Exxon is the primary operator. We do not own or lease these platforms. Under this labor contract, we provide the personnel necessary to manage and perform the drilling operations from the drilling platform owned by the operator.
Competition
The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. We compete with other providers of offshore drilling rigs. Some of these providers’ fleets exclusively comprise high specification drilling rigs, or include a combination of standard specification and high specification drilling rigs. In addition, some of our competitors may have access to greater financial resources than we do.
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• payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; and
• provisions that allow us to recover certain cost increases from our customers in certain long-term contracts.
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In the provision of contract drilling services, competition involves numerous factors, including price, rig availability and suitability, experience of the workforce, efficiency, safety performance record, condition and age of equipment, location, operating integrity, reputation, industry standing and client relations. We believe that we compete favorably with respect to most of these factors and that price is a key determinative factor. We follow a policy of keeping our equipment well maintained and generally technologically competitive with other standard specification rigs. However, our equipment could be made obsolete by the development of new techniques and equipment, regulations or customer preferences. Please read “Risk Factors—Risks Related to Our Business—The contract drilling industry is a highly competitive and cyclical business. If we are unable to compete successfully, our profitability may be reduced.”
We compete on a worldwide basis, but competition may vary by region at any particular time. Demand for offshore drilling equipment also depends on the exploration and development programs of oil and gas producers, which in turn are influenced by the financial condition of such producers, by general economic conditions, prices of oil and gas and by political considerations and policies.
In addition, industry-wide shortages of supplies, services, skilled personnel and equipment necessary to conduct our business have historically occurred. We cannot assure that any such shortages experienced in the past will not happen again in the future.
Environmental Matters
Our operations are directly subject to numerous environmental laws and regulations at the international, national, state and local levels. Additionally, political developments and numerous governmental regulations indirectly associated with the contract drilling industry affect many aspects of our operations. These laws and regulations can significantly affect the operation of our drilling rigs. Failure to comply with these laws and regulations, or failure to obtain or comply with permit requirements, may result in the assessment of administrative, civil, or criminal penalties, imposition of remedial requirements, or the imposition of injunctions or moratoria to halt drilling operations or force future compliance. Historically, we have made numerous expenditures to comply with environmental requirements, and we anticipate that we will continue to make expenditures in the future. To date, our expenditures have not materially affected our operations, and we do not anticipate that future expenditures will materially affect our operations or force us to materially increase our capital expenditures.
Because environmental laws and regulations generally affect the energy and energy services industry, our business could be adversely affected by increased regulation that prohibits or restricts our customers’ exploration and production activities, resulting in reduced demand for our services. Similarly, heightened environmental protection requirements could result in increased costs for us, our customers or the energy industry in general. Governments in many of the jurisdictions in which we operate 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 that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings.
The following is a summary of some of the existing laws and regulations which apply to our operations in some of the jurisdictions in which we operate. While laws vary widely between jurisdictions, each of the laws and regulations below addresses environmental issues similar to those in most of the other jurisdictions in which we operate. Further, we believe we are in substantial compliance in all material respects with the environmental regulations affecting the operation of our drilling rigs in all of the jurisdictions in which we operate.
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International Regulatory Regimes
The International Maritime Organization, or IMO, provides international regulations governing shipping and international maritime trade. IMO regulations have been widely adopted by U.N. member countries, and in some jurisdictions in which we operate, these regulations have been expanded upon. The requirements contained in the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO, govern much of our drilling operations. Among other requirements, the ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies.
The IMO has also adopted the International Convention for the Prevention of Pollution from Ships, or MARPOL, including Annex VI to MARPOL which sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances. Annex VI, which applies to all ships, fixed and floating drilling rigs and other floating platforms, imposes a global cap on the sulfur content of fuel oil and allows for specialized areas to be established internationally with even more stringent controls on sulfur emissions. For vessels 400 gross tons and greater, platforms and drilling rigs, Annex VI imposes various survey and certification requirements. Moreover, 2008 amendments to Annex VI require the imposition of progressively stricter limitations on sulfur emissions from ships. These limitations require that fuels of vessels in covered Emission Control Areas, or ECAs, contain no more than 1% sulfur. The North American ECA became effective in August 2012, capping the sulfur limit in marine fuel at 1%, which has been the capped amount for the North Sea and Baltic Sea ECAs since July 1, 2010. The North Sea ECA encompasses all of the North Sea and the full length of the English Channel. These capped amounts are to decrease progressively until they reach 0.5% by January 1, 2020 for non-ECA areas and 0.1% by January 1, 2015 for ECA areas, including the North American ECA. The amendments also establish new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation.
The IMO has negotiated international conventions that impose liability for oil pollution in international waters and the territorial waters of the signatory to such conventions such as the Ballast Water Management Convention, or BWM Convention. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. Though this has not occurred to date, the IMO has passed a resolution encouraging the ratification of the BWM Convention and calling upon those countries that have already ratified to encourage the installation of ballast water management systems on new ships. Under the requirements of the BWM Convention for rigs with ballast water capacity of more than 5000 cubic meters that were constructed in 2011 or before, ballast water management exchange or treatment will be accepted until 2016. From 2016 (or not later than the first intermediate or renewal survey after 2016), only ballast water treatment will be accepted by the BWM Convention. All of our drilling rigs are in substantial compliance with the proposed terms of the BWM Convention.
The IMO has also adopted the International Convention for Civil Liability for Bunker Oil Pollution Damage of 2001, or Bunker Convention. The Bunker Convention provides a liability, compensation and compulsory insurance system for the victims of oil pollution damage caused by spills of bunker oil. Under the Bunker Convention, ship owners must pay compensation for pollution damage (including the cost of preventive measures) caused in the territory, including the territorial sea of a State Party, as well as its exclusive economic zone or equivalent area. Registered owners of any seagoing vessel and seaborne craft over 1,000 gross tons, of any type whatsoever, and registered in a State Party, or entering or leaving a port in the territory of a State Party, must maintain insurance which meets the requirements of the Bunker Convention and to obtain a certificate issued by a State Party attesting that such insurance is in force. The State issued certificate must be carried on board at all times. We believe that all of our drilling rigs are currently compliant in all material respects with these regulations.
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On July 15, 2011, the IMO approved mandatory measures to reduce emissions of greenhouse gases from international shipping. The amendments to MARPOL Annex VI Regulations for the prevention of air pollution from ships add a new Chapter 4 on energy efficiency requiring compliance with the Energy Efficiency Design Index, or EEDI, for new ships, and the Ship Energy Efficiency Management Plan, or SEEMP, for all ships. Other amendments to Annex VI add new definitions and requirements for survey and certification, including the format for the International Energy Efficiency Certificate. The regulations apply to all ships of 400 gross tonnage and above and entered into force on January 1, 2013. These new rules will likely affect the operations of vessels that are registered in countries that are signatories to MARPOL Annex VI or vessels that call upon ports located within such countries. The implementation of the EEDI and SEEMP standards could cause us to incur additional compliance costs. The IMO is also considering the development of market-based mechanisms to reduce greenhouse gas emissions from ships.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulation may have on our operations.
European Union
On June 10, 2013, the European Union adopted a new directive, Directive 2013/30/EU, on the safety of offshore oil and gas operations within the exclusive economic zone (which can extend up to 200 nautical miles from a coast) or the continental shelf of any of its member states. The directive establishes minimum requirements for preventing major accidents in offshore oil and gas operations, and aims to limit the consequences of such accidents. All European Union member states will be required to adopt national legislation or regulations by July 19, 2015 to implement the new directive’s requirements, which also include reporting requirements related to major safety and environmental hazards that must be satisfied before drilling can take place, as well as the use of “all suitable measures” to both prevent major accidents and limit the human health and environmental consequences of such a major accident should one occur. We believe that our operations are in substantial compliance with the requirements of the directive (as well as the extensive current health and safety regimes implemented in the member states in which we operate), but future developments could require the company to incur significant costs to comply with its implementation.
Countries in the European Union implement the U.N.’s Kyoto Protocol on GHG emissions through the Emissions Trading System, or ETS, though ETS will continue to require GHG reductions in the future that are not currently prescribed by the Kyoto Protocol or related agreements. The ETS program establishes a GHG “cap and trade” system for certain industry sectors, including power generation at some offshore facilities. Total GHG from these sectors is capped, and the cap is reduced over time to achieve a 21% GHG reduction from these sectors between 2005 and 2020. EU proposals for the cap for the 2020 to 2030 period are expected by the end of 2013. More generally, the EU Commission has proposed a roadmap for reducing emissions by 80% by 2050 compared to 1990 levels. Some EU member states have enacted additional and more long-term legally binding targets. For example, the U.K. has committed to reduce greenhouse gas emissions by 80% by 2050. These reduction targets may also be affected by future negotiations under the United Nations Framework Convention on Climate Change and its Kyoto Protocol.
Entities operating under the cap must either reduce their GHG emissions, purchase tradable emissions allowances, or EUAs, from other program participants, or purchase international GHG offset credits generated under the Kyoto Protocol’s Clean Development Mechanisms or Joint Implementation. As the cap declines, prices for emissions allowances or GHG offset credits may rise. However, due to the over-allocation of EUAs by EU member states in earlier phases and the impact of the recession in the EU, there has been a general over-supply of EUAs. The EU has recently approved amending legislation to withhold the auction of EUAs in a process known as “backloading.” EU proposals for wider structural reform of the EU ETS may follow the enactment of the backloading proposal. Both backloading and wider structural reforms are aimed at reviving the EU carbon price.
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In addition, the U.K. government, which implements ETS in the U.K. North Sea, has introduced a carbon price floor mechanism to place an incrementally increasing minimum price on carbon. Thus, the cost of compliance with ETS can be expected to increase over time. Additional member state climate change legislation may result in potentially material capital expenditures.
Insurance and Indemnification Matters
Our operations are subject to many hazards inherent in the drilling business, including blowouts, fires and collisions or groundings of offshore equipment, and damage or loss from adverse weather and sea conditions. These hazards could cause personal injury or loss of life, loss of revenues, pollution and other environmental damage, damage to or destruction of property and equipment and oil and gas producing formations, and could result in claims by employees, customers or third parties.
Our drilling contracts provide for varying levels of indemnification from our customers and in most cases also require us to indemnify our customers for certain losses. Under our drilling contracts, liability with respect to personnel and property is typically assigned on a “knock-for-knock” basis, which means that we and our customers assume liability for our respective personnel and property, irrespective of the fault or negligence of the party indemnified. In addition, our customers may indemnify us in certain instances for damage to our down-hole equipment and, in some cases, our subsea equipment.
Our customers typically assume responsibility for and indemnify us from loss or liability resulting from pollution or contamination, including third-party damages and clean-up and removal, arising from operations under the contract and originating below the surface of the water. We are generally responsible for pollution originating above the surface of the water and emanating from our drilling rigs. Additionally, our customers typically indemnify us for liabilities incurred as a result of a blow-out or cratering of the well and underground reservoir loss or damage.
We expect to carry insurance with terms substantially similar to the terms of Noble’s current insurance. Noble carries protection and indemnity, or P&I, insurance, which is a comprehensive general liability insurance program covering liability resulting from offshore operations. This P&I insurance includes coverage for liability resulting from personal injury or death of third parties and our offshore employees, third-party property damage, pollution, spill clean-up and containment and removal of wrecks or debris. The insurance policy does not exclude losses resulting from our gross negligence or willful misconduct. We expect to have maximum liability coverage of approximately $500 million.
Our insurance policies and contractual rights to indemnity may not adequately cover our losses and liabilities in all cases. For additional information, please read “Risk Factors—Risks Related to Our Business—We may have difficulty obtaining or maintaining insurance in the future and our insurance coverage and contractual indemnity rights may not protect us against all of the risks and hazards we face.”
Our insurance program and the terms of our drilling contracts may change in the future. In addition, the indemnification provisions of our drilling contracts may be subject to differing interpretations, and enforcement of those provisions may be limited by public policy and other considerations.
Properties
Our property consists of drillships, jackups, semisubmerisbles and one FPSO. The capital associated with the repair and maintenance of our fleet increases with age. Our cold stacked rigs will also require additional capital expenditures before being able to be placed in operation.
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Seasonality
Our rigs are subject to severe weather during certain periods of the year, particularly hurricane season in the Gulf of Mexico and typhoon season in India, which could halt our operations in Mexico and India, respectively, for prolonged periods or limit contract opportunities during that period. Otherwise, our business is not significantly affected by seasonal fluctuations.
Employees
As of March 31, 2014, approximately 2,700 employees of Noble and 1,400 contractors were dedicated to our operations. Certain of our employees in the U.K., Nigeria, Canada and Brazil are parties to collective bargaining agreements. In various countries, local law requires our participation in works councils. We have not experienced any material work stoppages at any of our facilities due to labor union activities in recent years. We believe our relations with our employees are good. Please read “Certain Relationships and Related Party Transactions—Employee Matters Agreement.”
Legal Proceedings
We are a defendant in certain claims and litigation arising out of operations in the ordinary course of business, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims.
During the second quarter of 2013, Noble reached an agreement with the Mexican tax authorities resolving certain previously disclosed tax assessments. This settlement removes potential contingent exposure of $502 million in Mexico for periods prior to 2007, which includes the assessments for years 2002 through 2005 of approximately $348 million, as well as settlement for 2006. The settlement of these assessments did not have a material impact on our Predecessor’s combined financial statements.
Audit claims of approximately $273 million attributable to income, customs and other business taxes have been assessed against us. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our combined financial statements. Tax authorities may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions.
Nigerian Operations
We do not have any rigs currently operating in Nigeria. However, during the fourth quarter of 2007, our Nigerian subsidiary received letters from the Nigerian Maritime Administration and Safety Agency, or NIMASA, seeking to collect a two percent surcharge on contract amounts under contracts performed by “vessels,” within the meaning of Nigeria’s cabotage laws, engaged in the Nigerian coastal shipping trade. Although we do not believe that these laws apply to our ownership of drilling rigs, NIMASA is seeking to apply a provision of the Nigerian cabotage laws (which became effective on May 1, 2004) to our offshore drilling rigs by considering these rigs to be “vessels” within the meaning of those laws and therefore subject to the surcharge, which is imposed only upon “vessels.” Our offshore drilling rigs are not engaged in the Nigerian coastal shipping trade and are not in our view “vessels” within the meaning of Nigeria’s cabotage laws. In January 2008, we filed an originating summons against NIMASA and the Minister of Transportation in the Federal High Court of Lagos, Nigeria seeking, among other things, a declaration that our drilling operations do not constitute “coastal trade” or “cabotage” within the meaning of Nigeria’s cabotage laws and that our offshore drilling rigs are not “vessels” within the meaning of those laws. In February 2009, NIMASA filed suit against us in the Federal High Court of Nigeria seeking collection of the cabotage surcharge with respect to one of our rigs. In August 2009, the court issued a favorable ruling in response to our originating summons stating that drilling operations do not fall within
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the cabotage laws and that drilling rigs are not vessels for purposes of those laws. The court also issued an injunction against the defendants prohibiting their interference with our drilling rigs or drilling operations. NIMASA appealed the court’s ruling on procedural grounds, and the court dismissed NIMASA’s lawsuit filed against us in February 2009. In December 2013, the court of appeals ruled in favor of NIMASA and quashed the High Court’s decision in our favor, although there is no adverse ruling against us with respect to the merits. We intend to appeal this latest decision and take further appropriate legal action to resist the application of Nigeria’s cabotage laws to our drilling rigs. The outcome of any such legal action and the extent to which we may ultimately be responsible for the surcharge is uncertain. If it is ultimately determined that offshore drilling rigs constitute vessels within the meaning of the Nigerian cabotage laws, we may be required to pay the surcharge and comply with other aspects of the Nigerian cabotage laws, which could adversely affect our operations in Nigerian waters and require us to incur additional costs of compliance.
NIMASA had previously informed the Nigerian Content Division of its position that we were not in compliance with the cabotage laws. The Nigerian Content Division makes determinations of companies’ compliance with applicable local content regulations for purposes of government contracting, including contracting for services in connection with oil and gas concessions where the Nigerian national oil company is a partner. The Nigerian Content Division had previously barred us from participating in new tenders as a result of NIMASA’s allegations, although the Division reversed its actions based on the favorable Federal High Court ruling. However, no assurance can be given with respect to our ability to bid for future work in Nigeria until our dispute with NIMASA is resolved.
Under the Nigerian Industrial Training Fund Act of 2004, as amended, or the Act, Nigerian companies with five or more employees must contribute annually 1 percent of their payroll to the Industrial Training Fund, or ITF, established under the Act to be used for the training of Nigerian nationals with a view towards generating a pool of indigenously trained manpower. We have not paid this amount on our expatriate workers employed by our non-Nigerian employment entity in the past as we did not believe the contribution obligation was applicable to them. In October 2012, we received a demand from the ITF for payments going back to 2004 and associated penalties in respect of these expatriate employees. In February 2013, the ITF filed suit seeking payment of these amounts. We settled this matter in July 2014 for an immaterial amount.
In 2007, Noble began, and voluntarily contacted the SEC and the DOJ, to advise them of an internal investigation of the legality under the FCPA and local laws of certain reimbursement payments made by Noble’s Nigerian affiliate to Noble’s customs agents in Nigeria. In 2010, Noble finalized settlements of this matter with each of the SEC and the DOJ. Pursuant to these settlements, Noble agreed to pay fines and penalties to the DOJ and the SEC and to certain undertakings, including refraining from violating the FCPA and other anti-corruption laws, self-reporting any violations of the FCPA or such laws to the DOJ and reporting to the DOJ on an annual basis Noble’s progress on anti-corruption compliance matters. There are no remaining obligations under either settlement.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION S
Policies and Procedures Relating to Transactions with Related Persons
Following the Distribution, transactions with related persons will be reviewed, approved or ratified in accordance with the policies and procedures set forth in our code of business conduct and ethics and our administrative policy manual (and, in the case of the Board, the Company’s Articles of Association and the provisions of U.K. company law), the procedures described below for director and officer questionnaires, and the other procedures described below.
Prior to the Distribution, we will adopt a code of business conduct and ethics that will provide that certain conflicts of interest are prohibited as a matter of Company policy. Under such code of business conduct and ethics, any employee, officer or director who becomes aware of a conflict, potential conflict or an uncertainty as to whether a conflict exists should bring the matter to the attention of a supervisor, manager or other appropriate personnel. Any actual or potential conflict of interest of this nature must be disclosed to the Board or a committee of the Board. Our Board and senior management review all reported relationships and transactions in which the Company and any director, officer or family member of a director or officer are participants to determine whether an actual or potential conflict of interest exists. Our Board may approve or ratify any such relationship or transaction if our Board determines that such relationship or transaction is in the Company’s best interests (or not inconsistent with the Company’s best interests) and the best interests of our shareholders. U.K. company law and our Articles of Association also contain specific provisions relating to the approval and authorization of conflicts of interests by members of our Board, in addition to our code of business conduct and ethics. A conflict of interest exists when an individual’s personal interest is adverse to or otherwise in conflict with the interests of the Company. Our code of business conduct and ethics sets forth several examples of how conflicts of interest may arise, including when:
In addition, our administrative policy manual, which will apply to all our employees, will define some additional examples of what the Company considers to be a conflict of interest, including when:
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• an employee, officer or director or a member of his or her family receives improper personal benefits because of such employee’s, officer’s or director’s position in the Company;
• a loan by the Company to, or a guarantee by the Company of an obligation of, an employee or his or her family member is made;
• an employee works for or has any direct or indirect business connection with any of our competitors, customers or suppliers; or
• Company assets and properties are used for personal gain or Company business opportunities are usurped for personal gain.
• subject to certain limited exceptions, an employee or contractor or any member of his or her immediate family has an interest in any business entity that deals with the Company where there is an opportunity for preferential treatment to be given or received;
• an employee or contractor serves as an officer, a director, or in any management capacity of another business entity directly or indirectly related to the contract drilling or energy services industries without specific authority from our Board;
• an employee or contractor or any member of his or her immediate family buys, sells or leases any kind of property, facilities or
equipment from or to the Company or any of its subsidiaries or to any business entity or individual who is or is seeking to become a contractor, supplier or customer of the Company, without specific authority from our Board; or
• subject to certain limited exceptions, an employee or contractor or any member of his or her immediate family accepts gifts,
payments, extravagant entertainment, services or loans in any form from anyone soliciting business, or who may already have established business relations, with the Company.
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Each year we intend to require all our directors, nominees for director and executive officers to complete and sign a questionnaire in connection with our annual general meeting of shareholders. The purpose of the questionnaire is to obtain information, including information regarding transactions with related persons, for inclusion in our proxy statement or annual report.
In addition, we intend to review SEC filings made by beneficial owners of more than five percent of any class of our voting securities to determine whether information relating to transactions with such persons needs to be included in our proxy statement or annual report.
Relationship with Noble
Prior to or simultaneously with the completion of the Distribution, we and Noble will enter into certain agreements that will effect the separation of our business from Noble and provide a framework for our ongoing relationship with Noble. The following is a summary of certain material terms of the agreements that we intend to enter into with Noble prior to the completion of the Distribution. Certain material terms of these agreements have not yet been determined. All of the terms of these agreements will be determined prior to the declaration of the Distribution, and the agreements will be entered into between us and Noble prior to or simultaneously with the completion of the Distribution.
The agreements summarized below have been or will be filed as exhibits to the registration statement of which this information statement is a part in connection with the Distribution, and the summaries of these agreements set forth the terms of the agreements that we believe are material. These summaries are qualified in their entirety by reference to the full text of such agreements.
Master Separation Agreement
Prior to the completion of the Distribution, we will enter into a master separation agreement with Noble to provide for, among other things, the Distribution and the transfer to us of assets and assumption by us of liabilities relating to our business and the responsibility of Noble for liabilities related to its, and in certain limited cases, our, business.
Separation
The master separation agreement will identify which assets and liabilities constitute our business and which assets and liabilities constitute Noble’s business. In general, the assets and liabilities of our business will be those related to the standard specification rigs that we operate. We will agree to promptly take any and all actions necessary to effect the separation. Noble has reserved the right to determine, in its sole discretion, whether such Distribution shall occur or be abandoned, the date of the Distribution and the form, structure and all other terms of the Distribution.
Indemnification and Release
The master separation agreement will provide for cross-indemnities that generally will place the financial responsibility on us and our subsidiaries for all liabilities associated with our current and historical businesses and operations (other than certain specified excluded liabilities), and generally will place on Noble and its subsidiaries (other than us) the financial responsibility for liabilities associated with all of Noble’s other current and historical businesses and operations, in each case regardless of the time those liabilities arise. The master separation agreement will also contain indemnification provisions under which we and Noble each indemnify the other with respect to breaches of the master separation agreement and certain ancillary agreements.
For liabilities arising from events occurring on or before the Distribution, the master separation agreement will contain a general release. Under this provision, we will release Noble and its subsidiaries, successors and assigns, and Noble will release us and our subsidiaries, successors and assigns, from any liabilities arising from
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events between us or our subsidiaries on the one hand, and Noble or its subsidiaries (other than us) on the other hand, occurring on or before the Distribution, including in connection with the activities to implement our separation from Noble. The general release does not apply to liabilities allocated between the parties under the master separation agreement, the other separation agreements or to specified ongoing contractual arrangements.
Expenses
The master separation agreement between us and Noble relating to the separation or the Distribution will provide for an allocation of out-of-pocket costs and expenses incurred in connection with the separation of our business from Noble. Noble will be responsible for all costs and expenses of the separation and the Distribution other than debt issuance costs, which will be borne by us and are estimated to be approximately $39 million.
Other Provisions
The master separation agreement will also contain provisions relating to, among other matters, confidentiality and the exchange of information, the use and preservation of books and records, the settlement of intercompany balances, guarantees and surety bonds, preservation of legal privileges, insurance coverages for claims occurring prior to the Distribution and the resolution and arbitration of disputes arising under the master separation agreement and other separation agreements.
Employee Matters Agreement
Prior to the completion of the Distribution, we will enter into an employee matters agreement with Noble to allocate liabilities and responsibilities relating to our employees and their participation in certain compensation and benefit plans maintained by Noble or a subsidiary of Noble.
Effective as of the completion of the Distribution, most of our employee benefits will be provided under compensation and benefit plans adopted or assumed by us. In general, our plans will be substantially similar to the Noble plans that covered our employees prior to the completion of the Distribution. As to those assumed plans, we will become responsible for all benefits thereunder. We have not agreed to, and do not intend to, adopt any defined benefit pension plan covering U.S. employees.
We will agree to apportion and divide any related Noble trusts or other financial vehicles that currently fund Noble’s plans in order to fund both the plans that we are adopting and assuming and the plans that Noble will continue to sponsor or adopt after the completion of the Distribution. In addition, we will generally agree to maintain these adopted and assumed plans, without significant modification (except as otherwise provided under the employee matters agreement or as required under applicable law) until at least the close of the calendar year following the year of our separation from Noble.
If participation is not terminated earlier, our employees will generally cease participation in all Noble plans (other than plans we assume sponsorship of) as of the consummation of the Distribution.
Generally, our employees’ prior service with Noble will be considered as service with us for purposes of our plans. However, no duplicative benefits will be provided to our employees under our plans and Noble plans.
Our employees generally will be considered terminated for purposes of the Noble’s 1991 Stock Option and Restricted Stock Plan, or 1991 Plan as of our separation from Noble at the time of the Distribution. Upon such termination, our employees’ rights to exercise Noble stock options under the 1991 Plan will continue for up to the shorter of five years or the remaining term of the option and the vesting of each such option will accelerated as of such time, such that, each such option shall be fully vested. Noble time-vested restricted stock units held by our employees under the 1991 Plan will be cancelled and with respect to such cancellation, we will grant our time-vested restricted stock units that are intended to be of equivalent value and remaining duration will be made with regard to such cancelled awards.
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With respect to outstanding Noble performance-vested restricted stock units under the 1991 Plan, a portion of such performance-vested restricted stock units will continue to be held by those employees and a portion will be cancelled. This apportionment will be based on the performance cycle that relates to each applicable Noble performance-vested restricted stock unit award, and the ratio of the number of months remaining in the award’s performance cycle after our separation from Noble relative to the total number of months (i.e., 36 months) of such performance cycle. This ratio will be applied to each applicable grant of Noble performance-vested restricted stock units to determine the portion thereof that will be cancelled, the remainder of which will be continued.
With regard to the cancelled portion of a Noble performance-vested restricted stock unit award, we will either grant the affected employee a performance-vested restricted stock unit that is intended to be of equivalent value and duration at the time of grant to the cancelled portion of the Noble award, or provide the employee compensation of equivalent value to the benefit the employee would have received had the cancelled portion of the Noble award remained in effect.
We will adopt new equity incentive plans for employees and directors to administer replacement awards as described above and provide for the granting of new awards for periods following our separation from Noble.
With some exceptions, we will indemnify Noble for benefit plan and employment liabilities that are the subject of the employee matters agreement and that arise from any acts or omissions of our employees or agents or breach of the employee matters agreement. Noble will indemnify us for similar acts, omissions breaches of Noble and its employees or agents, as well as, for liabilities arising out of certain defects that potentially could be discovered in the future relating to the design of its compensation and benefit plans that we assumed or were used as a template for the plans we adopted.
Tax Sharing Agreement
Prior to the completion of the Distribution, we and Noble will enter into a tax sharing agreement that will govern our respective rights, responsibilities, and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and certain other matters regarding taxes. References in this summary description of the tax sharing agreement to the terms “tax” or “taxes” mean taxes as well as any interest, penalties, additions to tax or additional amounts in respect of such taxes.
Under the tax sharing agreement, Noble generally will be liable for and indemnify us against all taxes attributable to the high specification drilling business and will be allocated all tax benefits attributable to such business. We generally will be liable for and indemnify Noble against all taxes attributable to the standard specification drilling business and will be allocated all tax benefits attributable to such business. Generally, we must reimburse Noble, and Noble must reimburse us, for the use by one party of tax benefits allocated to the other party, provided, however, that payment for any such tax benefits arising prior to the Distribution and utilized in a tax year beginning before the Distribution generally shall be required only if the creation or use of such tax benefits results from a tax contest resolved after the Distribution.
Noble generally will be responsible for preparing and filing all U.S. tax returns that include both taxes or tax benefits allocable to Noble and taxes or tax benefits allocable to us, and we generally will be responsible for preparing and filing certain non-U.S. tax returns that include taxes or tax benefits allocable to Noble and taxes or tax benefits allocable to us. We also generally will be responsible for preparing and providing to Noble pro forma portions of such U.S. tax returns that include only taxes and tax benefits allocable to us. Noble generally will be responsible for preparing and filing all tax returns that include only taxes or tax benefits allocable to Noble, and we generally will be responsible for preparing and filing all tax returns that include only taxes or tax benefits allocable to us. However, we generally will not be permitted to take a position on any such tax return that is inconsistent with our or Noble’s past practice.
