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Noble Drilling

Filed: 6 Apr 21, 5:06pm
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As filed with the Securities and Exchange Commission on April 6, 2021

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NOBLE FINANCE COMPANY

(Exact name of registrant as specified in its charter)

SEE TABLE OF ADDITIONAL REGISTRANTS

 

 

 

Cayman Islands 1381 98-0366361

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

13135 Dairy Ashford, Suite 800

Sugar Land, Texas 77478

(281) 276-6100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Richard B. Barker

Noble Finance Company

13135 Dairy Ashford, Suite 800

Sugar Land, Texas 77478

(281) 276-6100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With a copy to:

David L. Emmons

Clinton W. Rancher

Baker Botts L.L.P.

910 Louisiana Street

Houston, Texas 77002

(713) 229-1234

 

 

Approximate date of commencement of proposed sale to the public: From time to time after the effectiveness of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
   Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be

Registered

 

Proposed

Maximum

Offering Price

Per Security

 

Proposed

Maximum

Aggregate

Offering Price

 

Amount of

Registration Fee

11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028

 $510,130,204 (1) 100% $510,130,204 $55,655.21 (2)

Guarantees of 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028

 —   —   —   —  (3)

 

 

(1)

Represents the sum of (i) $129,297,917, the initial aggregate principal amount of the 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028 (the “Notes”) issued pursuant to the Plan (as defined herein) and registered for resale hereby, and (ii) an additional $380,832,287 aggregate principal amount of Notes that may be issued if interest on the Notes is paid-in-kind through maturity.

 

(2)

The registration fee has been calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

 

(3)

Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable with respect to the guarantees of the Notes being registered.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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TABLE OF ADDITIONAL REGISTRANTS

 

Exact Name of Additional Registrant as Specified in its Charter*

 State or Other Jurisdiction of
Incorporation or Organization
 I.R.S. Employer
Identification Number

Bully 1 (Switzerland) GmbH**

 Switzerland 98-0568935

Noble BD LLC

 Delaware 82-5210197

Noble Cayman SCS Holding Ltd

 Cayman Islands 98-1350467

Noble Contracting II GmbH**

 Switzerland 

Noble Drilling (Guyana) Inc.***

 Guyana 98-1405736

Noble Drilling (Norway) AS

 Norway 52-2239546

Noble Drilling (TVL) Ltd.

 Cayman Islands 

Noble Drilling (U.S.) LLC

 Delaware 76-0295031

Noble Drilling Doha LLC

 Doha, Qatar 

Noble Drilling International GmbH**

 Switzerland 98-0688632

Noble Drilling Services LLC (f/k/a Noble Drilling Services Inc.)

 Delaware 76-0295033

Noble DT LLC

 Delaware 84-3405555

Noble International Finance Company

 Cayman Islands 98-0655893

Noble Leasing (Switzerland) GmbH**

 Switzerland 98-0566694

Noble Leasing III (Switzerland) GmbH**

 Switzerland 98-0631434

Noble Resources Limited

 Cayman Islands 98-1096876

Noble Rig Holding 2 Limited

 Cayman Islands 98-1461033

Noble Rig Holding I Limited

 Cayman Islands 98-1443703

Noble SA Limited

 Cayman Islands 98-1343368

Noble Services Company LLC

 Delaware 85-3318770

Noble Services International Limited

 Cayman Islands 98-1096893

 

*

Each additional registrant is a wholly-owned direct or indirect subsidiary of Noble Finance Company. Unless otherwise indicated, the address, including zip code, and telephone number, including area code, of each additional registrant’s principal executive offices is 13135 Dairy Ashford, Suite 800, Sugar Land, Texas 77478, telephone (281) 276-6100. The primary standard industrial classification code number of each of the additional registrants is 1381. The name, address, including zip code, and telephone number, including area code, of the agent for service for each of the additional registrants is Richard B. Barker, 13135 Dairy Ashford, Suite 800, Sugar Land, Texas 77478, telephone (281) 276-6100.

 

**

The address, including zip code, of such registrant’s principal executive offices is Dorfstrasse 19a, Baar Switzerland 6340.

 

***

The address, including zip code, of such registrant’s principal executive offices is 63 Hadfield & Cross Streets, Werk-en Rust, Georgetown, Demerara, Guyana.

 

The address, including zip code, of such registrant’s principal executive offices is Hinna Park Jåttåvågveien 7, Bygg B, PO Box 370, Stavanger, Norway 4067.

 

The address, including zip code, of such registrant’s principal executive offices is Salam Globex Business Center, The Gate- Tower II, Office 807, 8th Level, PO Box 14023, West Bay, Doha, Qatar.


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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED APRIL 6, 2021

PROSPECTUS

 

 

LOGO

NOBLE FINANCE COMPANY

11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028

 

 

This prospectus relates to the resale, from time to time, by the selling securityholders identified in this prospectus of up to $510,130,204 aggregate principal amount (assuming interest is paid-in-kind through maturity) of 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028 (the “Notes”) previously issued or to be issued by us.

We are registering the offer and sale of the Notes pursuant to registration rights we have granted under a registration rights agreement dated as of February 5, 2021. We have agreed to bear all of the expenses incurred in connection with the registration of the Notes. The selling securityholders will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of the Notes.

We are not selling any Notes under this prospectus, and we will not receive any proceeds from the sale of the Notes by the selling securityholders under this prospectus. Our registration of the Notes covered by this prospectus does not mean that the selling securityholders will offer or sell any of the Notes. The Notes to which this prospectus relates may be offered and sold from time to time directly by the selling securityholders or alternatively through underwriters, broker dealers, or agents. The selling securityholders will determine at what price they may sell the Notes offered by this prospectus, and such sales may be made at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. See “Plan of Distribution” and “Selling Securityholders.”

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

There is currently no established public trading market for the Notes, and there can be no assurance that a public trading market will develop.

 

 

Investing in the Notes involves risks. See “Risk Factors” beginning on page 10 of this prospectus for a discussion of the risks regarding an investment in the Notes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus is                 , 2021.


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EXPLANATORY NOTE

As previously reported, on July 31, 2020 (the “Petition Date”), Noble Holding Corporation plc (formerly known as Noble Corporation plc), a public limited company incorporated under the laws of England and Wales (“Legacy Noble”), and certain of its subsidiaries, including Noble Finance Company (formerly known as Noble Corporation), an exempted company incorporated in the Cayman Islands with limited liability (“Finco”), filed voluntary petitions in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) seeking relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On September 4, 2020, the Debtors (as defined herein) filed with the Bankruptcy Court the Joint Plan of Reorganization of Noble Corporation plc and its Debtor Affiliates, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020 (as amended, modified or supplemented, the “Plan”), and the related disclosure statement (the “Disclosure Statement”). On September 24, 2020, six additional subsidiaries of Legacy Noble (together with Legacy Noble and its subsidiaries that filed on the Petition Date, as the context requires, the “Debtors”) filed voluntary petitions in the Bankruptcy Court. The chapter 11 proceedings were jointly administered under the caption Noble Corporation plc, et al. (Case No. 20-33826) (the “Chapter 11 Cases”). On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan.

In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date (as defined herein), Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble formed Noble Corporation, an exempted company incorporated in the Cayman Islands with limited liability (“Noble Parent”), as an indirect, wholly-owned subsidiary of Legacy Noble and transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On February 5, 2021 (the “Effective Date”), the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Chapter 11 Proceedings and Going Concern” for a description of the events that occurred on the Effective Date, including the issuance of ordinary shares of Noble Parent with a nominal value of $0.00001 per share (the “Ordinary Shares”). In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law. Noble Parent’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The consolidated financial statements of Noble Parent have been included in this registration statement because they include the accounts of Finco and Noble Parent conducts substantially all of its business through Finco and its subsidiaries. Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a direct, wholly-owned subsidiary of Noble Parent since the Effective Date.

On October 12, 2020, the Debtors entered into a Backstop Commitment Agreement (as amended, supplemented or modified, together with all exhibits and schedules thereto, the “Backstop Commitment Agreement”) with the backstop parties thereto (collectively, the “Backstop Parties”). On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble Parent and Finco consummated a rights offering (the “Rights Offering”) of the Notes and associated Ordinary Shares at an aggregate subscription price of $200 million. On the Effective Date, Finco issued an aggregate principal amount of $216 million of Notes.

 

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On the Effective Date, Finco entered into a registration rights agreement (the “Registration Rights Agreement”) with certain parties who received Notes under the Plan (the “RRA Noteholders”). Under the Registration Rights Agreement, RRA Noteholders have certain demand and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. Pursuant to their underwritten offering registration rights, RRA Noteholders have the right to demand Finco register underwritten offerings of any or all of their Registrable Securities (as defined in the Registration Rights Agreement) pursuant to an effective registration statement, subject to certain conditions, including that the aggregate proceeds expected to be received from such an offering is equal to or greater than $20 million, unless such demand is not pursuant to a shelf registration statement, in which case certain RRA Noteholders may require Finco register an underwritten offering for an amount that would enable all remaining Registrable Securities to be included in such offering. In addition, the Registration Rights Agreement requires Finco to register for resale such Registrable Securities pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including by filing a registration statement on Form S-1 or Form S-3 by the applicable deadline set forth in the Registration Rights Agreement.

Finco is filing the registration statement of which this prospectus forms a part pursuant to the foregoing obligation. The foregoing description of the Registration Rights Agreement is only a summary and does not purport to be complete, and such description is qualified in its entirety by reference to the full text of the Registration Rights Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Unless otherwise expressly set forth or as the context otherwise indicates, all financial information and data and accompanying financial statements and corresponding notes, as of and prior to the Effective Date, contained herein reflect the actual historical consolidated results of operations and financial condition of Legacy Noble or Finco, as applicable, for the periods presented and do not give effect to the Plan or any of the transactions contemplated thereby or the adoption of fresh start accounting, which Noble Parent and Finco adopted as of the Effective Date. Accordingly, such financial information may not be representative of Noble Parent’s or Finco’s, as applicable, performance or financial condition after the Effective Date. Except with respect to such historical financial information and data and accompanying financial statements and corresponding notes or as otherwise suggested by the context, all other information contained herein relates to Noble Parent or Finco, as applicable, following the Effective Date.

 

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ABOUT THIS PROSPECTUS

Unless we otherwise indicate, or unless the context requires otherwise, references in this prospectus to “Noble,” the “Company,” “we,” “us” and “our” refer collectively to Noble Parent and its consolidated subsidiaries, including Finco, when referring to periods following the Effective Date, and to Legacy Noble and its consolidated subsidiaries, including Finco, when referring to periods prior to the Effective Date.

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the “SEC”). This prospectus provides you with a general description of us and the securities that may be offered by the selling securityholders. Because each of the selling securityholders may be deemed to be an “underwriter” within the meaning of the Securities Act, each time securities are offered by the selling securityholders pursuant to this prospectus, the selling securityholders may be required to provide you with this prospectus and, in certain cases, a prospectus supplement that will contain specific information about the selling securityholders and the terms of the securities being offered. The prospectus supplement may also add to, update or change the information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement. Please carefully read this prospectus and any prospectus supplement, in addition to the information contained in the documents we refer to under the heading “Where You Can Find More Information.”

We have not, and the selling securityholders have not, authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the selling securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the selling securityholders are not, making any offer to sell the Notes in any jurisdiction where the offer is not permitted. The information contained in this prospectus is accurate only as of the date on the cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Notes. Our business, financial condition, results of operations and prospects may have changed since such date.

We have not, and the selling securityholders have not, taken any action to permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offer and sale of the Notes and the distribution of this prospectus outside the United States.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

 

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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus, is not complete and does not contain all the information that may be important to you in making an investment decision. You should read this entire prospectus carefully, including the Explanatory Note and the information under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” and the consolidated financial statements and the notes thereto appearing elsewhere in this prospectus before making an investment decision. Unless we otherwise indicate, or unless the context requires otherwise, references in this prospectus to “Noble,” the “Company,” “we,” “us” and “our” refer collectively to Noble Parent and its consolidated subsidiaries, including Finco, when referring to periods following the Effective Date, and to Legacy Noble and its consolidated subsidiaries, including Finco, when referring to periods prior to the Effective Date.

Our Company

Finco is a direct, wholly-owned and controlled subsidiary of Noble Parent. Noble is a leading offshore drilling contractor for the oil and gas industry. Noble provides contract drilling services to the international oil and gas industry with its global fleet of mobile offshore drilling units. Noble focuses on a balanced, high-specification fleet of floating and jackup rigs and the deployment of its drilling rigs in oil and gas basins around the world. The consolidated financial statements of Noble Parent have been included in this registration statement because they include the accounts of Finco and Noble Parent conducts substantially all its business through Finco and its subsidiaries. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.

Contract Drilling Services

We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world.

We typically provide contract drilling services under an individual contract, on a dayrate basis. Although the final terms of the contracts result from negotiations with our customers, many contracts are awarded based upon a competitive bidding process.

Generally, our contracts allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another. When market conditions require us to assume these costs, our operating margins are reduced accordingly. For shorter moves, such as “field moves,” our customers have generally agreed to assume the costs of moving the unit in the form of a reduced dayrate or “move rate” while the unit is being moved. Under current market conditions, we are much less likely to receive full reimbursement of our mobilization and demobilization costs.

Contracts often contain early termination provisions permitting the customer to terminate the contract if the unit is lost or destroyed or if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract. In addition, the terms of our drilling contracts permit the customer to terminate the contract after specified notice periods by tendering contractually specified termination amounts and, in often cases, without any payment or a modest payment.

During periods of depressed market conditions, such as the one we experienced for a number of years, our customers may attempt to renegotiate or repudiate their contracts with us although we seek to enforce our rights under our contracts. The renegotiations may include changes to key contract terms, such as pricing, termination and risk allocation.



 

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Drilling Fleet

Noble is a leading offshore drilling contractor for the oil and gas sector. Noble owns and operates one of the most modern, versatile and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides contract drilling services with a fleet of 19 offshore drilling units, consisting of seven floaters and 12 jackups at the date of this prospectus, focused largely on ultra-deepwater and high-specification drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further under “Business—Drilling Fleet.” At December 31, 2020, our fleet was located in Far East Asia, the Middle East, the North Sea, Oceania, South America and the US Gulf of Mexico.

Emergence from Chapter 11

On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed the Chapter 11 Cases in the Bankruptcy Court. On September 4, 2020, the Debtors filed with the Bankruptcy Court the Plan, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020, and the Disclosure Statement. On September 24, 2020, six additional subsidiaries of Legacy Noble filed the Chapter 11 Cases in the Bankruptcy Court. On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date, Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble formed Noble Parent as an indirect, wholly-owned subsidiary of Legacy Noble and transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On the Effective Date, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases.

On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble Parent and Finco consummated the Rights Offering of the Notes and associated Ordinary Shares at an aggregate subscription price of $200 million. On the Effective Date, Finco issued an aggregate principal amount of $216 million of Notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Chapter 11 Proceedings and Going Concern” for a description of the events that occurred on the Effective Date, including the issuance of the Ordinary Shares, the Tranche 1 Warrants, the Tranche 2 Warrants and the Tranche 3 Warrants (each as defined herein). In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law.

Recent Events

Merger

On March 25, 2021, Noble Parent entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Duke Merger Sub, LLC, a wholly-owned subsidiary of Noble Parent (“Merger Sub”), and Pacific Drilling Company LLC (“Pacific Drilling”), pursuant to which Noble Parent would acquire Pacific Drilling in an all-stock transaction. The board of directors of Noble Parent (the “Board”) and the board of directors of Pacific Drilling have unanimously approved and adopted the Merger Agreement.

The Merger Agreement provides that, upon consummation of the Merger, Merger Sub will merge with and into Pacific Drilling (the “Merger”), with Pacific Drilling continuing as the surviving company and a wholly-owned subsidiary of Noble Parent. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (a) each membership interest in Pacific Drilling (the “Membership Interests”) will be converted into the right to receive a number of Ordinary Shares equal to the Membership Interest Exchange Ratio (as defined below) and (b) each of Pacific Drilling’s warrants outstanding immediately prior to the Effective Time (the “Pacific Warrants”) will be converted into the right to receive a number of Ordinary Shares equal to the Warrant Exchange Ratio. For purposes of the Merger Agreement, the “Membership Interest Exchange Ratio” equals (i) 16,600,000, less the Pacific Warrant Consideration Shares (as defined



 

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below), divided by (ii) 2,500,000; and the “Warrant Exchange Ratio” means (a) the aggregate number of Ordinary Shares issuable pursuant to Section 5.1(f)(iii) of that certain Warrant Agreement, dated as of December 31, 2020, between Pacific Drilling and American Stock Transfer & Trust Company, LLC, as reasonably determined by the board of directors of Pacific Drilling pursuant to the terms thereof (the “Pacific Warrant Consideration Shares”), divided by (b) 441,176.

The Merger Agreement contains customary representations, warranties and covenants by Noble Parent, Merger Sub and Pacific Drilling. The Merger Agreement also contains customary pre-closing covenants, including the obligation of Noble Parent and Pacific Drilling to conduct their respective businesses in the ordinary course of business and to refrain from taking specified actions without the consent of the other party. Pacific Drilling has also agreed not to directly or indirectly solicit competing acquisition proposals or to enter into discussions concerning, or provide confidential information in connection with, any alternative business combinations.

Completion of the Merger is subject to certain limited conditions, including that no injunction shall have been entered and continue to be in effect that prohibits the consummation of the Merger, the representations and warranties of the parties being true and correct to the standards applicable to such representations and warranties and each of the covenants of the parties having been performed or complied with in all material respects. Subject to the satisfaction or waiver of these conditions, the Merger is expected to close in the second quarter of 2021. Noble Parent conducts substantially all its business through Finco and its subsidiaries. Upon completion of the Merger, Noble Parent intends to contribute Pacific Drilling to Finco and to designate Pacific Drilling and its subsidiaries as unrestricted subsidiaries pursuant to the Exit Credit Facility (as defined herein) and the Notes. As a result, none of Pacific Drilling or its subsidiaries will become guarantors and none of their assets will secure the Exit Credit Facility or the Notes.

Voting and Support Agreement

Concurrently with the entry into the Merger Agreement, Noble Parent and certain equity holders of Pacific Drilling (each, a “Member” and, collectively, the “Members”), which collectively represent approximately 66% of the issued and outstanding Membership Interests and 64% of the Pacific Warrants, entered into voting and support agreements (collectively, the “Voting Agreements”) in connection with the Merger Agreement.

Among other things, each Voting Agreement requires that each Member that is party to such Voting Agreement (a) vote (or cause to be voted) its Membership Interests (i) in favor of the approval and adoption of the Merger, the Merger Agreement and all other transactions contemplated by the Merger Agreement, (ii) among other things, against any merger agreement or merger (other than the Merger Agreement, the Merger and the transactions contemplated thereby), any action or any other takeover proposal relating to Pacific Drilling, (b) be bound by certain other covenants and agreements relating to the Merger, including the delivery of any notices and documentation required to effect a “Drag-Along Sale” as defined in the Pacific Drilling limited liability company agreement, and (c) be bound by certain transfer restrictions with respect to such securities subject to certain exceptions.

The Voting Agreements will terminate upon the earliest to occur of (a) the Effective Time, (b) the termination of the Merger Agreement pursuant to its terms, (c) the date on which the Merger Agreement is modified or amended in a manner that (i) reduces the merger consideration to be paid pursuant to the terms of the Merger Agreement (including, without limitation, the Membership Interest Exchange Ratio or the Warrant Exchange Ratio), (ii) extends the end date of the Merger Agreement beyond June 30, 2021 or (iii) alters the allocation of liability among the parties to the Merger Agreement or the members of Pacific Drilling, including by adding or modifying any indemnification rights or obligations set forth in or contemplated by the Merger Agreement, (d) termination by mutual written consent of the Member and Noble Parent and (e) at any time upon notice by Noble Parent to the Members.

 



 

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Merger Registration Rights Agreement

At the closing of the Merger, Noble Parent will enter into a registration rights agreement (the “Merger RRA”) with each of the holders identified therein (the “Merger RRA Holders”) pursuant to which, among other

things, and subject to certain limitations set forth therein, certain Merger RRA Holders will have customary demand and piggyback registration rights. In addition, pursuant to the Merger RRA, certain Merger RRA Holders have the right to require Noble Parent, subject to certain limitations set forth therein, to effect a distribution of any or all of their Ordinary Shares by means of an underwritten offering. Noble Parent is not obligated to effect any underwritten offering unless the dollar amount of the registrable securities of the Merger RRA Holder(s) demanding such underwritten offering to be included therein is reasonably likely to result in gross sale proceeds of at least $20 million.

Risk Factors

Investing in the Notes involves risks associated with our business, operating results and financial condition. You should carefully read “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this prospectus for an explanation of these risks before investing in the Notes. These risks include, among others, the following:

 

  

risks related to the Notes, including the following:

 

  

the indenture governing the Notes contains operating and financial restrictions;

 

  

the value of the Collateral (as defined herein) on the Notes may not be sufficient to ensure repayment of the Notes, and it may be difficult to realize the value of the Collateral securing the Notes and the guarantees;

 

  

the liens on the Collateral securing the Notes and the guarantees thereof are junior and subordinate to the liens on the Collateral securing priority lien debt;

 

  

interest on the Notes may be paid in PIK interest;

 

  

risks related to our emergence from bankruptcy, including the following:

 

  

the effect of our recent emergence from bankruptcy on our business and relationships;

 

  

our actual financial results after emergence from bankruptcy may not be comparable to filed projections;

 

  

our historical financial information will not be indicative of future financial performance;

 

  

Legacy Noble’s ordinary shares were cancelled upon our emergence from bankruptcy;

 

  

the warrants Noble Parent issued pursuant to the Plan are exercisable for Ordinary Shares;

 

  

risks related to our business and operations, including the following:

 

  

the impact of the novel strain of coronavirus (“COVID-19”) pandemic;

 

  

our business depends on the level of activity in the oil and gas industry;

 

  

the offshore contract drilling industry is a highly competitive and cyclical business;

 

  

the over-supply of offshore rigs;

 

  

our ability to renew or replace existing contracts;

 

  

our current backlog of contract drilling revenue may not be ultimately realized;

 

  

our substantial dependence on several of our customers;

 

  

risks relating to operations in international locations;

 

  

our and our service providers’ failure to adequately protect sensitive information technology systems and critical data;



 

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our failure to attract and retain skilled personnel;

 

  

supplier capacity constraints or shortages in parts or equipment or price increases;

 

  

risks associated with future acquisitions of other businesses or assets;

 

  

future sales or the availability for sale of substantial amounts of the Ordinary Shares could, if the Ordinary Shares are listed on a national securities exchange, adversely affect the trading price of the Ordinary Shares;

 

  

we are a holding company, and we are dependent upon cash flow from subsidiaries to meet our obligations;

 

  

risks related to the Merger, including the following:

 

  

the Merger may not be completed and the Merger Agreement may be terminated;

 

  

the integration of Pacific Drilling into the combined company may not be as successful as anticipated, and the combined company may not achieve the intended benefits;

 

  

financial and tax risks, including the following:

 

  

we may record impairment charges on property and equipment;

 

  

the Exit Credit Agreement (as defined herein) contains various restrictive covenants limiting the discretion of our management in operating our business;

 

  

the impact of 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 on our tax rate on our worldwide earnings;

 

  

regulatory and legal risks, including the following:

 

  

the impact of governmental laws and regulations on our costs and drilling activity;

 

  

increasing attention to environmental, social and governance matters;

 

  

changes in, compliance with or our failure to comply with certain laws and regulations;

 

  

compliance with laws and regulations relating to the protection of the environment and of human health and safety; and

 

  

we are subject to litigation.

Our Offices

Finco’s principal executive offices are located at 13135 Dairy Ashford, Suite 800, Sugar Land, Texas 77478, and its telephone number at that address is (281) 276-6100. Our website address is http://www.noblecorp.com. The information contained on or linked to or from our website is not part of, and is not incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, and you should not consider such information part of this prospectus or rely on any such information in making your decision whether to purchase the Notes.



 

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The Notes

The following summary contains basic information about the Notes and is not intended to be complete. It does not contain all information that may be important to you. For a more complete understanding of the Notes, see “Description of the Notes” in this prospectus. For purposes of the description of the Notes included in this prospectus under this section and the “Description of the Notes,” references to (i) the “notes” refer to the 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028, (ii) the “PIK notes” refer to additional notes that may be that may be issued if interest on the notes is paid-in-kind through maturity and (iii) “NFC,” the “Company,” “we,” “us” and “our” refer only to Noble Finance Company and do not include any of its subsidiaries. Capitalized terms used and not defined in this section have the meaning given them in the “Description of the Notes.”

 

Issuer

Noble Finance Company, an exempted company incorporated in the Cayman Islands with limited liability.

 

Notes to be Offered by the Selling Securityholders

$510,130,204 aggregate principal amount of 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028, including up to an additional $380,832,287 aggregate principal amount of notes that may be issued if interest on the notes is paid-in-kind through maturity.

 

Maturity Date

The notes will mature on February 15, 2028.

 

Interest

The notes will bear interest, at our option for each interest payment date, at the per annum rates of (i) 11% payable in cash, (ii) 13%, with 6.5% per annum of such interest to be payable in cash and 6.5% per annum of such interest to be payable by issuing PIK notes, or (iii) 15%, with the entirety of such interest to be payable by issuing PIK notes. Interest on the notes will be paid semi-annually, in arrears, on February 15 and August 15, commencing August 15, 2021, to the holders of record at the close of business on the February 1 and August 1 immediately preceding the applicable interest payment date. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months. See “Description of the Notes—General.”

 

Ranking

The notes:

 

  

rank equally in right of payment with all future senior indebtedness of the Company but, to the extent the value of the Collateral exceeds the aggregate amount of all Priority Lien Debt, are effectively senior to all of the Company’s unsecured senior indebtedness;

 

  

rank senior in right of payment to any existing and future subordinated obligations of the Company;

 

  

are effectively junior to any obligations of the Company that are either (i) secured by a Lien on the Collateral that is senior or prior to the Liens securing the notes, including the Permitted Liens securing Priority Lien Debt, and to other Permitted Liens, or (ii) secured with property or assets that do not constitute Collateral to the extent of the value of the assets securing such Indebtedness; and



 

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are structurally subordinated to all future Indebtedness, claims of holders of Preferred Stock and other liabilities of the Company’s Subsidiaries that do not guarantee the notes (but if a Pledgor that is not a guarantor has pledged the Capital Stock of a guarantor to secure the notes, then such pledge will be senior to the Preferred Stock and other liabilities of such Pledgor).

 

Optional Redemption

Within 120 days of any Change of Control, we (or the successor entity following such Change of Control) may redeem for cash all (but not less than all) of the outstanding notes, at a redemption price, if the redemption is (x) prior to (but not including) February 15, 2024, equal to the sum of (1) 106% of the principal amount of the notes to be redeemed plus (2) accrued and unpaid interest, if any, to, but excluding, the redemption date or (y) on or after February 15, 2024, equal to the redemption price applicable to the notes (expressed as a percentage of the principal amount of the notes to be redeemed) if redeemed during the 12-month period beginning on February 15, 2024 of the years indicated in the second immediately following paragraph.

 

 Prior to February 15, 2024, we will be entitled at our option to redeem the notes, in whole or in part, at a redemption price equal to 106% of the principal amount of the notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date).

 

 The redemption price for the notes to be redeemed on any redemption date that is on or after February 15, 2024 will be equal to the applicable percentage set forth below of the principal amount of the notes, plus accrued and unpaid interest thereon, if any, to, but excluding, the date of redemption (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date) if redeemed during the 12-month period beginning on February 15 of the years indicated below:

 

YEAR

  

PERCENTAGE

2024

  106.000%

2025

  104.000%

2026

  102.000%

2027 and thereafter

  100.000%

 

 See “Description of the Notes—Optional Redemption.”

 

Tax Redemption

The notes will be subject to redemption at any time, in whole but not in part, at a redemption price, if the redemption is (x) prior to (but not including) February 15, 2024, equal to 106% of the principal amount of the notes to be redeemed or (y) on or after February 15, 2024, equal to the redemption price applicable to the notes (expressed as a percentage of the principal amount of notes to be redeemed), in each



 

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case together with accrued and unpaid interest to, but not including, the Tax Redemption Date, plus all Additional Amounts then due or 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, we are or would be required to pay Additional Amounts, and we cannot avoid any such payment obligation by taking reasonable measures available (including, for the avoidance of doubt, appointment of a new paying agent but excluding the reincorporation or reorganization of the Company), and the requirement arises as a result of a Change in Tax Law.

 

 See “Description of the Notes—Tax Redemption.”

 

Guarantees

The notes are guaranteed on a senior secured basis by each subsidiary guarantor. The notes guarantees of the notes by each subsidiary guarantor:

 

  

are a senior obligation of such subsidiary guarantor;

 

  

are secured by a second-priority security interest in the Collateral (subject to Permitted Liens) owned by such subsidiary guarantor;

 

  

rank equally in right of payment with all future senior indebtedness of such subsidiary guarantor but, to the extent the value of the Collateral exceeds the aggregate amount of all Priority Lien Debt, are effectively senior to all of such subsidiary guarantor’s unsecured senior indebtedness;

 

  

rank senior in right of payment to any existing and future subordinated obligations of such subsidiary guarantor; and

 

  

are effectively junior to any obligations of such subsidiary guarantor that are either (i) secured by a Lien on the Collateral that is senior or prior to the Liens securing such subsidiary guarantor’s notes guarantee, including the Permitted Liens, or (ii) secured with property or assets that do not constitute Collateral to the extent of the value of the assets securing such Indebtedness.

 

 See “Description of the Notes—General” and “Description of the Notes—Notes Guarantee.”

 

Collateral

The notes and the notes guarantees are secured by second-priority security interests (subject to Permitted Liens) in the Collateral. Subject to the terms described under “Description of the Notes—Collateral—Release,” the Collateral consists of substantially all of the property and assets of the Company and the subsidiary guarantors, other than Excluded Property, and the pledge of the Capital Stock of the Company and some or all of the Capital Stock of certain subsidiary guarantors. See “Description of the Notes—Collateral.”


 

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Certain Covenants

The indenture governing the Notes restricts our ability and the ability of our restricted subsidiaries to, among other things:

 

  

incur or guarantee additional indebtedness or issue preferred stock;

 

  

pay dividends or make other distributions on account of capital stock;

 

  

purchase or redeem capital stock or subordinated indebtedness;

 

  

make investments;

 

  

create liens;

 

  

enter into agreements that restrict the ability of our restricted subsidiaries to pay dividends or make other payments to us;

 

  

sell assets;

 

  

consolidate or merge with or into other companies or transfer all or substantially all of our assets; and

 

  

engage in transactions with affiliates.

 

 These limitations will be subject to a number of important qualifications and exceptions. See “Description of the Notes—Certain Covenants.”

 

Use of Proceeds

We will not receive any proceeds from the sale of the notes by the selling securityholders pursuant to this prospectus. See “Use of Proceeds.”

 

Absence of a Public Market

There is currently no established public trading market for the notes, and there can be no assurance that a public trading market will develop.

 

Risk Factors

Investing in the notes involves significant risks. You should carefully read and consider the information beginning on page 10 of this prospectus under “Risk Factors” and all other information in this prospectus before deciding to invest in the notes.


 

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RISK FACTORS

Investing in the Notes involves significant risks. Before making an investment decision, you should carefully consider the specific risk factors set forth below, together with the other information included elsewhere in this prospectus. If any of the risks discussed in this prospectus occur, our business, prospects, liquidity, financial condition and results of operations could be materially impaired, in which case the price of the Notes could decline significantly and you could lose all or part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.” We expect that the risks related to our emergence from bankruptcy and our business identified below are also applicable to Pacific Drilling and its business, given that Pacific Drilling is engaged in the same business as Noble and recently emerged from bankruptcy.

Risks Related to the Notes

The indenture governing the Notes contains operating and financial restrictions that may restrict Finco’s business and financing activities.

The primary restrictive covenants contained in the indenture under which the Notes were issued limit Finco’s ability and the ability of certain of its subsidiaries to pay dividends or make other distributions or repurchase or redeem its capital stock and certain indebtedness, create liens securing certain indebtedness, incur certain indebtedness, consolidate, merge or transfer all or substantially all of its properties and assets, enter into transactions with affiliates and dispose of assets and use proceeds from the dispositions of assets.

Finco’s ability to comply with the covenants and restrictions contained in the indenture governing the Notes may be affected by events beyond its control. If market or other economic conditions deteriorate, Finco’s ability to comply with these covenants and restrictions may be impaired. A failure to comply with the covenants, ratios or tests in the indenture governing the Notes, if not cured or waived, could have a material adverse effect on Finco’s business, financial condition and results of operations. Finco’s existing and future indebtedness may have cross-default and cross-acceleration provisions. Upon the triggering of any such provision, the relevant creditor may:

 

  

not be required to lend any additional amounts to Finco;

 

  

elect to declare all borrowings outstanding due to them, together with accrued and unpaid interest and fees, to be due and payable (and, with respect to Finco’s secured indebtedness, foreclose on the collateral securing such indebtedness);

 

  

elect to require that all obligations accrue interest at the default rate provided therein, if such rate has not already been imposed;

 

  

have the ability to require Finco to apply all of its available cash to repay such borrowings; and/or

 

  

prevent Finco from making debt service payments under its other agreements,

any of which could result in an event of default under the Notes.

If any of Finco’s existing indebtedness were to be accelerated, there can be no assurance that it would have, or be able to obtain, sufficient funds to repay such indebtedness in full. Even if new financing were available, it may be on terms that are less attractive to Finco than the Exit Credit Facility or the Notes or it may not be on terms that are acceptable to Finco. For additional information, see “Description of the Notes.”

The value of the Collateral securing the Notes may not be sufficient to ensure repayment of the Notes because the holders of obligations under the Exit Credit Facility and other first-priority lien obligations will be paid first from the proceeds of the Collateral. It may be difficult to realize the value of the Collateral securing the Notes and the guarantees.

Finco’s indebtedness and other obligations under the Exit Credit Facility and other priority lien debt are secured by a first-priority lien on the Collateral securing the Notes and the guarantees thereof. The liens securing

 

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the Notes and the guarantees thereof are effectively junior to the liens securing obligations under the Exit Credit Facility and other priority lien obligations, so that proceeds of the Collateral will be applied first to repay those first lien obligations before any such proceeds are applied to pay any amounts due on the Notes. Accordingly, if Finco defaults on the Notes, Finco cannot assure you that the collateral agent would receive enough money from the sale of the Collateral to repay you. In addition, Finco has specified rights to issue additional notes (including Notes used to pay PIK interest) and other parity lien obligations that would be secured by liens on the Collateral on an equal and ratable basis with the Notes. See “—The Collateral securing the Notes and related guarantees may be diluted under certain circumstances.” If the proceeds of any sale of the Collateral are not sufficient to repay all amounts due on the Notes and any other parity lien obligations, then your claims against Finco’s remaining assets to repay any amounts still outstanding under the Notes would be unsecured. The Exit Credit Facility permits Finco to incur additional indebtedness thereunder, and the indenture governing the Notes permits Finco to incur additional obligations secured by liens that have priority over the Notes in certain circumstances, as well as incur additional obligations secured by liens with the same priority as the liens securing the Notes.

By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. Accordingly, the Collateral may not be sold in a short period of time, if at all. In addition, a portion of the Collateral includes assets that may only be usable, and thus retain value, as part of Finco’s existing operating businesses. Finco also cannot assure you that the fair market value of the Collateral will exceed the principal amount of the debt secured thereby. Additionally, the value of the assets to be pledged as Collateral for the Notes and the guarantees could be impaired in the future as a result of changing economic conditions, commodity prices, environmental concerns, Finco’s failure to implement its business strategy, competition and other future trends. Any claim for the difference between the amount, if any, realized by holders of the Notes from the sale of the Collateral securing the Notes and the guarantees thereof will rank equal in right of payment with all of Finco’s other unsecured unsubordinated indebtedness and other obligations, including accounts payable. Additionally, in the event that a bankruptcy case is commenced by or against Finco, if the value of the Collateral is less than the amount of principal and accrued and unpaid interest on the Notes and all other obligations secured thereby on a priority and pari passu basis, holders of Notes would not be entitled to receive, among other things, post-petition interest, fees or expenses or adequate protection on account of any “undersecured” portion of their claims. Likewise, Finco cannot assure you that the pledged assets will be saleable or, if saleable, that there will not be substantial delays in their liquidation.

In addition, the Collateral securing the Notes will be subject to other liens permitted under the terms of the Exit Credit Facility, the indenture governing the Notes and the Senior Lien Intercreditor Agreement (as defined herein), whether existing now or arising on or after the date the Notes are issued. To the extent that third parties hold prior liens, such third parties may have rights and remedies with respect to the property subject to such liens that, if exercised, could adversely affect the value of the Collateral securing the Notes. The indenture governing the Notes does not require that Finco maintain any amount of Collateral or maintain a specific ratio of indebtedness to asset values.

With respect to some of the Collateral to be pledged, the collateral agent’s liens and ability to foreclose on the Collateral are also limited by the need to meet certain requirements, such as obtaining third-party consents, paying court fees that may be based on the principal amount of the parity lien obligations and making additional filings. If it is unable to obtain these consents, pay such fees or make these filings, the liens may be invalid and the applicable holders and lenders will not be entitled to the Collateral or any recovery with respect thereto. Finco cannot assure you that any such required consents, fee payments or filings can be obtained on a timely basis or at all. These requirements may limit the number of potential bidders for certain Collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the Collateral. Therefore, the practical value of realizing on the Collateral, without the appropriate consents, fees and filings, may be limited.

In the event of a foreclosure on the Collateral under the Exit Credit Facility and other priority lien debt (or a distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from the Collateral may

 

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not be sufficient to satisfy the Notes and other parity lien obligations because such proceeds would, under the Senior Lien Intercreditor Agreement, first be applied to satisfy Finco’s obligations under the Exit Credit Facility and other priority lien obligations. Only after all of Finco’s obligations under the Exit Credit Facility and such other priority lien obligations have been satisfied will proceeds from the Collateral be applied to satisfy Finco’s obligations under the Notes and other parity lien obligations. In addition, in the event of a foreclosure on the Collateral, the proceeds from such foreclosure may not be sufficient to satisfy Finco’s obligations under the Notes and other parity lien obligations.

Pursuant to the terms contained in the Exit Credit Facility and the indenture governing the Notes, Finco and its Restricted Subsidiaries (as defined herein) may sell Collateral and other assets. Upon any such sale, all or a portion of the interest in any asset sold may no longer constitute Collateral. The indenture governing the Notes contains a covenant concerning the use of the proceeds from any sale of assets, including the use of those proceeds to pay debt or reinvest in Finco’s business. Although Finco may seek to reinvest proceeds from any asset sales, any assets in which Finco reinvests may not constitute Collateral or be as profitable to Finco as the assets sold. Additionally, the indenture governing the Notes does not require that the Notes be secured by at least a specified amount of Collateral, whether expressed as a minimum ratio of the value of such Collateral to the amount of the Notes or otherwise.

The liens securing the Notes will be released automatically if the liens securing the Exit Credit Facility are released.

An active trading market may not develop for the Notes.

There has been no trading market for the Notes, and Finco does not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of security and by changes in Finco’s financial performance or prospects or in the prospects for companies in Finco’s industry generally. As a result, an active trading market may not develop for the Notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case, you may not be able to sell your Notes at a particular time or you may not be able to sell your Notes at a favorable price. You should not purchase the Notes unless you understand, and know you can bear, all of the investment risks involving the Notes.

Finco’s subsidiaries that are not guarantors of the Notes have no obligation, except in the circumstances described herein, to pay amounts due under the Notes.

The Notes are guaranteed by all of Finco’s subsidiaries that guarantee the Exit Credit Facility. Except for such guarantors of the Notes and pledges of equity in certain guarantors directly owned by certain non-guarantors, Finco’s subsidiaries will have no obligation, contingent or otherwise (except in the circumstances described herein), to pay amounts due under the Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. The Notes and guarantees will be structurally subordinated to all existing and future indebtedness and other obligations of any non-guarantor subsidiary, other than indebtedness and other liabilities owed to Finco by such non-guarantor subsidiaries and, in the case of certain non-guarantors, the pledge of equity in certain guarantors directly owned by such non-guarantors. In the event of insolvency, liquidation, reorganization, dissolution or other winding up of any non-guarantor subsidiary, all of that subsidiary’s creditors (including trade creditors) would be entitled to payment in full out of that subsidiary’s assets (other than, with respect to certain non-guarantors, the pledges of the equity in certain guarantors directly owned by them) before the holders of the Notes would be entitled to any payment. As a result, your ability to make a claim against Finco’s non-guarantor subsidiaries may be limited.

Finco may in the future have additional non-guarantor subsidiaries and your ability to make a claim against such subsidiaries may also be limited. In addition, the indenture governing the Notes permits all of these

 

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non-guarantor subsidiaries to incur additional indebtedness and does not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries.

In addition, any of Finco’s subsidiaries that provide guarantees of the Notes will be automatically released from those guarantees upon the occurrence of certain events, including (i) a sale or other disposition of such guarantor that results in such guarantor no longer being a Restricted Subsidiary (as defined herein) or (ii) upon the dissolution or liquidation of such guarantor.

If any guarantee is released, no holder of the Notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities, including trade payables, if any, whether secured or unsecured, of that subsidiary will be effectively senior to the claim of any holders of the Notes. See “Description of the Notes—Notes Guarantee.”

A guarantee and any lien granted by a subsidiary could be voided if it constitutes a fraudulent transfer or fraudulent conveyance under federal bankruptcy law, similar state law or the insolvency laws of foreign jurisdictions, which would prevent the holders of the Notes from relying on that subsidiary to satisfy claims.

Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws and the insolvency laws of foreign jurisdictions, Finco’s guarantees of (including for all purposes of the discussion under this caption, liens granted by Finco’s subsidiaries to secure) the Notes can be voided, or claims under the guarantees may be subordinated to all other debts of that subsidiary if, among other things, the subsidiary, at the time it incurred the indebtedness evidenced by its guarantee or, in some jurisdictions, when payments become due under the guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and:

 

  

was insolvent or rendered insolvent by reason of such incurrence of the obligations under the guarantee;

 

  

was engaged in a business or transaction for which the subsidiary’s remaining assets constituted unreasonably small capital; or

 

  

intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.

The guarantees of the Notes may also be voided, without regard to the above factors, if a court finds that the subsidiary entered into the guarantee with the actual intent to hinder, delay or defraud its other creditors.

A court would likely find that a subsidiary did not receive reasonably equivalent value or fair consideration for its guarantee if the guarantor did not substantially benefit directly or indirectly from the issuance of the guarantee. If a court were to void a guarantee, you would no longer have a claim against that subsidiary. Sufficient funds to repay the Notes may not be available from other sources, including the remaining subsidiaries providing guarantees, if any. In addition, the court might direct you to repay any amounts that you already received from the subsidiary.

The measures of insolvency for purposes of fraudulent transfer laws vary depending upon the governing law. Generally, a subsidiary would be considered insolvent if:

 

  

the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all its assets;

 

  

the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

  

it could not pay its debts as they become due.

 

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The indenture governing the Notes contains a provision intended to limit the guarantors’ liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. Finco cannot assure you that this provision will protect the guarantees from fraudulent transfer challenges or, if it does, that the remaining amount due and collectible under the guarantees would suffice, if necessary, to pay the Notes in full when due. Such provision may not be sufficient to protect the guarantees from being voided under fraudulent transfer laws.

A financial failure by Finco or its subsidiaries may result in the assets of any or all of those entities becoming subject to the claims of all creditors of those entities.