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The party responsible for preparing and filing a tax return generally will also have the authority to control all tax proceedings, including tax audits, involving any taxes or adjustment to taxes reported on such tax return, except that we will be entitled to control tax proceedings relating to tax returns prepared and filed by Noble to the extent that such taxes or adjustments are allocable exclusively to us and are separable from taxes or adjustments relating to Noble. The tax sharing agreement further provides for cooperation between us and Noble with respect to tax matters, including the exchange of information and the retention of records that may affect our respective tax liabilities.
Finally, the tax sharing agreement will require that neither we nor any of our subsidiaries take or fail to take (i) any action that would be inconsistent with or cause to be untrue any material, information, covenant or representation in any representation letters, tax opinions or IRS private letter rulings obtained by Noble and (ii) any action that would be inconsistent with the tax-free treatment of the spin-off or certain related transactions.
Moreover, in the event that the spin-off or certain related transactions were to fail to qualify for tax-free treatment, Noble generally would be responsible for all of the tax resulting from such failure. However, we generally would be responsible for all of the tax resulting from such failure if the spin-off or certain related transactions were to fail to qualify for tax-free treatment because of certain actions or failures to act by us or any of our subsidiaries that occur after the effective date of the tax sharing agreement.
Transition Services Agreements
Prior to the completion of the Distribution, we and Noble will enter into a transition services agreement in connection with the separation pursuant to which Noble will provide, on a transitional basis, certain administrative and other assistance to be determined, generally consistent with the services provided before the separation and we will provide certain transition services to Noble. The charges for the transition services generally are intended to allow the party providing the services to fully recover the costs directly associated with providing the services, plus all out-of-pocket costs and expenses, generally without profit. The charges for each of the transition services generally will be based on either a pre-determined flat fee or an allocation of the costs incurred, including certain fees and expenses of third-party service providers. We will be provided with reasonable information that supports the charges for transition services we receive.
We have been preparing for the transition of the services currently provided by Noble in order to limit the scope of services to be provided under the transition services agreement. We anticipate that we will be in a position to complete the transition of any such services on or before December 31, 2015.
The services provided under the transition services agreement will terminate at various times to be specified in the agreement (generally ranging from December 31, 2014 to December 31, 2015). We may terminate certain specified services by giving prior written notice to the provider of such services and paying any applicable termination charge.
Subject to certain exceptions, the liabilities of either party under the transition services agreement will generally be limited to the aggregate charges (excluding any third-party costs and expenses included in such charges) actually paid to it pursuant to the transition services agreement. The transition services agreement will also provide that the parties will not be liable to us for any special, indirect, incidental or consequential damages.
We will also enter into a transition services agreement and a related rig charter pursuant to which we will provide certain transition services to Noble in connection with Noble’s offshore Brazil operations. We will provide both rig-based and shore-based support services in respect of Noble’s remaining business through the term of the existing rig contracts. Noble will compensate us on a cost-plus basis for providing such services and will also indemnify us for all liabilities arising out of the services agreement.
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MANAGEMENT
The following table sets forth information regarding our directors, director nominees and executive officers upon completion of the spin-off.
Until we re-register as a public limited company, our sole director will be James A. MacLennan, who also serves as the Senior Vice President and Chief Financial Officer of Noble and who will resign from our board of directors at the completion of the spin-off. It is expected that our independent director nominee, David W. Wehlmann, and Julie J. Robertson will also become directors upon our re-registration as a public limited company, which will precede the listing of our ordinary shares on the NYSE. Our other director nominees will become directors upon the consummation of the spin-off, at which time all directors other than Randall D. Stilley and Julie J. Robertson will be independent under the applicable standards of the NYSE. Each of our director nominees listed below has consented to be named in this information statement. Until the completion of the spin-off, our officers will consist of Randall D. Stilley and Steven A. Manz, who will continue to serve in the positions indicated below after the spin-off.
Randall D. Stilley serves as our President and Chief Executive Officer and will continue in such position following the spin-off. He has served as Executive Vice President of Noble since February 2014 and will leave this position upon completion of the spin-off. From May 2011 to February 2014, Mr. Stilley served as an independent business consultant and managed private investments. Mr. Stilley previously served as President and Chief Executive Officer of Seahawk Drilling, Inc. from August 2009 to May 2011 and Chief Executive Officer of the mat-supported jackup rig business at Pride International Inc. from September 2008 to August 2009. Seahawk Drilling filed for reorganization under Chapter 11 of the United States Bankruptcy Code in 2011. From October 2004 to June 2008, Mr. Stilley served as President and Chief Executive Officer of Hercules Offshore, Inc. Prior to that, Mr. Stilley was Chief Executive Officer of Seitel, Inc., an oilfield services company, President of the Oilfield Services Division at Weatherford International, Inc., and served in a variety of positions at Halliburton Company. He is a registered professional engineer in the State of Texas and a member of the Society of Petroleum Engineers. Mr. Stilley holds a Bachelor of Science degree in Aerospace Engineering from the University of Texas at Austin. Mr. Stilley brings to our board of directors extensive experience as an executive in the offshore contract drilling industry, particularly with respect to the standard specification offshore drilling market.
Steven A. Manz serves as our Senior Vice President and Chief Financial Officer and will continue in such position following the spin-off. He joined Noble in April 2014 and will leave this position upon completion of the spin-off. He served as Senior Vice President and Chief Financial Officer of Prospector Offshore Drilling S.A. from May 2010 to April 2013. He served as Senior Vice President and Chief Financial Officer of Seahawk
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Name Age Position/Title Randall D. Stilley 60 President, Chief Executive Officer and Director Nominee Steven A. Manz 49 Senior Vice President and Chief Financial Officer William C. Yester 63 Senior Vice President—Operations Lee M. Ahlstrom 46 Senior Vice President—Investor Relations, Strategy and Planning Andrew W. Tietz 48 Senior Vice President—Marketing and Contracts Todd D. Strickler 36 Vice President, General Counsel and Corporate Secretary Luis A. Jimenez 64 Vice President—Administration Anthony R. Chase 59 Director Nominee Thomas L. Kelly II 55 Director Nominee John P. Reddy 61 Director Nominee Julie J. Robertson 58 Director Nominee Dean E. Taylor 65 Director Nominee William L. Transier 59 Director Nominee David W. Wehlmann 55 Director Nominee J. Robinson West 67 Chairman Nominee
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Drilling, Inc. from August 2009 to May 2010. Seahawk Drilling filed for reorganization under Chapter 11 of the United States Bankruptcy Code in 2011. He served as Vice President and Chief Financial Officer—Mat Jackup Division of Pride International, Inc. from October 2008 to August 2009. From 2005 to 2007, he was with Hercules Offshore, Inc., where he served as Senior Vice President of Corporate Development and Planning and as Chief Financial Officer. From 1995 to 2004, Mr. Manz was with Noble Corporation, where he served in a variety of management roles including Managing Director-Noble Technology Services Division, Vice President of Strategic Planning, and Director of Accounting and Investor Relations. Mr. Manz holds a Bachelor of Business Administration in Finance from the University of Texas at Austin.
William C. “Charlie” Yester will serve as our Senior Vice President—Operations effective upon completion of the spin-off. He has over 40 years of experience in the drilling business, with over 22 years in offshore operations and has been employed with Noble in a number of operational roles since 1996. He has served most recently as Vice President—Division Manager (Africa) and prior to that, Vice President—Division Manager (Middle East and India). He will leave his current position upon completion of the spin-off. Mr. Yester began his career with Noble in 1974 and from 1990 to 1994 served as a Division Manager with Helmerich and Payne International Drilling Company. In 1994-1995 he held a number of operational roles with Triton Engineering Company before returning to Noble in 1995. Mr. Yester holds a Bachelor of Science degree in Petroleum Engineering from Louisiana Tech University.
Lee M. Ahlstrom will serve as our Senior Vice President—Investor Relations, Strategy and Planning effective upon completion of the spin-off. He has served as Senior Vice President—Strategic Development of Noble since May 2011 and will leave this position upon completion of the spin-off. Mr. Ahlstrom served as Vice President of Investor Relations and Planning of Noble from May 2006 to May 2011. Prior to joining Noble, Mr. Ahlstrom served as Director of Investor Relations at Burlington Resources, held various management positions at UNOCAL Corporation and served as an Engagement Manager with McKinsey & Company. Mr. Ahlstrom began his career with Exxon where he held a variety of engineering positions. He holds a Bachelors of Science and a Masters degree in Mechanical Engineering from the University of Delaware.
Andrew W. Tietz will serve as our Senior Vice President—Marketing and Contracts effective upon completion of the spin-off. He has served as Vice President—Marketing and Contracts of Noble since May 2010 and will leave this position upon completion of the spin-off. He served as Director—Marketing and Contracts from December 2009 to April 2010. Mr. Tietz previously served as Director—Marketing and Business Development for Transocean Ltd. He served in various marketing and finance positions with Transocean and GlobalSantaFe and Global Marine, prior to their mergers with Transocean, including positions in Dubai, Egypt and Kuala Lumpur. Mr. Tietz holds a Bachelor of Science degree from the University of Colorado—Boulder and a Masters of Business Administration from the University of St. Thomas.
Todd D. Strickler will serve as our Vice President, General Counsel and Corporate Secretary effective upon completion of the spin-off. He has served as Associate General Counsel—Corporate of Noble since January 2013 and will leave this position upon completion of the spin-off. He served as Senior Counsel for Noble since February 2009. Prior to his joining Noble, he specialized in corporate and securities law at the law firm of Andrews Kurth LLP. Mr. Strickler holds a Bachelor of Science degree in Mechanical Engineering from the University of Texas at Austin and a Juris Doctorate from the University of Texas School of Law.
Luis A. Jimenez will serve as our Vice President—Administration upon completion of the spin-off. He joined Noble in April 2014 and will leave this position upon completion of the spin-off. He previously served with Atwood Oceanics, Inc. as Vice President—Human Resources from December 2010 to April 2014 and as Director—Compensation and Benefits from March 2007 to December 2010. Previously, Mr. Jimenez held key positions in leading companies, including The Shaw Group, Inc., Halliburton Company, Smith International and American Express. Mr. Jimenez holds Bachelor of Science and Master of Science degrees from Texas A&M University.
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Anthony R. Chase will serve as a member of our board of directors upon completion of the spin-off. Since 2006, Mr. Chase has served as the Chairman and Chief Executive Officer of ChaseSource, L.P., a Houston-based staffing and real estate development firm, which is ranked among the nation’s largest minority-owned companies. Mr. Chase also is a tenured Professor of Law at the University of Houston. He currently serves on the boards of Anadarko Petroleum Corporation and Sarepta Therapeutics, Inc. and has recently served on the boards of Western Gas Partners, LP, the Cornell Companies and Leap Wireless International Inc. Mr. Chase is also on the board of directors of several non-profit companies. Mr. Chase brings to our board of directors unique experience as a successful and widely respected business leader, entrepreneur and legal scholar, significant experience with strategic transactions and public and private company board service.
Thomas L. Kelly II will serve as a member of our board of directors upon completion of the spin-off. He is a co-founder and has been a general partner of CHB Capital Partners, a private equity fund that provides capital and expertise to closely-held businesses since 1994. Mr. Kelly currently serves on the boards of numerous private companies and has recently served on the board of Ensco plc. Mr. Kelly brings to our board of directors extensive experience as a general partner in the private equity industry, considerable expertise in corporate finance and investment management activities and public and private company board service across multiple industries, including the offshore drilling industry.
John P. Reddy will serve as a member of our board of directors upon completion of the spin-off. Since 2009, Mr. Reddy has served as the Chief Financial Officer of Spectra Energy Corporation, an owner and operator of pipeline and midstream energy assets. Prior to that, he served as Senior Vice President and Chief Financial Officer of Atmos Energy Corporation and in various financial roles with Pacific Enterprises Corporation. Mr. Reddy currently also serves on the board of directors of DCP Midstream, LLC. Mr. Reddy brings to our board of directors experience and knowledge gained as an executive officer in the energy industry, as well as extensive accounting and financial expertise.
Julie J. Robertson will serve as a member of our board of directors upon our re-registration as a public limited company. She serves as Executive Vice President of Noble and has held such position since February 2006. In this role, Ms. Robertson is responsible for overseeing human resources, procurement and supply chain, learning and development, health, safety and environmental functions, and information technology. Ms. Robertson served as Senior Vice President—Administration from July 2001 to February 2006. Ms. Robertson has served continuously as Corporate Secretary since December 1993. Ms. Robertson served as Vice President—Administration of Noble Drilling from 1996 to July 2001. In 1994, Ms. Robertson became Vice President—Administration of Noble Drilling Services Inc. From 1989 to 1994, Ms. Robertson served consecutively as Manager of Benefits and Director of Human Resources for Noble Drilling Services Inc. Prior to 1989, Ms. Robertson served consecutively in the positions of Risk and Benefits Manager and Marketing Services Coordinator for a predecessor subsidiary of Noble, beginning in 1979. We believe Ms. Robertson is a suitable member of our board of directors because of her extensive industry experience, particularly as an officer of offshore drilling companies and oilfield service companies. Ms. Robertson also brings valuable knowledge and experience overseeing and managing our assets and operations.
Dean E. Taylor will serve as a member of our board of directors upon completion of the spin-off. Mr. Taylor is currently a director of Tidewater Inc., a global provider of offshore service vessels to the energy industry. From 1978 until 2012, Mr. Taylor served in various other roles with Tidewater, including as Chief Executive Officer and President and Chairman of the board. Mr. Taylor also serves on the board of Trican Well Services Ltd. and previously served as on the board of Whitney Holding Corporation. Mr. Taylor brings to our board of directors broad experience as an executive officer in the offshore energy industry and public company board experience.
William L. Transier will serve as a member of our board of directors upon completion of the spin-off. He is the founder, and has served as Chairman, President and Chief Executive Officer of Endeavour International Corporation, an international oil and gas exploration and production company, since 2006, and as Co-Chief
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Executive Officer of Endeavour from 2004 to 2006. Prior to this, Mr. Transier served in various roles including Executive Vice President and Chief Financial Officer of Ocean Energy, Inc., Executive Vice President and Chief Financial Officer of Seagull Energy Corporation and partner in the audit department of KPMG LLP. He is also currently a director of Helix Energy Solutions Group, Inc. and has previously served on the board of Cal Dive International, Inc. Mr. Transier brings to our board of directors experience and knowledge gained as an executive officer in the energy industry, as well as extensive accounting and financial expertise.
David W. Wehlmann will serve as a member of our board of directors upon our re-registration as a public limited company. Mr. Wehlmann is currently a private investor. From 2008 until 2012, Mr. Wehlmann served as Executive Vice President, Investor Relations of Precision Drilling Corporation, a publicly traded oilfield services company, and has previously served as Executive Vice President, Chief Financial Officer and Secretary of Grey Wolf, Inc., and in senior accounting roles with EnerVest Management Company L.C., and Convest Energy Corporation. Mr. Wehlmann currently serves on the boards of Omega Protein Corporation and Xtreme Drilling and Coil Services Corp. and has recently served as a director of Cano Petroleum, Inc. Mr. Wehlmann is a certified public accountant. Mr. Wehlmann brings to our board of directors expertise as an executive officer in the oil and gas industry, financial accounting expertise and experience on public company boards and audit committees.
J. Robinson West will serve as the chairman of our board of directors upon completion of the spin-off. He has served as a Senior Advisor and Resident Affiliate for the Center for Strategic & International Studies, an independent bi-partisan research institute specializing in foreign policy and defense issues and international economies, since October 2013. Mr. West was the founder, Chairman and Chief Executive Officer of PFC Energy, Inc., a Washington, D.C.-based consulting firm serving oil and gas companies and governments with 14 offices around the world, and served in that role from 1984 to 2013. Before founding PFC, Mr. West served in the Reagan Administration as Assistant Secretary of the Interior for Policy, Budget, and Administration (1981-83), with responsibility for U.S. offshore oil policy. Mr. West currently serves on the boards of Magellan Petroleum Corporation and has recently served on the board of Key Energy Services, Inc. and Cheniere Energy, Inc. Mr. West brings to our board of directors extensive experience as a consultant to companies in the international oil and gas industries, U.S. government service related to energy policy matters, and broad knowledge of board leadership and corporate governance.
Composition of Our Board of Directors
Vacancies on our board of directors can be filled by resolution of our board of directors. Our articles of association will provide that our board of directors will consist of a minimum of two and a maximum of nine directors. The term of office for each director will be until his or her successor is elected at our annual shareholder meeting or his or her death, resignation or removal, whichever is earliest to occur.
Committees of Our Board of Directors
Upon the completion of the spin-off, the standing committees of our board of directors will be an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each of the committees will report to our board of directors as they deem appropriate and as our board of directors may request. The expected composition, duties and responsibilities of these committees are set forth below.
Audit Committee
The primary responsibilities of the Audit Committee are the appointment, compensation, retention and oversight of Paragon Offshore’s auditors (including review and approval of the terms of engagement and fees), to review with the auditors Paragon Offshore’s financial reports (and other financial information) provided to the SEC and the investing public, to prepare and approve an annual report for inclusion in proxy statements, and to assist our board of directors with oversight of the following: integrity of Paragon Offshore’s financial statements;
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compliance by Paragon Offshore with standards of business ethics and legal and regulatory requirements; qualifications and independence of Paragon Offshore’s independent auditors (including both our independent registered public accounting firm and out statutory auditors); and performance of Paragon Offshore’s independent auditors and internal auditors.
Upon the listing of our ordinary shares on the NYSE, the Audit Committee will consist of Mr. Wehlmann (chairman). Upon completion of the spinoff, Mr. Kelly and Mr. Reddy will also become members of the Audit Committee. We believe that each of Mr. Wehlmann, Mr. Kelly and Mr. Reddy will qualify as an independent director according to the rules and regulations of the SEC and the NYSE with respect to audit committee membership. We also believe that Mr. Wehlmann qualifies as an “audit committee financial expert,” as such term is defined in Item 401(h) of Regulation S-K. Our board of directors will adopt a written charter for the Audit Committee in connection with the spin-off, which will be available on our corporate website at www.paragonoffshore.com upon the completion of the spin-off.
Compensation Committee
The Compensation Committee of our board of directors is responsible for determining the compensation of our board of directors and executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy. The Compensation Committee provides oversight on behalf of our board of directors in reviewing and administering the compensation programs, benefits and incentive and equity-based compensation plans. The Compensation Committee operates independently of management and receives compensation advice and data from outside independent advisors.
Upon completion of the spin-off, the Compensation Committee will consist of Mr. Transier (chairman), Mr. Kelly and Mr. Taylor. Our board of directors will adopt a written charter for the Compensation Committee in connection with the spin-off, which will be available on our corporate website at www.paragonoffshore.com upon the completion of the spin-off.
Nominating and Corporate Governance Committee
The primary responsibilities of the Nominating and Corporate Governance Committee are to assist our board of directors in reviewing, evaluating, selecting and recommending director nominees when one or more directors are to be appointed, elected or re-elected to our board of directors; to monitor, develop and recommend to our board of directors a set of principles, policies and practices relating to corporate governance; and to oversee the process by which our board of directors, our Chief Executive Officer and executive management are evaluated.
Upon completion of the spin-off, the Nominating and Corporate Governance Committee will consist of Mr. Taylor (chairman), Mr. Chase and Mr. West. Our board of directors will adopt a written charter for the Nominating and Corporate Governance Committee in connection with the spin-off, which will be available on our corporate website at www.paragonoffshore.com upon the completion of the spin-off.
Director Compensation
We are currently developing a compensation program for members of our board of directors other than those who are employed by Noble or us. We expect the Paragon Offshore plc 2014 Director Omnibus Plan to be adopted prior to the Distribution Date and become effective as of the Distribution Date, subject to the approval of Noble, in its capacity as our sole shareholder. Please read “Executive Compensation—Our Equity Plans Following the Separation—Paragon Offshore plc 2014 Director Omnibus Plan.”
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the relationships between us and Noble. Our directors and executive officers may also own substantial amounts of Noble shares or equity awards. Their
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position at Noble and the ownership of any Noble equity or equity awards creates, or may create the appearance of, conflicts of interest when these expected directors and officers are faced with decisions that could have different implications for Noble than for us. The resolution of these conflicts may not be in the best interest of us or our shareholders. In particular:
Please read “Risk Factors—Risks Related to Our Separation from and Our Relationship with Noble—Our directors and executive officers have potential conflicts of interest, and conflicts of interest between Noble and us could be resolved in a manner unfavorable to us,” “Risk Factors—Risks Related to Our Separation from and Our Relationship with Noble—The corporate opportunity provisions in our master separation agreement could enable Noble to benefit from corporate opportunities that might otherwise be available to us” and “Certain Relationships and Related Party Transactions—Master Separation Agreement—Corporate Governance.”
The Companies Act imposes a general duty on our directors to avoid situations in which they have or can have a direct or indirect interest that conflicts with, or may conflict with our interests. This applies, in particular, to the exploitation of property, information or opportunity, and whether or not we could take advantage of the property, information or opportunity. Our articles of association which will be adopted prior to the completion of the spin-off will allow our board of directors to authorize a director’s conflict of interest subject, if required, to certain conditions which may be imposed on the conflicted director by the board of directors including, for example, a requirement that the relevant director does not attend all or part of a board meeting.
The board authorization will only be effective if the matter in question has been proposed in writing for consideration at a meeting of our directors, the required quorum is met without counting the conflicted director in question or any other interested director and if the conflicted directors have not participated in the making of the decision or if the decision would have been valid without the participation of the conflicted directors.
Risk Oversight
Our board of directors will oversee the risk management activities designed and implemented by our management. Our board of directors will execute its oversight responsibility for risk management both directly and through its committees. The full board of directors will also consider specific risk topics, including risks associated with our strategic plan, business operations and capital structure. All committees will report to the full board of directors as appropriate, including when a matter rises to the level of a material or enterprise level risk. In addition, our board of directors will receive detailed regular reports from members of our senior management and other personnel that include assessments and potential mitigation of the risks and exposures involved with their respective areas of responsibility.
Code of Business Conduct and Ethics
Our board of directors will adopt a code of business conduct and ethics in connection with the completion of the spin-off. The code of business conduct and ethics will apply to all of our employees, officers and directors. The full text of our code of business conduct and ethics will be posted on our website. If we make any substantive amendments to this code or grant any waiver from a provision to our chief executive officer, principal financial officer or principal accounting officer, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
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• one of our initial directors will also continue to serve as an executive officer of Noble;
• Noble may compete with us; and
• we have entered into arrangements, and may enter into additional arrangements, with Noble, relating to the provision of certain
services to us by Noble, indemnification by us of Noble and other matters. In the performance of their obligations under these agreements, Noble and its subsidiaries are generally held to the standard of care specified in these agreements.
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EXECUTIVE COMPENSATION
Overview
We currently operate as a wholly-owned business of Noble and will continue to do so until the consummation of the Transactions. As a result, Noble has determined the compensation of our employees, including our Named Executive Officers (as defined below), and will continue to do so until the completion of the spin-off. Unless otherwise stated, the compensation tables and other information set forth below reflect amounts paid or payable or awards granted to our Named Executive Officers by Noble under Noble’s compensation plans and programs. Following the completion of the spin-off, our Named Executive Officers will receive compensation and benefits under our compensation programs and plans, except that certain benefits will continue to be provided to our employees, including our Named Executive Officers, by Noble pursuant to a transition services agreement relating to our business. Please read “Certain Relationships and Related Party Transactions—Transition Services Agreements.”
Compensation Discussion and Analysis
We have yet to establish a compensation committee of our board of directors. As a result, except as otherwise indicated, the compensation information discussed in this “Compensation Discussion and Analysis” reflects the compensation philosophy and program established by the compensation committee of Noble’s board of directors in place to compensate Noble’s management for the year ended December 31, 2013.
The compensation and benefits program for Paragon Offshore, including such factors as metrics for any performance-based awards and identification of our peer group, have yet to be developed. However, we expect our initial compensation philosophy and program to be similar to Noble’s.
The executive officers who were largely responsible for conducting the business and managing the operations of the standard specification drilling business during 2013 are also executive officers of Noble. For the fiscal year ended December 31, 2013, the Noble employees who will be included in the executive team for Paragon Offshore and who are referred to as our Named Executive Officers are: William C. “Charlie” Yester, who is Vice President—Division Manager (Africa) for Noble’s West Africa operations and who will be our Senior Vice President—Operations upon completion of the spin-off; Andrew W. Tietz, who is Vice President—Marketing and Contracts of Noble and who will be our Senior Vice President—Marketing and Contracts upon completion of the spin-off; and Lee M. Ahlstrom, who is Senior Vice President—Strategic Development of Noble and who will be our Senior Vice President—Investor Relations, Strategy and Planning upon completion of the spin-off. Our chief executive officer and chief financial officer were not employees of Noble in 2013.
Details of Noble’s Compensation Program
Compensation Philosophy
Noble’s executive compensation program reflects Noble’s philosophy that executive compensation should be structured so as to closely align each executive’s interests with the interests of its shareholders, emphasizing equity-based incentives and performance-based pay. The primary objectives of Noble’s compensation program are to:
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• motivate Noble’s executives to achieve key operating, safety and financial performance goals that enhance long-term shareholder value;
• reward performance in achieving targets without subjecting Noble to excessive or unnecessary risk; and
• establish and maintain a competitive executive compensation program that enables Noble to attract, motivate and retain experienced and highly capable executives who will contribute to Noble’s long-term success.
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Consistent with this philosophy, Noble seeks to provide a total compensation package for its named executive officers that is competitive with those of the companies in the Peer Group for a given year. A substantial portion of total compensation is subject to Noble’s, individual and share price performance and is at risk of forfeiture. In designing these compensation packages, Noble’s compensation committee annually reviews each compensation component and compares its use and level to various internal and external performance standards and market reference points.
Noble’s compensation program for our Named Executive Officers consists of the following components:
Board Process and Independent Review of Compensation Program
Noble’s compensation committee is responsible for determining the compensation of Noble’s directors and executive officers and for establishing, implementing and monitoring adherence to Noble’s executive compensation philosophy. Noble’s compensation committee provides oversight on behalf of Noble’s board in reviewing and administering compensation programs, benefits, incentive and equity-based compensation plans. Noble’s compensation committee operates independently of Noble’s management and receives compensation advice and data from outside independent advisors.
Noble’s compensation committee charter authorizes the compensation committee to retain and terminate, as the committee deems necessary, independent advisors to provide advice and evaluation of the compensation of directors or executive officers, or other matters relating to compensation, benefits, incentive and equity-based compensation plans and corporate performance. Noble’s compensation committee is further authorized to approve the fees and retention terms of any independent advisor that it retains. Noble’s compensation committee engaged Mercer (US) Inc., or Mercer, an independent consulting firm, to serve as the committee’s compensation consultant.
Noble’s compensation consultant reports to and acts at the direction of the Noble’s compensation committee and is independent of management, provides comparative market data regarding executive and director compensation to assist in establishing reference points for the principal components of compensation and provides information regarding compensation trends in the general marketplace, compensation practices of the Peer Group described below, and regulatory and compliance developments. The compensation consultant regularly participates in the meetings of Noble’s compensation committee and meets privately with the committee at each committee meeting.
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• Base pay . This fixed cash component of compensation is generally used to attract and retain executives, with target salary levels set to be competitive with Noble’s Peer Group.
• Annual incentive compensation . This performance-based component of compensation is funded based on EBITDA performance relative to target and paid as an annual cash bonus pursuant to the Short Term Incentive Plan, or STIP. The STIP encourages and rewards achievement of annual financial, safety and operating goals, as well as achievement of company, team and individual objectives.
• Equity awards under Noble’s LTIP . Equity awards under Noble’s long-term incentive plan currently consist of the following:
• Performance-based awards . This component of compensation consists of performance-vested restricted stock units, or PVRSUs, based upon Noble’s cumulative total shareholder return relative to its Peer Group over a three-year period.
• Time-vested awards . This component of compensation, consisting of time-vested restricted stock unit awards, facilitates
retention, aligns executives’ interest with the interests of Noble’s shareholders and allows executives to become stakeholders in Noble.
• Other benefits . The retirement and other benefits are described below.
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Peer Groups and Benchmarking
Noble competes for talent with employers across many different sectors around the world, but Noble’s primary competitive market consists of offshore drilling companies and oilfield service companies. In making compensation decisions for Noble’s named executive officers, each element of their total direct compensation is compared against published compensation data and data provided by the compensation consultant. Data from peer groups play an important role in the process used by Noble’s compensation committee to determine the design, components and award levels in its executive pay program. Noble’s compensation committee conducts a review of the compensation program on an annual basis to ensure that Noble’s compensation program works as designed and intended and in light of current market conditions. The following peer groups have been used or are currently being used by Noble for the purposes indicated below:
References to the “Peer Group” mean the 2013 Peer Group or 2012 Peer Group, as the context requires.
Noble’s compensation committee conducted an extensive review of the 2012 Peer Group and made the following changes to define the 2013 Peer Group, effective in 2013. The following companies were removed from the Peer Group: Baker Hughes Inc., Halliburton Company, Nabors Industries Ltd., Schlumberger Ltd. and Seadrill Limited. The following companies were added to the Peer Group: Cameron International Corp,
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Composition Uses 2013 Peer Group
Atwood Oceanics, Inc. Cameron International Corp* Diamond Offshore Drilling, Inc. Ensco plc. FMC Technologies Inc. Helmerich & Payne, Inc.* National Oilwell Varco, Inc. Oceaneering International, Inc. Oil States International, Inc.* Patterson-UTI Energy, Inc.* Rowan Companies, Inc. Superior Energy Services, Inc.* Transocean Ltd. Weatherford International Ltd.