A financial failure by Finco or its subsidiaries could affect payment of the Notes if a bankruptcy court were to substantively consolidate Finco and its subsidiaries. If a bankruptcy court substantively consolidated Finco and its subsidiaries, the assets of each entity would become subject to the claims of creditors of all entities. This would expose holders of Notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, forced restructuring of the Notes could occur through the “cramdown” provisions of the Bankruptcy Code. Under these provisions, the Notes could be restructured over your objections as to their general terms, including principal amount, interest rate and maturity.

The liens on the Collateral securing the Notes and the guarantees thereof are junior and subordinate to the liens on the Collateral securing the obligations under the Exit Credit Facility and other priority lien debt.

The Notes and the guarantees are secured by second-priority liens in the Collateral granted by Finco and certain of its subsidiaries and any existing or future subsidiary in the future in accordance with the provisions of the indenture governing the Notes, subject to certain permitted liens, exceptions and encumbrances described in the indenture governing the Notes and the security documents relating to the Notes. All obligations arising under the Exit Credit Facility are secured by first-priority liens on the same Collateral that secure the Notes on a second-priority basis. The Senior Lien Intercreditor Agreement provides, among other things, that if the collateral agent or any Parity Lien Secured Party (as defined herein) obtains possession of any Collateral or realizes any proceeds or payment in respect of any Collateral, pursuant to the exercise of remedies under any second lien security document or by the exercise of any rights available to it under applicable law as a result of any distribution of or in respect of any Collateral or proceeds in any of Finco’s or its guarantors’ bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding or through any other exercise of remedies, at any time prior to the payment in full of the obligations under the Exit Credit Facility and other priority lien debt, then it will hold such Collateral, proceeds or payment in trust for the lenders under the Exit Credit Facility and the other holders of priority lien obligations and transfer such Collateral, proceeds or payment, as the case may be, to the priority lien collateral agent as promptly as practicable. See “—The value of the Collateral securing the Notes may not be sufficient to ensure repayment of the Notes because the holders of obligations under the Exit Credit Facility and other first-priority lien obligations will be paid first from the proceeds of the Collateral. It may be difficult to realize the value of the Collateral securing the Notes and the guarantees.”

In addition, if Finco defaults under the Exit Credit Facility or any other priority lien debt, the lenders under such priority lien debt could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable and foreclose on the pledged assets.

The Collateral securing the Notes and related guarantees may be diluted under certain circumstances.

The indenture governing the Notes permits Finco to incur additional secured indebtedness, including additional notes (including Notes used to pay PIK interest), parity lien obligations and other priority lien obligations, including bank financing, subject to Finco’s compliance with the applicable restrictive covenants. See “Description of the Notes—Certain Covenants—Limitation on Indebtedness” and “Description of the Notes—Certain Covenants—Limitation on Liens.”

 

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Any additional notes issued under the indenture governing the Notes would be guaranteed by the same subsidiary guarantors and would have the same liens and security interests, with the same priority, as the Notes. As a result, the Collateral securing the Notes would be shared by any additional notes Finco may issue under the indenture governing the Notes, and an issuance of such additional notes would dilute the value of the Collateral compared to the aggregate principal amount of Notes outstanding. The issuance of any such notes would also dilute the value of the Collateral. In addition, the indenture governing the Notes and Finco’s other security documents permit it and certain of its subsidiaries to incur additional priority lien debt and parity lien obligations, in some (but not all) instances limited to a threshold amount, by issuing additional debt securities under one or more new indentures or by borrowing additional amounts under the Exit Credit Facility or under different instruments. Any additional priority lien debt or parity lien obligations secured by the same Collateral would dilute the value of the noteholders’ rights to the Collateral.

The realizable value of the Collateral may not be sufficient to pay the Notes and other future parity obligations in full after repayment of all priority lien obligations.

Certain of Finco’s offshore rigs constitute a substantial portion of the value of the Collateral securing the Notes and priority lien obligations (including the Exit Credit Facility). The offshore contract drilling industry is currently in a period characterized by low demand for drilling services and excess rig supply. Such over-supply of offshore rigs continues to contribute to depressed demand for Finco’s rigs. Further declines in demand for Finco’s rigs may cause the value of the Collateral to decline. See “—Risks Related to Our Business and Operations—The offshore contract drilling industry is a highly competitive and cyclical business with intense price competition. We have competitors who are larger and have more financial resources than us. If we are unable to compete successfully, our profitability may be materially reduced” and “—Risks Related to Our Business and Operations—The over-supply of offshore rigs continues to contribute to depressed dayrates and demand for our rigs, which may remain unchanged for some time and, therefore, is expected to further adversely impact our revenues and profitability.”

Under the Exit Credit Facility and the indenture governing the Notes, Finco could incur a substantial amount of additional priority lien obligations and parity lien obligations, and debt secured by collateral not including the Collateral securing the Notes. In the event of a default or liquidation, there may not be sufficient realizable value of the Collateral to first repay all priority lien obligations outstanding at such time and then repay the Notes and any other outstanding parity lien obligations.

Holders of the Notes will not control decisions regarding the Collateral, even during an event of default.

Under the Senior Lien Intercreditor Agreement between the Senior Credit Facility Agent (as defined herein), the collateral agent and the Grantors (as defined herein) party thereto, the Senior Credit Facility Agent will generally be entitled to receive and apply all proceeds of any Collateral to the repayment in full of the obligations under the Exit Credit Facility and under Finco’s other priority lien obligations before any such proceeds will be available to repay obligations under the Notes and other parity lien obligations. In addition, the Senior Credit Facility Agent will generally be entitled to sole control of all decisions and actions, including foreclosure, with respect to Collateral, even if an event of default under the Notes has occurred, and neither the holders of Notes nor the collateral agent will generally be entitled to independently exercise remedies with respect to the Collateral until the discharge of Finco’s obligations under the Exit Credit Facility and under Finco’s other priority lien obligations, unless and until a “Standstill Period” has elapsed (see “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements—Standstill Period; Permitted Enforcement Action”). In addition, the Senior Credit Facility Agent will be entitled, without the consent of holders of Notes or the collateral agent, to amend the terms of the Exit Credit Facility and the security documents securing Finco’s priority lien obligations and to release the priority lien on any Collateral in certain circumstances.

Furthermore, because the holders of priority lien obligations will control the disposition of the Collateral securing such priority lien obligations and the Notes, if there were an event of default under the Notes, the

 

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holders of the priority lien obligations could decide, for a specified time period, not to proceed against the Collateral, regardless of whether or not there is a default under such priority lien obligations. During such time period, unless and until discharge of the priority lien obligations, including the Exit Credit Facility, has occurred, the sole right of the holders of the Notes will be to hold a lien on the Collateral.

At any time that obligations that have the benefit of priority liens on the Collateral are outstanding, if the holders of such indebtedness release the Collateral for any reason whatsoever, including, without limitation, in connection with any sale of assets, the parity lien on such Collateral securing the Notes will be automatically released without any action by the holders of the Notes. The Collateral so released will no longer secure Finco’s and the subsidiary guarantors’ obligations under the Notes. See “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements.”

Pursuant to the Senior Lien Intercreditor Agreement, in the event of certain insolvency or liquidation proceedings, the Parity Lien Secured Parties will not raise any objection, contest or oppose, and each Parity Lien Secured Party will waive any claim to any financing by such debtor(s)-in-possession or the liens on the Collateral securing such financing or to any use, sale or lease of cash Collateral, subject to certain exceptions.

Pursuant to the Senior Lien Intercreditor Agreement, in the event of certain insolvency or liquidation proceedings related to the Grantors or their subsidiaries, the Parity Lien Secured Parties (as defined herein) will not raise any objection, contest or oppose, and each Parity Lien Secured Party will waive any claim to any DIP Financing (as defined herein) or to any DIP Financing Liens (as defined herein), or to any use, sale or lease of Collateral or to any grant of administrative expense priority under Section 364 of the Bankruptcy Code, unless the Priority Lien Agent (as defined herein) opposes or objects to such DIP Financing, such DIP Financing Liens or such use of cash collateral or the DIP Cap (as defined herein) is exceeded, among other exceptions. Additionally, no Parity Lien Secured Party shall propose, support or enter into any DIP Financing prior to the discharge of the priority lien obligations without the consent of the Priority Lien Agent, in its sole discretion, unless liens securing such DIP Financing rank junior to the priority Liens and such DIP Financing does not refinance any parity lien obligations which are repaid in cash prior to the discharge of the priority lien obligations. See “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements—Certain Agreements With Respect to Insolvency or Liquidation Proceedings.”

Finco will in most cases have control over the Collateral, and the sale of particular assets by it could reduce the pool of assets securing the Notes.

The security documents relating to the Collateral allow Finco to remain in possession and retain exclusive control over the Collateral (other than as set forth in the Collateral Documents (as defined herein)), to operate the Collateral, to alter the Collateral and to collect, invest and dispose of any income thereon. To the extent Finco sells or takes actions that reduce the value of the Collateral, it will reduce the pool of assets securing the Notes and the related guarantees.

The rights of holders of Notes to the Collateral securing the Notes may be adversely affected by the failure to record or perfect liens on the Collateral and other issues generally associated with the realization of liens on the Collateral.

Applicable law requires that a lien on certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens on the Collateral securing the Notes may not be perfected with respect to the claims of the Notes if the collateral agent is not able to take the actions necessary to perfect any of these liens. Moreover, applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified and additional steps to perfect in such property and rights are taken. Furthermore, even though it may constitute an event of default under the indenture governing the Notes, a third-party creditor could gain priority over one or more liens on the Collateral securing the Notes by recording an

 

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intervening lien or liens. In addition, the lien of the collateral agent will be subject to practical challenges generally associated with the realization of liens on Collateral. For example, the collateral agent may need to obtain the consent of third parties and make additional filings. If the collateral agent is unable to obtain these consents or make these filings, the liens may be invalid and the holders of the Notes will not be entitled to the Collateral or any recovery with respect thereto. Finco cannot assure you that the collateral agent will be able to obtain any such consent or make any such filing. Finco also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the collateral agent may not have the ability to foreclose upon those assets and the value of the Collateral may significantly decrease.

Rights of holders of Notes in the Collateral may be adversely affected by bankruptcy proceedings. In addition, the value of the Collateral securing the Notes may not be sufficient for a bankruptcy court to grant post-petition interest on the Notes in a bankruptcy case against Finco or any of the guarantors. Should the amount of Finco’s obligations under the Notes, together with the amount of its obligations under the Exit Credit Facility, and any other priority lien obligations or parity lien obligations, equal or exceed the value at foreclosure of the Collateral securing such obligations, the holders of the Notes will be deemed to have an unsecured claim for the difference between the outstanding principal amount of Notes, on the one hand, and the proceeds from realization on the Collateral available to be applied to the outstanding principal amount of Notes, on the other hand.

The right of the collateral agent to repossess and dispose of the Collateral upon acceleration is likely to be significantly impaired by federal bankruptcy law (separate and apart from the limitations set forth in the Senior Lien Intercreditor Agreement) if bankruptcy proceedings are commenced in the United States by or against Finco prior to or possibly even after the collateral agent has repossessed and disposed of the Collateral.

Under the Bankruptcy Code, a secured creditor, such as the collateral agent acting for the holders of the Notes, is prohibited from repossessing its security from a debtor, such as us, in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditors’ interest in the collateral. Adequate protection may include cash payments or the granting of additional security such as replacement liens, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. Generally, adequate protection payments, in the form of interest or otherwise, are not required to be paid by a debtor to a secured creditor unless the bankruptcy court determines that the value of the secured creditor’s interest in the collateral is declining during the pendency of the bankruptcy case. However, pursuant to the terms of the Senior Lien Intercreditor Agreement, the holders of the Notes agreed not to file or prosecute any motion for “adequate protection” based on their interest in the Collateral and not to object to any request for “adequate protection” by the priority lien collateral agent or any holder of priority lien obligations or to the objection by the priority lien collateral agent or any holder of priority lien obligations claiming a lack of “adequate protection,” subject to certain exceptions. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a bankruptcy court, it is impossible to predict (1) how long payments under the Notes could be delayed following commencement of a bankruptcy case, (2) whether or when the collateral agent would repossess or dispose of the Collateral or (3) whether or to what extent holders of the Notes would be compensated for any delay in payment of loss of value of the Collateral through the requirements of “adequate protection.”

Furthermore, in the event the bankruptcy court determines that the value of the Collateral is not sufficient to repay all amounts due under the Exit Credit Facility and other priority lien obligations and on the parity lien obligations, the holders of the Notes would have secured claims only to the extent of the value (if any) of the Collateral available to them in accordance with the Senior Lien Intercreditor Agreement, and unsecured claims

 

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equal to the amount that the obligations under the Notes exceed such value of the Collateral, rendering the claims of the holders of the Notes “undersecured.” Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys’ fees for “undersecured claims” during the debtor’s bankruptcy case. Upon a finding by a bankruptcy court that the Notes are undersecured, the claims in the bankruptcy proceeding with respect to the Notes would be bifurcated between a secured claim and an unsecured claim, and the unsecured claim would not be entitled to the benefits of security in the Collateral. In addition, based on such a finding of under-collateralization, the unsecured portion of the Notes would not be entitled to receive “adequate protection” under U.S. bankruptcy laws. Finally, if any payments of post-petition interest were made at the time of such a finding of under-collateralization, such payments could be re-characterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the Notes.

Additionally, the collateral agent’s ability to foreclose on the Collateral on the noteholders’ behalf may be subject to the consent of third parties, prior liens and practical problems associated with the realization of the collateral agent’s lien on the Collateral. The debtor or trustee in a bankruptcy case may seek to void an alleged lien on the Collateral for the benefit of the bankruptcy estate, and it may be able to successfully do so if the lien is not properly perfected or was perfected within a specified period of time (generally 90 days) prior to the initiation of such proceeding. If the lien is avoided, a creditor may hold no lien and be treated as holding a general unsecured claim in the bankruptcy case. It is impossible to predict what recovery (if any) would be available for such an unsecured claim if Finco became a debtor in a bankruptcy case.

In addition to the waiver with respect to adequate protection set forth above, under the terms of the Senior Lien Intercreditor Agreement, the holders of the Notes also waive certain other important rights to which secured creditors may be entitled in a bankruptcy proceeding, as described in “Description of the Notes—Collateral—First Lien-Second Lien Intercreditor Arrangements.” These waivers could adversely impact the ability of the holders of the Notes to recover amounts owed to them in a bankruptcy proceeding.

In addition, a bankruptcy court may decide to substantively consolidate Finco and some or all of its subsidiaries in the bankruptcy proceeding. If a bankruptcy court substantively consolidated Finco and some or all of its subsidiaries, the assets of each entity would become subject to the claims of creditors of all entities that are so consolidated. Such a ruling would expose holders of Notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, a forced restructuring of the Notes could occur through the “cramdown” provisions of the U.S. Bankruptcy Code. Under those provisions, the Notes could be restructured over holders’ objections as to their general terms, including with respect to interest rate and maturity.

Any future pledge of Collateral may be avoidable in bankruptcy.

Any future pledge of Collateral in favor of the collateral agent, including pursuant to security documents, may be avoidable by the pledgor (a debtor in possession) or by its trustee in bankruptcy as a preferential transfer under U.S. law if certain events or circumstances exist or occur, including, among others, if:

 

  

the pledgor is insolvent at the time of the pledge;

 

  

the pledge permits the holder of the Notes to receive a greater recovery than if the pledge had not been given; and

 

  

a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

 

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There are circumstances other than repayment or discharge of the Notes under which the guarantee of a subsidiary guarantor will be automatically released with respect to the Notes.

Under various circumstances, the guarantee of a subsidiary guarantor may be released without your consent, including:

 

  

if Finco exercises its legal defeasance option or its covenant defeasance option as described under “Description of the Notes—Discharge and Defeasance”;

 

  

upon the dissolution or liquidation of such subsidiary guarantor, if immediately after giving effect thereto, Finco will be in compliance with certain covenants under the indenture governing the Notes;

 

  

if such subsidiary guarantor is designated as an Unrestricted Subsidiary (as defined herein) as described in “Description of the Notes—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries”; and

 

  

in other circumstances specified in the Senior Lien Intercreditor Agreement, including in connection with the exercise of remedies by the priority lien collateral agent.

In addition, a guarantee will be automatically released in connection with a sale, transfer or disposition of the capital stock of a subsidiary guarantor, if as a result of such sale, transfer or disposition, such subsidiary guarantor is no longer a Restricted Subsidiary and, immediately after giving effect thereto, Finco will be in compliance with certain covenants under the indenture governing the Notes. See “Description of the Notes—Notes Guarantee.”

If a bankruptcy petition were filed by or against Finco or a subsidiary guarantor, holders of the Notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the Notes.

If a bankruptcy petition were filed by or against Finco or a guarantor under the Bankruptcy Code, the claim by any holder of the Notes for the principal amount of the Notes may be limited to an amount equal to the sum of:

 

  

the original issue price for the Notes; and

 

  

that portion of the original issue discount that does not constitute “unmatured interest” for purposes of the Bankruptcy Code.

Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Accordingly, the holders of the Notes under these circumstances may receive a lesser amount than they would be entitled to receive under the terms of the indenture governing the Notes, even if sufficient funds are available.

Interest on the Notes may be paid in PIK interest rather than cash, which will increase the amount of Finco’s indebtedness.

Finco will be entitled to pay PIK interest on the Notes at its option. As a result, Finco cannot assure you that it will make cash interest payments on the Notes. The payment of interest through PIK interest will increase the amount of Finco’s indebtedness and increase the risks associated with its level of indebtedness.

Risks Related to Our Emergence from Bankruptcy

We recently emerged from bankruptcy, which may adversely affect our business and relationships.

It is possible that our having filed for bankruptcy and our recent emergence from the Chapter 11 Cases may adversely affect our business and relationships with our vendors, suppliers, service providers, customers,

 

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employees and other third parties. Many risks exist as a result of the Chapter 11 Cases and our emergence, including the following:

 

  

we may have difficulty obtaining acceptable and sufficient financing to execute our business plan;

 

  

key suppliers, vendors and customers, may among other things, renegotiate the terms of our agreements, attempt to terminate their relationship with us or require financial assurances from us;

 

  

our ability to renew existing contracts and obtain new contracts on reasonably acceptable terms and conditions may be adversely affected;

 

  

our ability to attract, motivate and retain key employees and executives may be adversely affected; and

 

  

competitors may take business away from us, and our ability to compete for new business and attract and retain customers may be negatively impacted.

The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations in the future.

Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of the Chapter 11 Cases.

In connection with the Disclosure Statement we filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon our emergence from the Chapter 11 Cases. Those projections were prepared solely for the purpose of the Chapter 11 Cases and have not been and will not be updated and should not be relied upon by investors. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to then prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. We have not reviewed the projections or the assumptions on which they were based after our emergence. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections or valuation estimates may prove to be wrong in material respects. Actual results may vary significantly from those contemplated by the projections. As a result, investors should not rely on these projections.

Our historical financial information will not be indicative of future financial performance as a result of the implementation of the Plan and the transactions contemplated thereby, as well as our adoption of fresh start accounting following emergence.

Our capital structure was significantly impacted by the Plan. Under fresh start accounting rules that became applicable to us upon the Effective Date, assets and liabilities will be adjusted to fair values and our accumulated deficit will be reset to zero. Accordingly, because fresh start accounting rules apply, our financial condition and results of operations following emergence from the Chapter 11 Cases will not be comparable to the financial condition and results of operations reflected in our historical financial statements from before February 5, 2021.

 

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Legacy Noble’s ordinary shares were cancelled upon our emergence from bankruptcy.

Upon our emergence from the Chapter 11 Cases, Legacy Noble’s ordinary shares were cancelled and Noble Parent issued the Ordinary Shares. Noble Parent intends to apply for a listing of the Ordinary Shares on a national securities exchange. However, we can provide no assurance when Noble Parent will apply for listing of the Ordinary Shares, whether the Ordinary Shares will be approved for listing, whether an active trading market will develop for the Ordinary Shares or as to the liquidity of such trading market for the Ordinary Shares.

The warrants Noble Parent issued pursuant to the Plan are exercisable for Ordinary Shares, and the exercise of such equity instruments would have a dilutive effect to shareholders of Noble Parent.

On the Effective Date and pursuant to the Plan, Noble Parent issued 8,333,081 Tranche 1 Warrants and 8,333,081 Tranche 2 Warrants to the holders of Legacy Notes (as defined herein) and 2,777,698 Tranche 3 Warrants to the holders of Legacy Noble’s ordinary shares outstanding prior to the Effective Date. The warrants are exercisable for one Ordinary Share per warrant at initial exercise price of $19.27 per Tranche 1 Warrant, $23.13 per Tranche 2 Warrant and $124.40 per Tranche 3 Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreements. The Tranche 1 Warrants and the Tranche 2 Warrants are exercisable until 5:00 p.m., Eastern time, on February 4, 2028 and the Tranche 3 Warrants are exercisable until 5:00 p.m., Eastern time, on February 4, 2026. The Tranche 1 and Tranche 2 Warrants have Black-Scholes protections. The exercise of these warrants into Ordinary Shares would have a dilutive effect to the holdings of Noble Parent’s existing shareholders.

Risks Related to Our Business and Operations

Public health issues, including epidemics or pandemics such as COVID-19 have resulted in, and may in the future cause, significant adverse consequences for our business and financial position.

Public health issues, such as the COVID-19 pandemic, our mitigation efforts necessitated by COVID-19, and the effect from the actual and potential disruption of operations of our business partners, suppliers and customers, have had, and may in the future have, a material negative impact on our business and results of operations. In addition, if new strains of COVID-19 develop or sufficient amounts of approved vaccines or new vaccines do not become available, are not widely administered for a significant period of time, or otherwise prove ineffective, the negative impact of COVID-19 on the global economy, and, in turn, on our business and results of operations, could be material.