*added in 2013 as described below
• Benchmark for comparing each component of compensation program in 2013 and 2014
• PVRSU performance achievement for awards made in 2013 and 2014
2012 Peer Group
Atwood Oceanics, Inc. Baker Hughes Inc.** Diamond Offshore Drilling, Inc. Ensco plc. FMC Technologies Inc. Halliburton Company** Nabors Industries Ltd.** National Oilwell Varco, Inc. Oceaneering International, Inc. Rowan Companies, Inc. Schlumberger Ltd.** Seadrill Limited** Transocean Ltd. Weatherford International Ltd.
**removed in 2013 as described below
• Benchmark for comparing each component of compensation program in 2012
• PVRSU performance achievement for awards made prior to 2013
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Helmerich & Payne, Inc., Oil States International, Inc., Patterson-UTI Energy, Inc. and Superior Energy Services, Inc. These changes resulted from feedback received from shareholders and a thorough review of the 2012 Peer Group, with a focus on size as measured by revenue and market capitalization, scope and type of operations, sources for executive talent, best pay practices and availability of pay data. Noble believes that the 2013 Peer Group best reflects the group of companies with which Noble most closely competes operationally and for executive talent. As of December 31, 2013, Noble ranked at the 43rd percentile and 57th percentile of the 2013 Peer Group based on revenues and market capitalization, respectively.
Noble’s compensation committee benchmarks compensation of the named executive officers to the compensation of individuals in like positions in the companies included in the Peer Group. Noble’s compensation committee does not benchmark executive compensation to specific levels or percentiles of the Peer Group, but instead endeavors to be competitive with the Peer Group with respect to the various components and the aggregate level of compensation of officers in comparable positions. Noble’s compensation committee believes that this approach gives the committee the flexibility to respond to individual circumstances and offer competitive compensation packages to Noble’s officers.
How Amounts for Compensation Components are Determined
Base Salary. Base salary levels of our Named Executive Officers were determined based on a combination of factors, including Noble’s compensation philosophy, market compensation data, competition for key executive talent, the named executive officer’s experience, leadership, prior contribution to Noble’s success, Noble’s overall annual budget for merit increases and the named executive officer’s individual performance in the prior year. Noble’s compensation committee conducts an annual review of the base salaries of named executive officers by taking into account these factors.
Short-Term Incentive Plan. The STIP gives participants, including our Named Executive Officers, the opportunity to earn annual cash bonuses in relation to specified target award levels defined as a percentage of their base salaries. Plan award sizes were developed considering market data and internal equity.
Noble’s success is tied to the achievement of key performance goals that include annual company and business unit financial and operating objectives, as well as individual and team performance. In addition, Noble’s business requires the successful ongoing planning and execution of a complex capital expansion program to meet the needs of its customers, and the successful management and execution of strategic initiatives.
The material provisions of the STIP are as follows:
Performance Component. The Performance Component comprises 50% of the total target STIP award and is calculated by measuring actual performance against the performance goals set annually by the compensation committee. The weighted percentage of corporate goal achievement of 145 percent corresponds to an applicable multiplier under the STIP of 1.45, which resulted in a calculated performance bonus for the named executive officers equal to 1.45 times their target performance bonus.
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Purpose
To tie annual cash bonuses directly to specific annual financial and operating goals, accomplishment of team and individual objectives, and other key accomplishments
Plan funding The aggregate funding of the STIP is determined based on EBITDA performance relative to target.
Target awards
For our Named Executive Officers, 50 percent of base salary to 55 percent of base salary, with the latter target award set only for Noble’s CEO.
Potential range of awards
For our Named Executive Officers, zero to 110 percent of base salary for the Named Executive Officer with the highest target award and from zero to 100 percent of base salary for the named executive officer with the lowest target award.
Components (1) Performance (EBITDA and safety results) (50%) and (2) Achievement of Goals (50%)
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While individual Performance Components are calculated based on EBITDA and safety, the overall funding of the 2013 STIP is based solely on EBITDA performance relative to target, plus up to a 20% additional amount to be determined by the Noble’s compensation committee. Based on EBITDA performance, the STIP funded at 115% of target funding. Noble’s compensation committee included a portion, but not all, of the additional amount permitted under the STIP to fund the STIP at 132% of target funding. As a result of this performance-based STIP funding mechanism, the maximum performance bonus for Noble’s named executive officers was reduced from the calculated amount of 145% of target to the funded amount of 132% of target.
The calculation of the Performance Component for corporate personnel, including the named executive officers, is set forth in the following table.
Achievement of Goals Component. Fifty percent (50%) of the total target STIP award is based on the achievement of specific individual, team and company goals, or Goals Component, such as Noble’s financial results, newbuild program, strategic initiatives, operational performance and safety results. For the 2013 plan year, Noble’s compensation committee approved total STIP payouts applicable to the named executive officers.
Long-Term Incentives. Noble believes it is important to reward executive officers and key employees who experienced superior performance in their current position, as well as the likelihood of high-level performance in the future, with equity compensation, in keeping with Noble’s overall compensation philosophy to align executives’ and employees’ interests with the interests of Noble’s shareholders. The amount of long-term incentive compensation is determined annually based on the analysis of competitive data. The table below sets forth the components of the 2013 and 2014 awards:
PVRSUs . PVRSUs vest based on the achievement of specified corporate performance criteria over a three-year performance cycle (currently cumulative total shareholder return, or TSR). The number of PVRSUs awarded to a participant equals the number of units that would vest if the maximum level of performance for a given performance cycle is achieved. The number of such units that vests is determined after the end of the applicable performance period. Any PVRSUs that do not vest are forfeited. Upon satisfaction of the performance criteria and vesting, PVRSUs convert into unrestricted shares of Noble. Holders of PVRSUs are entitled to
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Components of Performance Bonus How Determined
Weighting
(A) 2013 Results
Adjustment Factor
(B)
Component
Payout (A)*(B)
EBITDA
EBITDA relative to target
0.65
Actual EBITDA of $2.007 billion was 102.3% of the EBITDA target of $1.962 billion
1.15
0.75
Safety results
Lost time incident rate (LTIR) versus International Association of Drilling Contractors (IADC) average
0.35
LTIR of 0.05 compared to IADC average of 0.17
2.00
0.70
Goal Achievement
1.45
Performance
Component (as funded)
1.32
Year PVRSUs Time-vested RSUs 2013 50 % 50 % 2014 50 % 50 %
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receive dividend equivalents. The market price of Noble’s shares at the time of award, the difficulty in achieving the performance targets and the accounting valuation of the award are used to calculate the number of PVRSUs awarded.
In setting the target number of PVRSUs, Noble’s compensation committee takes into consideration market data, the award’s impact on total compensation, the performance of the executive during the last completed year, and the potential for further contributions by the executive in the future.
Noble’s compensation committee approved the target award levels in the tables below because it believes that if Noble performs at or above the 51st percentile relative to the companies in the Peer Group, compensation levels should be commensurate with this performance. If Noble performs below this level, Noble’s compensation levels should be lower than the 50th percentile. The maximum number of PVRSUs that can vest is 200% of the target award level.
To determine the number of PVRSUs that will vest, the percentile ranking of TSR for Noble’s shares is computed relative to the companies in the Peer Group at the end of the performance cycle. Then, the Peer Group percentile ranking is cross-referenced in the table below to determine the percentage of PVRSUs that will vest. The performance thresholds in the below table are applicable for the 2013-2015 performance cycle (vests in early 2016) and the 2014-2016 performance cycle (vests in early 2017).
In the past three years, our Named Executive Officers have forfeited a substantial portion of performance-based restricted shares and units. The following table describes performance-vested restricted stock units that have recently vested and been forfeited in the years below. The performance awards for these cycles were measured against the performance thresholds in place at the time the awards were granted.
Time-Vested RSUs. Time-vested RSUs vest one-third per year over three years commencing one year from the award date. Upon vesting, these units convert automatically into unrestricted shares of Noble. Holders of time-vested RSUs are entitled to receive dividend equivalents on the restricted stock units. Noble’s compensation committee believes that time-vested RSUs remain an important element of compensation as they promote retention, reward individual and team achievement and align executives with the interests of shareholders.
Stock Options. Nonqualified stock options granted prior to 2013 vest one-third per year over three years commencing one year from the grant date and expire 10 years after the grant date. All options granted have an exercise price equal to the grant date fair market value of Noble’s shares, and the number of options granted is
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TSR Relative to the Peer Group
Percentage of Maximum
PVRSUs Vesting (1) 90%ile and greater (maximum) 100%
75%ile (above target) 75% 51%ile (target) 50%
25%ile (threshold) 25% Below 25%ile (below threshold) 0%
(1) Values between those listed are interpolated on a linear basis. Each percentage represents a percentage of the total number of restricted
stock units awarded for the maximum level of performance for the performance cycle.
Performance Cycle Vesting Date Performance Measure Percent Vested Percent
Forfeited 2010-2012
February 2013
TSR relative to 2012 Peer Group (as comprised at YE 2012)
0 %
100 %
2011-2013
February 2014
TSR relative to 2012 Peer Group (as comprised at YE 2012)
45.34 %
54.66 %
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based on the Black-Scholes option pricing model. In considering feedback from shareholders, and with a goal of balancing the need to have a performance-based program while considering the need for retention in Noble’s highly competitive sector, Noble’s compensation committee determined that an equal balance of PVRSUs and time-vested RSUs was appropriate. Beginning in 2013, stock options are no longer granted.
The total value of long-term incentive awards is developed considering Noble’s objectives for this component of total compensation relative to the pay of the companies in the Peer Group and is set to be competitive with the Peer Group. Noble’s CEO recommends for consideration and approval by Noble’s compensation committee the total value of awards for all positions other than his own. Noble’s compensation committee determines the total award value of awards for Noble’s CEO and, based in part on Noble’s CEO’s recommendations, the other positions.
Awards granted under the 1991 Plan that have not vested may be subject to accelerated vesting upon the occurrence of certain events, such as the death, Disability or Retirement of the employee or a Change in Control of Noble (as set forth, and as such terms are defined, in the 1991 Plan, the grant agreements relating to such awards or the change of control employment agreements).
Retirement and Other Benefits
Noble offers retirement programs that are intended to supplement the personal savings and social security for covered officers and other employees. The programs include the Noble Drilling Corporation 401(k) Savings Plan, the Noble Drilling Corporation 401(k) Savings Restoration Plan, the Noble Drilling Corporation Salaried Employees’ Retirement Plan, the Noble Drilling Corporation Retirement Restoration Plan, and the Noble Drilling Corporation Profit Sharing Plan. Noble believes that these retirement programs assist Noble in maintaining a competitive position in attracting and retaining officers and other employees. A description of these plans, including eligibility and limits, is set forth in the following table.
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Plan Description and Eligibility Benefits and Vesting 401(k) Savings Plan
Qualified plan that enables qualified employees, including the named executive officers, to save for retirement through a tax-advantaged combination of employee and Company contributions.
Matched at the rate of $0.70 to $1.00 per $1.00 (up to 6% of base pay) depending on years of service. Fully vested after three years of service or upon retirement, death or disability.
401(k) Savings Restoration Plan
Unfunded, nonqualified employee benefit plans under which highly compensated employees may defer compensation in excess of 401(k) plan limits.
Matching and vesting provisions mirror 401(k) Savings Plan to the extent an employee is prohibited from participating in the 401(k) Savings Plan
Profit Sharing Plan
Qualified defined contribution plan. Available to employees hired after August 1, 2004 who do not participate in the Salaried Employees’ Retirement Plan.
Company made annual discretionary contribution of 3.0% of base pay for 2013. Fully vested after three years of service or upon retirement, death or disability.
Retirement Plan and Retirement Restoration Plan
Qualified defined benefit pension plan. Available to participants originally hired on or before July 31, 2004.
Benefits are determined by years of service and average monthly compensation. Eligible compensation in excess of IRS annual compensation limit for a given year is considered in the Retirement Restoration Plan.
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For additional information regarding these plans, please see the description following the tables captioned “Nonqualified Deferred Compensation” and “Pension Benefits.”
Other Benefits. Noble provides named executive officers with perquisites and other personal benefits that Noble and its compensation committee believe are reasonable and consistent with its overall compensation program.
Noble provides healthcare, life and disability insurance, and other employee benefit programs to its employees, including its named executive officers, which Noble believes assists in maintaining a competitive position in terms of attracting and retaining officers and other employees. These employee benefit plans are provided on a non-discriminatory basis to all employees.
Expatriate Benefits for Employees in Switzerland
In connection with Noble’s change in place of incorporation from the Cayman Islands to Switzerland, certain of our Named Executive Officers received relocation benefits. These relocation benefits were benchmarked against Noble’s peers and Noble believes they are customary for expatriates in this market and appropriate and necessary to maintain Noble’s management team, including the named executive officers. Noble provided similar relocation benefits to its other expatriate employees, including non-executive employees, who relocated to Geneva. The relocation package includes: (i) a lump sum relocation allowance of one month’s base salary; (ii) temporary housing for up to six months; and (iii) standard outbound services, including “house hunting” trips and shipment of personal effects.
All of Noble’s officers located in Noble’s Geneva office receive the following expatriate benefits:
The housing and car allowances, foreign service premium and resident area premium are provided for five years from the date of such individual’s most recent relocation. Noble also provides tax equalization for the employees, including the named executive officers, for five years so that their overall tax liability will be equal to their “stay at home” U.S. tax liability with respect to their base salary, annual bonus, foreign service premium, resident area allowance and incentive plan awards.
Share Ownership Policy
In early 2014, Noble adopted a share ownership policy that includes minimum share ownership requirements for all of its directors and officers, including the named executive officers. The share ownership policy prohibits sales of Noble shares unless such ownership requirements are satisfied. Noble’s share ownership guidelines for Noble’s executives are set forth below.
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• a housing allowance of between CHF 16,150 and CHF 19,475 per month;
• a car allowance of CHF 1,500 per month;
• a foreign service premium of 16 percent of base pay;
• a resident area allowance of 10 percent of base pay;
• reimbursement or payment of school fees for eligible dependents to age 19, or through high school equivalency; and
• an annual home leave allowance equivalent to an advance purchase business class round-trip ticket for the employee, spouse and eligible dependents back to their point of origin.
Position Minimum Ownership
(Multiple of Base Salary) Chief Executive Officer 5.0 times Executive Vice President and Senior Vice Presidents 4.0 times
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Noble’s share ownership policy for its outside directors is six times their annual retainer, or $300,000.
Securities Trading Policy
Noble’s Policy on Trading in Company stock prohibits hedging or short sale transactions or buy or sell puts or calls involving Noble securities and prohibits purchases of Noble securities on margin.
Determination of Timing of Equity-Based Awards
Noble’s practice has been to award restricted shares or restricted stock units to new executives contemporaneously with their hire date and annually to current executives at regularly-scheduled meetings of the compensation committee following the public release of the immediately preceding quarter’s financial results and any other material nonpublic information.
Change of Control Arrangements
Noble has offered change of control employment agreements to certain of its senior executives since 1998. These agreements become effective only upon a change of control of Noble (within the meaning set forth in the agreement). If a defined change of control occurs and the employment of the named executive officer is terminated either by Noble (for reasons other than death, disability or cause) or by the officer (for good reason or upon the officer’s determination to leave without any reason during the 30-day period immediately following the first anniversary of the change of control), which requirements can be referred to as a “double trigger”, the executive officer will receive payments and benefits set forth in the agreement. Noble believes a “double trigger” requirement, rather than a “single trigger” requirement (which would be satisfied simply if a change of control of Noble occurs), increases shareholder value because it prevents an immediate unintended windfall to the named executive officers in the event of a friendly (non-hostile) change of control of Noble.
In October 2011, Noble’s board of directors approved a new form of change of control employment agreement for its executive officers. The terms of the new form of employment agreement are substantially the same as the prior agreements, except the new form only provides benefits in the event of certain terminations by Noble for reasons other than death, disability or “cause” or by the officer for “good reason” and does not provide for an Excise Tax Payment. In February 2012, the Noble’s board of directors approved further changes to the form of change of control agreement and the 1991 Plan to revise the definition of change in control such that the percentage of Noble’s shares that must be acquired by an individual, entity or group to trigger a change in control was increased from 15% to 25%.
Also in October 2011, Noble’s compensation committee approved new forms of equity award agreements for executive officers under the 1991 Plan such that the definition of change of control in these agreements would be consistent with the definition of change of control in the award agreements for all of Noble’s employees.
Impact of Accounting and Tax Treatments of Compensation
In recent years Noble’s compensation committee has increased the proportion of annual long-term incentive compensation to its named executive officers represented in the form of restricted shares or restricted stock units as compared to nonqualified stock options. This compensation committee action reflects, among other things, the changes in accounting standards modifying the accounting treatment of nonqualified stock options. Noble’s compensation committee intends to continually monitor these issues regarding tax and accounting regulations, overall effectiveness of the programs and best practices.
Noble’s compensation committee intends to retain flexibility to design compensation programs, even where compensation payable under such programs may not be fully deductible, if such programs effectively recognize a full range of criteria important to the Noble’s success and result in a gain to Noble that would outweigh the limited negative tax effect.
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Conclusion
Noble believes its compensation program’s components and levels are appropriate for its industry and provide a direct link to enhancing shareholder value and advancing the core principles of Noble’s compensation philosophy and objectives to ensure Noble’s long-term success. Noble will continue to monitor current trends and issues in its industry, as well as the effectiveness of its program with respect to its named executive officers, to properly consider whether to modify its program where and when appropriate.
Our Equity Plans Following the Separation
We are currently developing the compensation policies, plans and programs for our executive officers, including our Named Executive Officers, that we will implement in connection with or following the spin-off.
Paragon Offshore plc 2014 Employee Omnibus Incentive Plan
We expect the Paragon Offshore plc 2014 Employee Omnibus Incentive Plan (the “Employee Plan”) to be adopted prior to the Distribution Date and become effective as of the Distribution Date, subject to the approval of Noble, in its capacity as our sole shareholder. The persons who are eligible to receive grants of awards under the Employee Plan would be employees (including officers who are employees) of us or our subsidiaries. Individuals who we expect to become employees may also receive grants of awards, subject to the individuals actually becoming employees. The Employee Plan will be administered by the Compensation Committee of our board of directors, or other committee appointed by our board of directors, or the board of directors itself, although it is expected that the Compensation Committee will generally serve as the administrator. Among other things, the Compensation Committee, in its discretion, selects the awardees to whom awards may be granted, the time or times at which such awards are granted, and the terms of such awards, including the type of award to be granted (including whether the award is intended to qualify as “performance-based compensation” under Section 162(m) of the Code) and the number of shares subject to each award. The Employee Plan provides that the Compensation Committee may award to such eligible recipients as it may determine from time to time the following awards: stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and cash awards. Subject to the adjustment clauses in the Employee Plan, the maximum aggregate number of shares of our ordinary shares that may be subject to awards granted under the Employee Plan is equal to 10% of the number of our outstanding shares at the time of the Distribution.
The foregoing description of the Employee Plan does not purport to be complete and is qualified in its entirety by reference to the Form of Employee Plan filed as an exhibit to the registration statement on Form 10 to which this information statement is an exhibit.
Paragon Offshore plc 2014 Director Omnibus Plan
We expect the Paragon Offshore plc 2014 Director Omnibus Plan (the “Director Plan”) to be adopted prior to the Distribution Date and become effective as of the Distribution Date, subject to the approval of Noble, in its capacity as our sole shareholder. All directors, and persons expected to become directors following the grant date of an award, would be eligible for grants of awards under the Director Plan. The Director Plan will be administered by our board of directors. Among other things, the board of directors, in its discretion, selects the awardees to whom awards may be granted, the time or times at which such awards are granted, and the terms of such awards, including the type of award to be granted and the number of shares subject to each award. The Director Plan provides that the board of directors may award to directors as it may determine from time to time the following awards: stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and cash awards. The Director Plan also provides that each director’s annual retainer will be paid under the Director Plan, and the director may elect to receive such compensation as a cash award or unrestricted shares. Subject the adjustment clauses in the Director Plan, the maximum number of our ordinary shares that may be subject to awards granted under the Director Plan is 500,000 shares.
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The foregoing description of the Director Plan does not purport to be complete and is qualified in its entirety by reference to the Form of Director Plan filed as an exhibit to the registration statement on Form 10 to which this information statement is an exhibit.
Our Executive Compensation
Our Named Executive Officers
The following tables provide information regarding the compensation awarded to or earned during the year ended December 31, 2013 by our Named Executive Officers who were employed by Noble during such period. Prior to our separation from Noble, Lee M. Ahlstrom, Andrew W. Tietz and William C. “Charlie” Yester were employees of Noble. Compensation information for these executives relates to their roles as employees of Noble. All references in the following tables to stock relate to awards of Noble shares granted by Noble. Such amounts do not necessarily reflect the compensation such persons will receive following our separation from Noble, which could be higher or lower, because historical compensation was determined by Noble and future compensation levels will be determined based on the compensation policies, programs and procedures to be established by the compensation committee of our board of directors.
The following table sets forth the compensation awarded by Noble during the year ended December 31, 2013 to our Named Executive Officers who were Noble employees.
S UMMARY C OMPENSATION T ABLE
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Name and Principal Position Year Salary
Bonus
(1)
Stock Awards
(2)
Option Awards
(2)
Non-Equity Incentive Plan
Compensation
(1)
Change in Pension Value
and Non- Qualified Deferred
Compensation
Earnings (3)
All Other Compensation
(4) Total
Lee M. Ahlstrom 2013 $ 337,500 — $ 558,392 — $ 230,000 — $ 448,359 (5) $ 1,574,251 Senior Vice President – Investor Relations, Strategy and Planning
Andrew W. Tietz 2013 $ 271,917 — $ 335,017 — $ 195,000 — $ 48,720 (6) $ 850,654 Senior Vice President – Marketing and Contracts
William C. Yester 2013 $ 309,167 — $ 446,659 — $ 250,000 $ (38,225 ) $ 531,260 (7) $ 1,498,861 Senior Vice President – Operations
(1) The cash Performance Bonuses awarded under the STIP are disclosed in the Non-Equity Incentive Plan Compensation column. (2) Represents the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. The maximum value of the performance-
based restricted stock awards, calculated as the maximum number of shares that may be issued multiplied by the market price of the shares on the grant date is as follows: Mr. Ahlstrom – $500,023; Mr. Tietz – $299,997; and Mr. Yester – $399,969.
(3) The amounts in this column represent the aggregate change in the actuarial present value of each named executive officer’s accumulated benefit under the Noble Drilling Corporation Salaried Employees’ Retirement Plan and the Noble Drilling Corporation Retirement Restoration Plan for the year. Does not include any amounts that are above-market or preferential earnings on deferred compensation.
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The following table sets forth certain information about grants of plan-based awards made by Noble during the year ended December 31, 2013 to each of our Named Executive Officers who were Noble employees.
G RANTS O F P LAN -B ASED A WARDS
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(4) The amount in All Other Compensation includes foreign service employment benefits paid in connection with expatriate assignments for named executive officers to Noble’s offices in Geneva, Switzerland as follows:
Name Year
Housing/ Auto
Allowance *
Foreign Service
Premium
Resident Area
Allowance
Reimbursement
of School Fees * Moving
Expenses
Foreign Tax
Payment * Lee M. Ahlstrom 2013 $ 79,392 $ 23,211 $ 15,428 $ 6,318 $ 47,534 $ 208,733 William C. Yester 2013 $ 176,875 $ 45,333 $ 25,750 — $ 3,582 $ 212,442
* Under the tax equalization policy, the executive is responsible for funding the theoretical U.S. tax liability, which is effected through regular payroll deductions we generally refer to as “Hypothetical Tax Deductions.” Hypothetical Tax Deductions are based on an estimate of the executive’s anticipated U.S. theoretical tax liability. When an executive’s actual U.S. tax return is prepared, the corresponding tax equalization calculation reconciles the amount of Hypothetical Tax Deductions withheld during the year to the executive’s final theoretical U.S. liability. If the Hypothetical Tax Deductions are not sufficient to satisfy the tax liability, any difference is paid by the executive to Noble. Any Hypothetical Tax Deductions in excess of the actual tax liability are refunded to the executive. Foreign Tax Payments above represent actual Swiss taxes remitted, less the executive’s Hypothetical Tax Deductions.
(5) In addition to the foreign service employment benefits described in footnote (4) above, the amount in All Other Compensation includes Noble contributions to the Noble Drilling Corporation 401(k) Savings and the Noble Drilling Corporation Retirement Restoration Plan, dividends and returns of capital paid by Noble on restricted stock units ($29,209), an annual home leave allowance, and premiums paid by Noble for life, AD&D and business travel and accident insurance and for tax preparation services.
(6) The amount in All Other Compensation includes Noble contributions to the Noble Drilling Corporation 401(k) Savings Plan, dividends and returns of capital paid by Noble on restricted stock units ($21,607), and premiums paid by Noble for life, AD&D and business travel and accident insurance and for a country club membership.
(7) In addition to the foreign service employment benefits described in footnote (4) above, the amount in All Other Compensation includes Noble contributions to the Noble Drilling Corporation 401(k) Savings and the Noble Drilling Corporation Retirement Restoration Plan, dividends and returns of capital paid by Noble on restricted stock units ($29,211), an annual home leave allowance, and premiums paid by Noble for life and AD&D and for tax preparation services.
Name
Grant
Date
Estimated Possible Payouts Under Non-Equity Incentive
Plan Awards (1)
Estimated Future Payouts Under Equity Incentive
Plan Awards (2)
All Other
Stock Awards: Number
of Shares
of Stock or Units (#)
(3)
All Other Option
Awards: Number of
Securities
Underlying
Options (#)
(4)
Exercise
or Base Price of Option Awards ($/Sh)
(4)
Grant Date Fair
Value of
Stock and
Option Awards
(5) Threshold Target Maximum
Threshold
(#)
Target
(#)
Maximum
(#) Lee M. Ahlstrom 2/1/13 $ 85,000 $ 170,000 $ 340,000 3,056 6,112 12,224 6,112 — — $ 558,392 Andrew W. Tietz 2/1/13 $ 68,250 $ 136,500 $ 273,000 1,834 3,667 7,334 3,667 — — $ 335,017 William C. Yester 2/1/13 $ 85,250 $ 170,500 $ 341,000 2,445 4,889 9,778 4,889 — — $ 446,659 (1) Represents the dollar value of the applicable range (threshold, target and maximum amounts) of Performance Bonuses awarded under the STIP. The Performance Bonus
awarded to the named executive officers under the STIP is set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. (2) Represents performance-vested restricted stock units awarded during the year ended December 31, 2013 under the 1991 Plan. (3) Represents time-vested restricted stock units awarded during the year ended December 31, 2013 under the 1991 Plan. (4) Represents nonqualified stock options granted during the year ended December 31, 2013 under the 1991 Plan. (5) Represents the aggregate grant date fair value of the award computed in accordance with FASB ASC Topic 718 based on the maximum future payouts under the equity
incentive plan awards.
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The following table sets forth certain information about outstanding equity awards at December 31, 2013 held by our Named Executive Officers that were granted by Noble.
O UTSTANDING E QUITY A WARDS A T F ISCAL Y EAR -E ND
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Option Awards (1) Stock Awards
Name
Number of Securities
Underlying Unexercised
Options (#) Exercisable
Number of Securities
Underlying Unexercised Options (#)
Unexercisable
Option Exercise
Price
Option Expiration
Date
Number of Shares or Units of
Stock That Have Not
Vested (#) (2)
Market Value of Shares or Units of Stock
That Have
Not Vested (3)
Equity Incentive Plan Awards:
Number of Unearned
Shares, Units or Other Rights
That Have Not Vested (#) (4)
Equity Incentive
Plan Awards:
Market or Payout Value of Unearned Shares, Units
or Other Rights
That Have Not Vested (3)
Lee M. Ahlstrom 1,736 3,473 (5) $ 36,815 2/3/22 10,889 (7) $ 408,011 13,671 (10) $ 512,252 3,018 1,510 (6) $ 37.710 2/4/21 3,655 $ 39.460 2/6/20 6,893 $ 24.660 2/25/19 3,600 $ 43.010 2/7/18 3,814 $ 35.790 2/13/17
Andrew W. Tietz 1,488 2,977 (5) $ 36.815 2/3/22 6,902 (8) $ 258,618 10,656 (11) $ 399,280 3,018 1,510 (6) $ 37.710 2/4/21
William C. Yester 1,984 3,969 (5) $ 36.815 2/3/22 9,308 (9) $ 348,771 14,564 (12) $ 545,713 4,327 2,164 (6) $ 37.710 2/4/21 5,239 $ 39.460 2/6/20 9,879 $ 24.660 2/25/19 5,371 $ 43.010 2/7/18 5,720 $ 35.790 2/13/17 6,906 $ 37.925 2/2/16 18,000 $ 26.460 4/27/15 6,232 $ 18.780 4/20/14
(1) For each named executive officer, represents nonqualified stock options granted under the 1991 Plan. (2) Except as otherwise noted, the numbers in this column represent time-vested restricted stock units awarded under the 1991 Plan. (3) The market value was computed by multiplying the closing market price of the shares at December 31, 2013 ($37.47 per share) by the number of units that
have not vested. (4) The numbers in this column represent performance-vested restricted stock units and are calculated based on the assumption that the applicable target
performance goal is achieved. (5) One-third of the options granted are exercisable on each of February 3, 2013, February 3, 2014, and February 3, 2015. (6) One-third of the options granted are exercisable on each of February 4, 2012, February 4, 2013, and February 4, 2014. (7) Of these units, 2,037 vested on February 1, 2014, 1,268 vested on February 3, 2014, 1,061 vested on February 4, 2014, 1,180 will vest on April 29, 2014,
2,037 will vest on February 1, 2015, 1,268 will vest on February 3, 2015, and 2,038 will vest on February 1, 2016. (8) Of these units, 1,222 vested on February 1, 2014, 1,087 vested on February 3, 2014, 1,061 vested on February 4, 2014, 1,222 will vest on February 1, 2015,
1,087 will vest on February 3, 2015, and 1,223 will vest on February 1, 2016. (9) Of these units, 1,629 vested on February 1, 2014, 1,449 vested on February 3, 2014, 1,521 vested on February 4, 2014, 1,630 will vest on February 1, 2015,
1,449 will vest on February 3, 2015, and 1,630 will vest on February 1, 2016. (10) Includes 6,112, 3,992, and 3,567 performance-vested restricted stock units that will vest, if at all, based on the applicable target performance measures over
the 2013-2015, 2012-2014, and 2011-2013 performance cycles, respectively; 3,234 performance-vested restricted stock units awarded in 2011 for the 2011-2013 performance cycle vested and remaining stock units were forfeited subsequent to December 31, 2013.
(11) Includes 3,667, 3,422, and 3,567 performance-vested restricted stock units that will vest, if at all, based on the applicable target performance measures over the 2013-2015, 2012-2014, and 2011-2013 performance cycles, respectively; 3,234 performance-vested restricted stock units awarded in 2011 for the 2011-2013 performance cycle vested and remaining stock units were forfeited subsequent to December 31, 2013.
(12) Includes 4,889, 4,562, and 5,113 performance-vested restricted stock units that will vest, if at all, based on the applicable target performance measures over the 2013-2015, 2012-2014, and 2011-2013 performance cycles, respectively; 4,636 performance-vested restricted stock units awarded in 2011 for the 2011-2013 performance cycle vested and remaining units were forfeited subsequent to December 31, 2013.
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The following table will set forth certain information about the amounts received upon the exercise of options relating to Noble shares or the vesting of Noble restricted stock units during the year ended December 31, 2013 for each of our Named Executive Officers who were Noble employees on an aggregated basis.
O PTION E XERCISES A ND S TOCK V ESTED
The following table sets forth certain information about retirement payments and benefits and defined benefit plans maintained by Noble Drilling Corporation, a wholly-owned subsidiary of Noble, as of December 31, 2013 for each of our Named Executive Officers who were Noble employees and participated in such plans.
P ENSION B ENEFITS
Under the Noble Drilling Corporation Salaried Employees’ Retirement Plan, the normal retirement date is the date that the participant attains the age of 65. The plan covers salaried employees, but excludes certain categories of salaried employees including any employees hired after July 31, 2004. A participant’s date of hire is the date such participant first performs an hour of service for Noble or its subsidiaries, regardless of any subsequent periods of employment or periods of separation from employment with Noble or its subsidiaries.
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Option Awards (1) Stock Awards
Name
Number of Shares
Acquired on Exercise (#)
Value Realized on
Exercise
Number of Shares
Acquired on Vesting (#)
Value Realized on
Vesting (2) Lee M. Ahlstrom — $ — 4,521 $ 179,087 Andrew W. Tietz — $ — 4,120 $ 162,546 William C. Yester — $ — 4,421 $ 178,556
(1) Represents non-qualified stock option grants and restricted stock unit awards under the 1991 Plan for each named executive officer. (2) The value is based on the average of the high and low stock price on the vesting date multiplied by the aggregate number of units that
vested on such date.
Name Plan Name
Number of
Years Credited Service (#) (1)
Present Value of
Accumulated
Benefit (1) (2)
Payments During Last
Fiscal Year
Lee M. Ahlstrom (3) Salaried Employees’ Retirement Plan — — $ — Retirement Restoration Plan — — $ —
Andrew W. Tietz (3) Salaried Employees’ Retirement Plan — — $ — Retirement Restoration Plan — — $ —
William C. Yester Salaried Employees’ Retirement Plan 32.458 $ 1,071,643 $ — Retirement Restoration Plan 32.458 $ 1,387,083 $ —
(1) Computed as of December 31, 2013, which is the same pension plan measurement date used for financial statement reporting purposes for
Noble’s audited consolidated financial statements included in Noble’s Form 10-K for the year ended December 31, 2013. (2) For purposes of calculating the amounts in this column, retirement age was assumed to be the normal retirement age of 65, as defined in
the Noble Drilling Corporation Salaried Employees’ Retirement Plan. A description of the valuation method and all material assumptions applied in quantifying the present value of accumulated benefit is set forth in Note 13 to the Noble Corporation audited consolidated financial statements included in Noble’s Form 10-K for the year ended December 31, 2013.
(3) Not a participant in the Noble Drilling Corporation Salaried Employees’ Retirement Plan or the Noble Drilling Corporation Retirement Restoration Plan during 2013.
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A participant who is employed by Noble or any of its affiliated companies on or after his normal retirement date (the date that the participant attains the age of 65) is eligible for a normal retirement pension upon the earlier of his required beginning date or the date of termination of his employment for any reason other than death or transfer to the employment of another of Noble’s affiliated companies. Required beginning date is defined in the plan generally to mean the April 1 of the calendar year following the later of the calendar year in which a participant attains the age of 70 1/2 years or the calendar year in which the participant commences a period of severance, which (with certain exceptions) commences with the date a participant ceases to be employed by Noble or any of its affiliated companies for reasons of retirement, death, being discharged, or voluntarily ceasing employment, or with the first anniversary of the date of his absence for any other reason.
The normal retirement pension accrued under the plan is in the form of an annuity which provides for a payment of a level monthly retirement income to the participant for life, and in the event the participant dies prior to receiving 120 monthly payments, the same monthly amount will continue to be paid to the participant’s designated beneficiary until the total number of monthly payments equals 120. Participants may elect to receive, in lieu of one of the other optional forms of payment provided in the plan, each such option being the actuarial equivalent of the normal form. These optional forms of payment include a single lump-sum (if the present value of the participant’s vested accrued benefit under the plan does not exceed $10,000), a single life annuity, and several forms of joint and survivor elections.
The benefit under the plan is equal to:
The average monthly compensation is defined in the plan generally to mean the participant’s average monthly rate of compensation from Noble for the 60 consecutive calendar months that give the highest average monthly rate of compensation for the participant. In the plan, compensation is defined (with certain exceptions) to mean the total taxable income of a participant during a given calendar month, including basic compensation, bonuses, commissions and overtime pay, but excluding extraordinary payments and special payments (such as moving expenses, benefits provided under any employee benefit program, and stock options and stock appreciation rights). Compensation includes salary reduction contributions by the participant under any plan maintained by Noble or any of its affiliated companies. Compensation may not exceed the annual compensation limit as specified by the Internal Revenue Service for the given plan year. Any compensation in excess of this limit is taken into account in computing the benefits payable under the Noble Drilling Corporation Retirement Restoration Plan.
Early retirement can be elected at the time after which the participant has attained the age of 55 and has completed at least five years of service (or for a participant on or before January 1, 1986, when he or she has completed 20 years of covered employment). A participant will be eligible to commence early retirement benefits upon the termination of his employment with Noble or its subsidiaries prior to the date that the participant attains the age of 65 for any reason other than death or transfer to employment with another of Noble’s subsidiaries. The formula used in determining an early retirement benefit reduces the accrued monthly retirement income by multiplying the amount of the accrued monthly retirement income by a percentage applicable to the participant’s age as of the date such income commences being paid.
If a participant’s employment terminates for any reason other than retirement, death or transfer to the employment of another of Noble’s subsidiaries and the participant has completed at least five years of service, the participant is eligible for a deferred vested pension. The deferred vested pension for the participant is the
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• one percent of the participant’s average monthly compensation multiplied times the number of years of benefit service (maximum 30 years), plus
• six-tenths of one percent of the participant’s average monthly compensation in excess of one-twelfth of his or her average amount of earnings which may be considered wages under section 3121(a) of the U.S. Internal Revenue Code, in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which a participant attains (or will attain) social security retirement age, multiplied by the number of years of benefit service (maximum 30 years).
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monthly retirement income commencing on the first day of the month coinciding with or next following his or her normal retirement date. If the participant has attained the age of 55 and has completed at least five years of service or if the actuarial present value of the participant’s accrued benefit is more than $1,000 but less than $10,000, the participant may elect to receive a monthly retirement income that is computed in the same manner as the monthly retirement income for a participant eligible for an early retirement pension. If the participant dies before benefits are payable under the plan, the surviving spouse or, if the participant is not survived by a spouse, the beneficiary designated by the participant, is eligible to receive a monthly retirement income for life, commencing on the first day of the month next following the date of the participant’s death. The monthly income payable to the surviving spouse or the designated beneficiary shall be the monthly income for life that is the actuarial equivalent of the participant’s accrued benefit under the plan.
The Noble Drilling Corporation Retirement Restoration Plan is an unfunded, nonqualified plan that provides the benefits under the Noble Drilling Corporation Salaried Employees’ Retirement Plan’s benefit formula that cannot be provided by the Noble Drilling Corporation Salaried Employees’ Retirement Plan because of the annual compensation and annual benefit limitations applicable to the Noble Drilling Corporation Salaried Employees’ Retirement Plan under the Code. A participant’s benefit under the Noble Drilling Corporation Retirement Restoration Plan that was accrued and vested on December 31, 2004, will be paid to such participant (or, in the event of his or her death, to his designated beneficiary) at the time benefits commence being paid to or with respect to such participant under the Noble Drilling Corporation Salaried Employees’ Retirement Plan, and will be paid in a single lump sum payment, in installments over a period of up to five years, or in a form of payment provided for under the Noble Drilling Corporation Salaried Employees’ Retirement Plan (such form of distribution to be determined by the committee appointed to administer the plan). A participant’s benefit under the Noble Drilling Corporation Retirement Restoration Plan that accrued or became vested after December 31, 2004, will be paid to such participant (or in the event of his death, to his designated beneficiary) in a single lump sum payment following such participant’s separation from service with Noble and its subsidiaries.
The following table sets forth certain information as of December 31, 2013 and for the year then ended about the Noble Drilling Corporation 401(k) Savings Restoration Plan for our Named Executive Officers who were Noble employees.
N ONQUALIFIED D EFERRED C OMPENSATION
The Noble Drilling Corporation 401(k) Savings Restoration Plan (which applies to compensation deferred by a participant that was vested prior to January 1, 2005) and the Noble Drilling Corporation 2009 401(k) Savings Restoration Plan (which applies to employer matching contributions and to compensation that was either deferred by a participant or became vested on or after January 1, 2005) are nonqualified, unfunded employee benefit plans under which certain highly compensated employees of Noble and its subsidiaries may elect to defer compensation in excess of amounts deferrable under the Noble Drilling Corporation 401(k) Savings Plan and, subject to certain limitations specified in the plan, receive employer matching contributions in cash. The employer matching amount is determined in the same manner as are employer matching contributions under the Noble Drilling Corporation 401(k) Savings Plan.
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Name
Executive Contributions in
Last FY (1)
Noble Contributions in
Last FY (2)
Aggregate Earnings in
Last FY
Aggregate Withdrawals/
Distributions
Aggregate Balance at Last FYE
Lee. M. Ahlstrom $ 19,842 $ — $ 23,980 $ — $ 130,742 Andrew W. Tietz (3) $ — $ — $ — $ — $ — William C. Yester $ 58,583 $ — $ 325,994 $ — $ 1,587,465 (1) The Executive Contributions reported in this column are also included in the Salary column of the Summary Compensation Table. (2) Noble Contributions reported in this column are also included in the All Other Compensation column of the Summary Compensation table. (3) Not a participant in the Noble Drilling Corporation 401(k) Savings Restoration Plan in 2013.
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Compensation considered for deferral under these nonqualified plans consists of cash compensation payable by an employer, defined in the plan to mean certain subsidiaries of Noble, to a participant in the plan for personal services rendered to such employer prior to reduction for any pre-tax contributions made by such employer and prior to reduction for any compensation reduction amounts elected by the participant for benefits, but excluding bonuses, allowances, commissions, deferred compensation payments and any other extraordinary compensation. For each plan year, participants are able to defer up to 19 percent of their basic compensation for the plan year, all or any portion of any bonus otherwise payable by an employer for the plan year, and for plan years commencing prior to January 1, 2009, the applicable 401(k) amount. The applicable 401(k) amount is defined to mean, for a participant for a plan year, an amount equal to the participant’s basic compensation for such plan year, multiplied by the contribution percentage that is in effect for such participant under the Noble Drilling Corporation 401(k) Savings Plan for the plan year, reduced by the lesser of (i) the applicable dollar amount set forth in Section 402(g)(1)(B) of the Code for such year or (ii) the dollar amount of any Noble Drilling Corporation 401(k) Savings Plan contribution limitation for such year imposed by the committee.
A participant’s benefit under these nonqualified plans normally will be distributed to such participant (or in the event of his or her death, to his or her designated beneficiary) in a single lump sum payment or in approximately equal annual installments over a period of five years following such participant’s separation from service with Noble and its subsidiaries. Mr. Ahlstrom and Mr. Yester are participants in the Noble Drilling Corporation 401(k) Savings Restoration Plan and in the Noble Drilling Corporation 2009 401(k) Savings Restoration Plan.
Potential Payments on Termination or Change of Control
Change of Control Employment Agreements
Noble has guaranteed the performance of a change of control employment agreement entered into by a subsidiary of Noble with each executive officer as of December 31, 2008, December 9, 2009 (when the original agreements were amended and restated) and November 20, 2013 (when the amended and restated agreements were again restated), including Messrs. Ahlstrom and Yester. These change of control employment agreements become effective upon a change of control of Noble (as described below) or a termination of employment in connection with or in anticipation of such a change of control, and remain effective for three years thereafter. Our separation from Noble does not constitute a change of control under these change of control employment agreements. These change of control employment agreements will be terminated in connection with the separation and replaced with new agreements. The terms of these new agreements have not yet been established by our compensation committee.
The agreement provides that if the officer’s employment is terminated within three years after a change of control or prior to but in anticipation of a change of control, either (1) by us for reasons other than death, disability or “cause” (as defined in the agreement) or (2) by the officer for “good reason” (which term includes a material diminution of responsibilities or compensation and which allows Noble a cure period following notice of the good reason) or upon the officer’s determination to leave without any reason during the 30-day period immediately following the first anniversary of the change of control of Noble, the officer will receive or be entitled to the following benefits:
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• a lump sum amount equal to the sum of (i) the prorated portion of the officer’s highest bonus paid in the last three years before such change of control (the “Highest Bonus”), (ii) an amount equal to 18 times the highest monthly COBRA premium (within the meaning of Code Section 4980B) during the 12-month period preceding the termination of the officer’s employment, and (iii) any accrued vacation pay, in each case to the extent not theretofore paid (collectively, the “Accrued Obligations” );
• a lump sum payment equal to three times the sum of the officer’s annual base salary (based on the highest monthly salary paid in the 12 months prior to such change of control) and the officer’s Highest Bonus (the “Severance Amount” );
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A “change of control” is defined in the agreement to mean:
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• welfare benefits for an 18-month period to the officer and the officer’s family at least equal to those that would have been provided had the officer’s employment been continued. If, however, the officer becomes reemployed with another employer and is eligible to receive welfare benefits under another employer provided plan, the welfare benefits provided by Noble and its affiliates would be secondary to those provided by the new employer (“Welfare Benefit Continuation” );
• a lump sum amount equal to the excess of (i) the actuarial equivalent of the benefit under the qualified and nonqualified defined benefit retirement plans of Noble and its affiliated companies in which the officer would have been eligible to participate had the officer’s employment continued for three years from the date of such change of control over (ii) the actuarial equivalent of the officer’s actual benefit under such plans (the “Supplemental Retirement Amount” );
• in certain circumstances, an additional payment in an amount such that after the payment of all income and excise taxes, the officer will be in the same after-tax position as if no excise tax under Section 4999 (the so-called Parachute Payment excise tax) of the Code, if any, had been imposed (the “Excise Tax Payment”), although the Excise Tax Payment has been eliminated for all future executive officers; provided, however, that the total payment due to the officer will be reduced such that no portion of the payment would be subject to excise tax if the making of the Excise Tax Payment would not result in a better after-tax position to the officer of at least $50,000 as compared to the making of such reduction;
• outplacement services for six months (not to exceed $50,000); and
• the 100 percent vesting of all benefits under the 1991 Plan and any other similar plan to the extent such vesting is permitted under the Code.
• the acquisition by any individual, entity or group of 15 percent or more of Noble’s outstanding shares, but excluding any acquisition
directly from Noble or by Noble, or any acquisition by any corporation under a reorganization, merger, amalgamation or consolidation if the conditions described below in the third bullet point of this definition are satisfied;
• individuals who constitute the incumbent board of directors (as defined in the agreement) of Noble cease for any reason to constitute a majority of the board of directors;
• consummation of a reorganization, merger, amalgamation or consolidation of Noble, unless following such a reorganization, merger, amalgamation or consolidation (i) more than 50 percent of the then outstanding ordinary shares (or equivalent security) of the company resulting from such transaction and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors are then beneficially owned by all or substantially all of the persons who were the beneficial owners of the outstanding shares immediately prior to such transaction, (ii) no person, other than Noble or any person beneficially owning immediately prior to such transaction 15 percent or more of the outstanding shares, beneficially owns 15 percent or more of the then outstanding ordinary shares (or equivalent security) of the company resulting from such transaction or the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors, and (iii) a majority of the members of the board of directors of the company resulting from such transaction were members of the incumbent board of directors of Noble at the time of the execution of the initial agreement providing for such transaction;
• consummation of a sale or other disposition of all or substantially all of the assets of Noble, other than to a company, for which following such sale or other disposition, (i) more than 50 percent of the then outstanding ordinary shares (or equivalent security) of such company and the combined voting power of the then outstanding voting securities of such company entitled to vote generally in the election of directors are then beneficially owned by all or substantially all of the persons who were the beneficial owners of the outstanding shares immediately prior to such sale or other disposition of assets, (ii) no person, other than Noble or any person beneficially owning immediately prior to such transaction 15 percent or more of the outstanding shares, beneficially owns 15 percent or more of the then outstanding ordinary shares (or equivalent security) of such company or the combined voting power of the then
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However, a “change of control” will not occur as a result of a transaction if (i) Noble becomes a direct or indirect wholly owned subsidiary of a holding company and (ii) either (A) the shareholdings for such holding company immediately following such transaction are the same as the shareholdings immediately prior to such transaction or (B) the shares of Noble’s voting securities outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the outstanding voting securities of such holding company immediately after giving effect to such transaction.
Under the agreement, “cause” means (i) the willful and continued failure by the officer to substantially perform his duties or (ii) the willful engaging by the officer in illegal conduct or gross misconduct that is materially detrimental to Noble or its affiliates.
Payments to “specified employees” under Code Section 409A may be delayed until six months after the termination of the officer’s employment.
The agreement contains a confidentiality provision obligating the officer to hold in strict confidence and not to disclose or reveal, directly or indirectly, to any person, or use for the officer’s own personal benefit or for the benefit of anyone else, any trade secrets, confidential dealings or other confidential or proprietary information belonging to or concerning Noble or any of its affiliated companies, with certain exceptions set forth expressly in the provision. Any term or condition of the agreement may be waived at any time by the party entitled to have the benefit thereof (whether the subsidiary of Noble party to the agreement or the officer) if evidenced by a writing signed by such party.
The agreement provides that payments thereunder do not reduce any amounts otherwise payable to the officer, or in any way diminish the officer’s rights as an employee, under any employee benefit plan, program or arrangement or other contract or agreement of Noble or any of its affiliated companies providing benefits to the officer.
Assuming a change of control had taken place on December 31, 2013 and the employment of the Named Executive Officer was terminated either (1) by Noble for reasons other than death, disability or cause or (2) by the officer for good reason, the following table sets forth the estimated amounts of payments and benefits under the agreement for each of the indicated Named Executive Officers.
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outstanding voting securities of such company entitled to vote generally in the election of directors, and (iii) a majority of the members of the board of directors of such company were members of the incumbent board of directors of Noble at the time of the execution of the initial agreement providing for such sale or other disposition of assets; or
• approval by the shareholders of Noble of a complete liquidation or dissolution of Noble.
Payment or Benefit Lee M.
Ahlstrom
Andrew W.
Tietz William C.
Yester Accrued Obligations $ 264,624 $ — $ 273,403 Severance Amount $ 1,140,000 $ — $ 1,120,000 Welfare Benefit Continuation $ 46,365 $ — $ 34,652 Supplemental Retirement Amount $ — $ — $ 182,793 Excise Tax Payment $ — $ — $ — Outplacement Services (1) $ 50,000 $ — $ 50,000 Accelerated Vesting of Options and Restricted Stock Units (2) (3) $ 922,538 $ 659,848 $ 897,084 (1) Represents an estimate of the costs to Noble of outplacement services for six months. (2) The total number of restricted stock units held at December 31, 2013 (the last trading day of 2013), and the aggregate value of accelerated
vesting thereof at December 31, 2013 (computed by multiplying $37.47, the closing market price of the shares at December 31, 2013, by the total number of restricted stock units held), were as follows: Mr. Ahlstrom—24,560 shares valued at $920,263; Mr. Tietz—17,558 shares valued at $657,898; and Mr. Yester—23,872 shares valued at $894,484. These amounts include shares that partially vested subsequent to December 31, 2013 with respect to the 2011-2013 performance cycle.
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The change of control employment agreement provides that if the officer’s employment is terminated within three years after a change of control by reason of disability or death, the agreement will terminate without further obligation to the officer or the officer’s estate, other than for the payment of Accrued Obligations, the Severance Amount, the Supplemental Retirement Amount and the timely provision of the Welfare Benefit Continuation. If the officer’s employment is terminated for cause within the three years after a change of control, the agreement will terminate without further obligation to the officer other than for payment of the officer’s base salary through the date of termination, to the extent unpaid, and the timely payment when otherwise due of any compensation previously deferred by the officer. If the officer voluntarily terminates the officer’s employment within the three years after a change of control (other than during the 30-day period following the first anniversary of a change of control), excluding a termination for good reason, the agreement will terminate without further obligation to the officer other than for payment of the officer’s base salary through the date of termination, to the extent unpaid, the payment of the Accrued Obligations, and the timely payment when otherwise due of any compensation previously deferred by the officer.
In October 2011, the compensation committee of Noble approved a new form of change of control employment agreement for executive officers. The terms of the new form of employment agreement are substantially the same as the agreements described above, except the new form only provides benefits in the event of certain terminations by Noble for reasons other than death, disability or “cause” or by the officer for “good reason” and does not provide for an Excise Tax Payment. In February 2012, the form of change of control employment agreement was further amended to revise the definition of change in control such that the percentage of our outstanding registered shares or combined voting power of our then outstanding voting securities entitled to vote generally in the election of directors that must be acquired by an individual, entity or group to trigger a change in control was increased from 15% to 25%. None of our Named Executive Officers are party to these new forms of change of control employment agreements.
The 1991 Plan
The 1991 Plan was amended in 2009, among other things, to allow for the award of restricted stock units and incorporate the definition of change of control in the change of control employment agreements to which our Named Executive Officers are party which are described above under “Change of Control Employment Agreements.” In 2010, 2011 and 2012, Noble granted nonqualified stock options and awarded time-vested and performance-vested restricted stock units under the 1991 Plan to Noble’s named executive officers.
In February 2012, the 1991 Plan was amended to revise the definition of change in control such that the percentage of Noble’s outstanding registered shares or combined voting power of Noble’s then outstanding voting securities entitled to vote generally in the election of directors that must be acquired by an individual, entity or group to trigger a change in control was increased from 15% to 25%.
Nonqualified Stock Options
Noble’s nonqualified stock option agreements provide that if a termination of employment occurs after the date upon which the option first becomes exercisable and before the date that is 10 years from the date of the option grant by reason of the officer’s death, disability or retirement, then the option, including any then unvested shares of Noble all of which shall be automatically accelerated, may be exercised at any time within five years after such termination of employment but not after the expiration of the 10-year period. If an officer terminated employment on December 31, 2013 due to disability, death or retirement, all the officer’s then outstanding nonqualified stock options granted by Noble in 2012 and 2011 would have become fully exercisable. Under the 1991 Plan, retirement means a termination of employment with Noble or an affiliate of Noble on a voluntary
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(3) The total number of unvested options held at December 31, 2013, and the aggregate value of the accelerated vesting thereof at December 31, 2013 (computed by multiplying $37.47, the closing market price of shares at December 31, 2013, by the total number of shares subject to the options and subtracting the aggregate exercise price for the options) were as follows: Mr. Ahlstrom—4,983 options valued at $2,275; Mr. Tietz—4,487 options valued at $1,950; and Mr. Yester—6,133 options valued at $2,600.
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basis by a person if immediately prior to such termination of employment, the sum of the age of such person and the number of such person’s years of continuous service with Noble or one or more of its affiliates is equal to or greater than 60.
Assuming that the Named Executive Officer’s employment terminated on December 31, 2013 due to disability, death or retirement, the following table sets forth certain information about unexercisable options subject to accelerated vesting for the indicated Named Executive Officers.
Restricted Stock Units
Noble granted time-vested and performance-vested restricted stock units in 2011, 2012 and 2013, some of which continue to be subject to vesting restrictions.
Assuming that either the Named Executive Officer’s employment terminated on December 31, 2013 due to disability, death or retirement or if a change of control had taken place on that date, the following table sets forth certain information about time-vested restricted stock units subject to accelerated vesting for the indicated Named Executive Officers.
Noble’s performance-vested restricted stock unit agreements provide for the vesting of 50 percent of the awards for each of the 2011-2013, 2012-2014 and 2013-2015 cycles upon the occurrence of a change of control of Noble (whether with or without termination of employment of the officer by Noble or an affiliate). The agreements also provide for pro rata vesting upon the occurrence of the death, disability or retirement of the officer, based on months of service completed in the performance period; however, such vesting is also subject to the actual performance achieved and may not result in an award. The agreements define a change of control as set out in the 1991 Plan, provided the change of control also satisfies the requirements of Code Section 409A. Assuming that a change of control had taken place on December 31, 2013, the following table sets forth certain information about restricted stock units subject to accelerated vesting for the indicated Named Executive Officers. The amounts in the table below include the PVRSUs that were awarded with respect to the 2011-2013 cycle that partially vested subsequent to December 31, 2013.
Compensation Arrangements After the Spin-Off
Our Chief Executive Officer, Randall D. Stilley, was not employed by Noble in 2013. In connection with the commencement of his employment with Noble in February 2014, Mr. Stilley entered into a change of control employment agreement in the form approved by Noble’s board of directors in February 2012 as described above, was granted 96,200 Noble restricted stock units that generally vest in three equal annual installments and will
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Name
Number of Shares Underlying Unexercisable Options
Subject to Acceleration of Vesting Aggregate Value of
Acceleration of Vesting Lee M. Ahlstrom 4,983 $ 2,275 Andrew W. Tietz 4,487 $ 1,950 William C. Yester 6,133 $ 2,600
Name
Number of Time-Vested Restricted Stock Units Subject to
Acceleration of Vesting
Aggregate Value of Acceleration of Vesting
Lee M. Ahlstrom 10,889 $ 408,011 Andrew W. Tietz 6,902 $ 258,618 William C. Yester 9,308 $ 348,771
Name
Number of Performance-Vested Restricted Stock Units Subject to
Acceleration of Vesting
Aggregate Value of Acceleration of Vesting
Lee M. Ahlstrom 13,671 $ 512,252 Andrew W. Tietz 10,656 $ 399,280 William C. Yester 14,564 $ 545,713
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receive a base salary of $800,000. Our separation from Noble does not constitute a change of control under this change of control employment agreement. This change of control agreement will be terminated in connection with the separation and replaced with a new agreement. The terms of this new agreement has not yet been established by our compensation committee.
In connection with the commencement of his employment with Noble in April 2014, our Chief Financial Officer, Steven A. Manz, was granted 23,730 Noble restricted stock units that generally vest in three equal annual installments and will receive a base salary of $385,000. Effective upon completion of the spin-off, Lee M. Ahlstrom will receive a base salary of $350,000 and will have a target bonus of $175,000 under the short-term incentive plan. Effective upon completion of the spin-off, Andrew W. Tietz will receive a base salary of $325,000 and will have a target bonus of $211,250 under the short-term incentive plan. Effective upon completion of the spin-off, William C. Yester will receive a base salary of $400,000 and will have a target bonus of $260,000 under the short-term incentive plan.