In response to COVID-19, governmental authorities around the world took various actions over time to mitigate the spread of COVID-19, such as imposing mandatory closures of non-essential business facilities, seeking voluntary closures of certain businesses, and imposing restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. In addition, individuals and entities implemented measures in response to the pandemic and the governmental actions, as well as made changes to personal behaviors, such as requiring employees to work remotely, suspending non-essential travel worldwide for employees, discouraging or canceling employee attendance at in-person work-related meetings, and social distancing and isolating from others.

We have taken and will continue to take precautionary measures intended to mitigate the risk to our business, employees, customers, suppliers and the communities in which we operate. Our operational employees have been, and currently are, able to work on site and on our rigs, due in part to various precautionary measures with little or no material negative impact on the business and results of operations, such as requiring individuals to verify they have not experienced any COVID-19 related symptoms, or been in close contact with someone showing such symptoms or having recently tested positive for COVID-19, before they are permitted to travel to the work site or rig; quarantining any operational employees on a rig who have shown signs of COVID-19 (regardless of whether such employee has been confirmed to be infected); and imposing social distancing requirements in various areas of the rig, such as in the dining hall, work and meeting spaces, and sleeping

 

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quarters. Other precautionary measures that have contributed to our ability to continue operations have nonetheless had a material negative impact on the business and results of operations, such as requiring individuals to isolate in a designated facility or repurposed hotel for up to 14 days and test negative for COVID-19 prior to being permitted to travel to our rigs, which has resulted in an increase in the cost of operations. We are also actively assessing and planning for various operational contingencies; however, we cannot guarantee that any actions taken by us, including the precautionary measures noted above, will be effective in preventing an interruption of operations from an outbreak of COVID-19 or absence due to COVID-19 infection resulting in the vacancy of essential positions on one or more of our rigs. To the extent there is an outbreak of COVID-19 or vacancy of essential positions on one or more of our rigs, we may have to temporarily shut down operations thereof, which could result in significant downtime and have significant adverse consequences for our business and results of operations. In addition, most of our non-operational employees are now working remotely, which increases various logistical challenges, inefficiencies and operational risks. For instance, working remotely may increase the risk of security breaches or other cyber-incidents or attacks, loss of data, fraud and other disruptions as a consequence of more employees accessing sensitive and critical information from remote locations via network infrastructure and internet services not arranged, established or secured by the Company.

Governmental authorities have implemented and continue to develop policies with the goal of re-opening various sectors of the economy. However, certain jurisdictions have returned, or may in the future return, to restrictions based upon increases in new COVID-19 cases. The COVID-19 pandemic may continue unabated or worsen during the upcoming months, which may cause governmental authorities to implement restrictions on businesses and society, resulting in the re-opening of the economy being further curtailed. In complying with travel restrictions and mandatory quarantine measures imposed by governmental authorities and navigating surges in COVID-19 cases in various jurisdictions, we have experienced, and may continue to experience, increased difficulties, delays and expenses in moving our personnel to and from our operating locations. We have been unable, and may in the future be unable, to pass along these increased expenses to our customers. Additionally, disruptions to the ability of our suppliers, manufacturers and service providers to supply labor, parts, equipment or services in the jurisdictions in which we operate, whether as a result of government actions, labor shortages, travel restrictions, or the inability to source labor, parts or equipment from affected locations or other effects related to COVID-19, have increased our operating costs, increased the risk of rig downtime and negatively impacted our ability to meet our commitments to customers and may continue to do so in the future.

These conditions have had significant adverse consequences for the financial condition of many of our customers and resulted in, and may in the future result in, reductions to their drilling and production expenditures and delays or cancellations of projects, thereby decreasing demand for our services. We have experienced customers seeking price reductions for our services, payment deferrals and termination of our contracts; customers seeking to not perform under our contracts based on a force majeure claim; and customers that are unable or unwilling to timely pay outstanding receivables owed to us, all of which present liquidity challenges for us. In addition, we have experienced, and may in the future experience, pressure to reduce dayrates on existing contracts and idle or suspend existing operations. Any early termination payment made in connection with an early contract termination may not fully compensate us for the loss of the contract or may result in a negative impact to our projected future earnings due to the accounting treatment of such a termination payment under applicable accounting requirements. Accordingly, the actual amount of revenues earned may be substantially lower than the backlog reported.

The factors described above, including the ultimate duration and scope of the COVID-19 pandemic (including any potential future outbreaks and the success of vaccination programs), the impact on customers, suppliers, manufacturers and service providers, the timing to return to normal economic conditions, the impact on our operations, the demand for our services, and any permanent behavioral changes that the pandemic may cause, have had, and may continue to have, a material negative impact on our business, results of operations and financial condition, have previously contributed to our ability to continue as a going concern, and could in the

 

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future raise substantial doubt about our ability to continue as a going concern. We cannot predict when this negative impact will end, or whether it may worsen.

Our business and results of operations have been materially and negatively impacted and our market value has substantially declined due to depressed market conditions which are the result of, in part, the dramatic drop in the oil price, the development of additional onshore oil and gas resources and the oversupply of offshore drilling rigs.

Crude oil prices have been in a steep decline since late 2014 and dropped to as low as approximately $30 per barrel in January 2016. Oil prices have partially recovered to a price of approximately $68 per barrel on March 10, 2021, but have been volatile and have not recovered to 2014 levels. As a result of the oil price environment prior to the significant drop in 2014, the offshore drilling business flourished with high utilization and high dayrates, and a large number of offshore drilling rigs were constructed to take advantage of the market. Also, many in our industry extended the lives of older rigs rather than retiring these rigs. These factors have led to a significant oversupply of drilling rigs while our customers have greatly reduced their planned offshore exploration and development spending in response to the depressed price of oil.

During the same period, onshore crude oil production in the United States (“US”) rose sharply. While the cost of production onshore varies, in some cases it may be less than the cost of production in offshore fields where our rigs are designed to operate, especially deepwater fields. Additionally, onshore production is perceived as yielding more consistent results and posing lower regulatory risk than offshore production. This increase in onshore US production has had a negative impact on the price of oil and the demand for our services. Further, given the reduced oil price and often the lower operating costs onshore, many of our customers have allocated more of their capital budgets to onshore exploration activities than offshore exploration activities, particularly deepwater exploration activities, which has also led to a decrease in the demand for offshore drilling services since 2014.

These factors have affected market conditions and led to a material decline in the demand for our services since 2014, the dayrates we are paid by our customers and the level of utilization of our drilling rigs. These poor market conditions, which may continue into the foreseeable future, in turn, have led to a material deterioration in our results of operations. There can be no assurance as to if, when or to what extent the current depressed market conditions, and our business, results of operations or enterprise value, will improve. Further, even if the price of oil and gas were to increase dramatically, we cannot assure you that there would be any increase in demand for our services.

Our business depends on the level of activity in the oil and gas industry. Adverse developments affecting the industry, including a decline in the price of oil or gas, 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. As noted above, the price of oil and gas, and market expectations of potential changes in the price, significantly affect this level of activity, as well as dayrates that we can charge customers for our services. However, higher prices do not necessarily translate into increased drilling activity because our clients take into account a number of considerations when they decide to invest in offshore oil and gas resources, including expectations regarding future commodity prices. The price of oil and gas and the level of activity in offshore oil and gas exploration and development are extremely volatile and are affected by numerous factors beyond our control, including:

 

  

the cost of exploring for, developing, producing and delivering oil and gas;

 

  

the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing;

 

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expectations regarding future energy prices;

 

  

increased supply of oil and gas resulting from onshore hydraulic fracturing activity and shale development;

 

  

the relative cost of offshore oil and gas exploration versus onshore oil and gas production;

 

  

worldwide production and demand for oil and gas (including the over-supply of oil and gas as a result of the COVID-19 pandemic and actions by OPEC and other oil and gas producing nations (together with OPEC, “OPEC+”)), which are impacted by changes in the rate of economic growth in the global economy;

 

  

potential acceleration in the development, and the price and availability, of alternative fuels or energy sources;

 

  

the level of production in non-OPEC countries;

 

  

worldwide financial instability or recessions;

 

  

regulatory restrictions or any moratorium on offshore drilling;

 

  

the discovery rate of new oil and gas reserves either onshore or offshore;

 

  

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;

 

  

limitations on liquidity and available credit;

 

  

advances in exploration, development and production technology either onshore or offshore;

 

  

technical advances affecting energy consumption, including the displacement of hydrocarbons through increasing transportation fuel efficiencies;

 

  

merger and divestiture activity among oil and gas producers;

 

  

the availability of, and access to, suitable locations from which our customers can produce hydrocarbons;

 

  

adverse weather conditions, including hurricanes, typhoons, cyclones, winter storms and rough seas, the frequency and severity of which may be increased due to climate change;

 

  

the occurrence or threat of epidemic or pandemic diseases or any governmental response to such occurrence or threat;

 

  

tax laws, regulations and policies;

 

  

laws and regulations related to environmental matters, including those addressing alternative energy sources, the phase-out of fossil fuel vehicles 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; and

 

  

the laws and regulations of governments regarding exploration and development of their oil and gas reserves or speculation regarding future laws or regulations.

Adverse developments affecting the industry as a result of one or more of these factors, including any further decline in the price of oil and gas from their current levels or the failure of the price of oil and gas to recover to a level that encourages our clients to expand their capital spending, the inability of our customers to

 

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access capital on economically advantageous terms, including as a result of the increasing focus on climate change by investors, a global recession, reduced demand for oil and gas products, increased supply due to the development of new onshore drilling and production technologies, and increased regulation of drilling and production, particularly if several developments were to occur in a short period of time, would have a material adverse effect on our business, financial condition and results of operations. The current level of oil and gas prices has had a material adverse effect on demand for our services since 2014 and is expected to continue to have a material adverse effect on our business and results of operations.

The offshore contract drilling industry is a highly competitive and cyclical business with intense price competition. We have competitors who are larger and have more financial resources than us. If we are unable to compete successfully, our profitability may be materially reduced.

The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and operating costs and evolving capability of newer rigs. Drilling contracts are traditionally awarded on a competitive bid basis. Price competition, rig availability, location and rig suitability and technical specifications are the primary factors in determining which rig is qualified for a job, and additional factors are considered when determining which contractor is awarded a job, including experience of the workforce, efficiency, safety performance record, condition of equipment, operating integrity, reputation, industry standing and client relations. Our future success and profitability will partly depend upon our ability to keep pace with our customers’ demands with respect to these factors. In the past several years, the pace of consolidation in our industry has increased, leading to the creation of a number of larger and financially stronger competitors. If we are unable, or our customers believe that we are unable, to compete with the scale and financial strength of these larger competitors, it could harm our competitiveness and our ability to secure new drilling contracts. Moreover, certain of our competitors have engaged, or may in the future engage, in bankruptcy proceedings, debt refinancing transactions, management changes or other strategic initiatives in an attempt to reduce operating costs to maintain a position in the market, which could result in such competitors emerging with stronger or healthier balance sheets and, in turn, an improved ability to compete with us in the future. Further, if current competitors, or new market entrants, implement new technical capabilities, services or standards that are more attractive to our customers or price their product offerings more competitively, it could have a material adverse effect on our business, financial condition and results of operations.

In addition to intense competition, our industry has historically been cyclical. The offshore contract drilling industry is currently in a period characterized by low demand for drilling services and excess rig supply. Periods of low demand or excess rig supply intensify the competition in the industry and have resulted in, and are expected to continue to result in, many of our rigs earning substantially lower dayrates or being idle for long periods of time. We cannot provide you with any assurances as to when such period will end, and when there will be higher demand for contract drilling services or a meaningful reduction in the number of drilling rigs.

The over-supply of offshore rigs continues to contribute to depressed dayrates and demand for our rigs, which may remain unchanged for some time and, therefore, is expected to further adversely impact our revenues and profitability.

Prior to the current downturn, we experienced an extended period of high utilization and high dayrates, and industry participants materially increased the supply of drilling rigs by building new drilling rigs, including some that have not yet entered service. This increase in supply, combined with the decrease in demand for drilling rigs resulting from the substantial decline in the price of oil that began in 2014, has resulted in an oversupply of drilling rigs, which has contributed to the decline in utilization and dayrates.

We are currently experiencing competition from newbuild rigs that have either already entered the market or are available to enter the market. The entry of these rigs into the market has resulted in lower dayrates for both newbuilds and existing rigs rolling off their current contracts. Lower utilization and dayrates have adversely affected our revenues and profitability and may continue to do so for some time in the future. In addition, our

 

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competitors may relocate rigs to geographic markets in which we operate, which could exacerbate excess rig supply and result in lower dayrates and utilization in those markets. To the extent that the drilling rigs currently under construction or on order do not have contracts upon their completion, there may be increased price competition as such vessels become operational, which could lead to a further reduction in dayrates and in utilization, and we may be required to idle additional drilling rigs. Rig operators may take lower dayrates and shorter contract durations on older rigs to keep their rigs operational and avoid scrapping or retiring them. As a result, our business, financial condition and results of operations would be materially adversely affected.

We may not be able to renew or replace expiring contracts, and our customers may terminate or seek to renegotiate or repudiate our drilling contracts or may have financial difficulties that prevent them from meeting their obligations under our drilling contracts.

Since the market downturn began at the end of 2014, the new customer contracts we have entered into have generally had less favorable terms, including dayrates, than contracts entered into prior to the downturn. In addition, for some of our older rigs we were unable to find any replacement contracts. Our ability to renew contracts that expire or obtain new contracts and the terms of any such contracts will depend on market conditions and our customers’ expectations and assumptions of future oil prices and other factors.

Our customers may generally terminate our 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 terminate without any payment to us. The terms of some of our drilling contracts permit the customer to terminate the contract after a specified notice period by tendering contractually specified termination amounts and, in some cases, without any payment. These termination payments, if any, may not fully compensate us for the loss of a contract. 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. Moreover, if any of our long-term contracts were to be terminated early, such termination could affect our future earnings flow and could have material adverse effect on our future financial condition and results of operations, even if we were to receive the contractually specified termination amount.

In addition, during periods of depressed market conditions, such as the one we are currently experiencing, we are subject to an increased risk of our customers seeking to renegotiate or repudiate their contracts. The ability of our customers to perform their obligations under drilling contracts with us may also be adversely affected by the financial condition of the customer, restricted credit markets, economic downturns and industry downturns. We may elect to renegotiate the rates we receive under our drilling contracts downward if we determine that to be a reasonable business solution. If our customers cancel or are unable to perform their obligations under their drilling contracts, including their payment obligations, and we are unable to secure new contracts on a timely basis on substantially similar terms or if we elect to renegotiate our drilling contracts and accept terms that are less favorable to us, it could have a material adverse effect on our business, financial condition and results of operations.

Our current backlog of contract drilling revenue may not be ultimately realized.

Generally, contract backlog only includes future revenues under firm commitments; however, from time to time, we may report anticipated commitments under letters of intent or award for which definitive agreements have not yet been, but are expected to be, executed. We may not be able to perform under these contracts as a result of operational or other breaches or due to events beyond our control, and we may not be able to ultimately execute a definitive agreement in cases where one does not currently exist. Moreover, we can provide no assurance that our customers will be able to or willing to fulfill their contractual commitments to us or that they will not seek to renegotiate or repudiate their contracts, especially during the current industry downturn. The terms of some of our drilling contracts permit the customer to terminate the contract after specified notice periods

 

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by tendering contractually specified termination amounts and, in certain cases, without any payment. In estimating backlog, we make certain assumptions about applicable dayrates for our longer-term contracts with dayrate adjustment mechanisms (like certain of our contracts with Royal Dutch Shell plc (“Shell”)). We cannot assure you that actual results will mirror these assumptions. Our inability to perform under our contractual obligations or to execute definitive agreements, our customers’ inability or unwillingness to fulfill their contractual commitments to us, including as a result of contract repudiations or our decision to accept less favorable terms on our drilling contracts, or the failure of actual results to reflect the assumptions we use to estimate backlog for certain contracts, may have a material adverse effect on our business, financial condition and results of operations.

We are substantially dependent on several of our customers, including Equinor ASA, Exxon Mobil Corporation, Saudi Arabian Oil Company and Shell, and the loss of any of these customers would have a material adverse effect on our financial condition and results of operations.

Any concentration of customers increases the risks associated with any possible termination or nonperformance of drilling contracts, failure to renew contracts or award new contracts or reduction of their drilling programs. Equinor ASA (“Equinor”), Exxon Mobil Corporation (“ExxonMobil”), Saudi Arabian Oil Company (“Saudi Aramco”) and Shell accounted for approximately 14.3 percent, 26.6 percent, 13.8 percent and 21.7 percent, respectively, of our consolidated operating revenues and approximately 3.6 percent, 44.2 percent, 17.0 percent and 26.3 percent, respectively, of our backlog for the year ended December 31, 2020. This concentration of customers increases the risks associated with any possible termination or nonperformance of contracts, in addition to our exposure to credit risk. If any of these customers were to terminate or fail to perform their obligations under their contracts and we were not able to find other customers for the affected drilling units promptly, our financial condition and results of operations could be materially adversely affected.

Our business involves numerous operating hazards.

Our operations are subject to many hazards inherent in the drilling business, including:

 

  

well blowouts;

 

  

fires;

 

  

collisions or groundings of offshore equipment and helicopter accidents;

 

  

punch-throughs;

 

  

mechanical or technological failures;

 

  

failure of our employees or third-party contractors 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;

 

  

loop currents or eddies;

 

  

failure of critical equipment;

 

  

toxic gas emanating from the well;

 

  

spillage handling and disposing of materials; and

 

  

adverse weather conditions, including hurricanes, typhoons, tsunamis, cyclones, winter storms and rough seas, the frequency and severity of which may be increased due to climate change.

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,

 

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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. The occurrence of any of the hazards we face 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:

 

  

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 and imposition of trade barriers;

 

  

delays in implementing private commercial arrangements as a result of government oversight;

 

  

compliance with and changes in taxation rules or policies;

 

  

compliance with and changes in various jurisdictional regulatory or financial requirements, including rig flagging and local ownership requirements;

 

  

other forms of government regulation and economic conditions that are beyond our control and that create operational uncertainty;

 

  

governmental corruption;

 

  

the occurrence or threat of epidemic or pandemic diseases or any government response to such occurrence or threat;

 

  

piracy; and

 

  

terrorist acts, war, revolution and civil disturbances.

Further, we operate or have operated 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:

 

  

procedural requirements for temporary import permits, which may be difficult to obtain; and

 

  

the effect of certain temporary import permit regimes, where the duration of the permit does not coincide with the general term of the drilling contract.

Our ability to do business in a number of jurisdictions is subject to maintaining required licenses and permits and complying with applicable laws and regulations. For example, all of our drilling units are subject to regulatory requirements of the flag state where the drilling unit is registered. The flag state requirements are international maritime requirements and, in some cases, further interpolated by the flag state itself. In addition, each of our drilling units must be “classed” by a classification society, signifying that such drilling rig has been built and maintained in accordance with the rules of the classification society and complies with applicable rules

 

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and regulations of the flag state. If any drilling unit loses its flag, does not maintain its class or fails any periodical survey or special survey, the drilling unit will be unable to carry on operations and will be unemployable and uninsurable.

Jurisdictions where we operate may attempt to impose requirements that our drilling units operating in such a jurisdiction have some local ownership or be registered under the flag of that jurisdiction, or both. If our debt agreements do not permit us to change the flag of a rig to a certain jurisdiction or register a rig under the flag of that jurisdiction (and consequently comply with local ownership requirements), and if we are otherwise unable to successfully object to registration, we may no longer be able to operate in that country. Any such inability to carry on operations in jurisdictions where we operate or desire to operate, or our failure to comply with any other laws and regulations of the countries where we operate, could have a material adverse effect on our results of operations.

In addition, OPEC initiatives, as well as other governmental actions, may continue to cause oil price volatility. In some areas of the world, this governmental 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, require partial local ownership 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.

In June 2016, the UK held a referendum in which voters approved an exit from the EU (“Brexit”). The UK exited the EU on January 31, 2020, consistent with the terms of the EU-UK Withdrawal Agreement, with a transition period that ended on December 31, 2020. On January 1, 2021, the UK left the EU Single Market and Customs Union as well as all EU policies and international agreements. As a result, the free movement of persons, goods, services and capital between the UK and the EU ended, and the EU and the UK formed two separate markets and two distinct regulatory and legal spaces. On December 24, 2020, the European Commission reached a trade agreement with the UK on the terms of its future cooperation with the EU. The trade agreement offers UK and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas (subject to rules of origin requirements). Uncertainty exists regarding the ultimate impact of this trade agreement, as well as the extent of possible financial, trade, regulatory and legal implications of Brexit. Brexit also contributes to global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates, and changes in regulations. The Company provides contract drilling services to the international oil and gas industry and our fleet operates globally across multiple locations. Based on our global operating model and the versatility and marketability of our fleet, we do not expect the impact of Brexit to be significant to the Company.

Operating and maintenance costs of our 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.

 

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Drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental clients.

Contracts with national oil companies are often non-negotiable and may expose us to greater commercial, political and operational risks than we assume in other contracts, such as exposure to materially greater environmental liability and other claims for damages (including consequential damages) and personal injury related to our operations, or the risk that the contract may be terminated by our client without cause on short-term notice, contractually or by governmental action, under certain conditions that may not provide us an early termination payment, collection risks and political risks. In addition, our ability to resolve disputes or enforce contractual provisions may be negatively impacted with these contracts. We can provide no assurance that the increased risk exposure will not have an adverse impact on our future operations or that we will not increase the number of rigs contracted to national oil companies with commensurate additional contractual risks.

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 that is 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 that exceeds 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:

 

  

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;

 

  

force majeure events; and

 

  

the occurrence or threat of epidemic or pandemic diseases or any government response to such occurrence or threat.

If the interruption of operations exceeds 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.

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 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. In addition, our insurance carriers may interpret our insurance policies such that they do not cover losses for which we make claims.