U.K. Approval Requirements
U.K. law requires the directors (but not other officers) of public companies incorporated under U.K. law to prepare a remuneration report which comprises:
The legislation requires:
As a result, if the spin-off is effected, our shareholders will be required to approve our pay policy at our first annual general meeting, which will be held in 2015. At subsequent annual general meetings, shareholders will be required to approve the implementation report, and, every third year, to also approve the pay policy.
Under U.K. law, if a pay policy is not approved by shareholders when put to the vote, the company may (i) revert to the last approved pay policy, (ii) call a general meeting to put forward a revised pay policy, or (iii) revert to the last approved pay policy and seek specific shareholder approvals for any remuneration outside the scope of the last approved pay policy. If a company’s first pay policy submitted to shareholders is not approved, the company will be required to call a further general meeting to approve a revised version of the pay policy. We are required to have in place an approved pay policy by January 1, 2016.
Any payments outside of a company’s approved pay policy will be unenforcable under U.K. law. If any payments are made outside of a company’s pay policy, they will be treated as being held on trust by the relevant recipient and any directors who approved such payment will be jointly and severally liable to indemnify the company for any loss arising from such payment.
If the implementation report is not approved by shareholders on the advisory vote, there will be no effect on any remuneration already paid to directors. The company would, however, be required to put its pay policy to a binding shareholder vote the following year, even if such pay policy had been approved within the previous two years and was not otherwise scheduled to be resubmitted to shareholder vote.
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• an introductory statement made by the chairman of the company’s remuneration committee;
• a forward looking pay policy setting out the company’s future policy on directors’ remuneration (including the company’s approach to exit payments); and
• an implementation report setting out how the pay policy was implemented in the previous financial year, including the amount of salary, bonuses, fees and other benefits paid to each director.
• shareholders to approve, by simple majority, the pay policy at least once every three years by way of a binding shareholder resolution; and
• shareholders to approve, by simple majority, the implementation report every year by way of a non-binding “advisory” shareholder resolution.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of our shares as of July 11, 2014, after giving effect to the Transactions, for
Each shareholder’s percentage ownership before the spin-off is based on our shares outstanding as of July 11, 2014, after giving effect to the Transactions. Each shareholder’s percentage ownership after the Distribution is based on 84,753,393 shares outstanding immediately after the completion of the Distribution. Noble currently owns all of our outstanding shares.
The amounts and percentages of shares beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities not outstanding but included in the beneficial ownership of each such person, are deemed to be outstanding for purposes of computing the percentage of outstanding securities owned by such person, but are not deemed to be outstanding for purposes of computing the percentage owned by any other person. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he or she has no economic interest. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each shareholder identified in the table possesses sole voting and investment power over all shares shown as beneficially owned by the shareholder.
Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Paragon Offshore plc, 3151 Briarpark Drive, Suite 700, Houston, Texas 77042.
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• each beneficial owner of more than 5% of our shares;
• each named executive officer;
• each of our directors and director nominees; and
• all of our executive officers and directors as a group.
Name
Shares Beneficially
Owned Before the Distribution
Shares Beneficially
Owned After the Distribution
Number Percent Number
(1) Percent Noble 84,753,393 100 % — — Randall D. Stilley — — — — Steven A. Manz — — — — William C. Yester — — 51,279 * Lee M. Ahlstrom — — 18,561 * Andrew W. Tietz — — 4,095 * Todd D. Strickler — — 963 * Luis A. Jimenez — — — — Anthony R. Chase — — — — Thomas L. Kelly II — — — — John P. Reddy — — — — Julie J. Robertson — — 204,288 * Dean E. Taylor — — 474 * William L. Transier — — — — David W. Wehlmann — — — — J. Robinson West — — — —
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Name
Shares Beneficially
Owned Before the Distribution
Shares Beneficially
Owned After the Distribution
Number Percent Number(1) Percent Director, director nominees and executive officers as a group (15
persons) — — 279,660 * Fir Tree Inc. (2) — — 8,343,186 9.8 % Franklin Resources, Inc. (3) — — 5,928,864 7.0 % The Vanguard Group (4) — — 5,647,665 6.7 %
* Less than 1%. (1) Assumes the following number of Noble shares underlying options exercisable at July 1, 2014 or within 60 days thereafter are owned and
outstanding on the record date for the Distribution: Mr. Yester – 61,574 shares; Mr. Tietz – 7,504 shares; and Mr. Ahlstrom – 25,962 shares.
(2) Based solely on a Schedule 13G/A filed with the SEC on February 13, 2014 by Fir Tree Inc. The address for Fir Tree Inc. is 505 Fifth Avenue, 23rd Floor, New York, NY 10017.
(3) Based solely on a Schedule 13G filed with the SEC on February 13, 2014 by Franklin Resources, Inc. The filing is made jointly with Charles B. Johnson and Rupert H. Johnson, Jr. The address for Franklin Resources, Inc. is One Franklin Parkway, San Mateo, California 94403.
(4) Based solely on a Schedule 13G filed with the SEC on February 12, 2014 by the Vanguard Group. The address for the Vanguard Group is 100 Vanguard Blvd. Malvem, PA 19355.
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DESCRIPTION OF SHARE CAPITAL
General
The following information is a summary of the material terms of our ordinary shares, nominal (i.e., par) value $0.01 per share and our deferred sterling shares, nominal (i.e., par) value £1.00 per share, as will be specified in our articles of association (the “Articles”). You are encouraged to read the Articles, which are included as an exhibit to this information statement.
All of our shares will be issued fully paid and will not be subject to any further calls or assessments by us.
There are no conversion rights, redemption provisions or sinking fund provisions relating to any of our shares that will be delivered in connection with the Distribution. Under U.K. law, persons who are neither residents nor nationals of the U.K. may freely hold, vote and transfer our shares in the same manner and under the same terms as U.K. residents or nationals.
Share Capital
Initial Ordinary Shares
Currently, we have two ordinary shares outstanding, which were issued to a wholly-owned subsidiary of Noble in connection with the formation of the Company, with a nominal (i.e., par) value of $1.00 per share (the “subscriber shares”). We propose to cancel the Subscriber Shares as part of a reduction of capital effected prior to consummation of the spin-off.
Prior to the Distribution Date, our board of directors will be authorized to allot additional shares as follows:
The ordinary shares we will issue to Noble in consideration for the transfer by Noble of a portion of the standard specification drilling business to us (the “Consideration Shares”) will be issued at a premium (i.e., for a value in excess of their aggregate nominal value) or at a nominal value in excess of $0.01, and prior to the Distribution Date, we will undertake a capital reduction to cancel this share premium and associated reserves or reduce the nominal value of such shares to $0.01, in each case to instead create distributable profits that we could use to pay dividends or repurchase our shares.
Deferred Sterling Shares
We are currently a private limited company under U.K. law. As part of the Transactions, we will re-register as a public limited company under U.K. law. In order to be registered as a public limited company, we are required to have a minimum nominal share capital of £50,000 denominated in British pounds sterling. In order to meet this requirement, we will issue 50,000 deferred sterling shares of £1.00 each to a wholly owned subsidiary of Noble that will become one of our subsidiaries prior to the Distribution. The deferred sterling shares will have no entitlement to vote or receive dividends and will not have any right to participate in any distribution upon our winding up except that, after the return of the nominal value paid up or credited as paid up on every ordinary share and the distribution of £100 million to each holder thereof, each deferred sterling share would be entitled to £1.00. The deferred sterling shares will remain outstanding after completion of the spin-off.
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(a) 84,753,393 ordinary shares in consideration for the transfer by Noble of a portion of the standard specification drilling business to us;
(b) up to a maximum nominal amount of $1,017,040, reserved for future issuances approved by our board of directors; and
(c) the issue of 50,000 deferred sterling shares having a nominal value of £1.00 each in connection with our re-registering as a public limited company prior to the Distribution Date.
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Dividends
We expect to pay a regular quarterly cash dividend on our ordinary shares. Initially, we expect that the amount of this dividend will be between approximately $20 million and $22.5 million in the aggregate per quarter, or between approximately $80 million and $90 million in the aggregate on an annualized basis.
Subject to the Companies Act and our Articles, we may declare a dividend to be paid to the shareholders and may fix the time for payment of such dividend. There are no fixed dates on which entitlement to dividends arises under our Articles. The timing, declaration, amount and payment of these dividends to shareholders falls within the discretion of our board of directors. The proposal or declaration of cash dividends by our board of directors, and the amount thereof, will depend on many factors, including our financial condition, earnings, future business prospects, opportunities, share price, capital requirements and any other factors our board of directors may deem relevant. In addition, we expect the agreements governing certain of our indebtedness to restrict the amount of dividends we may pay; however, we expect such agreements to permit payment of dividends in the amounts described above so long as we are not in default under any such agreement.
There can be no assurance we will pay any dividend or that we will continue to pay any dividend even if we commence the payment of dividends. Please read “Risk Factors—Risks Related to Our Separation from and Our Relationship with Noble—We have no obligation to, and may not be able to, declare or pay dividends on our shares. If we do not declare and pay dividends on our shares, our share price could decline.”
As discussed below, under U.K. law, with limited exceptions, we will only be able to declare dividends, make distributions or repurchase shares out of distributable profits. A U.K. company may choose to reduce its share capital so that, to the extent of the capital reduced, it may create distributable reserves for the payment of a dividend or to return surplus capital to shareholders. While we are still a private limited company, we intend to create distributable profits through a capital reduction by reducing the nominal value or cancelling any share premium or associated reserves arising on the Consideration Shares. A special resolution authorizing the reduction of capital will be adopted prior to the Distribution Date by our sole shareholder. We expect this capital reduction to create at least $1.0 billion of distributable profits. Based on our anticipated dividend amount described above and subject to the limitations on the payment of dividends described above, the distributable profits created from this capital reduction would be sufficient to allow us to pay dividends in such amounts for at least ten years following the spin-off. Following such time, we may seek to create distributable profits on our statutory balance sheet through other methods to allow us to declare future dividends, make distributions or repurchase shares. These efforts may include certain customary intra-group reorganizations, which are alternatives for the creation of distributable reserves in a U.K. public limited company.
Subject to our Articles, we may from time to time declare and pay dividends (of any amounts and in any currency) on our issued share capital only out of our “distributable profits” on our statutory balance sheet. We are not permitted to pay dividends out of share capital, which includes share premium. Distributable profits are defined as our “accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital.” Distributable profits are determined in accordance with generally accepted accounting principles at the time the relevant accounts are prepared. The “relevant accounts” (i.e., separate stand-alone statutory accounts) will typically be our most recent audited annual accounts but may, in certain circumstances, be our interim accounts. We will also not be permitted to make a distribution if, at that time, the amount of our net assets is less than the aggregate of our issued and paid-up share capital and undistributable profits or to the extent that the distribution will reduce our net assets below such amount.
Subject to the above Companies Act requirements, our Articles provide that:
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• our board of directors can recommend a final dividend (i.e. a dividend paid and calculated on the basis of the company’s end of year
accounts, whether in cash or in specie (i.e., an in-kind dividend)) but the shareholders must actually declare and approve it by passing an ordinary shareholder resolution; and
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Our Articles also permit a scrip dividend scheme under which shareholders may be given the opportunity to elect to receive fully paid ordinary shares instead of cash, with respect to all or part of future dividends.
If a shareholder owes any money to us relating in any way to any class of our shares, our board of directors may deduct some or all of this amount from any dividend on the shareholder’s shares or from other money payable by us in respect of those shares. Amounts deducted in this way may be used to pay the amount owed to us.
Unclaimed dividends and other amounts payable by us can be invested or otherwise used by directors for our benefit until they are claimed under U.K. law. All dividends remaining unclaimed for a period of 12 years after they first became due for payment will be forfeited and cease to be owing to the shareholder.
Voting Rights
The Articles provide that at a general meeting any resolutions put to a vote must be decided on a poll. Subject to any rights or restrictions as to voting attached to any class of shares and subject to disenfranchisement (i) in the event of non-payment of any call or other sum due and payable in respect of any shares not fully paid, (ii) in the event of any non-compliance with any statutory notice requiring disclosure of an interest in shares, (iii) in relation to resolutions proposed by shareholders without complying with the Articles or (iv) where any shares are held by or on behalf of any of our subsidiaries, every shareholder who (being an individual) is present in person or (being a corporation) is present by a duly authorized corporate representative at our general meeting will have one vote for every share of which he or she is the holder, and every person present who has been appointed as a proxy shall have one vote for every share in respect of which he or she is the proxy.
In the case of joint holders, the vote of the person whose name stands first in the register of shareholders and who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of any votes tendered by any other joint holders. Unless a resolution to remove a serving member of the board of directors or to amend certain provisions in the Articles is to be adopted, the necessary quorum for a general shareholder meeting is the shareholders who together represent at least the majority of the shares entitled to vote at the meeting, present in person or by proxy (i.e., any shares whose voting rights have been disenfranchised pursuant to the Companies Act shall be disregarded for the purposes of determining a quorum).
Under U.K. law, an ordinary resolution must be approved by at least a majority of the votes cast. Special resolutions must be approved by at least 75% of the votes cast at the meeting.
An ordinary resolution is needed to (among other things):
A special resolution of shareholders is needed to (among other things):
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• our board of directors can resolve without shareholder approval to pay interim dividends in cash or in specie.
• remove a director (where not effected by the board);
• provide, vary or renew a director’s authority to allot shares; and
• appoint a director (where the appointment is by shareholders in the first instance rather than the board).
• alter a company’s articles of association;
• exclude statutory preemptive rights on allotment of securities for cash;
• re-register a public company as a private company (or vice versa); and
• approve a reduction of capital or a scheme of arrangement.
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The Articles, however, also provide that the following matters require the presence in person or by proxy of shareholders who together represent at least two-thirds of the shares entitled to vote at a meeting:
(a) the adoption of a resolution to remove a serving member of the board of directors; and
(b) the adoption of a resolution to amend, vary, suspend the operation of, disapply or cancel the provisions of the Articles relating to (i) the quorum and voting requirements for general meetings of shareholders (ii) the election and removal of directors and size of the board of directors, (iii) fair price protections in relation to business combinations and (iv) transactions with interested shareholders (please read “—Anti-Takeover Provisions”).
An annual general meeting shall be called by not less than 21 clear days’ notice. For all other general meetings except general meetings properly requisitioned by shareholders, such meetings shall be called by not less than 21 clear days’ notice. The notice of meeting may also specify a time by which a person must be entered on the register in order to have the right to attend or vote at the meeting. The number of shares then registered in their respective names shall determine the number of votes a person is entitled to cast at that meeting.
An appointment of proxy (whether in hard copy form or electronic form) must be received by Paragon Offshore not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the appointment of proxy proposes to vote and at such time as may be specified by the board of directors in compliance with the provisions of the Companies Act.
Pursuant to the Companies Act, any of our shares held by or for the benefit of any of our subsidiaries will not have voting rights.
Winding Up
In the event of our voluntary winding up, the liquidator may, on obtaining any sanction required by law, divide among the shareholders the whole or any part of our assets, whether or not the assets consist of property of one kind or of different kinds.
The liquidator may also, with the same authority, transfer the whole or any part of the assets to trustees of any trusts for the benefit of the shareholders as the liquidator decides. No past or present shareholder can be compelled to accept any asset which could subject him or her to a liability.
Preemptive Rights and New Issues of Shares
Under Section 549 of the Companies Act, directors are, with certain exceptions, unable to allot securities without being authorized either by the shareholders or by the Articles of a company pursuant to Section 551 of the Companies Act. In addition, under the Companies Act, the issuance of equity securities that are to be paid for wholly in cash (except shares issued under an employees’ share scheme and bonus shares issued (i.e., paid up by way of capitalization of a company’s reserves)) must be offered first to the existing equity shareholders in proportion to the respective nominal (i.e., par) values of their holdings on the same or more favorable terms, unless a special resolution (i.e., 75% of votes cast) to the contrary has been passed by shareholders or the Articles otherwise provide an exclusion from this requirement (which exclusion can be for a maximum of five years after which a further shareholder approval would be required to renew the exclusion). In this context, equity securities generally means shares other than shares which, with respect to dividends or capital, carry a right to participate only up to a specified amount in a distribution (and therefore includes our ordinary shares) and all rights to subscribe for or convert securities into such shares.
Prior to the Distribution Date, a shareholder resolution will be passed by our sole shareholder that will authorize the directors, during the five-year period after the date on which the resolution is passed, to allot shares (including ordinary shares), or to grant rights to subscribe for or to convert any security into our shares, up to a
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maximum nominal amount of $1,017,040 (or 101,704,071 shares, which equals approximately 120% of our ordinary shares outstanding as of the Distribution Date), and exclude preemptive rights in respect of such issuances for the same period of time. Such authority will continue for five years and thereafter it must be renewed by a vote of the shareholders, but we may seek renewal for additional five year terms more frequently. We may, before the expiration of any such authority, make an offer or agreement which would or might require our shares to be allotted (or rights to be granted) after such expiration, and the directors may allot shares or grant rights in pursuance of such an offer or agreement as if the authority to allot had not expired.
Disclosure of Interests in Shares
Section 793 of the Companies Act gives us the power to require persons whom it knows has, or whom it has reasonable cause to believe has, or within the previous three years has had, any ownership interest in any of our shares, (the “default shares”), to disclose prescribed particulars of those shares. For this purpose default shares includes any of our shares allotted or issued after the date of the Section 793 notice in respect of those shares. Failure to provide the information requested within the prescribed period after the date of sending the notice will result in sanctions being imposed against the holder of the default shares as provided within the Companies Act.
Under the Articles, we will also withdraw certain voting rights of default shares if the relevant holder of default shares has failed to provide the information requested within the prescribed period after the date of sending the notice, depending on the level of the relevant shareholding (and unless our board of directors decides otherwise).
Alteration of Share Capital/Repurchase of Shares
We may from time to time by ordinary resolution of our shareholders:
Subject to the Companies Act and to any preemptive rights the holders of shares may have, we may purchase any of our own shares (including any redeemable shares, if our board of directors should decide to issue any) by way of “off market purchases” with the prior approval of an ordinary shareholder resolution (i.e., passed with the majority of the votes cast). Such approval may be for a specific purchase or constitute a general authority lasting for up to five years from the date of the resolution although renewal of such approval for additional five year terms may be sought more frequently. However, shares may only be repurchased out of distributable profits or, subject to certain exceptions, the proceeds of a fresh issue of shares made for that purpose. Prior to the consummation of the spin-off, our sole shareholder is expected to adopt ordinary resolutions authorizing our board of directors to repurchase up to 16,950,678 of our ordinary shares over the next five years (representing approximately 20% of our ordinary shares outstanding as of the Distribution Date). We do not expect to repurchase any shares in the near future after the Distribution.
Transfer of Shares
Our board of directors may only refuse to register a transfer:
(1) if the shares in question are not fully paid;
(2) if it is not duly stamped (if such a stamp is required);
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• authorize our directors to increase our share capital by allotting new shares in addition to those in relation to which authority is
granted pursuant to the shareholder resolution mentioned above in “—Preemptive Rights and New Issues of Shares” ;
• consolidate and divide all or any of our share capital into shares of a larger nominal amount than the existing shares; and
• subdivide any of our shares into shares of a smaller nominal amount than our existing shares.
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(3) if it is not presented for registration together with the share certificate and such evidence of title as our board of directors reasonably requires;
(4) if it is with respect to more than one class of shares;
(5) if it is in favor of more than four persons jointly;
(6) if it is with respect to shares on which we have a lien; or
(7) in certain circumstances, if the holder has failed to provide the required particulars to us as described under “—Disclosure of Interests in Shares” above.
If our board of directors refuses to register a transfer of a share, it shall, within two months after the date on which the transfer was lodged with us, send to the transferee notice of the refusal, together with our reasons for refusal.
General Meetings and Notices
Annual General Meetings of Shareholders
Pursuant to the Companies Act, we are required to hold an annual general meeting within six months of the day following the end of our fiscal year. The notice required for an annual general meeting is at least 21 clear days unless all those entitled to attend and vote at the meeting agree to accept shorter notice. It is anticipated that our annual general meetings will continue to be used for the purpose, among other things, of approving the annual financial statements and the annual business report, and the annual election of directors.
Annual general meetings of shareholders must be convened by our board of directors who also have discretion to determine the location of such meetings.
General Meetings of Shareholders
Under the Companies Act, a general meeting may be convened by the board of directors of a company or by shareholder(s) representing at least 5% of the paid-up capital of a company carrying voting rights or in certain circumstances, the auditor of the company. The Articles provide that shareholders be given at least 21 clear days’ notice of general meetings. For the purposes of giving notice “clear days” means calendar days between (and excluding) deemed receipt of the notice and the date of the meeting itself.
Where the general meeting has been requisitioned by shareholders, the Companies Act requires directors to call the meeting within 21 days of becoming subject to the requisition and hold the meeting not more than 28 days after the date of the notice of the general meeting.
Notices
The notice of an annual general meeting or general meeting shall be given to the shareholders (other than any who, under the provisions of the Articles or the terms of allotment or issue of shares, are not entitled to receive notice).
Quorum Requirement
The necessary quorum for a general shareholder meeting is shareholders who together represent at least the majority of the shares entitled to vote at the meeting, present in person or by proxy.
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The Articles, however, also provide that certain matters require the presence in person or by proxy of shareholders who together represent at least two-thirds of the shares entitled to vote at a meeting, further details of which are provided under “—Voting Rights” above.
Record Dates for Shareholder Meetings
Under our Articles, all shareholders who are registered in our share register at the time of the record date specified in the relevant notice of the general meeting by our board of directors will be entitled to vote at the meeting. In order to determine shareholders entitled to receive notice of general meetings, we will also set a date where shareholders who are registered in our share register at close of business on such date will be entitled to receive notice of a general meeting by our board of directors, and such date will be no more than 21 days before the day that notices are sent.
Directors
Appointment of Directors
Election of Directors
Pursuant to the Articles, directors shall be elected at each annual general meeting of shareholders by a majority of the votes cast by the shareholders present in person or by proxy at the meeting and shareholders may by ordinary resolution elect a person who is willing to act to be a director either to fill a vacancy or as an additional director.
The Articles further provide that in the event it is proposed to vote upon a number of resolutions for the appointment of a person as a director that exceeds the number of directors that are to be appointed to the board of directors at that meeting our directors may be elected by a plurality of the votes cast by the shareholders present in person or by proxy at the meeting.
Nomination of Directors by Shareholders
As set out under “—General Meetings of Shareholders” above, shareholders representing at least 5% of the paid up capital of the company carrying voting rights may require the directors to call a general meeting of the Company.
The Companies Act also provides that shareholders may demand a resolution be voted on at an annual general meeting, if the demand is made by:
in each case provided those shareholders are entitled to vote on the resolution they demand. The Articles provide that notice of a resolution to elect a director must be received by our company secretary at least 90 days in advance of the meeting. Each such demand must include the information specified in the Articles. Under the Articles, if a shareholder does not comply with the information and notice requirements set out therein, the non-compliant shareholder may not vote on the matter to be acted on at the relevant meeting pursuant to the notice.
Resolutions to appoint directors must be put to shareholders on the basis of one resolution for each nominated director. A resolution including more than one director may be presented to be voted upon at a general meeting only if the shareholders have first unanimously approved such presentation.
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• shareholders holding at least 5% of the total voting rights at the meeting to which the demand relates; or
• at least 100 shareholders holding shares on which there has been paid an average sum per shareholder of at least £100,
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Removal of Directors
Pursuant to the Companies Act, shareholders can remove directors by passing an ordinary resolution (50% of the total votes cast at the meeting). Such a resolution to remove a director requires “special notice” under the Companies Act. Broadly, “special notice” requires that we be given notice by the proposing shareholder of the removal resolution at least 28 days prior to the meeting at which the removal resolution is to be proposed. We must then give notice to our shareholders at the same time as we give notice of the relevant meeting to our shareholders or, if this is not practical (i.e. because notice of the meeting has already been given) we must give at least 14 days’ notice of the removal resolution to our shareholders.
In addition, pursuant to the Articles, a director may be removed from office if he or she receives written notice signed by not less than 75% of the other directors removing him or her from office.
Directors’ Duties
The Companies Act codified many of the pre-existing common law and fiduciary duties that had previously existed in relation to directors under U.K. law and imposes the following statutory director duties on directors of U.K. companies:
The above duties apply to all directors of a U.K. company in all contexts, including in relation to takeovers, business combinations and other corporate transactions.
Related Party Transactions
Under U.K. law, certain transactions between a director, certain parties connected with that director and a related company of which he or she is a director are prohibited unless approved by the shareholders, such as loans, credit transactions and substantial property transactions.
Our Liability and Liability of Our Directors and Of ficers
Exclusive Jurisdiction
The Articles provide that U.K. courts have exclusive jurisdiction with respect to any suits brought by shareholders (in their capacity as such) against us or our directors.
Indemnification of Directors and Officers and Insurance
The Articles enable us to indemnify our directors and officers and to advance expenses to defend claims against officers and directors to the full extent of U.K. law. Subject to exceptions described below, U.K. law does not permit a company to exempt a director or certain officers from, or indemnify him or her against, liability in
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• a duty to act within his or her powers (i.e. in accordance with the articles and shareholder resolutions);
• a duty to act in a way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole;
• a duty to act in accordance with the company’s constitution and exercise powers only for the purposes for which they are conferred;
• a duty to exercise independent judgment;
• a duty to exercise reasonable care, skill and diligence;
• a duty to avoid conflicts of interest;
• a duty not to accept benefits from third parties; and
• a duty to declare an interest in a proposed transaction with the company.
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connection with any negligence, default, breach of duty or breach of trust by him or her in relation to the company. Indemnification is permitted for liabilities incurred in proceedings in which judgment is entered in favour of the director or officer and the director or officer is acquitted, or the director or officer is held liable, but the court finds that he or she acted honestly or reasonably and the relief should be granted.
The exceptions under the Companies Act allow a company to (and the Articles provide that we may):
We expect to enter into indemnity agreements with certain of our directors and executive officers. The indemnity agreements provide, among other things, that we will indemnify the director or officer party thereto if such person is a party to or is threatened to be made a party to or otherwise involved in any threatened, pending or completed proceeding (other than a proceeding by or in the right of the Company to procure a judgment in its favor) by reason of the fact that such person is or was a director or officer of the Company or its subsidiaries, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding; provided it is determined that such person acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The indemnity agreements also provide that the Company will indemnify the officer or director party thereto if such person is a party to or is threatened to be made a party to or otherwise involved in any threatened, pending or completed proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company or a subsidiary, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all expenses actually and reasonably incurred by such person in connection with the defense, settlement or other disposition of such proceeding, except that no indemnification will be made in certain circumstances, including fraud or wilful misconduct or recklessness or for liability under Section 16(b) of the Exchange Act. The indemnity agreements permit the Company to advance to such officers and directors expenses in connection with proceedings for which they are indemnified, subject to certain conditions and forfeiture. Insofar as indemnification for liability arising
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• purchase and maintain director and officer insurance (“D&O Insurance”) against any liability arising in connection with any negligence, default, breach of duty or breach of trust owed to the company. We intend to maintain D&O Insurance. D&O Insurance generally covers costs incurred in defending allegations and compensatory damages that are awarded. D&O Insurance will not cover damages awarded in relation to criminal acts, intentional malfeasance or other forms of dishonesty, regulatory offences or excluded matters such as environmental liabilities. In relation to these matters, D&O Insurance generally only covers defense costs, subject to the obligation of the director or officer to repay the costs if an allegation of criminality, dishonesty or intentional malfeasance is subsequently admitted or found to be true;
• provide a qualifying third party indemnity provision (“QTPIP”). This permits a company to indemnify its directors and certain officers (and directors and certain officers of an associated company) in respect of proceedings brought by third parties (covering both legal costs and the amount of any adverse judgment, except for: the legal costs of an unsuccessful defense of criminal proceedings or civil proceedings brought by the company itself, fines imposed in criminal proceedings and penalties imposed by regulatory bodies). We can therefore indemnify directors and certain officers against such third party actions as class actions or actions following mergers and acquisitions or share issues; and
• make a loan to a director or certain officers in respect of defense costs in relation to civil and criminal proceedings against him or her (even if the action is brought by the company itself). This is subject to the requirement for the director or officer to reimburse the company if the defense is unsuccessful. However, if the company has a QTPIP in place whereby the director or officer is indemnified in respect of legal costs in civil proceedings brought by third parties, then the director or officer will not be required to reimburse the company as the cost of the loan can be paid under the QTPIP.
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under the Securities Act may be permitted to directors and officers pursuant to the indemnity agreements, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Shareholders’ Suits
Under the Companies Act, shareholders are entitled to bring a derivative claim to seek relief on behalf of the company against the actions of a director of the company. The cause of action for a derivative claim must be vested in the company and claims may only be brought in respect of actual or proposed acts or omissions including negligence, default, breach of duty or breach of trust by a director of the company. The onus to provide evidence to make out a prima facie case for the derivative claim is on the shareholder seeking permission to continue the claim.