 

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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 for all risks, including loss of hire insurance on most of the rigs in our fleet. Uninsured exposures may include expatriate activities prohibited by US laws and regulations, radiation hazards, cyber risks, certain loss or damage to property onboard our rigs and losses relating to shore-based terrorist acts or strikes. In addition, our insurance may not cover losses associated with pandemics such as the COVID-19 pandemic. Furthermore, the damage sustained to offshore oil and gas assets in the United States as a result of hurricanes has negatively impacted certain aspects of the energy insurance market, resulting in more restrictive and expensive coverage for US named windstorm perils due to the price or lack of availability of coverage. Accordingly, we have in the past self-insured the rigs in the US Gulf of Mexico for named windstorm perils. We currently have US windstorm coverage for most of our US fleet subject to certain limits, but will continue to monitor the insurance market conditions in the future and may decide not to, or be unable to, purchase named windstorm coverage for some or all of the rigs operating in the US Gulf of Mexico.

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, 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. During depressed market periods such as the one in which we currently operate, the contractual indemnity provisions we are able to negotiate in our drilling contracts may require us to assume more risk than we would during normal market periods.

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 and results of operations.

Our failure to adequately protect our sensitive information technology systems and critical data and our service providers’ failure to protect their systems and data could have a material adverse effect on our business, results of operations and financial condition.

We increasingly depend on information technology systems that we manage, and others that are managed by our third-party service and equipment providers, to conduct our day-to-day operations, including critical systems on our drilling units, and these systems are subject to risks associated with cyber incidents or attacks. It has been reported that unknown entities or groups have mounted cyber-attacks on businesses and other organizations solely to disable or disrupt computer systems, disrupt operations and, in some cases, steal data. In addition, the US government has issued public warnings that indicate that energy assets might be specific targets of cybersecurity threats. Also, in response to the COVID-19 pandemic, many of our non-operational employees are working remotely, which increases logistical challenges, inefficiencies and operational risks. Working remotely has significantly increased the use of online conferencing services and remote networking, which enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal devices. This remote work model has resulted in an increased demand for information technology resources and may expose us to additional risks of security breaches or other cyber-incidents or attacks, loss of data, fraud and other disruptions as a consequence of more employees accessing sensitive and critical information from remote locations. Due to the nature of cyber-attacks, breaches to our systems or our service or equipment providers’ systems could go undetected for a prolonged period of time. While the Company has a cybersecurity program, a significant cyber-attack could disrupt our operations and result in downtime, loss of revenue, harm to the Company’s reputation, or the loss, theft, corruption or unauthorized release of critical data of us or those with whom we do business as well as result in higher costs to correct and remedy the effects of such incidents. If our

 

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or our service or equipment providers’ systems for protecting against cyber incidents or attacks prove to be insufficient and an incident were to occur, it could have a material adverse effect on our business, financial condition and results of operations, along with our reputation. Even though we carry cyber insurance that may provide insurance coverage under certain circumstances, we might suffer losses as a result of a security breach that exceeds the coverage available under our policy or for which we do not have coverage.

In addition, laws and regulations governing data privacy and the unauthorized disclosure of confidential or protected information, including the European Union General Data Protection Regulation and recent legislation in various US states, pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.

Upgrades, refurbishment and repair of rigs are subject to risks, including delays and cost overruns, that could have an adverse impact on our available cash resources and results of operations.

We will continue to make upgrades, refurbishment and repair expenditures to our fleet from time to time, some of which may be unplanned. In addition, we may reactivate rigs that have been cold or warm stacked and make selective acquisitions of rigs. Our customers may also require certain shipyard reliability upgrade projects for our rigs. 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:

 

  

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.

The failure to complete a rig upgrade, refurbishment or repair on time, or at all, may result in related loss of revenues, penalties, or delay, renegotiation or cancellation of a drilling contract or the recognition of an asset impairment. Additionally, capital expenditures could materially exceed our planned capital expenditures. Moreover, when our rigs are undergoing upgrade, refurbishment and repair, they may 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 currently have no new rigs under construction.

 

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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 units. In the past, during periods of high demand for drilling services and increasing worldwide industry fleet size, shortages of qualified personnel have occurred. During the last few years of reduced demand, there were layoffs of qualified personnel, who often find work with competitors or leave the industry. As a result, if market conditions improve and we seek to reactivate warm or cold stacked rigs, upgrade our working rigs or purchase additional rigs, we may face shortages of qualified personnel, which would impair our ability to attract qualified personnel for our new or existing drilling units, impair the timeliness and quality of our work and create upward pressure on personnel costs, any of which could adversely affect our operations.

Supplier capacity constraints or shortages in parts or equipment, supplier production disruptions, supplier quality and sourcing issues or price increases could increase our operating costs, decrease our revenues and adversely impact our operations.

Our reliance on third-party suppliers, manufacturers and service providers to secure equipment used in our drilling operations exposes us to volatility in the quality, price and availability of such items. Certain specialized parts and equipment we use in our operations may be available only from a single or small number of suppliers. During the last few years of reduced demand, many of these third-party suppliers reduced their inventories of parts and equipment and, in some cases, reduced their production capacity. If the market for our services improves and we seek to reactivate warm or cold stacked rigs, upgrade our working rigs or purchase additional rigs, these reductions could make it more difficult for us to find equipment and parts for our rigs. A disruption or delay in the deliveries from such third-party suppliers, capacity constraints, production disruptions, price increases, defects or quality-control issues, recalls or other decreased availability or servicing of parts and equipment could adversely affect our ability to reactivate rigs, upgrade working rigs, purchase additional rigs or meet our commitments to customers on a timely basis, adversely impact our operations and revenues by resulting in uncompensated downtime, reduced dayrates, the incurrence of liquidated damages or other penalties or the cancellation or termination of contracts, or increase our operating costs.

We may contemplate future mergers or acquisitions as part of our business strategy. Acquisitions of other businesses or assets present various risks and uncertainties.

We may pursue growth through the mergers or acquisition of businesses or assets that we believe will enable us to strengthen or broaden our business. We may be unable to implement this element of our strategy if we cannot identify suitable companies, businesses or assets, reach agreement on potential strategic acquisitions on acceptable terms or for other reasons. Moreover, mergers and acquisitions involve various risks, including, among other things, (i) difficulties relating to integrating an acquired business and unanticipated changes in customer and other third-party relationships subsequent to acquisition, (ii) diversion of management’s attention from day-to-day operations, (iii) failure to realize anticipated benefits, such as cost savings and revenue enhancements, (iv) potentially substantial transaction costs associated with acquisitions and (v) potential impairment resulting from the overpayment for an acquisition.

Future mergers or acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms. Moreover, to the extent a transaction financed by non-equity consideration results in goodwill, it will reduce our tangible net worth, which might have an adverse effect on credit availability.

Acts of terrorism, piracy and political and social unrest could affect the markets for drilling services, which may have a material adverse effect on our results of operations.

Acts of terrorism and social unrest, brought about by world political events or otherwise, have caused instability in the world’s financial and insurance markets in the past and may occur in the future. Such acts could

 

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be directed against companies such as ours. In addition, acts of terrorism, piracy and social unrest could lead to increased volatility in prices for crude oil and natural gas and could affect the markets for drilling services. Insurance premiums could increase and coverage may be unavailable in the future. Government regulations may effectively preclude us from engaging in business activities in certain countries. These regulations could be amended to cover countries where we currently operate or where we may wish to operate in the future.

Our drilling contracts do not generally provide indemnification against loss of capital assets or loss of revenues resulting from acts of terrorism, piracy or political or social unrest. We have limited insurance for our assets providing coverage for physical damage losses resulting from risks, such as terrorist acts, piracy, vandalism, sabotage, civil unrest, expropriation and acts of war, and we do not carry insurance for loss of revenues resulting from such risks.

Fluctuations in exchange rates and nonconvertibility of currencies could result in losses to us.

We may experience currency exchange losses when revenues are received or expenses are paid in nonconvertible currencies, when we do not hedge an exposure to a foreign currency, when the result of a hedge is a loss or if any counterparty to our hedge were to experience financial difficulties. We may also incur losses as a result of an inability to collect revenues due to 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 a holding company, and we are dependent upon cash flow from subsidiaries to meet our obligations.

We currently conduct our operations through our 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. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Contractual provisions or laws, as well as our subsidiaries’ financial condition and operating requirements, may also limit our ability to obtain the cash that we require from our subsidiaries to pay our debt service obligations. Applicable tax laws may also subject such payments to us by our subsidiaries to further taxation.

Future sales or the availability for sale of substantial amounts of the Ordinary Shares, or the perception that these sales may occur, could, if the Ordinary Shares are listed on a national securities exchange, impair the ability of Noble Parent to raise capital through future sales of equity securities.

Pursuant to the Memorandum of Association of Noble Parent, the share capital of Noble Parent is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes having the rights as the Board may determine from time to time. On April 1, 2021, there were 43,536,636 Ordinary Shares outstanding and 6,463,182 Penny Warrants (as defined herein) issued and outstanding. In addition, as of April 1, 2021, 8,332,910 Tranche 1 Warrants, 8,332,910 Tranche 2 Warrants and 2,777,698 Tranche 3 Warrants were outstanding and exercisable. Noble Parent also has 7,716,049 Ordinary Shares authorized and initially reserved for issuance pursuant to equity awards under the Noble Corporation 2021 Long-Term Incentive Plan.

 

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A large percentage of the Ordinary Shares are held by a relatively small number of investors. Noble Parent entered into a registration rights agreement with certain of those investors pursuant to which it has agreed to file a registration statement with the SEC to facilitate potential future sales of such Ordinary Shares by them. Noble Parent intends to apply for a listing of the Ordinary Shares on a national securities exchange. If the Ordinary Shares are listed on a national securities exchange, sales of a substantial number of the Ordinary Shares in the public markets, or even the perception that these sales might occur (such as upon the filing of the aforementioned registration statement), could impair the ability of Noble Parent to raise capital for our operations through a future sale of, or pay for acquisitions using, equity securities.

In connection with the Merger, Noble Parent is expected to issue a substantial number of Ordinary Shares as consideration for the Merger. At the closing of the Merger, Noble Parent will also grant registration rights covering those Ordinary Shares pursuant to the Merger RRA.

Certain shareholders own a significant portion of our outstanding equity securities, and their interests may not always coincide with the interests of other holders of the Ordinary Shares.

As noted above, a large percentage of the Ordinary Shares are held by a relatively small number of investors. As a result, these investors could have significant influence over all matters presented to Noble Parent’s shareholders for approval, including election and removal of directors, change in control transactions and the outcome of all actions requiring a majority shareholder approval. This influence would likely directly impact decisions made by Noble Parent as our sole shareholder.

The interests of these investors in Noble Parent may not always coincide with the interests of the other holders of the Ordinary Shares, and the concentration of control in these investors may limit other shareholders’ ability to influence corporate matters. The concentration of ownership and voting power of these investors may also delay, defer or even prevent an acquisition by a third party or other change of control of Noble Parent and may make some transactions more difficult or impossible without their support, even if such events are in the bests interests of other shareholders. If the Ordinary Shares are listed on a national securities exchange, this concentration and voting power may adversely affect the trading price of the Ordinary Shares, which could adversely affect the ability of Noble Parent to provide us with capital for our operations, if needed.

Risks Related to the Merger

The Merger may not be completed and the Merger Agreement may be terminated in accordance with its terms. Failure to complete the Merger could negatively impact our future businesses and financial results.

The Merger is subject to a number of conditions that must be satisfied, including, among other things, the absence of any law or injunction prohibiting the consummation of the Merger. The conditions to the completion of the Merger, some of which are beyond our control, may not be satisfied or waived in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed.

The Merger Agreement may be terminated by either Noble Parent or Pacific Drilling if the Merger is not completed by June 30, 2021, except that this right to terminate the Merger Agreement will not be available to any party if the failure of the closing of the Merger to occur is due to such party’s material breach of any representation, warranty, covenant or other agreement of such party under the Merger Agreement. Noble Parent, Merger Sub and Pacific Drilling can also mutually decide to terminate the Merger Agreement at any time. In addition, Noble Parent and Pacific Drilling may elect to terminate the Merger Agreement in certain other circumstances as further detailed in the Merger Agreement filed as an exhibit to the registration statement of which this prospectus forms a part.

 

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If the transactions contemplated by the Merger Agreement are not completed for any reason, our ongoing business and financial results may be adversely affected and, without realizing any of the benefits of having completed the transactions, we will be subject to a number of risks, including the following:

 

  

we will be required to pay our costs relating to the transactions, which are substantial, such as legal, accounting and financial advisory fees, whether or not the transactions are completed;

 

  

time and resources committed by our management to matters relating to the transactions could otherwise have been devoted to pursuing other beneficial opportunities;

 

  

we may experience negative reactions from employees, customers or vendors; and

 

  

since the Merger Agreement restricts the conduct of our business prior to completion of the Merger, we may not have been able to take certain actions during the pendency of the Merger that would have benefitted us as an independent company and the opportunity to take such actions may no longer be available.

In addition, any delay in completing the Merger may significantly reduce the synergies and other benefits that we expect to achieve if we successfully complete the Merger within the expected timeframe and integrate the respective businesses.

The integration of Pacific Drilling into the combined company may not be as successful as anticipated, and the combined company may not achieve the intended benefits or do so within the intended timeframe.

The Merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with the acquired business. Difficulties in integrating Pacific Drilling into the combined company may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have an adverse effect on the financial condition, results of operations or cash flows of Noble. Potential difficulties that may be encountered in the integration process include, among other factors:

 

  

the inability to successfully integrate the businesses of Pacific Drilling into the combined company, operationally and culturally, in a manner that permits Noble to achieve the full revenue and cost savings anticipated from the Merger;

 

  

complexities associated with managing a larger, more complex, integrated business;

 

  

not realizing anticipated synergies;

 

  

the inability to retain key employees and otherwise integrate personnel from the two companies and the loss of key employees;

 

  

potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Merger;

 

  

difficulty or inability to comply with the covenants of the debt of the combined company;

 

  

integrating relationships with customers, vendors and business partners;

 

  

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Merger and integrating Pacific Drilling’s operations into the combined company; and

 

  

the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Additionally, the success of the Merger will depend, in part, on the combined company’s ability to realize the anticipated benefits and cost savings from combining Noble’s and Pacific Drilling’s businesses. The anticipated benefits and cost savings of the Merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that Noble does not currently foresee. Some of the assumptions that Noble has made, such as the achievement of certain synergies, may not be realized.

 

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As noted above, certain shareholders own a substantial percentage of the Ordinary Shares of Noble Parent. Certain of such shareholders may also hold a substantial number of shares of Pacific Drilling. As a result, the risks relating to concentrated ownership of the Ordinary Shares, described in “—Risks Related to Our Business and Operations—Future sales or the availability for sale of substantial amounts of the Ordinary Shares, or the perception that these sales may occur, could, if the Ordinary Shares are listed on a national securities exchange, impair the ability of Noble Parent to raise capital through future sales of equity securities” above, would be increased.

Financial and Tax Risks

We may record impairment charges on property and equipment, including rigs and related capital spares.

We evaluate the impairment of property and equipment, which include rigs and related capital spares, whenever events or changes in circumstances (including a decision to cold stack, retire or sell rigs) indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment may exist 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 or piece of equipment, we may take an impairment loss in the future. In addition, we may also take an impairment loss on capital spares and other capital equipment when we deem the value of those items has declined due to factors like obsolescence, deterioration or damage. Based upon our impairment analyses for the years ended December 31, 2020 and 2019, we recorded impairment charges of $3.9 billion and $615.3 million, respectively, on various rigs and certain capital spares during those periods. There can be no assurance that we will not have to take additional impairment charges in the future if current depressed market conditions persist, or that we will be able to return cold stacked rigs to service in the time frame and at the reactivation costs or at the dayrates that we projected. It is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values.

The Exit Credit Agreement contains various restrictive covenants limiting the discretion of our management in operating our business.

The Exit Credit Agreement contains various restrictive covenants that may limit our management’s discretion in certain respects. In particular, the Exit Credit Agreement limits Finco’s ability and the ability of its restricted subsidiaries to, among other things and subject to certain limitations and exceptions, (i) incur, assume or guarantee additional indebtedness; (ii) pay dividends or distributions on capital stock or redeem or repurchase capital stock; (iii) make investments; (iv) repay, redeem or amend certain indebtedness; (v) sell stock of its subsidiaries; (vi) transfer or sell assets; (vii) create, incur or assume liens; (viii) enter into transactions with certain affiliates; (ix) merge or consolidate with or into any other person or undergo certain other fundamental changes; and (x) enter into certain burdensome agreements. In addition, the Exit Credit Agreement obligates Finco and its restricted subsidiaries to comply with certain financial maintenance covenants and, under certain conditions, to make mandatory prepayments and reduce the amount of credit available under the Exit Credit Facility, all as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Post-emergence Debt—Senior Secured Exit Revolving Credit Facility.” Such mandatory prepayments and commitment reductions may affect cash available for use in the Company’s business. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in all obligations under the Exit Credit Facility to be declared due and payable immediately and all commitments thereunder to be terminated.

 

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Changes in the method of determining the London Interbank Offered Rate, or the replacement of the London Interbank Offered Rate with an alternative reference rate, may adversely affect interest expense related to outstanding debt.

The loans outstanding under the Exit Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Finco’s option, either: (i) the reserve-adjusted London Interbank Offered Rate (“LIBOR”) or (ii) a base rate. On July 27, 2017, the Financial Conduct Authority in the UK, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. It is unclear if LIBOR will cease to exist at the end of 2021, when it is intended to be phased out or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. While the Exit Credit Facility, which has a term that extends beyond 2021, contains “fallback” provisions providing for alternative rate calculations upon the occurrence of certain events related to the phase-out of LIBOR, these “fallback” provisions may not adequately address the actual changes to LIBOR or successor rates. Although the Secured Overnight Financing Rate is expected to be the alternative rate that replaces LIBOR, we cannot predict what margin adjustments and related terms would be negotiated in connection with the “fallback” provisions. As a result, our interest expense could increase. In addition, the overall financial markets may be disrupted as a result of the phase-out or replacement of LIBOR. Uncertainty as to the nature of such potential phase-out and alternative reference rates or disruption in the financial market could have a material adverse effect on our financial condition, results of operations and cash flows.

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 and results of operations.

Income tax returns that we file will be subject to review and examination. We recognize the benefit of income tax positions we believe are more likely than not to be sustained 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.

Our consolidated effective income tax rate may vary substantially from one reporting period to another.

We cannot provide any assurances as to what our consolidated effective income tax rate will be because of, among other matters, uncertainty regarding the nature and extent of our business activities in any particular jurisdiction in the future and the tax laws of such jurisdictions, as well as potential changes in the UK, US, Switzerland and other tax laws, regulations or treaties or the interpretation or enforcement thereof, changes in the administrative practices and precedents of tax authorities or any reclassification or other matter (such as changes in applicable accounting rules) that increases the amounts we have provided for income taxes or deferred tax assets and liabilities in our consolidated financial statements. For example, the Organization for Economic Cooperation and Development (“OECD”) has issued its final reports on Base Erosion and Profit Shifting, which generally focus on situations where profits are earned in low-tax jurisdictions, or payments are made between affiliates from jurisdictions with high tax rates to jurisdictions with lower tax rates. Certain countries within which we operate have recently enacted changes to their tax laws in response to the OECD recommendations or otherwise and these and other countries may enact changes to their tax laws or practices in the future (prospectively or retroactively), which may have a material adverse effect on our financial position, operating results and/or cash flows.

In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective

 

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income tax rate may vary substantially from one reporting period to another. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied. In some cases, tax rates may be applicable to gross revenues, statutory or negotiated deemed profits or other bases utilized under local tax laws, rather than to net income. Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services. In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries. If we are unable to mitigate the negative consequences of any change in law, audit, business activity or other matter, this could cause our consolidated effective income tax rate to increase and cause a material adverse effect on our financial position, operating results and/or cash flows.

Pension expenses associated with our retirement benefit plans may fluctuate significantly depending upon changes in actuarial assumptions, future investment performance of plan assets and legislative or other regulatory actions.

A portion of our current and retired employee population is covered by pension and other post-retirement benefit plans, the costs of which are dependent upon various assumptions, including estimates of rates of return on benefit plan assets, discount rates for future payment obligations, mortality assumptions, rates of future cost growth and trends for future costs. In addition, funding requirements for benefit obligations of our pension and other post-retirement benefit plans are subject to legislative and other government regulatory actions. Future changes in estimates and assumptions associated with our pension and other post-retirement benefit plans could have a material adverse effect on our financial condition, results of operations, cash flows and/or financial disclosures.

Regulatory and Legal Risks

Governmental laws and regulations may add to our costs, result in delays, or limit our drilling activity.

Our business is affected by public policy and laws and regulations relating to the energy industry in the geographic areas where we operate.

The drilling industry is dependent on demand for services from the oil and gas exploration and production industry, and accordingly, we are directly affected by the adoption of laws and regulations that for economic, environmental or other policy reasons curtail exploration and development drilling for oil and gas. We may be required to make significant capital expenditures to comply with governmental laws and regulations. Governments in some foreign countries are increasingly active in regulating and controlling the ownership of concessions, the exploration for oil and gas, and other aspects of the oil and gas industries. There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of greenhouse gases (“GHGs”) and other sustainability and energy transition matters. This increased attention may result in new environmental laws or regulations that may unfavorably impact us, our suppliers and our customers.

The modification of existing laws or regulations or the adoption of new laws or regulations that result in the curtailment of exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by limiting drilling opportunities increasing our cost of doing business, discouraging our customers from drilling for hydrocarbons, disrupting revenue through permitting or similar delays, or subjecting us to liability. For example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands, including in the US Gulf of Mexico, for 60 days. Then on January 27, 2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. Demand for our services could be diminished during this review period. Further, to the extent that the review results in the development of additional restrictions on offshore drilling, limitations on the availability of offshore leases, or restrictions on the ability to obtain required permits, it could have a material adverse impact on our operations by reducing drilling opportunities and the demand for our services.