The Companies Act also permits shareholders to apply for a court order:
Anti-Takeover Provisions
Certain provisions in our Articles are intended to have the effect of delaying or preventing a change in control of us or changes in our management. For example, we expect that our Articles will include provisions that establish an advance notice procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. U.K. law also prohibits the passing of written shareholder resolutions by public companies. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management, even if these events would be beneficial for our shareholders.
U.K. Takeover Code
A U.K. public limited company is potentially subject to the U.K. City Code on Takeovers and Mergers, or Takeover Code, if, among other factors, its place of central management and control is within the U.K., the Channel Islands or the Isle of Man. The Takeover Panel will generally look to the residency of a company’s directors to determine where it is centrally managed and controlled. The Takeover Panel has confirmed that, based upon our current and intended plans for our directors and management, the Takeover Code (as currently drafted) will not apply to us. However, it is possible that, in the future, circumstances could change that may cause the Takeover Code to apply to us.
Shareholder Rights Plan
Our board of directors will have the necessary corporate authority, without further action of our shareholders for a period of five years, but subject to statutory and fiduciary duties, to give effect to a shareholder rights plan and to determine the terms thereof. Under a shareholder rights plan, rights to subscribe for or acquire newly issued shares in Paragon Offshore may be granted to all shareholders. The exercise of these rights would not be dependent on our having a need for new capital. Pursuant to a shareholder rights plan, the board of directors may decide that after a person or group of affiliated or associated persons or persons acting in concert acquires beneficial ownership of a specified percentage (15 percent or more under our Articles) of our outstanding shares, the rights granted pursuant to the shareholder rights plan would become exercisable by all holders thereof (other than the acquiring person, group of affiliated or associated persons or persons acting in concert). Each such holder of a right would, upon the right becoming exercisable, have the right to receive upon
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• if our affairs are being or have been conducted in a manner unfairly prejudicial to the interests of all or some shareholders, including
the shareholder making the claim; or
• if any of our acts or omissions is or would be so prejudicial.
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exercise shares with a market value greater than the exercise price. As a result, such a plan could make it more difficult for another party to obtain control of Paragon Offshore by threatening to dilute a potential acquirer’s ownership interest in the company under certain circumstances.
Our board of directors may exercise any power of the company to establish a shareholder rights plan at any time, including in conjunction with the consummation of the Distribution or sometime thereafter. Our board of directors may have the authority without reference to our shareholders, but subject to statutory and fiduciary duties, to determine whether or not to redeem the rights granted pursuant to the shareholder rights plan.
These protections and other provisions of our Articles, as well as any adoption of a shareholder rights plan, could discourage potential acquisition proposals and could delay or prevent a change in control. However, these provisions are intended to enhance shareholder value by discouraging hostile takeover tactics. For example, a shareholder rights plan could be used to improve the likelihood that (i) any process which may result in an acquisition or change of control of the company is conducted in an orderly manner, including by providing additional time to negotiate with additional bidders or pursue alternative strategies; (ii) all shareholders are treated equally and fairly and in a similar manner; (iii) an optimum price for shares is received by or on behalf of all shareholders; (iv) the success of the company is promoted for the benefit of its shareholders as a whole; (v) the long term interests of the company, its employees, its shareholders and its business would be safeguarded, and (vi) the company would not suffer serious economic harm. Moreover, our board of directors could use a shareholder rights plan to prevent the consummation of a hostile offer that our board believed undervalued us or was otherwise not in the long term interests of shareholders.
It should be noted that these provisions potentially provide our board of directors with greater power to defend a hostile tender offer (or the acquisition of a significant interest in us) and could have the effect of discouraging tender offers for our ordinary shares and, as a consequence, may adversely affect the market price of our ordinary shares or inhibit fluctuations in the market price of our ordinary shares that could otherwise result from actual or rumored takeover attempts.
Business Combinations with Interested Shareholders
The Articles provide that, in general, we may not engage in a business combination with an interested shareholder for a period of three years after the time of the transaction in which the person became an interested shareholder.
The prohibition on business combinations with interested shareholders does not apply in some cases, including if:
As defined in the Articles, an interested shareholder for the purposes of these provisions generally includes any person who, together with that person’s affiliates or associates, (1) owns 15% or more of our issued shares or (2) is an affiliate or associate of the company and owned 15% or more of our issued shares at any time within the previous three years.
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• Our board of directors, prior to the time of the transaction in which the person became an interested shareholder, approves (1) the business combination or (2) the transaction in which the shareholder becomes an interested shareholder;
• upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our voting shares outstanding at the time the transaction commenced; or
• the board of directors and the holders of at least two-thirds of our outstanding voting shares, excluding shares owned by the
interested shareholder, approve the business combination on or after the time of the transaction in which the person became an interested shareholder.
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Fair Price Provisions
The Articles also include “fair price provisions” that require the approval of a specified percentage of the voting shares before we may enter into certain “business combinations” with an “interested shareholder” unless:
For purposes of the fair price provisions, “business combination” is broadly defined to include mergers and consolidations of us or our subsidiaries with an interested shareholder or any other person that is or would be an interested shareholder after such transaction; a sale, exchange or mortgage of assets having a fair market value of $1 million or more to an interested shareholder or any affiliate of an interested shareholder; any merger or consolidation of any of our subsidiaries with an aggregate fair market value of $1 million or more with an interested shareholder or an affiliate of an interested shareholder; the issuance or transfer of our securities or the securities of our subsidiaries having a fair market value of $1 million or more to an interested shareholder or any affiliate of an interested shareholder; the adoption of a plan of liquidation or dissolution proposed by any interested shareholder or any affiliate of an interested shareholder; and any reclassification of securities or other transaction which has the effect, directly or indirectly, of increasing the number of shares beneficially owned by any interested shareholder or any affiliate of an interested shareholder. For purposes of the fair price provisions, “interested shareholder” is generally defined as a person who, together with any affiliates of that person, beneficially owns, directly or indirectly, 5% or more of the combined voting power of our then issued and outstanding shares.
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• the business combination is approved by a majority of the disinterested members of the board of directors; or
• the aggregate amount of cash and the fair market value of the consideration other than cash to be received by the shareholders in the
business combination meet certain specified threshold minimum standards, and certain specified events have occurred or failed to occur, as applicable.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Revolving Credit Facility
On June 17, 2014, we and Paragon International Finance Company, an exempted company incorporated under the laws of the Cayman Islands and, upon the completion of our separation from Noble, our wholly-owned subsidiary (“PIFCO” and together with us, the “Revolving Borrowers”), as borrowers, entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, swingline lender and an issuing bank of letters of credit, the other issuing banks party thereto and the lenders party thereto, pursuant to which the lenders have agreed to provide commitments in the amount of $800 million.
The lenders are not obligated to make any loans to the Revolving Borrowers, and none of the covenants, representations and warranties or events of default will be effective, and no collateral or guarantees will be provided, until the satisfaction of certain conditions, including the completion of the separation, the closing and funding of the Term Loan Facility and the issuance of the Debt Securities. The date on which such funding conditions are satisfied (or waived) is referred to in the Revolving Credit Agreement as the “Funding Date.”
All obligations under the Revolving Credit Agreement will be, as of the Funding Date, (i) guaranteed by each of our direct and indirect, existing and future, wholly-owned restricted subsidiaries (other than PIFCO) which (1) holds an ownership interest in one or more Collateral Rigs (meaning, as of the Funding Date, all of our vessels, other than our FPSO and three other drilling units that are currently cold-stacked) (each, a “Rig Owner”), (2) owns a direct equity interest in any Rig Owner or (3) is party to an internal bareboat charter of a Collateral Rig and (ii) secured by the Collateral Rigs and certain personal property of the Revolving Borrowers and the guarantors.
After the Funding Date, the Revolving Borrowers may, subject to the satisfaction of certain conditions and successful procurement of additional commitments from new or existing lenders, elect to increase the maximum amount available under the Revolving Credit Agreement from $800 million up to $1.1 billion. Borrowings under the Revolving Credit Agreement may be used to pay costs, fees and expenses in connection with the separation and associated transactions, to make payments in respect of the separation and for capital expenditures, working capital and other general corporate purposes. After the Funding Date, the Revolving Borrowers may, subject to the satisfaction of certain conditions, obtain up to $800 million of letters of credit and up to $80 million of swingline loans under the Revolving Credit Agreement, depending, in each case, on the amount outstanding under the facility.
The Revolving Credit Agreement has an initial term of five years after the Funding Date.
Borrowings under the facility bear interest, at the Borrowers’ option, at either (i) an adjusted LIBOR, plus a margin ranging between 1.50% to 2.50%, depending on our leverage ratio, or (ii) the Base Rate, which is calculated as the greatest of (1) a fluctuating rate of interest publicly announced by JPMorgan Chase Bank, N.A., as its “prime rate,” (2) the U.S. federal funds effective rate plus 0.50% and (3) the one month LIBOR Rate plus 1.00%, plus a margin ranging between 0.50% to 1.50%, depending on our leverage ratio.
The Revolving Credit Agreement contains certain affirmative and negative covenants that we consider usual and customary for an agreement of this type, including, among other things, a covenant requiring us to maintain a net leverage ratio not greater than 4.00 to 1.00 and a covenant requiring us to maintain a minimum interest coverage ratio of 3.00 to 1.00. Such covenants will, subject to exceptions, limit our ability and the ability of our restricted subsidiaries to, among other things:
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• incur additional indebtedness and guarantee indebtedness;
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Repayment of borrowings under the Revolving Credit Agreement is subject to acceleration upon the occurrence of certain events of default that we consider usual and customary for an agreement of this type, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, actual or asserted failure of any credit document to be in force and effect and change of control.
The administrative agent and certain of the parties to the Revolving Credit Agreement and certain of their respective affiliates have performed in the past, and may perform in the future, banking, investment banking or other advisory services for the Revolving Borrowers and affiliates of the Revolving Borrowers from time to time for which they have received, or will receive, customary fees and expenses.
Term Loan Facility
In connection with the separation, we, in our capacity as the parent of the Term Loan Borrower (as defined below), and Paragon Offshore Finance Company, an exempted company and our wholly-owned subsidiary incorporated under the laws of the Cayman Islands (the “Term Loan Borrower”), as borrower, expect to enter into a senior secured term loan facility (the “Term Loan Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which term loans in the amount of $650 million will be available to be borrowed on the Term Loan Closing Date (as defined below) of the Term Loan Facility. The following is a summary of the expected terms of our Term Loan Facility, although the actual terms may vary from this description. We will provide additional details in subsequent filings of this Form 10.
The closing of the Term Loan Facility will be conditioned on the satisfaction of certain conditions, including the completion of the separation, the occurrence of the Funding Date and the issuance of the Debt Securities (the date on which such conditions are satisfied (or waived), the “Term Loan Funding Date”).
We expect all obligations under the Term Loan Facility to be, (i) guaranteed by us and each of our direct and indirect, existing and future, wholly-owned restricted subsidiaries (other than the Term Loan Borrower) which (1) is a Rig Owner, (2) owns a direct equity interest in any Rig Owner or (3) is party to an internal bareboat charter of a Collateral Rig and (ii) secured by the Collateral Rigs and certain personal property of the Term Loan Borrower and the guarantors.
We expect that the term loans may be used to pay costs, fees and expenses in connection with the separation and associated transactions, to make payments in respect of the separation and for capital expenditures, working capital and other general corporate purposes. We intend to use the net proceeds of the Debt Securities issuance, together with borrowings under the Term Loan Facility and cash on hand, to repay the indebtedness incurred as partial consideration for the transfer to us of Noble’s standard specification drilling business.
We expect that the Term Loan Facility will have an initial term of seven years after the Term Loan Funding Date.
We expect that borrowings under the Term Loan Facility will bear interest, at the Term Loan Borrower’s option, at either (i) an adjusted LIBOR, plus a margin of 2.75%, or (ii) the Base Rate, which is calculated as the
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• pay dividends or make other distributions or repurchase or redeem our capital stock;
• make loans and investments;
• sell, transfer or otherwise dispose of certain assets;
• create or incur liens;
• enter into certain types of transactions with affiliates;
• enter into agreements restricting our subsidiaries’ ability to pay dividends;
• consolidate, merge or sell all or substantially all of our assets;
• create unrestricted subsidiaries; and
• enter into new lines of business.
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greatest of (1) a fluctuating rate of interest publicly announced by JPMorgan Chase Bank, N.A., as its “prime rate,” (2) the U.S. federal funds effective rate plus 0.50% and (3) the one month LIBOR Rate plus 1.00%, plus a margin of 1.75%. We expect the term loans to be issued with 0.5% original issue discount.
We expect that the Term Loan Facility will contain certain affirmative and negative covenants that we consider usual and customary for an agreement of this type. Such covenants will, subject to exceptions, limit our ability and the ability of our restricted subsidiaries to, among other things:
We expect that repayment of borrowings under the Term Loan Facility is subject to acceleration upon the occurrence of certain events of default that we consider usual and customary for an agreement of this type, including payment defaults, breaches of representations and warranties, covenant defaults, cross-payments defaults and cross-acceleration to material indebtedness, certain events of bankruptcy, material judgments and actual or asserted failure of any credit document to be in force and effect.
We expect that the Term Loan Borrower may prepay all or a portion of the term loans at any time, subject to a 1.00% principal premium on the repayment of principal pursuant to a refinance within the first year after the Term Loan Closing Date. The term loans may be subject to mandatory prepayments with the net cash proceeds of certain issuances of debt, certain asset sales and other dispositions and certain condemnation events, and with excess cash flow in any calendar year in which our leverage ratio exceeds 3.00 to 1.00. In addition, we expect that in the event of a change of control, the Term Loan Borrower will be required to offer to prepay the term loans.
We expect that the administrative agent and certain of the parties to the Term Loan Facility and certain of their respective affiliates will have performed in the past, and may perform in the future, banking, investment banking or other advisory services for the Term Loan Borrower and affiliates of the Term Loan Borrower from time to time for which they have received, or will receive, customary fees and expenses.
Debt Securities
Prior to the spin-off, we will issue $1.08 billion of Debt Securities, consisting of $500 million of 6.75% senior notes due 2022 (the “2022 Notes”) and $580 million of 7.25% senior notes due 2024 (the “2024 Notes”). The 2022 Notes and the 2024 Notes are each referred to herein as a “series” and will be treated as two separate series of the Debt Securities under the indenture governing the Debt Securities for purposes of, among other things, payments of principal and interest, events of default and consents to amendments to the indenture and the Debt Securities. The Debt Securities will be issued without an original issue discount.
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• incur additional indebtedness and guarantee indebtedness;
• pay dividends or make other distributions or repurchase or redeem our capital stock;
• prepay, redeem or repurchase certain debt;
• issue certain preferred stock or similar equity securities;
• make loans and investments;
• sell, transfer or otherwise dispose of certain assets;
• create or incur liens;
• enter into certain types of transactions with affiliates;
• enter into agreements restricting our subsidiaries’ ability to pay dividends;
• consolidate, merge or sell all or substantially all of our assets;
• create unrestricted subsidiaries; and
• enter into new lines of business.
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We intend to use the net proceeds of the Debt Securities issuance, together with borrowings under the Term Loan Facility, to repay the indebtedness incurred as partial consideration for the transfer to us of Noble’s standard specification drilling business. The offering of the Debt Securities is expected to close on July 18, 2014, subject to certain conditions, including the completion of the transfers to us of Noble’s standard specification drilling business, the funding under the Term Loan Facility and other customary closing conditions.
The financing costs related to the Debt Securities issuance will be deferred and amortized over the life of the Debt Securities. The 2022 Notes will mature on July 15, 2022, and the 2024 Notes will mature on August 15, 2024. Interest on the 2022 Notes will be payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2015. Interest on the 2024 Notes will be payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. Each of our existing and future subsidiaries that is a borrower or guarantees indebtedness under our Revolving Credit Agreement or Term Loan Facility or guarantees certain of our other indebtedness or certain indebtedness of our subsidiary guarantors will guarantee the Debt Securities.
At any time prior to July 15, 2017, we may redeem up to 35% of the aggregate principal amount of the 2022 Notes with the net cash proceeds of certain equity offerings at a redemption price of 106.750% of the principal amount, plus accrued and unpaid interest, if any, subject to certain conditions. Prior to July 15, 2018, we may redeem some or all of the 2022 Notes at a price equal to 100% of the principal amount plus a make-whole premium determined pursuant to a formula set forth in the indenture, plus accrued and unpaid interest. On and after July 15, 2018, we may redeem all or a part of the 2022 Notes at the following prices (as a percentage of principal amount), plus accrued and unpaid interest, if redeemed during the 12-month period beginning on July 15 of the years indicated below:
At any time prior to August 15, 2017, we may redeem up to 35% of the aggregate principal amount of the 2024 Notes with the net cash proceeds of certain equity offerings at a redemption price of 107.250% of the principal amount, plus accrued and unpaid interest, if any, subject to certain conditions. Prior to August 15, 2019, we may redeem some or all of the 2024 Notes at a price equal to 100% of the principal amount plus a make-whole premium determined pursuant to a formula set forth in the indenture, plus accrued and unpaid interest. On and after August 15, 2019, we may redeem all or a part of the 2024 Notes at the following prices (as a percentage of principal amount), plus accrued and unpaid interest, if redeemed during the 12-month period beginning on August 15 of the years indicated below:
The Debt Securities will be subject to covenants that limit our ability and the ability of certain of our subsidiaries to, among other things:
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Year Percentage 2018 103.375 % 2019 101.688 % 2020 and thereafter 100.000 %
Year Percentage 2019 103.625 % 2020 102.417 % 2021 101.208 % 2022 and thereafter 100.000 %
• incur additional indebtedness and guarantee indebtedness;
• pay dividends or make other distributions or repurchase or redeem our capital stock;
• prepay, redeem or repurchase certain debt;
• issue certain preferred stock or similar equity securities;
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The Debt Securities will also have cross default provisions that apply to other indebtedness we or certain of our subsidiaries may have from time to time with an outstanding principal amount of $75 million or more. If the Debt Securities achieve an investment grade rating from both Moody’s and S&P, our obligation to comply with certain of these covenants will be suspended.
This information statement and the registration statement on Form 10 of which it is a part shall not be deemed an offer to sell or a solicitation of an offer to buy the Debt Securities.
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• make loans and investments;
• sell, transfer or otherwise dispose of certain assets;
• create or incur liens;
• enter into certain types of transactions with affiliates;
• enter into agreements restricting our subsidiaries’ ability to pay dividends;
• consolidate, merge or sell all or substantially all of our assets;
• create unrestricted subsidiaries; and
• enter into new lines of business.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form 10 under the Exchange Act relating to the ordinary shares being distributed in the spin-off. This information statement forms a part of that registration statement but does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information relating to us and Paragon Offshore ordinary shares, reference is made to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SEC’s Public Reference Room, located at 100 F Street, NE, Washington, D.C. 20549 or on the SEC’s website at http://www.sec.gov. You may obtain a copy of the registration statement from the SEC’s Public Reference Room upon payment of prescribed fees. Please call the SEC at (800) SEC-0330 for further information on the operation of the Public Reference Room.
Following the effectiveness of the registration statement to which this information statement is filed as an exhibit, we will be subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC. Those periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s Public Reference Room and the SEC’s website at http://www.sec.gov.
We intend to furnish holders of ordinary shares of Paragon Offshore with annual reports containing financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.
We plan to make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. All of these documents will be made available free of charge on our website, www.paragonoffshore.com and will be provided free of charge to any shareholders requesting a copy by writing to: Paragon Offshore plc, 3151 Briarpark Drive, Suite 700, Houston, Texas 77042 , Attention: Corporate Secretary. The information on our website is not, and shall not be deemed to be, a part of this information statement or incorporated into any other filings we make with the SEC.
No person is authorized to give any information or to make any representations with respect to the matters described in this information statement other than those contained in this information statement or in the documents incorporated by reference in this information statement and, if given or made, such information or representation must not be relied upon as having been authorized by us or Noble. Neither the delivery of this information statement nor completion of the spin-off shall, under any circumstances, create any implication that there has been no change in our affairs or those of Noble since the date of this information statement, or that the information in this information statement is correct as of any time after its date.
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INDEX TO FINANCIAL STATEMENTS
F-1
NOBLE STANDARD -SPEC BUSINESS Audited Combined Financial Statements for the Years Ended December 31, 2013, 2012 and 2011
Report of Independent Registered Public Accounting Firm F-2
Combined Balance Sheets F-3
Combined Statements of Income F-4
Combined Statements of Comprehensive Income F-5
Combined Statements of Cash Flows F-6
Combined Statements of Changes in Equity F-7
Notes to Combined Financial Statements F-8
Unaudited Combined Financial Statements for the Three Months Ended March 31, 2014 and 2013
Combined Balance Sheets F-23
Combined Statements of Income F-24
Combined Statements of Comprehensive Income F-25
Combined Statements of Cash Flows F-26
Combined Statements of Changes in Equity F-27
Notes to Combined Financial Statements F-28
PARAGON OFFSHORE LIMITED (formerly Noble Spinco Lim ited) Audited Balance Sheet as of April 30, 2014
Report of Independent Registered Public Accounting Firm F-35
Balance Sheet F-36
Notes to Audited Balance Sheet F-37
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder of Noble Standard-Spec Business:
In our opinion, the accompanying combined balance sheets and the related combined statements of income, of comprehensive income, of cash flows and of changes in equity present fairly, in all material respects, the financial position of Noble Standard-Spec Business at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas March 7, 2014
F-2
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NOBLE STANDARD-SPEC BUSINESS
COMBINED BALANCE SHEETS
(In thousands)
See accompanying notes to the combined financial statements.
F-3
December 31,
2013
December 31,
2012 ASSETS Current assets
Cash and cash equivalents $ 36,581 $ 70,538 Accounts receivable 356,241 321,659 Prepaid and other current assets 51,182 73,363
Total current assets 444,004 465,560
Property and equipment, at cost 6,067,066 5,861,921 Accumulated depreciation (2,607,382 ) (2,310,108 )
Property and equipment, net 3,459,684 3,551,813
Other assets 79,111 100,699
Total assets $ 3,982,799 $ 4,118,072
LIABILITIES AND EQUITY Current liabilities
Accounts payable $ 124,442 $ 128,420 Accrued payroll and related costs 60,738 58,258 Other current liabilities 41,374 25,066
Total current liabilities 226,554 211,744
Long-term debt 1,561,141 339,809 Deferred income taxes 101,703 96,834 Other liabilities 88,068 104,453
Total liabilities 1,977,466 752,840
Commitments and contingencies
Equity Net parent investment 2,005,339 3,365,417 Accumulated other comprehensive loss (6 ) (185 )
Total equity 2,005,333 3,365,232
Total liabilities and equity $ 3,982,799 $ 4,118,072
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF INCOME
(In thousands)
See accompanying notes to the combined financial statements.
F-4
Year Ended December 31, 2013 2012 2011 Operating revenues
Contract drilling services $ 1,807,952 $ 1,448,569 $ 1,291,276 Reimbursables 49,810 56,444 41,515 Labor contract drilling services 35,146 36,591 37,269 Other 94 253 497
1,893,002 1,541,857 1,370,557
Operating costs and expenses Contract drilling services 914,702 874,805 776,662 Reimbursables 38,341 44,535 30,476 Labor contract drilling services 24,333 22,006 24,801 Depreciation and amortization 413,305 367,837 348,834 General and administrative 64,907 60,831 59,964 Loss on impairment 43,688 — 12,719 Gain on disposal of assets, net (35,646 ) — — Gain on contract settlements/extinguishments, net (24,373 ) (4,869 ) (19,846 )
1,439,257 1,365,145 1,233,610
Operating income 453,745 176,712 136,947
Other income (expense) Interest expense, net of amount capitalized (5,938 ) (3,746 ) (1,986 ) Interest income and other, net (1,897 ) 1,959 (59 )
Income before income taxes 445,910 174,925 134,902 Income tax provision (85,605 ) (48,688 ) (30,079 )
Net income $ 360,305 $ 126,237 $ 104,823
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
See accompanying notes to the combined financial statements.
F-5
Year Ended December 31, 2013 2012 2011 Net income $ 360,305 $ 126,237 $ 104,823 Other comprehensive income (loss)
Foreign currency translation adjustments 179 1,743 (1,821 )
Total comprehensive income $ 360,484 $ 127,980 $ 103,002
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
See accompanying notes to the combined financial statements.
F-6
Year Ended December 31, 2013 2012 2011 Cash flows from operating activities
Net income $ 360,305 $ 126,237 $ 104,823 Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 413,305 367,837 348,834 Loss on impairment 43,688 — 12,719 Gain on disposal of assets, net (35,646 ) Gain on contract extinguishments, net — — (19,846 ) Deferred income taxes 4,869 (14,141 ) (26,915 ) Capital contribution by parent—share-based compensation 21,114 18,565 17,897 Net change in other assets and liabilities 14,840 (93,014 ) 28,588
Net cash from operating activities 822,475 405,484 466,100
Cash flows from investing activities Capital expenditures (366,361 ) (532,404 ) (518,455 ) Change in accrued capital expenditures (12,365 ) (8,463 ) 6,558 Refund from contract extinguishments — — 18,642 Proceeds from disposal of assets 61,000 — —
Net cash used in investing activities (317,726 ) (540,867 ) (493,255 )
Cash flows from financing activities Net change in borrowings outstanding on bank credit facilities 1,221,332 (635,192 ) 935,000 Financing costs on credit facilities (2,484 ) (5,221 ) (2,974 ) Net transfers from (to) parent (1,757,554 ) 770,567 (905,996 )
Net cash (to) from financing activities (538,706 ) 130,154 26,030
Net change in cash and cash equivalents (33,957 ) (5,229 ) (1,125 ) Cash and cash equivalents, beginning of period 70,538 75,767 76,892
Cash and cash equivalents, end of period $ 36,581 $ 70,538 $ 75,767
Supplemental information for non-cash activities Transfer from (to) parent of property and equipment $ 16,057 $ 5,310 $ (20,823 ) Transfer from parent of other assets — 987 —
$ 16,057 $ 6,297 $ (20,823 )
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
See accompanying notes to the combined financial statements.
F-7
Net Parent Investment
Accumulated Other Comprehensive (Loss) Gain Total Equity
Balance at January 1, 2011 $ 3,247,850 $ (107 ) $ 3,247,743 Net income 104,823 — 104,823 Net transfers to parent (908,922 ) — (908,922 ) Foreign currency translation adjustments — (1,821 ) (1,821 )
Balance at December 31, 2011 2,443,751 (1,928 ) 2,441,823 Net income 126,237 — 126,237 Net transfers from parent 795,429 — 795,429 Foreign currency translation adjustments — 1,743 1,743
Balance at December 31, 2012 3,365,417 (185 ) 3,365,232 Net income 360,305 — 360,305 Net transfers to parent (1,720,383 ) — (1,720,383 ) Foreign currency translation adjustments — 179 179
Balance at December 31, 2013 $ 2,005,339 $ (6 ) $ 2,005,333
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NOBLE STANDARD-SPEC BUSINESS NOTES TO COMBINED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands)
Note 1—Organization and Significant Accounting Policies
Organization and Business
Noble Standard-Spec Business (sometimes referred to as the “Company”, “we”, or “Predecessor”) comprises the standard specification drilling fleet and related operations of Noble Corporation plc (“Noble” or “Parent”). We are an offshore drilling contractor for the oil and gas industry with global operations. In addition, we conduct contract labor services in Canada.
Noble’s fleet includes two types of drilling units: standard-specification (“standard-spec”) and high-specification (“high-spec”) drilling units. Factors in determining classification between the two include, but are not limited to, the following: age, technological capabilities, size, water depth and load capacities.
The accompanying financial statements have been prepared in anticipation of Noble’s plan to separate certain of our assets and entities into an independent, publicly-traded company, Paragon Offshore plc (“Paragon Offshore” or “Successor”). Our fleet currently includes 45 mobile offshore drilling units, which consist of four semisubmersibles, five drillships, 36 jackups, and one floating production storage and offloading unit (“FPSO”), as well as the Hibernia platform operations. In July 2013, Noble sold the Noble Lewis Dugger , a standard specification jackup to an unrelated third party, and in January 2014, Noble sold two cold stacked submersibles, the Noble Joe Alford and the Noble Lester Pettus , to an unrelated third party. The historical results for these rigs are included in our historical results, but these rigs are not included in the current fleet count.
Noble intends to transfer Predecessor assets, excluding two jackups and one semisubmersible currently owned by Noble to Paragon Offshore. Noble plans to separate Paragon Offshore through the distribution of Paragon Offshore shares to Noble shareholders in a spin-off (the “Distribution”).
Basis of Presentation
These combined financial statements have been prepared on a stand-alone basis and are derived from Noble’s consolidated financial statements and accounting records. The combined financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). The combined financial position, results of operations and cash flows of the Company may not be indicative of the Company had it been a separate stand-alone entity during the periods presented, nor are the results stated herein indicative of what the Company’s financial position, results of operations and cash flows may be in the future.
These combined financial statements include assets and liabilities that are specifically identifiable or have been allocated to the Company. Costs directly related to the Company have been included in the accompanying financial statements. The Company receives service and support functions from Noble. The costs associated with these support functions have been allocated relative to Noble in its entirety, which is considered to be the most meaningful under the circumstances. The costs were allocated to us using various allocation inputs, such as head count, services rendered, and assets assigned to us. These allocated costs are primarily related to corporate administrative expenses, employee related costs, including pensions and other benefits, and corporate and shared employees for the following functional groups:
F-8
• information technology,
• legal services,
• accounting,
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We consider the expense allocation methodology and results to be reasonable for all periods presented. These allocations may not be indicative of the actual expenses the Company may have incurred as a separate independent public company during the periods presented nor are these costs indicative of what the Company will incur in the future. See Note 13, “Related Parties (Including Relationship with Parent and Corporate Allocations),” for a further description of allocation of expenses.
Noble maintains benefit and stock-based compensation programs at the corporate level. To the extent that Company employees participate in these programs, we were allocated a portion of the associated expenses. However, the Combined Balance Sheets do not include any Noble net benefit plan obligations or Noble outstanding equity related to the stock-based compensation programs. See Note 4, “Stock-Based Compensation Plans,” and Note 13, “Related Parties (Including Relationship with Parent and Corporate Allocations),” for a further description of these stock-based compensation and other benefit programs.
Historically, Noble has provided us with financing, cash management and other treasury services. Cash transferred to and from Noble has historically been recorded as intercompany payables and receivables which are reflected in net parent investment in the accompanying combined financial statements.
All significant transactions between Noble and the Company have been included in these combined financial statements. Transactions with Noble are reflected in the accompanying Combined Statements of Changes in Equity as “Net transfers from (to) Parent” and in the accompanying Combined Balance Sheets within “Net parent investment”. The “Net parent investment” equity balance represents Noble’s historical investment in the Company and the net effect of transactions with and allocations from Noble as of the date presented.
Noble expects to repay certain outstanding indebtedness with payments received from the Company. The Company is expected to fund such payments to Noble with proceeds from borrowings. Accordingly, this indebtedness is included in these combined financial statements. See Note 3, “Debt,” for a further description of long-term debt.
Principles of Combination
The combined financial statements include our net assets and results of our operations as described above. All significant intercompany transactions and accounts within our combined businesses have been eliminated.
Foreign Currency Translation
We define foreign currency as any non-U.S. denominated currency. In non-U.S. locations where the U.S. Dollar has been designated as the functional currency (based on an assessment of the economic circumstances of the foreign operation), local currency transaction gains and losses are included in net income. In non-U.S. locations where the local currency is the functional currency, assets and liabilities are translated at the rates of exchange on the balance sheet date, while income and expense items are translated at average rates of exchange during the year. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. Dollar are included in “Accumulated other comprehensive loss” in the accompanying Combined Balance Sheets. We did not recognize any material gains or losses on foreign currency transactions or translations during the years ended December 31, 2013, 2012 or 2011.
F-9
• finance services,
• human resources,
• marketing and product support,
• treasury, and
• other corporate and infrastructural services.
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Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than federally insured limits. Cash and cash equivalents are primarily held by major banks or investment firms. Our cash management and investment policies restrict investments to lower risk, highly liquid securities and we perform periodic evaluations of the relative credit standing of the financial institutions with which we conduct business.
Fair Value Measurements
We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. Our valuation techniques require inputs that we categorize using a three-level hierarchy, from highest to lowest level of observable inputs, as follows: (1) unadjusted quoted prices for identical assets or liabilities in active markets (“Level 1”), (2) direct or indirect observable inputs, including quoted prices or other market data, for similar assets or liabilities in active markets or identical assets or liabilities in less active markets (“Level 2”) and (3) unobservable inputs that require significant judgment for which there is little or no market data (“Level 3”). When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement even though we may have also utilized significant inputs that are more readily observable.
Our cash and cash equivalents, accounts receivable and accounts payable are by their nature short-term. As a result, the carrying values included in the accompanying Combined Balance Sheets approximate fair value.
Property and Equipment, at Cost
Property and equipment is stated at cost, reduced by provisions to recognize economic impairment in value whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. Major replacements and improvements are capitalized. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. Drilling equipment and facilities are depreciated using the straight-line method over their estimated useful lives as of the date placed in service or date of major refurbishment. Estimated useful lives of our drilling equipment range from three to thirty years. Other property and equipment is depreciated using the straight-line method over useful lives ranging from two to twenty-five years. Included in accounts payable were $28.8 million and $41.3 million of capital accruals as of December 31, 2013 and 2012, respectively.
Scheduled maintenance of equipment is performed based on the number of hours operated in accordance with our preventative maintenance program. Routine repair and maintenance costs are charged to expense as incurred; however, the costs of overhauls and asset replacement projects that benefit future periods and which typically occur every three to five years are capitalized when incurred and depreciated over an equivalent period. These overhauls and asset replacement projects are included in Note 2, “Drilling Equipment and Facilities.”
We evaluate the impairment of property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, on an annual basis, we complete an impairment analysis on our rig fleet. An impairment loss on our property and equipment exists when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value over the estimated fair value. As part of this analysis, we make assumptions and estimates regarding future market conditions. To the extent actual results do not meet our estimated assumptions for a given rig class, we may take an impairment loss in the future.
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Deferred Costs
Deferred debt issuance costs are amortized through interest expense over the life of the debt securities.
Revenue Recognition
Our typical dayrate drilling contracts require our performance of a variety of services for a specified period of time. We determine progress towards completion of the contract by measuring efforts expended and the cost of services required to perform under a drilling contract, as the basis for our revenue recognition. Revenues generated from our dayrate-basis drilling contracts and labor contracts are recognized on a per day basis as services are performed and begin upon the contract commencement, as defined under the specified drilling or labor contract. Dayrate revenues are typically earned, and contract drilling expenses are typically incurred ratably over the term of our drilling contracts. We review and monitor our performance under our drilling contracts to confirm the basis for our revenue recognition. Revenues from bonuses are recognized when earned.
It is typical, in our dayrate drilling contracts, to receive compensation and incur costs for mobilization, equipment modification or other activities prior to the commencement of a contract. Any such compensation may be paid through a lump-sum payment or other daily compensation. Pre-contract compensation and costs are deferred until the contract commences. The deferred pre-contract compensation and costs are amortized, using the straight-line method, into income over the term of the initial contract period, regardless of the activity taking place. This approach is consistent with the economics for which the parties have contracted. Once a contract commences, we may conduct various activities, including drilling and well bore related activities, rig maintenance and equipment installation, movement between well locations or other activities.
Deferred revenues under drilling contracts totaled $21.9 million and $25.0 million at December 31, 2013 and 2012, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in our Combined Balance Sheets, based upon our expected time of recognition. Related expenses deferred under drilling contracts totaled $23.7 million at December 31, 2013 as compared to $38.0 million at December 31, 2012, and are included in either “Other current assets” or “Other assets” in our Combined Balance Sheets based upon our expected time of recognition.
We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses.
Income Taxes
Income taxes are prepared on a separate return basis as if we had been a standalone company. As a result, actual tax transactions that would not have occurred had we been a separate entity have been eliminated in the preparation of these Combined Financial Statements.
Income taxes are based on the laws and rates in effect in the countries in which operations are conducted or in which we or our subsidiaries are considered resident for income tax purposes. Applicable income and withholding taxes have not been provided on undistributed earnings of our subsidiaries. We do not intend to repatriate such undistributed earnings except for distributions upon which incremental income and withholding taxes would not be material. In certain circumstances, we expect that, due to changing demands of the offshore drilling markets and the ability to redeploy our offshore drilling units, certain units will not reside in a location long enough to give rise to future tax consequences. As a result, no deferred tax asset or liability has been recognized in these circumstances. Should our expectations change regarding the length of time an offshore drilling unit will be used in a given location, we will adjust deferred taxes accordingly.
We operate through various subsidiaries in numerous countries throughout the world including the United States. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or
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enforcement thereof in the U.S. or other jurisdictions in which we or any of our subsidiaries operate or are resident. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If the U.S. Internal Revenue Service (“IRS”) or other taxing authorities do not agree with our assessment of the effects of such laws, treaties and regulations, this could have a material adverse effect on us including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions.
Income taxes include results of the operations of the standard specification drilling units. In instances where the operations of standard specification drilling units were included in the filing of a consolidated or combined return with high-spec units, an allocation of income taxes has been made.
Certain Significant Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our combined financial statements.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the current year presentation.
New Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, which amends FASB Accounting Standards Codification (“ASC”) Topic 220, “Comprehensive Income.” This amended guidance requires additional information about reclassification adjustments out of comprehensive income, including changes in comprehensive income balances by component and significant items reclassified out of comprehensive income. This guidance is effective for reporting periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on our financial condition, results of operations, cash flows or financial disclosures.
In March 2013, the FASB issued ASU No. 2013-05, which amends ASC Topic 830, “Foreign Currency Matters.” This ASU provides guidance on foreign currency translation adjustments when a parent entity ceases to have a controlling interest on a previously consolidated subsidiary or group of assets. The guidance is effective for fiscal years beginning on or after December 15, 2013. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
In July 2013, the FASB issued ASU No. 2013-11, which amends ASC Topic 740, “Taxes.” This ASU provides guidance on the presentation of tax benefits when a net operating loss carryforward or other tax credit carryforward exists. The guidance is effective for fiscal years beginning on or after December 15, 2013. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
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Note 2—Property and Equipment
Property and equipment, at cost, as of December 31, 2013 and 2012, consisted of the following:
Capital expenditures, including capitalized interest, totaled $366.4 million, $532.4 million, and $518.5 million for the years ended December 31, 2013, 2012, and 2011 respectively. Capitalized interest related to Noble debt has been included within property and equipment.
Interest capitalized related to Noble’s revolving credit facilities and commercial paper program (see Note 3, “Debt”) included in these combined financial statements was $5.9 million, $4.0 million, and $2.9 million for the years ended December 31, 2013, 2012, and 2011, respectively.
Note 3—Debt
Long-term debt consists of the following:
Noble currently has three separate credit facilities with an aggregate maximum available capacity of $2.9 billion (together, the “Credit Facilities”). During 2013, Noble undertook a series of transactions related to its Credit Facilities, which are summarized by the following:
In addition to the above transactions, Noble continues to maintain a $1.5 billion credit facility that matures in 2017.
The Credit Facilities provide Noble with the ability to issue up to $375 million in letters of credit in the aggregate. The issuance of letters of credit does not increase Noble’s borrowings outstanding under the Credit Facilities, but it does reduce the amount available. At December 31, 2013, Noble had no letters of credit issued under the Credit Facilities.
The covenants and events of default under the Credit Facilities are substantially similar, and each facility contains a covenant that limits Noble’s ratio of debt to total tangible capitalization, as defined in the Credit Facilities, to 0.60. At December 31, 2013, Noble’s ratio of debt to total tangible capitalization was approximately 0.38. Noble was in compliance with all covenants under the Credit Facilities as of December 31, 2013.
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2013 2012 Drilling equipment and facilities $ 5,948,396 $ 5,186,142 Construction-in-progress 117,246 674,333 Other 1,424 1,446
Property and equipment, at cost $ 6,067,066 $ 5,861,921
December 31,
2013
December 31,
2012 Noble Credit Facilities / Commercial Paper Program $ 1,561,141 $ 339,809
• in August 2013, Noble entered into a $600 million 364-day unsecured revolving credit agreement;
• in November 2013, Noble increased its commercial paper program by $900 million. As a result, Noble is able to issue up to an aggregate of $2.7 billion in unsecured commercial paper notes. Amounts issued under the commercial paper program are supported by Noble’s Credit Facilities and, therefore, are classified as long-term on our Combined Balance Sheets. Commercial paper issued reduces availability under Noble’s Credit Facilities; and
• in December 2013, Noble extended the maturity date of the $800 million credit facility maturing in 2015 for a one-year period to February 11, 2016. During the extended period, availability under this credit facility will be reduced by $36 million.
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Note 4—Stock-Based Compensation Plans
Noble provides a stock-based compensation plan that is granted and settled in stock of Noble. Certain Company employees participate in Noble’s company-wide stock-based compensation plan. The plan permits the granting of various types of awards including stock options and restricted stock units.
We are charged by Noble for stock-based compensation expense related to our rig-based employees. Noble also charges us for the allocated costs of certain non-rig-based employees of Noble (including stock-based compensation) who provide general and administrative services on our behalf. However, information included in this note is strictly limited to stock-based compensation associated with the rig-based employees (see Note 13, “Related Parties (Including Relationship with Parent and Corporate Allocations)” for total costs allocated to us by Noble).
Total stock-based compensation expense for our rig-based employees included in contract drilling expense for the years ended December 31, 2013, 2012 and 2011 was $5.0 million, $4.3 million and $4.1 million, respectively.
Noble awarded time-vested restricted stock units to our rig-based employees. The time-vested restricted stock awards generally vest over a three-year period. The time-vested restricted stock is valued on the date of award at Noble’s underlying stock price. The total compensation for stock units that ultimately vest is recognized over the service period.
A summary of the restricted unit awards for each of the three years ended December 31 is as follows:
A summary of the status of non-vested restricted units at December 31, 2013 and changes during the year ended December 31, 2013 is presented below:
No options were granted during the three years ended December 31, 2013.
Note 5—Loss on Impairment
During 2013, we determined that our FPSO, the Noble Seillean , was partially impaired as a result of our annual impairment test and the current market outlook for this unit. We estimated the fair value of this unit by considering both income and market-based valuation approaches utilizing statistics for comparable rigs (Level 2 fair value measurement). Based on these estimates, we recognized a charge of $40.1 million for the year ended December 31, 2013.
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Time-vested restricted units: 2013 2012 2011 Units awarded (maximum available) 148,622 161,551 119,696 Weighted-average unit price at award date $ 41.42 $ 36.90 $ 37.60 Weighted-average vesting period (years) 3.0 3.0 3.0
Time-Vested
Restricted Shares
Outstanding
Weighted Average
Award-Date Fair Value
Non-vested restricted units at January 1, 2013 235,842 $ 37.43 Awarded 148,622 $ 41.42 Vested (107,377 ) $ 37.64 Forfeited (19,841 ) $ 39.28
Non-vested restricted units at December 31, 2013 257,246 $ 39.50
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In 2011, we determined that our submersible rig fleet, consisting of two cold stacked rigs, was partially impaired due to the declining market outlook for drilling services for that rig type. We estimated the fair value of the rigs based on the salvage value of the rigs and a recent transaction involving a similar unit owned by a peer company (Level 2 fair value measurement). Based on these estimates, we recognized a charge of approximately $12.7 million for the year ended December 31, 2011. During 2013, we recorded an additional impairment charge of approximately $3.6 million on these rigs arising from the potential disposition of these assets to an unrelated third party. In January 2014, we completed the sale of the submersibles for $7.0 million.
Note 6—Gain on Disposal of Assets, Net
During the third quarter of 2013, we completed the sale of the Noble Lewis Dugger for $61.0 million to an unrelated third party in Mexico. In connection with the sale, we recorded a pre-tax gain of approximately $35.6 million.
Note 7—Gain on Contract Settlements/Extinguishments, Net
During the third quarter of 2013, Noble received $45.0 million related to the settlement of all claims against the former investors of FDR Holdings, Ltd., which Noble acquired in July 2010, relating to alleged breaches of various representations and warranties contained in the purchase agreement. A portion of the settlement related to standard-specification rigs. This portion, totaling $22.6 million, was pushed down to us, through an allocation, using the acquired rig values of the purchased rigs.
During the fourth quarter of 2012, we received a deposit of $1.8 million related to the potential sale of one of our drilling units to an unrelated third party. During the first quarter of 2013 negotiations led to the sale not being completed and the deposit was recognized as a gain.
During the second quarter of 2012, we received $4.9 million from the settlement of a claim relating to the Noble David Tinsley , which experienced a “punch-through” while being positioned on location in 2009.
In January 2011, we announced the signing of a Memorandum of Understanding (“MOU”) with Petróleo Brasileiro, S.A. (“Petrobras”) regarding operations in Brazil. Under the terms of the MOU, we agreed to substitute the Noble Phoenix , then under contract with Shell in Southeast Asia, for the Noble Muravlenko . In connection with the cancellation of the contract on the Noble Phoenix , we recognized a non-cash gain of $52.5 million during the first quarter of 2011, which represented the unamortized fair value of the in-place contract at acquisition. As a result of the substitution, we reached a decision not to proceed with the previously announced reliability upgrade to the Noble Muravlenko that was scheduled to take place in 2013, and therefore, incurred a non-cash charge of $32.6 million related to the termination of outstanding shipyard contracts. The substitution was completed during the fourth quarter of 2012.
Note 8—Income Taxes
We operate through various subsidiaries in numerous countries throughout the world, including the United States. Consequently, income taxes have been provided based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes.
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The components of the net deferred taxes are as follows:
We recognize a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if estimates of future taxable income change. As of December 31, 2013, we had recorded a gross deferred tax asset of $29.5 million for net operating losses in Norway related to the Frontier acquisition. After considering a deferred tax liability of $20.8 million attributable to the excess of book basis over tax basis in assets, our net deferred tax asset in Norway was $8.7 million. We believe that it is more likely than not that the net deferred tax asset in Norway will not be realized, in part because we have transferred the ownership of several rigs, previously owned by our Norwegian subsidiaries, to subsidiaries in other jurisdictions. Accordingly, management recorded a valuation allowance of $8.7 million during 2013.
Income before income taxes consists of the following:
The income tax provision consists of the following:
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2013 2012 Deferred tax assets
Non-U.S. deferred tax assets (net operating loss carry forwards) $ 43,409 $ 47,181 Less: Valuation Allowance (8,672 ) —
Net deferred tax assets $ 34,737 $ 47,181
Deferred tax liabilities United States
Excess of net book basis over remaining tax basis of Property and Equipment $ (101,039 ) $ (87,551 ) Non-U.S.
Excess of net book basis over remaining tax basis of Property and Equipment (21,542 ) (38,269 )
Deferred tax liabilities $ (122,581 ) $ (125,820 )
Net deferred tax liabilities $ (87,844 ) $ (78,639 )
Year Ended December 31, 2013 2012 2011 United States $ 114,314 $ 65,574 $ 37,485 Non-U.S. 331,596 109,351 97,417
Total $ 445,910 $ 174,925 $ 134,902
Year Ended December 31, 2013 2012 2011 Current- United States $ 20,732 $ 14,637 $ 21,081 Current- Non-U.S. 55,691 49,108 35,913 Deferred- United States 13,425 (13,179 ) (17,103 ) Deferred- Non-U.S. (4,243 ) (1,878 ) (9,812 )
Total $ 85,605 $ 48,688 $ 30,079
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The following is a reconciliation of our reserve for uncertain tax positions, excluding interest and penalties:
The liabilities related to our reserve for uncertain tax positions are comprised of the following:
If these reserves of $36.5 million are not realized, the provision for income taxes will be reduced by $36.5 million.
We include, as a component of our “Income tax provision”, potential interest and penalties related to recognized tax contingencies within our global operations. Interest and penalties resulted in an income tax expense of $0.6 million in 2013, an income tax expense of $3.6 million in 2012 and an income tax expense of $1.4 million in 2011.
It is reasonably possible that our existing liabilities related to our reserve for uncertain tax positions may increase or decrease in the next twelve months primarily due to the completion of open audits or the expiration of statutes of limitation. However, we cannot reasonably estimate a range of changes in our existing liabilities due to various uncertainties, such as the unresolved nature of various audits.
We conduct business globally and, as a result, we file numerous income tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as Brazil, India, Mexico, Nigeria, Norway, Qatar, Switzerland, the United Kingdom and the United States. We are no longer subject to U.S. Federal income tax examinations for years before 2009 and non-U.S. income tax examinations for years before 2003.
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2013 2012 2011 Gross balance at January 1, $ 37,969 $ 44,188 $ 37,307
Additions based on tax positions related to current year 532 536 930 Additions for tax positions of prior years 4,599 2,430 7,521 Reductions for tax positions of prior years (214 ) — — Expiration of statutes (2,712 ) (3,130 ) (1,570 ) Tax settlements (7,838 ) (6,055 ) —
Gross balance at December 31, 32,336 37,969 44,188 Related tax benefits (1,983 ) (6,590 ) (5,173 )
Net reserve at December 31, $ 30,353 $ 31,379 $ 39,015
2013 2012 Reserve for uncertain tax positions, excluding interest and penalties $ 30,353 $ 31,379
Interest and penalties included in “Other liabilities” 6,137 10,993
Reserve for uncertain tax positions, including interest and penalties $ 36,490 $ 42,372
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The Company conducts business through entities incorporated in the Cayman Islands, the United Kingdom, and other countries. The Company is now based in the United Kingdom, which has a statutory rate of 23.25 percent. However, the income of our non-U.K. subsidiaries is not expected to be subject to U.K. corporate tax. A possible change in tax law in the United Kingdom would result in an increase in the effective tax rate on our U.K. operations. Prior to being based in the United Kingdom, the Company was based in Switzerland. Similar to the United Kingdom, the income of our non-Swiss subsidiaries was not subject to tax in Switzerland. The Cayman Islands does not impose a corporate income tax. For purposes of the carve-out financials, a reconciliation of tax rates outside of the Cayman Islands, Switzerland and the United Kingdom to our effective rate is shown below:
In 2013, we generated and fully utilized $7.7 million of U.S. foreign tax credits. In 2012, we generated and fully utilized $17.0 million of U.S. foreign tax credits. In 2011, we fully utilized our foreign tax credits of $10.3 million.
Deferred income taxes and the related dividend withholding taxes have not been provided on undistributed earnings of our subsidiaries. We consider such earnings to be permanently reinvested. Due to complexities in the tax laws and the manner of repatriation, it is not practicable to estimate the amount of deferred income taxes associated with these unremitted earnings. If such earnings were to be distributed, we would be subject to tax, which would have a material impact on our results of operations.
The Company periodically transfers its drilling units between entities included in these combined financial statements. For the drilling units which were subject to taxes on net income in a particular jurisdiction, the Company had previously recorded deferred taxes on taxable temporary differences. Where a transfer results in a drilling unit moving to a jurisdiction where it will no longer be subject to taxes on net income, any deferred tax liability is being amortized as a reduction in income tax expense over the remaining book life of the particular unit. This benefit is net of any tax cost associated with the transfer. The unamortized tax benefit associated with these transfers totaled $46.5 million and $49.1 million at December 31, 2013 and 2012, respectively, and is included in Other Liabilities in these combined balance sheets.
Note 9—Credit Risks
The market for our services is the offshore oil and gas industry, and our customers consist primarily of government-owned oil companies, major integrated oil companies and independent oil and gas producers. We perform ongoing credit evaluations of our customers and do not require material collateral. We maintain reserves for potential credit losses when necessary. Our results of operations and financial condition should be considered in light of the fluctuations in demand experienced by drilling contractors as changes in oil and gas producers’ expenditures and budgets occur. These fluctuations can impact our results of operations and financial condition as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of our net cash provided by operating activities.
Revenues from Petróleos Mexicanos accounted for approximately 19 percent, 21 percent, and 18 percent of our combined operating revenues in 2013, 2012 and 2011, respectively. Revenues from Petrobras accounted for approximately 17 percent, 18 percent, and 23 percent of our combined operating revenues in 2013, 2012, and
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Year Ended December 31, 2013 2012 2011 Effect of:
Tax rates which are different than the Cayman Island, Swiss and U.K. rates 17.4 % 28.0 % 18.9 % Increase in valuation allowance 2.0 % 0.0 % 0.0 % Reserve for (resolution of) tax authority audits (0.2 %) (0.2 %) 3.4 %
Total 19.2 % 27.8 % 22.3 %
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2011, respectively. No other customer accounted for more than ten percent of our combined operating revenues in 2013, 2012 or 2011.
Note 10—Commitments and Contingencies
We are a defendant in certain claims, and litigation arising in the ordinary course of business, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims.
During the second quarter of 2013, we reached an agreement with the Mexican tax authorities resolving certain previously disclosed tax assessments. This settlement removes potential contingent tax exposure of $502 million in Mexico for periods prior to 2007, which includes the assessments for years 2002 through 2005 of approximately $348 million, as well as settlement for 2006. The settlement of these assessments did not have a material impact on our consolidated financial statements.
Audit claims of approximately $281 million attributable to income, customs and other business taxes have been assessed against us. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. Tax authorities may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions.
We maintain certain insurance coverage against specified marine perils which includes physical damage and loss of hire. Damage caused by hurricanes has negatively impacted the energy insurance market, resulting in more restrictive and expensive coverage for U.S. named windstorm perils.
Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property on board our rigs and losses relating to shore-based terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could materially adversely affect our financial position, results of operations or cash flows. Additionally, there can be no assurance that those parties with contractual obligations to indemnify us will necessarily be financially able to indemnify us against all these risks.
We carry protection and indemnity insurance covering marine third party liability exposures, which also includes coverage for employer’s liability resulting from personal injury to our offshore drilling crews. Our protection and indemnity policy currently has a standard deductible of $10 million per occurrence, with maximum liability coverage of $750 million.
In connection with our capital expenditure program, we had outstanding commitments, including shipyard and purchase commitments of approximately $83.1 million at December 31, 2013.
Nigerian Operations
We do not have any rigs currently operating in Nigeria. However, during the fourth quarter of 2007, our Nigerian subsidiary received letters from the Nigerian Maritime Administration and Safety Agency (“NIMASA”) seeking to collect a 2 percent surcharge on contract amounts under contracts performed by “vessels,” within the meaning of Nigeria’s cabotage laws, engaged in the Nigerian coastal shipping trade. Although we do not believe
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that these laws apply to our ownership of drilling units, NIMASA is seeking to apply a provision of the Nigerian cabotage laws (which became effective on May 1, 2004) to our offshore drilling units by considering these units to be “vessels” within the meaning of those laws and therefore subject to the surcharge, which is imposed only upon “vessels.” Our offshore drilling units are not engaged in the Nigerian coastal shipping trade and are not in our view “vessels” within the meaning of Nigeria’s cabotage laws. In January 2008, we filed an originating summons against NIMASA and the Minister of Transportation in the Federal High Court of Lagos, Nigeria seeking, among other things, a declaration that our drilling operations do not constitute “coastal trade” or “cabotage” within the meaning of Nigeria’s cabotage laws and that our offshore drilling units are not “vessels” within the meaning of those laws. In February 2009, NIMASA filed suit against us in the Federal High Court of Nigeria seeking collection of the cabotage surcharge with respect to one of our rigs. In August 2009, the court issued a favorable ruling in response to our originating summons stating that drilling operations do not fall within the cabotage laws and that drilling rigs are not vessels for purposes of those laws. The court also issued an injunction against the defendants prohibiting their interference with our drilling rigs or drilling operations. NIMASA appealed the court’s ruling, on procedural grounds, and the court dismissed NIMASA’s lawsuit filed against us in February 2009. In December 2013, the court of appeals ruled in favor of NIMASA and quashed the high court’s decision in our favor, although there is no adverse ruling against us with respect to the merits. We intend to appeal this latest decision and take all further appropriate legal action to resist the application of Nigeria’s cabotage laws to our drilling units. The outcome of any such legal action and the extent to which we may ultimately be responsible for the surcharge is uncertain. If it is ultimately determined that offshore drilling units constitute vessels within the meaning of the Nigerian cabotage laws, we may be required to pay the surcharge and comply with other aspects of the Nigerian cabotage laws, which could adversely affect future operations in Nigerian waters and require us to incur additional costs of compliance.
Under the Nigerian Industrial Training Fund Act of 2004, as amended, (the “Act”), Nigerian companies with five or more employees must contribute annually one percent of their payroll to the Industrial Training Fund (“ITF”) established under the Act to be used for the training of Nigerian nationals with a view towards generating a pool of indigenously trained manpower. We have not paid this amount on our expatriate workers employed by our non-Nigerian employment entity in the past as we did not believe the contribution obligation was applicable to them. In October 2012, we received a demand from the ITF for payments going back to 2004 and associated penalties in respect of these expatriate employees. In February 2013, the ITF filed suit seeking payment of these amounts. We do not believe that we owe the amount claimed. We have had discussions with the ITF to resolve the issue and do not believe the resolution of this matter will have a material adverse effect on our financial position or cash flows.
Other
At December 31, 2013, we had letters of credit of $26.3 million and performance and temporary import bonds totaling $128.3 million supported by surety bonds. Certain of our subsidiaries issue guarantees related to the temporary importation of rigs or equipment imported into certain countries in which we operate. These guarantees are issued in-lieu of payment of customs, value added or similar taxes in those countries.
Note 11—Segment and Related Information
We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business, and the fact that all of our drilling fleet is dependent upon the worldwide oil industry. The mobile offshore drilling units comprising our offshore rig fleet operate in a single, global market for contract drilling services and are often redeployed globally due to changing demands of our customers, which consist largely of major non-U.S. and government owned/controlled oil and gas companies throughout the world. Our contract drilling services segment conducts contract drilling operations in the United States, Mexico, Brazil, North Sea, West Africa, Middle East, and India.