 

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Increasing attention to environmental, social and governance matters may impact our business and financial results.

In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ESG”) matters in public discourse and the investment community. A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community. These activities include increasing attention and demands for action related to climate change and energy transition matters, such as promoting the use of substitutes to fossil fuel products and encouraging the divestment of fossil fuel equities, as well as pressuring lenders and other financial services companies to limit or curtail activities with fossil fuel companies. If this were to continue, it could have a material adverse effect on Noble Parent’s ability to access equity capital markets. Members of the investment community have begun to screen companies such as ours for sustainability performance, including practices related to GHGs and climate change. If we are unable to find economically viable, as well as publicly acceptable, solutions that reduce our GHG emissions and/or GHG intensity for new and existing projects, we could experience additional costs or financial penalties, delayed or cancelled projects, and/or reduced production and reduced demand for hydrocarbons, which could have a material adverse effect on our earnings, cash flows and financial condition.

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 US Foreign Corrupt Practices Act of 1977 (the “FCPA”), the United Kingdom Bribery Act 2010 (the “UK Bribery Act”) and similar laws in other countries. Any violation of the FCPA, UK Bribery Act or other applicable anti-corruption laws could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, financial condition and results of operations. In addition, actual or alleged violations could 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:

 

  

the environment and the health and safety of personnel;

 

  

the importing, exporting, equipping and operation of drilling rigs;

 

  

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.

Public and governmental scrutiny of the energy industry has resulted in increased regulations being proposed and often 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

 

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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.

From time to time, new rules, regulations and requirements regarding oil and gas development have been proposed and implemented by the Bureau of Ocean Energy Management (“BOEM”), the Bureau of Safety and Environmental Enforcement (“BSEE”) or the United States Congress, as well as other jurisdictions outside the United States, that could materially limit or prohibit, and increase the cost of, offshore drilling. For example, in July 2016, BOEM and BSEE finalized a rule revising and adding requirements for drilling on the US Arctic Outer Continental Shelf. Similarly, in April 2016, BSEE announced a final blowout preventer systems and well control rule. BSEE also finalized a rule in September 2016 concerning production safety systems for oil and natural gas operations on the Outer Continental Shelf. BSEE issued final rules amending both the September 2016 production safety systems rule and the April 2016 blowout preventer systems and well control rule in September 2018 and May 2019, respectively. BSEE also published a proposed rule in December 2020 that would revise the 2016 rule concerning drilling on the US Arctic Outer Continental Shelf. In addition, BOEM released a Notice to Lessees and Operators in the Outer Continental Shelf (“NTL”) in September 2016 that updated offshore bonding requirements. The NTL was only partially implemented before being rescinded and replaced by a proposed rule addressing offshore bonding published in October 2020. However, on January 20, 2021, President Biden issued executive orders freezing the issuance of new rules pending further review and directing all executive departments and agencies to review and consider suspending, revising, or rescinding all regulations issued between January 20, 2017 and January 20, 2021 determined to be inconsistent with President Biden’s environmental and climate goals. To the extent these recent proposed and final rules are reviewed and determined to be inconsistent under the executive orders, BOEM and BSEE could issue new rules reinstating the requirements of the 2016 rules and/or reimplement the NTL.

We are also subject to increasing regulatory requirements and scrutiny in the North Sea jurisdictions and other countries. New rules, regulations and requirements, or a return to the requirements of the 2016 versions of the BSEE and BOEM regulations, including the adoption of new safety requirements and policies relating to the approval of drilling permits, restrictions on oil and gas development and production activities in the US Gulf of Mexico and elsewhere, implementation of safety and environmental management systems, mandatory third party compliance audits, and the promulgation of numerous Notices to Lessees or similar new regulatory requirements outside of the United States, may impact our operations by causing increased costs, delays and operational restrictions. If new regulations, policies, operating procedures and the possibility of increased legal liability resulting from the adoption or amendment of rules and regulations applicable to our operations in the United States or other jurisdictions are viewed by our current or future customers as a significant impairment to expected profitability on projects, then they could discontinue or curtail their offshore operations in the impacted region, thereby adversely affecting our operations by limiting drilling opportunities or imposing materially increased costs.

We could also be affected by challenges and restrictions to offshore operations by environmental groups, costal states and the federal government. For example, in December 2018, environmental groups challenged incidental harassment authorizations issued by the National Marine Fisheries Service that allow companies to conduct air gun seismic surveys for oil and gas exploration off the Atlantic coast. The attorney generals for ten US coastal states also intervened as plaintiffs. The litigation concluded in October 2020 and the authorizations expired in November 2020. Restrictions on authorizations needed to conduct seismic surveys could impact our customers’ ability to identify oil and gas reserves, thereby reducing demand for our services. Several coastal states have also taken steps to prohibit offshore drilling. For example, California passed laws in September 2018 barring the construction of new oil drilling-related infrastructure in state waters. Similarly, in November 2018, voters in Florida approved an amendment to the state constitution that would ban oil and gas drilling in offshore

 

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state waters. Such initiatives could reduce opportunities for our customers and thereby reduce demand for our services. In addition, the federal government has taken steps to restrict offshore drilling opportunities. For example, on January 20, 2021, the Acting Secretary for the Department of the Interior signed an order effectively suspending new fossil fuel leasing and permitting on federal lands, including in the US Gulf of Mexico, for 60 days. Then on January 27, 2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. Demand for our services could be diminished during this review period. Further, to the extent that the review results in the development of additional restrictions on offshore drilling, limitations on the availability of offshore leases, or restrictions on the ability to obtain required permits, it could have a material adverse impact on our operations by reducing drilling opportunities and the demand for our services.

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, both individually or in the aggregate, could be material and may not be covered fully or at all by insurance.

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:

 

  

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.

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 an 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,

 

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transported, processed and stored, air emissions related to our operations, historical industry operations, and water and waste disposal practices. For example, we, as an operator of mobile offshore drilling units in navigable US waters and certain offshore areas, including the US Outer Continental Shelf, are liable for damages and for the cost of removing oil spills for which we may be held responsible, subject to certain limitations. Our operations may involve the use or handling of materials that are classified as environmentally hazardous. Environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. 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 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.

Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility.

Certain of our employees and contractors in international markets are represented by labor unions or work under collective bargaining or similar agreements, which are subject to periodic renegotiation. Efforts may be made from time to time to unionize portions of our workforce. In addition, we may be subject to strikes or work stoppages and other labor disruptions in the future. Additional unionization efforts, new collective bargaining agreements or work stoppages could materially increase our costs, reduce our revenues or limit our operational flexibility.

 

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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. US 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 US government or identified by the US government as state sponsors of terrorism, such as the Crimean region of the Ukraine, Cuba, Iran, North Korea, Sudan and Syria. The US 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. 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 US 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 US 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.

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, issues related to employee or representative conduct, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend or pursue such 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, legal fees, the allocation of management’s time and attention, and other factors.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this prospectus, including those regarding the impact of our emergence from bankruptcy on our business and relationships, Noble Parent’s plan to list its equity on a national securities exchange, the global COVID-19 pandemic and agreements regarding production levels among members of OPEC+, and any expectations we may have with respect thereto, and those regarding rig demand, peak oil, the offshore drilling market, oil prices, contract backlog, fleet status, our future financial position, business strategy (including our business strategy post-emergence from bankruptcy), impairments, repayment of debt, credit ratings, liquidity, borrowings under any credit facilities or other instruments, sources of funds, future capital expenditures, contract commitments, dayrates, contract commencements, extension or renewals, contract tenders, the outcome of any dispute, litigation, audit or investigation, plans and objectives of management for future operations, foreign currency requirements, results of joint ventures, indemnity and other contract claims, reactivation, refurbishment, conversion and upgrade of rigs, industry conditions, access to financing, impact of competition, governmental regulations and permitting, availability of labor, worldwide economic conditions, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, timing, benefits or results of acquisitions or dispositions (including the benefits of the proposed Merger, our plans, objectives, expectations and intentions related to the Merger and the expected timing of completion of the Merger), and timing for compliance with any new regulations, are forward-looking statements. When used in this prospectus, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “shall,” “will” and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this prospectus and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. We have identified factors, including but not limited to risks and uncertainties relating to our emergence from bankruptcy (including but not limited to our ability to improve our operating structure, financial results and profitability and to maintain relationships with suppliers, customers, employees and other third parties following emergence from bankruptcy), the Merger (including the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, the outcome of any legal proceedings that may be instituted against Noble or Pacific Drilling following announcement of the business combination, the inability to complete the transactions contemplated by the Merger Agreement due to the failure to satisfy conditions to the closing of the proposed transaction, the risk that the Merger disrupts the parties’ current plans and operations as a result of the announcement and consummation of the transactions contemplated by the Merger Agreement, the ability to recognize the anticipated benefits of the Merger, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees, costs related to the proposed transaction, changes in applicable laws or regulations, the possibility that Noble or Pacific Drilling may be adversely affected by other economic, business, and/or competitive factors and the ability of the combined company to improve its operating structure, financial results and profitability and to maintain relationships with suppliers, customers, employees and other third parties), the effects of public health threats, pandemics and epidemics, such as the ongoing outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations (including but not limited to our growth, operating costs, supply chain, availability of labor, logistical capabilities, customer demand for our services and industry demand generally, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally), the effects of actions by or disputes among OPEC+ members with respect to production levels or other matters related to the price of oil, market conditions, factors affecting the level of activity in the oil and gas industry, supply and demand of drilling rigs, factors affecting the duration of contracts, the actual amount of downtime, factors that reduce applicable dayrates, operating hazards and delays, risks associated with operations outside the US, actions by regulatory authorities, credit rating agencies, customers, joint venture partners, contractors, lenders and other third parties,

 

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legislation and regulations affecting drilling operations (including as a result of the change in the US presidential administration), compliance with or changes in regulatory requirements, violations of anti-corruption laws, shipyard risk and timing, delays in mobilization of rigs, hurricanes and other weather conditions, and the future price of oil and gas, that could cause actual plans or results to differ materially from those included in any forward-looking statements. Actual results could differ materially from those expressed as a result of various factors. These factors include those described under “Risk Factors” in this prospectus. We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating an investment in the Notes.

 

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USE OF PROCEEDS

The Notes offered hereby are being registered for the account of the selling securityholders identified in this prospectus. See “Selling Securityholders.” All net proceeds from the sale of the Notes will go to the selling securityholders. We will not receive any proceeds from the sale of the Notes by the selling securityholders pursuant to this prospectus. The selling securityholders will pay any underwriting fees, discounts or commissions and transfer taxes relating to the sale of the Notes. We will pay all other costs, fees and expenses incurred in effecting the registration of the Notes covered by this prospectus, including, without limitation, the SEC registration fee with respect to the Notes covered by this prospectus, reasonable fees and expenses of our counsel, auditors and accountants and reasonable fees and expenses of underwriters to the extent customarily paid by issuers or sellers of securities.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information (the “Pro Forma Financial Information”) of Finco gives effect to the Plan, including the financing transactions contemplated thereunder. The Pro Forma Financial Information presents the financial information of Finco assuming the Plan’s Effective Date had occurred on December 31, 2020 for the unaudited pro forma condensed consolidated balance sheet and on January 1, 2020 for the unaudited pro forma condensed consolidated statement of operations.

The Pro Forma Financial Information presented herein is provided for informational and illustrative purposes only and is not necessarily indicative of the financial results that would have been achieved had the events and transactions occurred on the dates assumed, nor is such financial data necessarily indicative of the results of operations in future periods. Adjustments are based on available information and certain assumptions that the Company believes are reasonable and supportable. The Pro Forma Financial Information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and notes included elsewhere in this prospectus.

Asset, liability and warrant valuations for fresh start accounting adjustments are preliminary. Changes in the values of assets and liabilities and changes in assumptions from those reflected in the preliminary unaudited pro forma condensed consolidated balance sheet and the preliminary unaudited pro forma condensed consolidated statement of operations could significantly impact the reported values of assets and liabilities. Accordingly, the amounts shown are not final and are subject to changes and revisions, which may be material. Fresh start balances reflected as of the Plan’s Effective Date will also differ due to transactions occurring between December 31, 2020 and the Plan’s Effective Date. As such, the Pro Forma Financial Information is not intended to represent Finco’s actual post-Effective Date financial condition and results of operations, and any differences could be material.

Finco’s historical financial statements will not be comparable to Finco’s financial statements after emergence from Chapter 11 due to the effects of the Plan and the adoption and application of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“ASC Topic 852”) under accounting principles generally accepted in the United States of America (“GAAP”). The Pro Forma Financial Information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”

Reorganization Adjustments

The Reorganization Adjustments column of the Pro Forma Financial Information gives effect to the consummation of the Plan, including the following transactions:

 

  

Legacy Noble’s previously outstanding ordinary shares and equity-based awards were cancelled, extinguished and discharged against the issue of Noble Parent’s Tranche 3 Warrants;

 

  

all amounts outstanding under the 2017 Credit Facility (as defined herein), including the interest, were paid in full;

 

  

all of our then outstanding senior notes were settled for Noble Parent’s Ordinary Shares, Tranche 1 Warrants and Tranche 2 Warrants;

 

  

the issuance of 50 million Ordinary Shares of Noble Parent;

 

  

professional services fees incurred after December 31, 2020 through the Effective Date; and

 

  

the issuance of Finco’s $216 million of Notes and our entry into the new $675.0 million Exit Credit Facility with initial borrowings of $177.5 million.

 

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Fresh Start Adjustments

We adopted fresh start accounting in accordance with ASC Topic 852 as of the Effective Date of our emergence from reorganization under Chapter 11, resulting in reorganized Finco becoming the successor (solely for purposes of the Pro Forma Financial Information, the “Successor”) for financial reporting purposes. In accordance with ASC Topic 852, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC Topic 805, “Business Combinations.” Liabilities subject to compromise of the predecessor entity (solely for purposes of the Pro Forma Financial Information, the “Predecessor”) were either reinstated or extinguished as part of the reorganization.

The Successor enterprise value of the reorganized Company, as approved by the Bankruptcy Court in support of the Plan, was estimated to be $1.3 billion, which represented the mid-point of a determined range. A pro forma reorganization value of approximately $1.8 billion was then determined by adding non-interest bearing liabilities and cash adjustments to the $1.3 billion enterprise value. The Company’s enterprise value was determined with the assistance of a third-party valuation expert who used available comparable market data and quotations, discounted cash flow analysis and other internal financial information and projections. Our estimates of fair value are inherently subject to significant uncertainties and contingencies beyond our control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially. Moreover, the value of Noble Parent’s and Finco’s shares subsequent to our emergence from bankruptcy may differ materially from the equity presented for accounting purposes under GAAP.

 

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NOBLE FINANCE COMPANY AND SUBSIDIARIES

Pro Forma Unaudited Condensed Consolidated Balance Sheet

(Unless otherwise indicated, dollar amounts are in thousands)

As of December 31, 2020

(Unaudited)

 

      Transaction Accounting Adjustments    
   Historical  Reorganization
Adjustments
  Fresh Start
Adjustments
  Pro Forma 

Assets

         

Current assets

         

Cash and cash equivalents

  $343,332  $(218,374 (a)  $—      $124,958 

Accounts receivable, net

   147,863   —       —       147,863 

Taxes receivable

   30,767   —       —       30,767 

Accounts receivable from affiliates

   31,214   —       —       31,214 

Prepaid expenses and other current assets

   50,469   —       (10,687 (h)   39,782 
  

 

 

  

 

 

    

 

 

    

 

 

 

Total current assets

   603,645   (218,374    (10,687    374,584 
  

 

 

  

 

 

    

 

 

    

 

 

 

Intangible assets

       113,389  (i)   113,389 

Property and equipment, at cost

   4,777,697   —       (3,584,366 (j)   1,193,331 

Accumulated depreciation

   (1,200,628  —       1,200,628  (j)   —   
  

 

 

  

 

 

    

 

 

    

 

 

 

Property and equipment, net

   3,577,069   —       (2,383,738    1,193,331 
  

 

 

  

 

 

    

 

 

    

 

 

 

Other assets

   84,584   13,236  (b)(d)(e)   (12,859 (h)   84,961 
  

 

 

  

 

 

    

 

 

    

 

 

 

Total assets

  $4,265,298  $(205,138   $(2,293,895   $1,766,265 
  

 

 

  

 

 

    

 

 

    

 

 

 

Liabilities

         

Current liabilities

         

Accounts payable

  $83,649  $11,056  (c)  $—      $94,705 

Accrued payroll and related costs

   36,516   —       —       36,516 

Taxes payable

   36,819   —       —       36,819 

Other current liabilities

   49,820   20,464  (c)   (34,990 (h)   35,294 
  

 

 

  

 

 

    

 

 

    

 

 

 

Total current liabilities

   206,804   31,520     (34,990    203,334 
  

 

 

  

 

 

    

 

 

    

 

 

 

Long-term debt

   —     351,454  (d)   42,046  (k)   393,500 

Deferred income taxes

   9,292   (17,387 (e)   29,610  (e)   21,515 

Other liabilities

   108,039   21,018  (c)   (24,896 (h)   104,161 

Liabilities subject to compromise

   4,154,555   (4,154,555 (c)   —       —   
  

 

 

  

 

 

    

 

 

    

 

 

 

Total liabilities

   4,478,690   (3,767,950    11,770     722,510 
  

 

 

  

 

 

    

 

 

    

 

 

 

Shareholders’ equity

         

Common stock (Predecessor)

   26,125   (26,125 (g)   —       —   

Common stock (Successor)

   —     1  (g)   —       1 

Additional paid-in-capital (Predecessor)

   766,714   (766,714 (g)   —       —   

Additional paid-in-capital (Successor)

   —     1,043,754  (g)   —       1,043,754 

Retained earnings (accumulated deficit)

   (948,219  3,311,896  (f)   (2,363,677 (l)   —   

Accumulated other comprehensive loss

   (58,012  —       58,012  (l)   —   
  

 

 

  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

   (213,392  3,562,812     (2,305,665    1,043,755 
  

 

 

  

 

 

    

 

 

    

 

 

 

Total liabilities and equity

  $4,265,298  $(205,138   $(2,293,895   $1,766,265 
  

 

 

  

 

 

    

 

 

    

 

 

 

 

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NOBLE FINANCE COMPANY AND SUBSIDIARIES

Pro Forma Unaudited Condensed Consolidated Statement of Operations

(Unless otherwise indicated, dollar amounts are in thousands)

Year Ended December 31, 2020

(Unaudited)

 

     Transaction Accounting Adjustments    Transaction
Accounting
Adjustments
    
  Historical  Reorganization
Adjustments
 Fresh Start
Adjustments
 Pro Forma
(including
reorganization
items, net)
  Removal of
Reorganization
Items, net
  Pro Forma 

Operating revenues

        

Contract drilling services

 $909,236  $—     $(58,373  (q) $850,863  $—    $850,863 

Reimbursables and other

  55,036   —      —      55,036   —     55,036 
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  964,272   —      (58,373   905,899   —     905,899 
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Operating costs and expense

        

Contract drilling services

  566,231   3,708  (m)(p)  ���      569,939   —     569,939 

Reimbursables

  48,188   —      —      48,188   —     48,188 

Depreciation and amortization

  372,560   —      (295,702  (r)  76,858   —     76,858 

General and administrative

  37,798   4,520  (m)  —      42,318   —     42,318 

Loss on impairment

  3,915,408   —      —      3,915,408   —     3,915,408 
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
  4,940,185   8,228    (295,702   4,652,711   —     4,652,711 
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Operating loss

  (3,975,913  (8,228   237,329    (3,746,812  —     (3,746,812

Other income (expense)

        

Interest expense, net of amounts capitalized

  (164,653  113,981  (n)  —      (50,672  —     (50,672

Gain on extinguishment of debt, net

  17,254   —      —      17,254   —     17,254 

Interest income and other, net

  9,014   —      —      9,014   —     9,014 

Reorganization items, net

  (50,778  2,511,937  (o)  (2,333,510  (l)  127,649   (127,649  —   
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Loss from continuing operations before income taxes

  (4,165,076  2,617,690    (2,096,181   (3,643,567  (127,649  (3,771,216

Income tax benefit (provision)

  260,403   17,281  (s)  (17,376  (s)  260,308   —     260,308 
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Net loss

 $(3,904,673 $2,634,971   $(2,113,557  $(3,383,259 $(127,649 $(3,510,908
 

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

 

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NOBLE FINANCE COMPANY AND SUBSIDIARIES

Notes to Pro Forma Unaudited Condensed Consolidated Financial Information

(Unless otherwise indicated, dollar amounts are in thousands)

Note 1. Basis of Presentation

The accompanying unaudited pro forma condensed consolidated statement of operations, unaudited pro forma condensed consolidated balance sheet and explanatory notes present the Pro Forma Financial Information of Finco assuming the consummation of the Plan had occurred on December 31, 2020 for the unaudited condensed consolidated balance sheet and on January 1, 2020 for the unaudited condensed consolidated statement of operations.

The following are descriptions of the columns included in the accompanying Pro Forma Financial Statements:

 

  

Historical—Represents the historical condensed consolidated statement of operations and historical condensed consolidated balance sheet of Finco as of and for the period ended December 31, 2020.

 

  

Reorganization and Fresh Start Adjustments—Represents reorganization adjustments as of and for the year ended December 31, 2020, assuming the Effective Date of the Plan had occurred on December 31, 2020 for the unaudited condensed consolidated balance sheet and January 1, 2020 for the unaudited condensed consolidated statement of operations, and for the adoption of fresh start accounting.

 

  

Removal of Reorganization Items, net—These are non-recurring expenses, gains and losses that are realized or incurred as a direct result of the Chapter 11 Cases recorded under “Reorganization items, net.” Such amounts relate to Finco’s Predecessor period and have been removed for a fair presentation of pro forma statement of operations.

Note 2. Pro Forma Adjustments

Pro Forma Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet

Reorganization Adjustments

(a) Cash and cash equivalents

Pro forma changes in cash and cash equivalents include the following sources and used of cash:

 

Proceeds from the Notes

  $200,000 

Proceeds from the Exit Credit Facility

   177,500 

Payment of issuance costs for Exit Credit Facility

   (10,139

Payment of professional service fees, including success fees

   (35,641

Payment of Predecessor 2017 Credit Facility and related accrued interest

   (550,019

Payment of recurring debt fees

   (75
  

 

 

 

Change in Cash and cash equivalents

  $(218,374
  

 

 

 

(b) Other assets

Capitalization of $15.1 million of deferred financing fee related to the Successor Exit Credit Facility.

 

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(c) Liabilities subject to compromise

Liabilities subject to compromise settled in accordance with the Plan and the resulting gain was determined as follows:

 

4.900% senior notes due Aug. 2020

  $62,535 

4.625% senior notes due Mar. 2021

   79,936 

3.950% senior notes due Mar. 2022

   21,213 

7.750% senior notes due Jan. 2024

   397,025 

7.950% senior notes due Apr. 2025

   450,000 

7.875% senior notes due Feb. 2026

   750,000 

6.200% senior notes due Aug. 2040

   393,596 

6.050% senior notes due Mar. 2041

   395,002 

5.250% senior notes due Mar. 2042

   483,619 

8.950% senior notes due Apr. 2045

   400,000 

2017 Credit Facility

   545,000 

Accrued and unpaid interest

   110,301 

Accounts payable and other liabilities

   37,359 

Litigation

   8,000 

Lease liabilities

   20,969 
  

 

 

 

Total consolidated liabilities subject to compromise

  $4,154,555 
  

 

 

 

Less: Payment of Predecessor 2017 Credit Facility and related accrued interest

  $(550,019

Less: Issuance of Ordinary Shares of Noble Parent

   (879,297

Less: Issuance of Tranche 1 Warrants and Tranche 2 Warrants

   (141,029

Reinstatement of Accounts Payable

   (11,056

Reinstatement of Other current liabilities

   (20,464

Reinstatement of Other Noncurrent Liabilities

   (21,018
  

 

 

 

Gain on settlement of liabilities subject to compromise

  $2,531,672 
  

 

 

 

(d) Long-term debt

Reflects outstanding net borrowings under the Notes and the Exit Credit Facility:

 

Draw on Successor Exit Credit Facility

  $177,500 

Issuance of Notes

   216,000 

Discount on Notes

   (16,000

Reclass of Notes deferred financing cost from other assets

   (1,718

Additional deferred financing cost on Notes

   (2,706

Backstop premium paid in equity, treated as deferred financing cost

   (21,622
  

 

 

 

Long-term debt, net of issuance costs

  $351,454 
  

 

 

 

(e) Deferred income taxes

Reflects the write off of US deferred tax and valuation allowance balances due to cancellation of debt. New deferred tax balances were established for favorable contracts with customers due to adoption of fresh start accounting.

 

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(f) Retained earnings and Predecessor equity

The decrease in accumulated deficit resulted from the following:

 

Gain on settlement of Liabilities subject to compromise

  $2,531,672 

Professional service fees, including success fees

   (28,013

Cancellation of Predecessor equity and stock compensation

   792,839 

Recurring debt fees

   (75

Issue of Tranche 3 Warrants to existing equity holders

   (1,807

Adjustments to tax

   17,280 
  

 

 

 

Change in Predecessor retained earnings

  $3,311,896 
  

 

 

 

(g) Ordinary Shares and Additional paid-in-capital

Reflects the issuance of 50 million Ordinary Shares of Noble Parent and the Tranche 1 Warrants, Tranche 2 Warrants and Tranche 3 Warrants per the Plan. The successor balance reflects the equity issued by Noble Parent and pushed down to Finco.

Fresh Start Adjustments

(h) Other assets and liabilities

Reflects an adjustment of capitalized deferred costs and deferred revenue due to the adoption of fresh start accounting.

(i) Intangible assets

Reflects the preliminary fair value adjustment of favorable contracts with customers due to the adoption of fresh start accounting.

(j) Property and equipment, net

Reflects the preliminary fair value adjustment of $2,384 million to Finco’s property and equipment, net due to the adoption of fresh start accounting.

(k) Long-term debt

Reflects a fair value adjustment to the carrying value of the Notes due to adoption of fresh start accounting.

(l) Impact of Fresh Start Accounting

For the unaudited pro forma condensed consolidated balance sheet, reflects the cumulative impact of fresh start accounting adjustments and the elimination of Predecessor accumulated other comprehensive loss and accumulated deficit. For the unaudited pro forma condensed consolidated statement of operations, reflects the cumulative impact of fresh start accounting adjustments, excluding tax impacts.

Pro Forma Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Operations

Reorganization Adjustments

(m) Stock based compensation

Reflects an increase in stock-based compensation expense based on the new awards issued.

 

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(n) Interest Expense

The adjustment reflects change of interest expense as a result of the Plan. The Plan provides for the repayment and settlement of Predecessor company 2017 Credit Facility and senior notes, respectively. Upon emergence, Finco entered into a new Exit Credit Facility and issued Notes with interest rate of LIBOR+4.75% and 15% payable semi-annually by paid in kind notes, respectively. The pro forma adjustments to interest expense was calculated as follows:

 

Reversal of Predecessor interest expense including amortization of deferred financing costs

  $(162,156

Pro forma interest on the Successor Exit Credit Facility and Notes

   45,286 

Amortization of Successor deferred financing costs

   2,889 
  

 

 

 

Pro forma adjustment for interest expense

  $(113,981
  

 

 

 

Assuming an increase in interest rates on the Exit Credit Facility and the Notes of 1/8%, pro forma interest would increase by $0.5 million.

(o) Reorganization Items, net

The adjustment represents the estimated remaining costs that were directly attributable to the Chapter 11 reorganization including the following:

 

Professional fees

  $(1,189

Acceleration of unrecognized Predecessor share-based compensation

   (18,546

Gain on settlement of liabilities subject to compromise

   2,531,672 
  

 

 

 

Pro forma adjustment to reorganization items, net

  $2,511,937 
  

 

 

 

(p) Includes $600 thousand related to the rejection of an executory contract per the Plan.

Fresh Start Adjustments

(q) Revenue

Adjustment reflects the amortization of favorable contracts with customers as a result of adopting fresh start accounting. The remaining useful life of the favorable contracts range between 1-3 years.

(r) Depreciation and amortization

Reflects the pro forma decrease in depreciation expense based on new preliminary asset values as a result of adopting fresh start accounting. The pro forma adjustment to depreciation expense was calculated as follows:

 

Removal of Predecessor depreciation expense

  $(372,560

Pro forma depreciation expense

   76,858 
  

 

 

 

Pro forma adjustment for depreciation and amortization

  $(295,702
  

 

 

 

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 forty years.

 

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(s) Income Tax

Reflects the pro forma adjustment to tax expense as a result of reorganization adjustments and adopting fresh start accounting. The income tax impact was calculated by applying the appropriate statutory tax rate of the respective tax jurisdictions to which the pro forma adjustments relate and which are reasonably expected to occur.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our financial position at December 31, 2020 and 2019, and our results of operations for each of the years in the three-year period ended December 31, 2020. The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.

Executive Overview

We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. Our business strategy focuses on a balanced, high-specification fleet of both floating and jackup rigs, and the deployment of our drilling rigs in established and emerging offshore oil and gas basins around the world.

We emphasize safe operations, environmental stewardship, social responsibility, and robust governance to sustain the superior performance and maximize stakeholder value achieved through our qualified and well-trained crews, the care of our surroundings and local communities, an effective management system, and a superior fleet. We also carefully manage rig operating costs through innovative systems and processes, including the use of data analytics and predictive maintenance technology.

As of the date of this prospectus, our fleet of 19 drilling rigs consisted of seven floaters and 12 jackups strategically deployed worldwide. We typically employ each drilling unit under an individual contract, and many contracts are awarded based upon a competitive bidding process.

Our 2020 financial and operating results from continuing operations include:

 

  

operating revenues totaling $1.0 billion, a decrease of 26% from prior year;

 

  

net loss attributable to Noble Corporation of $4.0 billion, or $15.86 per diluted share, which includes a $3.9 billion before-tax impairment charge recognized on 16 of our rigs and certain capital spare equipment; and

 

  

net cash provided by operating activities totaling $273.2 million, an increase of 46% from prior year.

Demand for our services is highly competitive and, in significant part, a function of the worldwide demand for oil and gas and the global supply of mobile offshore drilling units. Since late 2014, the offshore drilling industry has experienced a severe and prolonged downturn stemming from the combination of an oversupply of competing drilling rigs that resulted from the new build rig influx of the 2010s, weak and volatile crude oil prices, and the advancement of onshore opportunities and technology. The Company entered 2020 cautiously optimistic with the prospects for the offshore drilling market continuing to improve; however, the combined effects of the pandemic and the steep decline in the demand for oil have resulted in significantly reduced global economic activity. These factors in concert led to heightened competition for opportunities to re-contract our rigs upon the expiration of existing contracts.

Recent Events

Emergence from Chapter 11. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date, Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On the Effective Date, Legacy Noble successfully completed its financial restructuring and Legacy Noble and its debtor affiliates emerged from the Chapter 11 Cases. For additional information regarding the Chapter 11 Cases, see “—Chapter 11 Proceedings and Going Concern” below.

As a result of the financial restructuring, Noble emerged from bankruptcy on the Effective Date with a substantially de-levered balance sheet and less than $400.0 million of debt. Noble’s capital structure as of the

 

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Effective Date includes a $675.0 million revolving credit facility, of which $177.5 million is drawn as of March 10, 2021, and $216.0 million of Notes. On the Effective Date, Legacy Noble’s ordinary shares were cancelled and Ordinary Shares were issued to Legacy Noble’s former bondholders. Certain former bondholders and former equity holders of Legacy Noble were also issued warrants to purchase shares of Noble Parent.

Paragon Matter. In August 2014, Legacy Noble completed the Spin-off through a pro rata distribution of all of the ordinary shares of its wholly-owned subsidiary, Paragon Offshore plc (“Paragon Offshore”), to the holders of Legacy Noble’s ordinary shares. Paragon Offshore filed for protection under chapter 11 of the Bankruptcy Code in February 2016, and in connection with Paragon Offshore’s emergence from bankruptcy in July 2017, all claims it may have had against Legacy Noble were transferred to a litigation trust. In December 2017, a litigation trust filed fraudulent conveyance and related claims relating to the Spin-off in an action against Legacy Noble and certain of its subsidiaries (the “Noble Defendants”), as well as certain of Legacy Noble’s and then current and former officers and directors (the “Individual Defendants”).

On February 3, 2021, the Noble Defendants, the Individual Defendants and the litigation trust entered into a global settlement. Pursuant to the global settlement, among other things, the Debtors made a $7.7 million payment to the litigation trust, and all claims brought against all defendants, including the Noble Defendants and Individual Defendants were settled and released. The global settlement was subject to approval by the Delaware Court, which approval was granted on February 24, 2021. See “Note 16—Commitments and Contingencies” to our consolidated financial statements included elsewhere in this prospectus for more information.

Merger. On March 25, 2021, Noble Parent entered into the Merger Agreement with Merger Sub and Pacific Drilling, pursuant to which Noble Parent would acquire Pacific Drilling in an all-stock transaction. The Board of Noble Parent and the board of directors of Pacific Drilling have unanimously approved and adopted the Merger Agreement.

The Merger Agreement provides that, upon consummation of the Merger, Merger Sub will merge with and into Pacific Drilling, with Pacific Drilling continuing as the surviving company and a wholly-owned subsidiary of Noble Parent. Subject to the terms and conditions of the Merger Agreement, at the Effective Time, (a) each Membership Interest in Pacific Drilling will be converted into the right to receive a number of Ordinary Shares equal to the Membership Interest Exchange Ratio and (b) each Pacific Warrant will be converted into the right to receive a number of Ordinary Shares equal to the Warrant Exchange Ratio.

The Merger Agreement contains customary representations, warranties and covenants by Noble Parent, Merger Sub and Pacific Drilling. The Merger Agreement also contains customary pre-closing covenants, including the obligation of Noble Parent and Pacific Drilling to conduct their respective businesses in the ordinary course of business and to refrain from taking specified actions without the consent of the other party. Pacific Drilling has also agreed not to directly or indirectly solicit competing acquisition proposals or to enter into discussions concerning, or provide confidential information in connection with, any alternative business combinations.

Completion of the Merger is subject to certain limited conditions, including that no injunction shall have been entered and continue to be in effect that prohibits the consummation of the Merger, the representations and warranties of the parties being true and correct to the standards applicable to such representations and warranties and each of the covenants of the parties having been performed or complied with in all material respects. Subject to the satisfaction or waiver of these conditions, the Merger is expected to close in the second quarter of 2021. Noble Parent conducts substantially all its business through Finco and its subsidiaries. Upon completion of the Merger, Noble Parent intends to contribute Pacific Drilling to Finco and to designate Pacific Drilling and its subsidiaries as unrestricted subsidiaries pursuant to the Exit Credit Facility and the Notes. As a result, none of Pacific Drilling or its subsidiaries will become guarantors and none of their assets will secure the Exit Credit Facility or the Notes.

Voting and Support Agreement. Concurrently with the entry into the Merger Agreement, Noble Parent and the Members of Pacific Drilling, which collectively represent approximately 66% of the issued and outstanding Membership Interests and 64% of the Pacific Warrants, entered into the Voting Agreements in connection with the Merger Agreement.

 

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Among other things, each Voting Agreement requires that each Member that is party to such Voting Agreement (a) vote (or cause to be voted) its Membership Interests (i) in favor of the approval and adoption of the Merger, the Merger Agreement and all other transactions contemplated by the Merger Agreement, (ii) among other things, against any merger agreement or merger (other than the Merger Agreement, the Merger and the transactions contemplated thereby), any action or any other takeover proposal relating to Pacific Drilling, (b) be bound by certain other covenants and agreements relating to the Merger, including the delivery of any notices and documentation required to effect a “Drag-Along Sale” as defined in the Pacific Drilling limited liability company agreement, and (c) be bound by certain transfer restrictions with respect to such securities subject to certain exceptions.

The Voting Agreements will terminate upon the earliest to occur of (a) the Effective Time, (b) the termination of the Merger Agreement pursuant to its terms, (c) the date on which the Merger Agreement is modified or amended in a manner that (i) reduces the merger consideration to be paid pursuant to the terms of the Merger Agreement (including, without limitation, the Membership Interest Exchange Ratio or the Warrant Exchange Ratio), (ii) extends the end date of the Merger Agreement beyond June 30, 2021 or (iii) alters the allocation of liability among the parties to the Merger Agreement or the members of Pacific Drilling, including by adding or modifying any indemnification rights or obligations set forth in or contemplated by the Merger Agreement, (d) termination by mutual written consent of the Member and Noble Parent and (e) at any time upon notice by Noble Parent to the Members.

Merger Registration Rights Agreement. At the closing of the Merger, Noble Parent will enter into the Merger RRA with the Merger RRA Holders pursuant to which, among other things, and subject to certain limitations set forth therein, certain Merger RRA Holders will have customary demand and piggyback registration rights. In addition, pursuant to the Merger RRA, certain Merger RRA Holders have the right to require Noble Parent, subject to certain limitations set forth therein, to effect a distribution of any or all of their Ordinary Shares by means of an underwritten offering. Noble Parent is not obligated to effect any underwritten offering unless the dollar amount of the registrable securities of the Merger RRA Holder(s) demanding such underwritten offering to be included therein is reasonably likely to result in gross sale proceeds of at least $20 million.

Outlook

The offshore drilling industry remains highly competitive. We believe the convergence of events in 2020 and early 2021 have lengthened an already challenging and slow recovery in our industry. Despite these challenges and demand projections, we believe that oil and gas demand will rebalance and oil and gas will remain an important portion of the world’s energy mix. We expect that the return of stable oil demand and prices coupled with the continued attrition of rigs in the global offshore fleet will bring improved market conditions for our services.

Noble emerged from the Chapter 11 Cases with a high-specification fleet of 19 rigs, balanced across jackups and floaters. Our floating and jackup drilling fleet is among the youngest, most modern and versatile in the industry, with the majority of our rigs having been delivered since 2011, and is well positioned to compete as market dynamics improve. Our fleet consists predominately of technologically advanced units, equipped with sophisticated systems and components prepared to execute our customers’ increasingly complicated offshore drilling programs safely and with greater efficiency, contributing to an overall reduction of our carbon footprint. We remain committed to safely and efficiently serving the needs of our customers globally and we set several company safety records during 2020.

At December 31, 2020, we had a total contract drilling services backlog of approximately $1.6 billion, which includes a commitment of approximately 67 percent of available days for 2021. For additional information regarding our backlog, see “—Contract Drilling Services Backlog” below.

 

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Chapter 11 Proceedings and Going Concern

On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed the Chapter 11 Cases in the Bankruptcy Court. On September 4, 2020, the Debtors filed with the Bankruptcy Court the Plan, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020, and the Disclosure Statement. On September 24, 2020, six additional subsidiaries of Legacy Noble filed the Chapter 11 Cases in the Bankruptcy Court. As a result of the filing of the Chapter 11 Cases, Legacy Noble’s board of directors determined to cancel Legacy Noble’s share ownership policy applicable to the officers and directors. Noble is currently considering an appropriate policy subsequent to its emergence from bankruptcy.

The filing of the Chapter 11 Cases constituted events of default that accelerated the Company’s obligations under the indentures governing our then outstanding senior notes and under our 2017 Credit Facility. In addition, the unpaid principal and interest due under our then outstanding senior notes and 2017 Credit Facility became immediately due and payable. However, any efforts to enforce such payment obligations with respect to such senior notes and 2017 Credit Facility were automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code. We elected not to make the semiannual interest payment due in respect of the Senior Notes due 2024 (the “2024 Notes”), which was due on July 15, 2020, and did not made any additional interest payments due on any senior notes through the Effective Date.

On the Petition Date, the Debtors entered into a Restructuring Support Agreement (together with all exhibits and schedules thereto, and as amended by the First Amendment thereto dated as of August 20, 2020, the “Restructuring Support Agreement”) with an ad hoc group of certain holders of approximately 70% of the aggregate outstanding principal amount of the Senior Notes due 2026 (the “Guaranteed Notes”) and an ad hoc group of certain holders of approximately 45% of the aggregate outstanding principal amount of our other then outstanding senior notes, taken as a whole (the “Legacy Notes”). Legacy Noble entered into the Backstop Commitment Agreement with the Backstop Parties on October 12, 2020, pursuant to which the issuance of the Notes were fully backstopped by the Ad Hoc Guaranteed Group and the Ad Hoc Legacy Group (each as defined in the Restructuring Support Agreement). Participation in the Rights Offering was offered to the holders of the Guaranteed Notes and the Legacy Notes. On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. On the Effective Date, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases.

On the Effective Date, and pursuant to the terms of the Plan:

 

  

Noble Parent appointed five new members to the Board to replace all of the directors who had served on the board of directors of Legacy Noble, other than the director also serving as President and Chief Executive Officer, who was appointed to the Board pursuant to the Plan;

 

  

Noble Parent terminated and cancelled all common stock and equity-based awards of Legacy Noble that were outstanding immediately prior to the Effective Date;

 

  

Noble Parent transferred 31.7 million Ordinary Shares with a nominal value of $0.00001 per share to holders of the Guaranteed Notes in cancellation of the Guaranteed Notes;

 

  

Noble Parent transferred 2.1 million Ordinary Shares, approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 1 Warrants”) with an exercise price of $19.27 and approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 2 Warrants”) with an exercise price of $23.13 to holders of the Legacy Notes in cancellation of the Legacy Notes;

 

  

Noble Parent issued approximately 7.7 million Ordinary Shares and Notes to participants in the Rights Offering at an aggregate subscription price of $200 million;

 

  

Noble Parent issued approximately 5.6 million Ordinary Shares to the Backstop Parties as Holdback Securities (as defined in the Backstop Commitment Agreement);

 

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Noble Parent issued approximately 1.7 million Ordinary Shares to the Backstop Parties in respect of their backstop commitment to subscribe for Unsubscribed Securities (as defined in the Backstop Commitment Agreement);

 

  

Noble Parent issued approximately 1.2 million Ordinary Shares to the Backstop Parties in connection with the payment of the Backstop Premiums (as defined in the Backstop Commitment Agreement);

 

  

Noble Parent issued 2.8 million five-year warrants with no Black-Sholes protection (the “Tranche 3 Warrants” and, together with the Tranche 1 Warrants and the Tranche 2 Warrants, the “Emergence Warrants”) with an exercise price of $124.40 to the holders of Legacy Noble’s ordinary shares outstanding prior to the Effective Date;

 

  

Finco entered into a senior secured revolving credit agreement (the “Exit Credit Agreement”) providing for a $675.0 million senior secured revolving credit facility (with a $67.5 million sublimit for the issuance of letters of credit thereunder) (the “Exit Credit Facility”);

 

  

Noble Parent entered into an exchange agreement (the “Exchange Agreement”) with certain Backstop Parties which provided that, as soon as reasonably practicable after the Effective Date, the other parties to such agreement would deliver to Noble Parent an aggregate of approximately 6.5 million Ordinary Shares issued pursuant to the Plan in exchange for the issuance of penny warrants to purchase up to approximately 6.5 million Ordinary Shares, with an exercise price of $0.01 per share (the “Penny Warrants”), which were exchanged on a one-for-one basis for Ordinary Shares issued to certain initial holders of Ordinary Shares;

 

  

Finco entered into the indenture governing the Notes;

 

  

Noble Parent entered into a registration rights agreement with certain parties who received Ordinary Shares under the Plan; and

 

  

Finco entered into the Registration Rights Agreement with certain parties who received Notes under the Plan.