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The following table presents revenues and identifiable assets by country based on the location of the service provided:
Note 12—Supplemental Cash Flow Information
The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows:
Additional cash flow information is as follows:
Note 13—Related Parties (Including Relationship with Parent and Corporate Allocations)
We have historically been managed in the normal course of business by Noble and its subsidiaries. Accordingly, certain shared costs have been allocated to us and are reflected as expenses in these financial statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the related expenses attributable to us for purposes of the carve-out financial statements; however, the expenses reflected in our financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if we had operated as a separate stand-alone entity. In addition, the expenses reflected in the financial statements may not be indicative of expenses that will be incurred in the future by Paragon Offshore.
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Revenues
Year Ended December 31, Identifiable Assets As of December 31,
2013 2012 2011 2013 2012 Country: Mexico $ 367,732 $ 320,436 $ 251,577 $ 351,123 $ 472,919 Brazil 312,287 284,061 315,687 1,864,358 1,745,944 United Kingdom 245,789 141,435 120,672 196,479 143,198 The Netherlands 179,768 210,577 196,700 112,561 77,823 Qatar 139,891 74,889 102,773 130,515 114,081 USA 117,951 105,469 37,330 712,713 808,173 United Arab Emirates 108,256 79,940 84,253 152,699 185,489 Nigeria 107,750 148,961 58,485 54,539 102,614 India 103,282 58,355 102,432 200,799 226,785 Other 210,296 117,734 100,648 207,013 241,046
$ 1,893,002 $ 1,541,857 $ 1,370,557 $ 3,982,799 $ 4,118,072
December 31, 2013 2012 2011 Accounts receivable $ (34,582 ) $ (116,714 ) $ 5,172 Other current assets 22,181 (2,941 ) (34,837 ) Other assets 16,451 39,484 29,944 Accounts payable 8,530 (12,485 ) (15,382 ) Other current liabilities 18,645 4,562 (11,632 ) Other liabilities (16,385 ) (4,920 ) 55,323
$ 14,840 $ (93,014 ) $ 28,588
Year Ended December 31, 2013 2012 2011 Cash paid during the period for:
Interest, net of amounts capitalized $ 5,791 $ 3,856 $ 1,817
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Allocated costs include Noble charges including, but not limited to: corporate accounting, human resources, government affairs, information technology, shared real estate expenses, treasury, legal, employee benefits and incentives (excluding allocated postretirement benefits described below in “Employee Benefit Plans”) and stock-based compensation (excluding direct employees discussed in Note 4, “Stock-Based Compensation Plans”). Allocated costs included in contract drilling services in the accompanying Combined Statements of Income totaled $146.8 million, $112.8 million, and $95.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. Allocated costs included in general, and administrative expenses in the accompanying Combined Statements of Income totaled $58.3 million, $52.9 million, and $55.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. The costs were allocated to us using various allocation inputs, such as head count, services rendered, and assets assigned to us.
Employee Benefit Plans
Employees of the Company participate in several employee benefit plans sponsored by Noble. These plans are accounted for as multi-employer benefit plans in these combined financial statements and, accordingly, our Combined Balance Sheets do not reflect any assets or liabilities related to these plans. Our Combined Income Statement includes expense allocations for these benefits. We consider the expense allocation methodology and results to be reasonable for all periods presented.
Defined Benefit Plans
Noble sponsors two U.S. noncontributory defined benefit pension plans: one covering salaried employees and the other covering hourly employees, whose initial date of employment are prior to August 31, 2004 (“qualified U.S. plans”), and three non-U.S. noncontributory defined benefit pension plans which cover certain Europe-based salaried, non-union employees. Pension benefit expense related to these plans included in the accompanying Combined Statements of Income for the years ended December 31, 2013, 2012 and 2011 totaled $11.2 million, $11.6 million and $8.3 million, respectively.
Other Benefit Plans
Noble sponsors a 401(k) defined contribution plan and a profit sharing plan, which covers employees who are not otherwise enrolled in the above defined benefit plans. Other postretirement benefit expense related to these plans included in the accompanying Combined Statements of Income for the years ended December 31, 2013, 2012 and 2011 totaled $4.8 million, $3.0 million and $2.5 million, respectively.
Note 14—Subsequent Events
There have been no subsequent events noted through March 7, 2014, the date of the financial statements, which require recognition or disclosure in the financial statements.
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NOBLE STANDARD-SPEC BUSINESS
COMBINED BALANCE SHEETS
(In thousands) (Unaudited)
See accompanying notes to the unaudited combined financial statements.
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March 31,
2014
December 31,
2013 ASSETS Current assets
Cash and cash equivalents $ 32,225 $ 36,581 Accounts receivable 353,933 356,241 Prepaid and other current assets 65,590 51,182
Total current assets 451,748 444,004
Property and equipment, at cost 6,103,022 6,067,066 Accumulated depreciation (2,698,240 ) (2,607,382 )
Property and equipment, net 3,404,782 3,459,684
Other assets 74,392 79,111
Total assets $ 3,930,922 $ 3,982,799
LIABILITIES AND EQUITY Current liabilities
Accounts payable $ 94,908 $ 124,442 Accrued payroll and related costs 44,699 60,738 Other current liabilities 40,028 41,374
Total current liabilities 179,635 226,554
Long-term debt 1,983,543 1,561,141 Deferred income taxes 100,314 101,703 Other liabilities 83,900 88,068
Total liabilities 2,347,392 1,977,466
Commitments and contingencies Equity
Net parent investment 1,583,572 2,005,339 Accumulated other comprehensive loss (42 ) (6 )
Total equity 1,583,530 2,005,333
Total liabilities and equity $ 3,930,922 $ 3,982,799
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF INCOME
(In thousands) (Unaudited)
See accompanying notes to the unaudited combined financial statements.
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Three Months Ended
March 31, 2014 2013 Operating revenues
Contract drilling services $ 491,963 $ 433,411 Reimbursables 14,416 11,877 Labor contract drilling services 8,211 8,782
514,590 454,070
Operating costs and expenses Contract drilling services 226,462 224,843 Reimbursables 10,625 8,544 Labor contract drilling services 6,213 5,713 Depreciation and amortization 110,584 98,704 General and administrative 13,245 15,465 Gain on contract settlements/extinguishments, net — (1,800 )
367,129 351,469
Operating income 147,461 102,601
Other income (expense) Interest expense, net of amount capitalized (3,300 ) (1,138 ) Interest income and other, net 187 103
Income before income taxes 144,348 101,566 Income tax provision (19,782 ) (18,994 )
Net income $ 124,566 $ 82,572
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
See accompanying notes to the unaudited combined financial statements.
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Three Months Ended
March 31, 2014 2013 Net income $ 124,566 $ 82,572 Other comprehensive income (loss)
Foreign currency translation adjustments (36 ) (306 )
Comprehensive income $ 124,530 $ 82,266
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
See accompanying notes to the unaudited combined financial statements.
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Three Months Ended March 31, 2014 2013 Cash flows from operating activities
Net income $ 124,566 $ 82,572 Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 110,584 98,704 Deferred income taxes (1,389 ) (3,790 ) Capital contribution by parent—share-based compensation 6,255 5,433 Net change in other assets and liabilities (40,393 ) (133,909 )
Net cash from operating activities 199,623 49,010
Cash flows from investing activities Capital expenditures (42,524 ) (101,329 ) Change in accrued capital expenditures (12,937 ) 3,996
Net cash used in investing activities (55,461 ) (97,333 )
Cash flows from financing activities Net change in borrowings outstanding on bank credit facilities 422,402 209,680 Financing costs on credit facilities (381 ) (1,895 ) Net transfers from (to) parent (570,539 ) (193,736 )
Net cash from financing activities (148,518 ) 14,049
Net change in cash and cash equivalents (4,356 ) (34,274 ) Cash and cash equivalents, beginning of period 36,581 70,538
Cash and cash equivalents, end of period $ 32,225 $ 36,264
Supplemental information for non-cash activities Transfer from parent of property and equipment $ 17,951 $ 1,698
$ 17,951 $ 1,698
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NOBLE STANDARD-SPEC BUSINESS
COMBINED STATEMENTS OF CHANGES IN EQUITY
(In thousands) (Unaudited)
See accompanying notes to the unaudited combined financial statements.
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Net Parent Investment
Accumulated Other
Comprehensive Gain (Loss) Total Equity
Balance at December 31, 2012 $ 3,365,417 $ (185 ) $ 3,365,232 Net income 82,572 82,572 Net transfers to parent (186,605 ) (186,605 ) Foreign currency translation adjustments (306 ) (306 )
Balance at March 31, 2013 $ 3,261,384 (491 ) $ 3,260,893
Balance at December 31, 2013 2,005,339 (6 ) 2,005,333 Net income 124,566 124,566 Net transfers from parent (546,333 ) (546,333 ) Foreign currency translation adjustments (36 ) (36 )
Balance at March 31, 2014 $ 1,583,572 $ (42 ) $ 1,583,530
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NOBLE STANDARD-SPEC BUSINESS NOTES TO COMBINED FINANCIAL STATEMENTS
(Unless otherwise indicated, dollar amounts in tables are in thousands)
Note 1—Organization and Significant Accounting Policies
Organization and Business
Noble Standard-Spec Business (the “Company”, “We”, or “Predecessor”) comprises the standard specification drilling fleet and related operations of Noble Corporation Plc (“Noble” or “Parent”). We are an offshore drilling contractor for the oil and gas industry with global operations. In addition, we conduct contract labor services in Canada.
Noble’s fleet includes two types of drilling units: standard-specification (“standard-spec”) and high-specification (“high-spec”) drilling units. Factors in determining classification between the two include, but are not limited to, the following: age, technological capabilities, size, water depth and load capacities. Standard specification rigs are generally 15 or more years old, have a “hook load,” or derrick hoisting capacity, of less than two million pounds and have drilling equipment operated by mechanical, rather than electronic, means.
The accompanying financial statements have been prepared in anticipation of Noble’s plan to separate certain of our assets and entities into an independent, publicly-traded company, Paragon Offshore plc (“Paragon Offshore” or “Successor”). The Predecessor’s fleet currently includes 45 mobile offshore drilling units, which consist of four semisubmersibles, five drillships, 36 jackups, and one floating production storage and offloading unit (“FPSO”), as well as the Hibernia platform operations. In July 2013, Noble sold the Noble Lewis Dugger , a standard specification jackup, to an unrelated third party. In January 2014, Noble sold the two standard specification submersibles, the Noble Joe Alford and the Noble Lester Pettus , to an unrelated third party. The historical results for these rigs are included in our historical results, but these rigs are not included in the current fleet count.
Noble intends to transfer Predecessor assets, excluding two jackups and one semisubmersible currently owned by Noble, to Paragon Offshore. The Separation of the standard specification business will be effected through the distribution of 100 percent of the shares of Paragon Offshore to Noble shareholders during the third quarter of 2014 in a spin-off that would be tax-free to shareholders.
Basis of Presentation
These combined financial statements have been prepared on a stand-alone basis and are derived from Noble’s consolidated financial statements and accounting records. The combined financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). The combined financial position, results of operations and cash flows of the Company may not be indicative of the Company had it been a separate stand-alone entity during the periods presented, nor are the results stated herein indicative of what the Company’s financial position, results of operations and cash flows may be in the future.
These combined financial statements include assets and liabilities that are specifically identifiable or have been allocated to the Company. Costs directly related to the Company have been included in the accompanying financial statements. The Company receives service and support functions from Noble. The costs associated with these support functions have been allocated relative to Noble in its entirety, which is considered to be the most meaningful under the circumstances. The costs were allocated to us using various allocation inputs, such as head count, services rendered, and assets assigned to us. These allocated costs are primarily related to corporate administrative expenses, employee related costs, including pensions and other benefits, and corporate and shared employees for the following functional groups:
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• information technology,
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We consider the expense allocation methodology and results to be reasonable for all periods presented. These allocations may not be indicative of the actual expenses the Company may have incurred as a separate independent public company during the periods presented nor are these costs indicative of what the Company will incur in the future. See Note 13, “Related Parties (Including Relationship with Parent and Corporate Allocations),” for a further description of allocation of expenses.
Noble maintains benefit and stock-based compensation programs at the corporate level. To the extent that Company employees participate in these programs, we were allocated a portion of the associated expenses. However, the Combined Balance Sheets do not include any Noble net benefit plan obligations or Noble outstanding equity related to the stock-based compensation programs. See Note 11, “Related Parties (Including Relationship with Parent and Corporate Allocations),” for a further description of these stock-based compensation and other benefit programs.
Historically, Noble has provided us with financing, cash management and other treasury services. Cash transferred to and from Noble has historically been recorded as intercompany payables and receivables which are reflected in net parent investment in the accompanying combined financial statements.
Net parent investment, which includes retained earnings, represents Noble’s interest in the recorded net assets of the Company. All transactions between the Company and Noble have been identified in the accompanying Combined Statements of Changes in Equity as “Net transfers to Parent”.
Noble expects to repay certain outstanding indebtedness with payments received from the Company. The Company is expected to fund such payments to Noble with proceeds from borrowings. Accordingly, this indebtedness is included in these combined financial statements. See Note 3, “Debt,” for a further description of long-term debt.
Note 2—Property and Equipment
Property and equipment, at cost, as of March 31, 2014 and December 31, 2013, consisted of the following:
Capital expenditures, including capitalized interest, totaled $42.5 million and $101.3 million for the three months ended March 31, 2014 and 2013, respectively. Capitalized interest related to Noble debt has been included within property and equipment.
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• legal services,
• accounting,
• finance services,
• human resources,
• marketing and product support,
• treasury, and
• other corporate and infrastructural services.
March 31,
2014
December 31,
2013 Drilling equipment and facilities $ 5,996,892 $ 5,948,396 Construction-in-progress 104,759 117,246 Other 1,371 1,424
Property and equipment, at cost $ 6,103,022 $ 6,067,066
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Interest expense capitalized related to Noble’s revolving credit facilities and commercial paper program (see Note 3, “Debt”) included in these combined financial statements was $1.1 million and $0.9 million for the three months ended March 31, 2014 and 2013, respectively.
Note 3—Debt
Long-term debt consists of the following at March 31, 2014 and December 31, 2013:
Noble currently has three separate credit facilities with an aggregate maximum available capacity of $2.9 billion (together referred to as the “Credit Facilities”). Noble has established a commercial paper program, which allows Noble to issue up to $2.7 billion in unsecured commercial paper notes. Amounts issued under the commercial paper program are supported by the unused capacity under Noble’s Credit Facilities and, therefore, are classified as long-term on Noble’s Consolidated Balance Sheet. The outstanding amounts of commercial paper reduce availability under Noble’s Credit Facilities.
The Credit Facilities provide Noble with the ability to issue up to $375 million in letters of credit in the aggregate. The issuance of letters of credit under the Credit Facilities reduces the amount available for borrowing. At March 31, 2014, Noble had no letters of credit issued under the Credit Facilities.
The covenants and events of default under the Credit Facilities are substantially similar, and each facility contains a covenant that limits Noble’s ratio of debt to total tangible capitalization, as defined in the Credit Facilities, to 0.60. At March 31, 2014, Noble’s ratio of debt to total tangible capitalization was approximately 0.38. Noble was in compliance with all covenants under the Credit Facilities as of March 31, 2014.
Note 4—Gain on Contract Settlements/Extinguishments, Net
During the fourth quarter of 2012, we received a deposit of $1.8 million related to the potential sale of one of our cold-stacked drilling units to an unrelated third party. During the first quarter of 2013 negotiations led to the sale not being completed and the deposit was recognized as a gain.
Note 5 — Income Taxes
We operate through various subsidiaries in numerous countries throughout the world. Consequently, income taxes have been based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes.
At December 31, 2013, the reserve for uncertain tax positions totaled $36.5 million (net of related tax benefits of $6.1 million). At March 31, 2014, the reserves for uncertain tax positions totaled $34.0 million (net of related tax benefits of $6.3 million), and if not utilized, would reduce the provision for income taxes by $34.0 million.
The Company periodically transfers its drilling rigs between related entities included in these combined financial statements. The unamortized tax benefit associated with these transfers totaled $45.7 million and $46.5 million at March 31, 2014 and December 31, 2013, respectively, and is included in “Other liabilities” in these Combined Balance Sheets.
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March 31,
2014
December 31,
2013 Noble credit facilities / commercial paper program $ 1,983,543 $ 1,561,141
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Note 6 — Deferred Revenues
Deferred revenues from drilling contracts totaled $21.4 million at March 31, 2014 as compared to $21.9 million at December 31, 2013. Such amounts are included in either “Other current liabilities” or “Other liabilities” in our Combined Balance Sheets, based upon our expected time of recognition.
Note 7 — Commitments and Contingencies
During the fourth quarter of 2007, our Nigerian subsidiary received letters from the Nigerian Maritime Administration and Safety Agency, or NIMASA, seeking to collect a 2 percent surcharge on contract amounts under contracts performed by “vessels,” within the meaning of Nigeria’s cabotage laws, engaged in the Nigerian coastal shipping trade. Although we do not believe that these laws apply to our ownership of drilling rigs, NIMASA is seeking to apply a provision of the Nigerian cabotage laws (which became effective on May 1, 2004) to our offshore drilling rigs by considering these rigs to be “vessels” within the meaning of those laws and therefore subject to the surcharge, which is imposed only upon “vessels.” Our offshore drilling rigs are not engaged in the Nigerian coastal shipping trade and are not in our view “vessels” within the meaning of Nigeria’s cabotage laws. In January 2008, we filed an originating summons against NIMASA and the Minister of Transportation in the Federal High Court of Lagos, Nigeria seeking, among other things, a declaration that our drilling operations do not constitute “coastal trade” or “cabotage” within the meaning of Nigeria’s cabotage laws and that our offshore drilling rigs are not “vessels” within the meaning of those laws. In February 2009, NIMASA filed suit against us in the Federal High Court of Nigeria seeking collection of the cabotage surcharge with respect to one of our rigs. In August 2009, the court issued a favorable ruling in response to our originating summons stating that drilling operations do not fall within the cabotage laws and that drilling rigs are not vessels for purposes of those laws. The court also issued an injunction against the defendants prohibiting their interference with our drilling rigs or drilling operations. NIMASA appealed the court’s ruling on procedural grounds, and the court dismissed NIMASA’s lawsuit filed against us in February 2009. In December 2013, the court of appeals ruled in favor of NIMASA and quashed the High Court’s decision in our favor, although there is no adverse ruling against us with respect to the merits. We intend to appeal this latest decision and take further appropriate legal action to resist the application of Nigeria’s cabotage laws to our drilling rigs. The outcome of any such legal action and the extent to which we may ultimately be responsible for the surcharge is uncertain. If it is ultimately determined that offshore drilling rigs constitute vessels within the meaning of the Nigerian cabotage laws, we may be required to pay the surcharge and comply with other aspects of the Nigerian cabotage laws, which could adversely affect future operations in Nigerian waters and require us to incur additional costs of compliance.
Under the Nigerian Industrial Training Fund Act of 2004, as amended (“the Act”), Nigerian companies with five or more employees must contribute annually 1 percent of their payroll to the Industrial Training Fund, or ITF, established under the Act to be used for the training of Nigerian nationals with a view towards generating a pool of indigenously trained manpower. We have not paid this amount on our expatriate workers employed by our non-Nigerian employment entity in the past as we did not believe the contribution obligation was applicable to them. In October 2012, we received a demand from the ITF for payments going back to 2004 and associated penalties in respect of these expatriate employees. In February 2013, the ITF filed suit seeking payment of these amounts. We do not believe that we owe the amount claimed. We have had discussions with the ITF to resolve the issue and do not believe the resolution of this matter will have a material adverse effect on our financial position, results of operations or cash flows.
We are a defendant in certain claims and litigation arising out of operations in the ordinary course of business, the resolution of which, in the opinion of management, will not be material to our financial position, results of operations or cash flows. There is inherent risk in any litigation or dispute and no assurance can be given as to the outcome of these claims.
Audit claims of approximately $273.2 million attributable to income, customs and other business taxes have been assessed against us. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a
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material adverse effect on our combined financial statements. Tax authorities may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions.
We maintain certain insurance coverage against specified marine perils which includes physical damage and loss of hire. Damage caused by hurricanes has negatively impacted the energy insurance market, resulting in more restrictive and expensive coverage for U.S. named windstorm perils.
Although we maintain insurance in the geographic areas in which we operate, pollution, reservoir damage and environmental risks generally are not fully insurable. Our insurance policies and contractual rights to indemnity may not adequately cover our losses or may have exclusions of coverage for some losses. We do not have insurance coverage or rights to indemnity for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by U.S. laws and regulations, radiation hazards, certain loss or damage to property on board our rigs and losses relating to shore-based terrorist acts or strikes. If a significant accident or other event occurs and is not fully covered by insurance or contractual indemnity, it could materially adversely affect our financial position, results of operations or cash flows. Additionally, there can be no assurance that those parties with contractual obligations to indemnify us will necessarily be financially able to indemnify us against all these risks.
We carry protection and indemnity insurance covering marine third party liability exposures, which also includes coverage for employer’s liability resulting from personal injury to our offshore drilling crews. Our protection and indemnity policy currently has a standard deductible of $10 million per occurrence, with maximum liability coverage of $750 million.
In connection with our capital expenditure program, we had outstanding commitments, including shipyard and purchase commitments of approximately $67.6 million at March 31, 2014.
Other
At March 31, 2014, we had letters of credit of $23.7 million and performance and temporary import bonds totaling $116.3 million supported by surety bonds outstanding. Certain of our subsidiaries issue guarantees to the temporary import status of rigs or equipment imported into certain countries in which we operate. These guarantees are issued in-lieu of payment of custom, value added or similar taxes in those countries.
Note 8—Segment and Related Information
We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business, and the fact that all of our drilling fleet is dependent upon the worldwide oil industry. The mobile offshore drilling units comprising our offshore rig fleet operate in a single, global market for contract drilling services and are often redeployed globally due to changing demands of our customers, which consist largely of major non-U.S. and government owned/controlled oil and gas companies throughout the world. Our contract drilling services segment conducts contract drilling operations in the United States, Mexico, Brazil, North Sea, West Africa, Middle East, and India.
Note 9 — Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, which amends FASB Accounting Standards Codification (“ASC”) Topic 205, “Presentation of Financial Statements” and ASC Topic 360, “Property, Plant, and Equipment.” This ASU alters the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity’s operations and finances, and calls for more extensive disclosures about a discontinued operation’s assets, liabilities, income and expenses. The guidance is effective for all disposals, or classifications as held-for-sale, of components of an entity that occur
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within annual periods beginning on or after December 15, 2014. We are still evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
Note 10 — Net Change in Other Assets and Liabilities
The net effect of changes in other assets and liabilities on cash flows from operating activities is as follows:
Note 11—Related Parties (Including Relationship with Parent and Corporate Allocations)
We have historically been managed in the normal course of business by Noble and its subsidiaries. Accordingly, certain shared costs have been allocated to us and are reflected as expenses in these financial statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the related expenses attributable to us for purposes of the carve-out financial statements; however, the expenses reflected in our financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if we had operated as a separate stand-alone entity. In addition, the expenses reflected in the financial statements may not be indicative of expenses that will be incurred in the future by Paragon Offshore.
Allocated costs include Noble charges including, but not limited to: corporate accounting, human resources, government affairs, information technology, shared real estate expenses, treasury, legal, employee benefits and incentives (excluding allocated postretirement benefits described below in “Employee Benefit Plans,”) and stock-based compensation. Allocated costs included in contract drilling services in the accompanying Combined Statements of Income totaled $34.5 million for the three months ended March 31, 2014 and 2013. Allocated costs included in general, and administrative expenses in the accompanying Combined Statements of Income totaled $12.4 million and $13.7 million for the three months ended March 31, 2014 and 2013, respectively. The costs were allocated to us using various allocation inputs, such as head count, services rendered, and assets assigned to us.
Employee Benefit Plans
Employees of the Company participate in several employee benefit plans sponsored by Noble. These plans are accounted for as multi-employer benefit plans in these combined financial statements and, accordingly, our Combined Balance Sheets do not reflect any assets or liabilities related to these plans. Our Combined Income Statement includes expense allocations for these benefits. We consider the expense allocation methodology and results to be reasonable for all periods presented.
Defined Benefit Plans
Noble sponsors two U.S. noncontributory defined benefit pension plans: one covering salaried employees and the other covering hourly employees, whose initial date of employment are prior to August 31, 2004 (“qualified U.S. plans”), and three non-U.S. noncontributory defined benefit pension plans which cover certain
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Three months ended March 31, 2014 2013 Accounts receivable $ 2,308 $ (112,813 ) Other current assets (14,408 ) (15,348 ) Other assets 3,367 2,354 Accounts payable (16,576 ) 806 Other current liabilities (17,406 ) (7,130 ) Other liabilities 2,322 (1,778 )
$ (40,393 ) $ (133,909 )
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Europe-based salaried, non-union employees. Pension benefit expense related to these plans included in the accompanying Combined Statements of Income for the three months ended March 31, 2014 and 2013 totaled $1.7 million and $2.9 million, respectively.
Other Benefit Plans
Noble sponsors a 401(k) defined contribution plan and a profit sharing plan, which covers employees who are not otherwise enrolled in the above defined benefit plans. Other postretirement benefit expense related to these plans included in the accompanying Combined Statements of Income for the three months ended March 31, 2014 and 2013 totaled $1.1 million and $1.4 million, respectively.
Note 12—Subsequent Events
There have been no subsequent events noted through May 23, 2014, the date of the financial statements, which require recognition or disclosure in the financial statements.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholder of Paragon Offshore Limited:
In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of Paragon Offshore Limited at April 30, 2014 in conformity with accounting principles generally accepted in the United States of America. The balance sheet is the responsibility of the Company’s management. Our responsibility is to express an opinion on the balance sheet based on our audit. We conducted our audit of this statement in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas May 23, 2014
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PARAGON OFFSHORE LIMITED
BALANCE SHEET
(In whole dollars)
The accompanying notes are an integral part of this financial statement.
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April 30,
2014 ASSETS Current assets
Cash and cash equivalents $ — Other current assets —
Total current assets —
Other assets 1,799,253
Total assets $ 1,799,253
LIABILITIES AND EQUITY Current liabilities
Related party accounts payable $ 1,799,253 Accrued expenses 25
Total current liabilities 1,799,278
Other liabilities —
Total liabilities 1,799,278
Commitments and contingencies Equity (Note 4)
Ordinary shares (2 shares of $1 par value) 2 Subscription receivable from parent (2 ) Retained deficit (25 )
Total equity (25 )
Total liabilities and equity $ 1,799,253
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PARAGON OFFSHORE LIMITED NOTES TO AUDITED BALANCE SHEET
Note 1—Nature of Business
Noble Spinco Limited (“Noble Spinco”), a limited corporation, was formed on December 13, 2013 under the laws of England and Wales, and was an indirect, wholly-owned subsidiary of Noble Corporation plc (“Noble”). On February 13, 2014, Noble Spinco changed its name to Paragon Offshore Limited (“Paragon Offshore”). Paragon Offshore presently has not conducted operations and is reliant on Noble for all funding requirements.
Note 2—Separation From Noble
The separation of Paragon Offshore from Noble is referred to herein as the “Separation.” The plan contemplates the execution of the Separation through the completion of the following steps anticipated to be completed in 2014:
Following the Separation, Noble intends to distribute its shares of Paragon Offshore plc to Noble shareholders in a spin-off. The distribution of Paragon Offshore plc shares by Noble is expected to occur in the second half of 2014.
As part of the Separation, Paragon Offshore expects to enter into both a master separation agreement and a tax sharing agreement whereby certain assets and liabilities of Noble’s standard-spec fleet will be transferred to Paragon Offshore entities in return for intercompany debt owed to Noble. The intercompany debt will be settled through the proceeds from the debt financings noted above.
Note 3—Significant Accounting Policies
Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Estimates and assumptions are evaluated on a regular basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of these consolidated financial statements.
Note 4—Equity
Paragon Offshore was formed through the issuance of two $1 par value ordinary shares to a subsidiary of Noble in return for an intercompany receivable. As the underlying transaction was not for cash, the receivable from Noble is shown as a reduction of equity on the April 30, 2014 balance sheet.
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• the transfer by Noble of the standard specification drilling business to us in exchange for intercompany indebtedness and Paragon Offshore ordinary shares;
• the Paragon Offshore debt financings; and
• the re-registration of Paragon Offshore as a public limited company under U.K. law, Paragon Offshore plc.
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Note 5—Related Party Accounts Payable
We rely upon Noble for certain administrative and purchasing functions for Noble Spinco. As part of this relationship, we maintain certain payables with Noble. As of April 30, 2014, we had $1,280,750 related to rating agency fees in connection with our expected debt issuance and $518,503 related to registration fees in “Related party accounts payables.” These costs are accumulated within “Other assets.”
Note 6—Subsequent Events
There have been no subsequent events noted through May 23, 2014, the date of the financial statements, which require recognition or disclosure in the financial statements.
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