Management Incentive Plan. The Plan contemplated that on or after the Effective Date, (i) Noble Parent would adopt a long-term incentive plan and authorize and reserve 7.7 million Ordinary Shares for issuance pursuant to equity incentive awards to be granted under such plan, and (ii) the initial awards under such plan would consist of at least 40% of such shares and be made as soon as practicable after the Effective Date on the terms and conditions as determined by the Board; provided that at least 40% of such initial awards would be in the form of time-based vesting awards vesting over a period of no shorter than three years and no longer than four years. As contemplated by the Plan, on February 18, 2021, Noble Parent adopted a long-term incentive plan and authorized and reserved 7.7 million Ordinary Shares for issuance pursuant to equity incentive awards to be granted under such plan.

Sources of Cash for Plan Distribution. All cash required for payments made by Noble Parent under the Plan on the Effective Date was obtained from cash on hand, proceeds of the Rights Offering and proceeds of the Exit Credit Facility.

Going Concern. Legacy Noble performed the required assessments in conjunction with the filing of its Form 10-Q for the three months ended March 31, 2020 and determined, at that time, that substantial doubt about its ability to continue as a going concern existed. Subsequent to emergence from the Chapter 11 Cases, Noble performed a reassessment and concluded there was no longer substantial doubt regarding its ability to continue as a going concern one year from the date of filing its Form 10-K for the year ended December 31, 2020. This was primarily due to the cancellation of Legacy Noble’s outstanding debt obligations and increased liquidity with the Exit Credit Agreement. Management’s assessment was based on the relevant conditions that were known and reasonably knowable at the issuance date and included Noble’s post-emergence financial condition and liquidity sources, forecasted future cash flows, contractual obligations and commitments and other conditions that could adversely affect its ability to meet its obligations through one year from the issuance date of such Form 10-K.

 

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Impairment

As more thoroughly described in “Note 6—Loss on Impairment” to our consolidated financial statements included elsewhere in this prospectus, we evaluate our property and equipment for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. An impairment loss is recognized when and to the extent that an asset’s carrying value exceeds its 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 or piece of equipment, we may take an impairment loss in the future.

During the years ended December 31, 2020, 2019 and 2018, we recognized non-cash, before-tax impairment charges of $3.9 billion, $615.3 million and $802.1 million, respectively, related to certain rigs and related capital spares. These impairments were driven by factors such as customer suspensions of drilling programs, contract cancellations, a further reduction in the number of new contract opportunities, capital spare equipment obsolescence, and our belief that a drilling unit is no longer marketable and is unlikely to return to service.

There can be no assurance that we will not have to take additional impairment charges in the future if current depressed market conditions persist, or that we will be able to return cold stacked rigs to service in the time frame and at the reactivation costs or at the dayrates that we projected. It is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values.

Contract Drilling Services Backlog

We maintain a backlog of commitments for contract drilling services. Our contract drilling services backlog reflects estimated future revenues attributable to signed drilling contracts. While backlog did not include any letters of intent as of December 31, 2020, in the past we have included in backlog certain letters of intent that we expect to result in binding drilling contracts.

We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period, and include certain assumptions based on the terms of certain contractual arrangements, discussed in the notes to the table below. For the four rigs contracted with ExxonMobil mentioned below, we utilize the current market rate, adjusted for a moderate discount rate, as described in footnote (3) to the backlog table below. 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 or letters of intent.

The table below presents the amount of our contract drilling services backlog and the percent of available operating days committed for the periods indicated:

 

     Year Ending December 31, (1) 
  Total           2021                    2022                    2023                   2024             2025 - 2027    
  (In thousands) 

Contract Drilling Services Backlog

      

Floaters (2) (3)

 $1,143,849 $433,614 $337,359 $130,603 $61,195 $181,078

Jackups (4)

  468,204  241,998  181,110  45,096  —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $1,612,053 $675,612 $518,469 $175,699 $61,195 $181,078
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Percent of Available Days Committed (5)

      

Floaters (3)

   84%   65%   24%   14%   14% 

Jackups

   57%   37%   7%   —  %   —  % 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   67%   47%   13%   5%   5% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

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(1)

Represents a twelve-month period beginning January 1. Some of our drilling contracts provide customers with certain early termination rights and, in limited cases, those termination rights require minimal or no notice and minimal financial penalties.

 

(2)

Two of our long-term drilling contracts with Shell, the Noble Globetrotter I and Noble Globetrotter II, contain a dayrate adjustment mechanism that utilizes an average of market rates that match a set of distinct technical attributes and is subject to a modest discount, beginning on the fifth-year anniversary of the contract and continuing every six months thereafter. On December 12, 2016, we amended those drilling contracts with Shell. As a result of the amendments, each of the contracts now has a contractual dayrate floor of $275,000 per day. Once the dayrate adjustment mechanism becomes effective and following any idle periods, the dayrate for these rigs will not be lower than the higher of (i) the contractual dayrate floor or (ii) the market rate as calculated under the adjustment mechanism. The impact to contract backlog from these amendments has been reflected in the table above and the backlog calculation assumes that, after any idle period at the contractual stacking rate, each rig will work at its respective dayrate floor for the remaining contract term.

 

(3)

Noble entered into a multi-year Commercial Enabling Agreement (the “CEA”) with ExxonMobil in February 2020. Under the CEA, dayrates earned by each rig will be updated at least twice per year to the prevailing market rate, subject to a scale-based discount and a performance bonus that appropriately aligns the interests of Noble and ExxonMobil. Under the CEA, the table above includes awarded and remaining term of nine and a half years related to the Noble Tom Madden, six months to each of the Noble Bob Douglas and Noble Sam Croft and one year to the Noble Don Taylor. Under the CEA, ExxonMobil may reassign terms among rigs. The aforementioned additional backlog included in the table above was estimated using the current market rate, adjusted for a moderate discount rate.

 

(4)

In April 2020, we received notice from Saudi Aramco to suspend operations on the Noble Scott Marks for a period of up to 12 months. Beginning in early May 2020, we idled the Noble Scott Marks at a rate of $0 per day. The impact to contract backlog has been reflected in the table above and the backlog calculation assumes that, upon completion of the suspension period, the rig will resume operations at the contracted dayrate for the remaining contract term.

 

(5)

Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period by the product of the number of our rigs and the number of calendar days in such period.

The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods presented in the table above due to various factors, including, but not limited to, the impact of the COVID-19 pandemic and related mitigation efforts on the demand for oil, current oversupply of oil, shipyard and maintenance projects, unplanned downtime, the operation of market benchmarks for dayrate resets, achievement of bonuses, weather conditions, reduced standby or mobilization rates and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the 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 backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See “Risk Factors—Risks Related to Our Business and Operations—Our current backlog of contract drilling revenue may not be ultimately realized.”

For the year ended December 31, 2020, ExxonMobil, Shell, Saudi Aramco and Equinor represented approximately 44.2 percent, 26.3 percent, 17.0 percent and 3.6 percent of our backlog, respectively.

 

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Results of Operations

During 2020, the global mitigation efforts associated with preventing the spread of COVID-19 and production level disputes among OPEC+ members had significant adverse consequences for the financial condition of our customers, and uncertainty about the financial viability of offshore projects, resulting in contract delays, suspension and terminations as well as customers seeking to re-negotiate contracts to secure price reductions. Preliminary demand data compiled by the International Energy Agency (the “IEA”) indicates global liquid fuels consumption declined by 9 million barrels per day in 2020, the largest decline in IEA data since 1980. As a consequence, throughout 2020, we were under pressure to reduce dayrates on existing contracts and idle or suspend existing operations, and market dayrates for new contracts were lower compared to the end of 2019.

2020 Compared to 2019

Net loss from continuing operations attributable to Noble for the year ended December 31, 2020 was $4.0 billion, or $15.86 per diluted share, on operating revenues of $1.0 billion, compared to a net loss from continuing operations for the year ended December 31, 2019 of $696.8 million, or $2.79 per diluted share, on operating revenues of $1.3 billion.

As a result of Noble conducting substantially all of its business through Finco and its subsidiaries, the financial position and results of operations for Finco, and the reasons for material changes in the amount of revenue and expense items between December 31, 2020 and December 31, 2019, would be the same as the information presented below regarding Noble in all material respects, with the exception of operating income (loss). During the years ended December 31, 2020 and 2019, Finco’s operating loss was $100.6 million and $138.8 million lower, respectively, than that of Noble. The operating loss difference is primarily a result of expenses related to ongoing litigation, administration, and Chapter 11 bankruptcy charges directly attributable to Noble for operations support and stewardship-related services. In the years ended December 31, 2020 and 2019, Noble recorded a $15.0 million gain and a $100.0 million expense related to ongoing litigation, which was not recognized by Finco.

Key Operating Metrics

Operating results for our contract drilling services segment are dependent on three primary metrics: operating days, dayrates and operating costs. We also track rig utilization, which is a function of operating days and the number of rigs in our fleet. For more information on operating costs, see “—Contract Drilling Services” below.

The following table presents the average rig utilization, operating days and average dayrates for our rig fleet for the years ended December 31, 2020 and 2019:

 

   Average Rig
Utilization (1)
  Operating Days (2)  Average Dayrates (2) 
   December 31,  December 31,      December 31,    
   2020  2019  2020   2019   % Change  2020   2019  % Change 

Jackups

   71  93  3,147   4,054   (22)%  $132,722  $128,002   4

Floaters

   60  62  2,354   2,729   (14)%   208,723   266,442(3)   (22)% 
    

 

 

   

 

 

       

Total

   66  78  5,501   6,783   (19)%  $165,276  $183,706(3)   (10)% 
    

 

 

   

 

 

       

 

(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. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction.

 

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(2)

An operating day is defined as a calendar day during which a rig operated under a drilling contract. We define average dayrates as revenue from contract drilling services earned per operating day. Operating days include standby days which typically have a lower dayrate.

 

(3)

Includes the impact of the Noble Bully II contract buyout during the year ended December 31, 2019. Exclusive of this item, the average dayrate for the year ended December 31, 2019 would have been $205,304 for floaters and $159,106 for total rigs.

Contract Drilling Services

The following table presents the operating results for our contract drilling services segment for the years ended December 31, 2020 and 2019 (dollars in thousands):

 

   Year Ended December 31,   Change 
   2020   2019   $          %        

Operating revenues:

        

Contract drilling services

  $909,236  $1,246,058  $(336,822   (27)% 

Reimbursables and other (1)

   55,036   59,380   (4,344   (7)% 
  

 

 

   

 

 

   

 

 

   

 

 

 
  $964,272  $1,305,438  $(341,166   (26)% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

        

Contract drilling services

  $567,487  $698,343  $(130,856   (19)% 

Reimbursables (1)

   48,188   49,061   (873   (2)% 

Depreciation and amortization

   374,129   440,221   (66,092   (15)% 

General and administrative

   121,196   168,792   (47,596   (28)% 

Loss on impairment

   3,915,408   615,294  $3,300,114   536% 
  

 

 

   

 

 

   

 

 

   

 

 

 
   5,026,408   1,971,711   3,054,697   155% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

  $(4,062,136  $(666,273  $(3,395,863   510% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

Operating Revenues. The $336.8 million decrease in contract drilling services revenues for the year ended December 31, 2020 as compared to the same period of 2019 was composed of a $330.1 million decrease due to a decreased number of operating days and a $6.7 million decrease from lower dayrates. The revenue decrease was due to decreases in both floater fleet revenues and jackup fleet revenues of $235.8 million and $101.0 million, respectively.

The $235.8 million revenue decrease in our floater fleet for the year ended December 31, 2020 is attributable to a $276.0 million decrease mainly due to fewer operating days on two rigs, the Noble Bully II, which completed its contract in late 2019, and the Noble Clyde Boudreaux, which completed its contract in the middle of 2020. These decreases were partially offset by an increase of $30.4 million primarily due to the Noble Sam Croft returning to service following its reactivation near the end of the three months ended March 31, 2019 and the Noble Don Taylor, which had time between contracts in 2019 related to contract preparation. Floater fleet revenue was also impacted by a decline in dayrates of $32.2 million as the legacy contract for the Noble Don Taylor and the legacy assignment for the Noble Globetrotter I were completed in early 2019. These revenue reductions were partially offset by a $42.0 million increase in revenues associated with an increase in dayrates on various other rigs, including a $17.1 million increase in revenue on the Noble Sam Croft as a result of starting a new contract at a higher dayrate in 2020.

The $101.0 million revenue decrease in our jackup fleet for the year ended December 31, 2020 is attributable to a $118.5 million decrease due to fewer operating days on the Noble Regina Allen mainly due to the

 

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rig relocating to Trinidad and Tobago from Canada to start a new contract, the Noble Sam Hartley which had downtime in between contracts in 2020 during which it was warm-stacked, the Noble Scott Marks contract being suspended in May 2020 for a period of up to 12 months, the Noble Houston Colbert which was warm-stacked for five months in 2019 as compared to eight months in 2020, the Noble Joe Beall which completed its final contract in early 2020 and was subsequently sold later in 2020, and the Noble Sam Turner and the Noble Hans Deul which were warm-stacked in early 2020 after their contract completions. This decrease was partially offset by an increase in revenue of $34.0 million primarily due to increased operating days on the Noble Tom Prosser, as well as the Noble Johnny Whitstine and the Noble Joe Knight being placed into service in 2019. Adjusting for the effect of operating days on the average dayrates, there was also a net decrease of revenue of $16.5 million due to a decline in dayrates across the jackup fleet.

Operating Costs and Expenses. Contract drilling services costs decreased $130.9 million for the year ended December 31, 2020 as compared to the same period of 2019. The primary cost decreases were due to: (i) a $52.5 million decrease due to rigs that had fewer operating days or were idled, (ii) a $37.3 million decrease across our active fleet in 2020 compared to 2019 mainly due to reductions in repair and maintenance activity, transportation costs and personnel-related expenses, (iii) a $35.6 million decrease due to the retirement of the Noble Bully I, Noble Bully II, Noble Danny Adkins, Noble Joe Beall, Noble Jim Day and Noble Paul Romano during 2020 and (iv) a $23.4 million decrease in overhead across our fleet from lower personnel-related expenses in 2020 compared to 2019. These decreases were partially offset by a $9.9 million increase in expenses due to the Noble Joe Knight commencing operations in September 2019. Due to the effects of the ongoing COVID-19 pandemic, we experienced a $9.8 million increase primarily in labor expenses across our fleet in 2020.

Depreciation and amortization decreased $66.1 million for the year ended December 31, 2020 as compared to the same period of 2019. The decline was due to the effect of rig impairments recorded during 2019 and 2020.

Loss on Impairments. We recorded a loss on impairment of $3.9 billion for the year ended December 31, 2020 as compared to a loss on impairment of $615.3 million for the same period of 2019. We impaired the carrying value to estimated fair value for seven floaters and nine jackups and certain capital spare equipment during 2020 and two floaters and certain capital spare equipment during 2019. We impaired the carrying value to estimated fair value for the Noble Bully II during 2019, of which $265.0 million was attributable to our former joint venture partner. For additional information, see “Note 6—Loss on Impairment” to our consolidated financial statements included elsewhere in this prospectus.

Other Income and Expenses

General and Administrative Expenses. General and administrative expenses decreased $47.6 million during the year ended December 31, 2020 as compared to the same period of 2019, primarily as a result of a reduction to Noble’s ongoing litigation charge of $53.5 million, partially offset by an increase in Finco’s litigation charge of $7.5 million.

Pre-Petition Charges. Noble incurred $14.4 million of pre-petition charges during the year ended December 31, 2020 as compared to no charges for the same period of 2019. These costs relate to attorneys’ and financial advisors’ fees and other professional fees incurred in connection with the Chapter 11 Cases, prior to the Petition Date.

Reorganization Items, Net. Noble incurred net charges of $23.9 million for reorganization items during the year ended December 31, 2020 as compared to no charges for the same period of 2019. Finco incurred net charges of $50.8 million for reorganization items during the year ended December 31, 2020 as compared to no charges for the same period of 2019. These costs relate to attorneys’ and financial advisors’ fees, write-off of deferred financing costs and debt discounts, revisions of estimated claims, adjustments to legal contingencies and other professional fees incurred in connection with the Chapter 11 Cases.

 

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Interest Expense. Interest expense decreased $114.8 million during the year ended December 31, 2020 as compared to the same period of 2019. This decrease was primarily due to the Bankruptcy Court ordering a stay on all interest expense starting on the Petition Date; therefore, we did not incur any interest expense after July 31, 2020 and the retirement of our 2015 Credit Facility (as defined herein) in December 2019. For additional information, see “Note 7—Debt” to our consolidated financial statements included elsewhere in this prospectus.

Income Tax Benefit. Our income tax benefit increased by $221.9 million for the year ended December 31, 2020 as compared to the same period of 2019.

Significant items included in the income tax benefit for the year ended December 31, 2020 are as follows:

 

  

Tax benefits related to the following:

 

  

gross benefit of $192.4 million related to the impairment of rigs and certain capital spares partially offset by a corresponding increase in valuation allowance of $92.7 million;

 

  

the application of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) of $39.0 million;

 

  

release of reserves related to the closure of the 2012- 2017 US tax audit of $111.9 million; and

 

  

tax impact of an internal restructuring net of resulting adjustment to the valuation allowance of $17.9 million.

 

  

Tax expenses related to the following:

 

  

a 2019 US return-to-provision adjustment and resulting adjustment to the valuation allowance of $21.2 million;

 

  

an increase in United Kingdom (“UK”) valuation allowance of $31.1 million; and

 

  

an increase in non-US tax reserves of $7.8 million.

Significant items included in the income tax benefit in the same period of 2019 are as follows:

 

  

Tax benefits related to the following:

 

  

release of reserves related to the closure of the 2010-2011 US tax audit of $33.7 million; and

 

  

reversal of UK valuation allowance of $19.2 million.

 

  

Tax expense related to an internal restructuring of $36.8 million.

Excluding the tax impact of the significant items as outlined above and other immaterial items, our income tax benefit increased by $25.0 million. This increase is primarily a result of an increase in US taxable losses partially offset by non-US recurring tax expense.

2019 Compared to 2018

Information related to a comparison of our results of operations for our fiscal year ended December 31, 2019 compared to our fiscal year ended December 31, 2018 is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 20, 2020.

Liquidity and Capital Resources

As a result of the financial restructuring through the Chapter 11 Cases, Noble emerged with a new $675.0 million revolving credit facility and $216.0 million of Notes. At emergence, Legacy Noble’s ordinary

 

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shares were cancelled and Ordinary Shares were issued to Legacy Noble’s former bondholders. Certain former bondholders and former equity holders of Legacy Noble were also issued warrants to purchase shares of Noble Parent.

Post-emergence Debt

Senior Secured Exit Revolving Credit Facility

On the Effective Date, Finco and Noble International Finance Company (“NIFCO”) entered into the Exit Credit Agreement providing for the $675.0 million Exit Credit Facility and cancelled all debt that existed immediately prior to the Effective Date. The Exit Credit Facility matures on July 31, 2025. Subject to the satisfaction of certain conditions, Finco may from time to time designate one or more of Finco’s other wholly-owned subsidiaries as additional borrowers under the Exit Credit Agreement (collectively with Finco and NIFCO, the “Borrowers”). As of the Effective Date, $177.5 million of loans were outstanding, and $8.8 million of letters of credit were issued, under the Exit Credit Facility.

All obligations of the Borrowers under the Exit Credit Agreement, certain cash management obligations and certain swap obligations are unconditionally guaranteed, on a joint and several basis, by Finco and certain of its direct and indirect subsidiaries (collectively with the Borrowers, the “Credit Parties”), including a guarantee by each Borrower of the obligations of each other Borrower under the Exit Credit Agreement. All such obligations, including the guarantees of the Exit Credit Facility, are secured by senior priority liens on substantially all assets of, and the equity interests in, each Credit Party, including all of the rigs owned by the Company as of the Effective Date or acquired thereafter and certain assets related thereto, in each case, subject to certain exceptions and limitations described in the Exit Credit Agreement.

The loans outstanding under the Exit Credit Facility bear interest at a rate per annum equal to the applicable margin plus, at Finco’s option, either: (i) the reserve-adjusted LIBOR or (ii) a base rate, determined as the greatest of (x) the prime loan rate as published in the Wall Street Journal, (y) the federal funds effective rate plus 1/2 of 1% and (z) the reserve-adjusted one-month LIBOR plus 1%. The applicable margin is initially 4.75% per annum for LIBOR loans and 3.75% per annum for base rate loans and will be increased by 50 basis points after July 31, 2024, and may be increased by an additional 50 basis points under certain conditions described in the Exit Credit Agreement.

The Borrowers are required to pay a quarterly commitment fee to each lender under the Exit Credit Agreement, which accrues at a rate per annum equal to 0.50% on the average daily unused portion of such lender’s commitments under the Exit Credit Facility. The Borrowers are also required to pay customary letter of credit and fronting fees.

Borrowings under the Exit Credit Agreement may be used for working capital and other general corporate purposes. Availability of borrowings under the Exit Credit Agreement is subject to the satisfaction of certain conditions, including restrictions on borrowings if, after giving effect to any such borrowings and the application of the proceeds thereof, (i) the aggregate amount of Available Cash (as defined in the Exit Credit Agreement) would exceed $100 million, (ii) the Consolidated First Lien Net Leverage Ratio (as defined in the Exit Credit Agreement) would be greater than 5.50 to 1.00 and the aggregate principal amount outstanding under the Exit Credit Facility would exceed $610 million, or (iii) the Asset Coverage Ratio (as described below) would be less than 2.00 to 1.00.

Mandatory prepayments and, under certain circumstances, commitment reductions are required under the Exit Credit Facility in connection with (i) certain asset sales, asset swaps and events of loss (subject to reinvestment rights if no event of default exists) and (ii) certain debt issuances. Available Cash in excess of $150 million is also required to be applied periodically to prepay loans (without a commitment reduction). The loans under the Exit Credit Facility may be voluntarily prepaid, and the commitments thereunder voluntarily terminated or reduced, by the Borrowers at any time without premium or penalty, other than customary breakage costs.

 

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The Exit Credit Agreement obligates Finco and its restricted subsidiaries to comply with the following financial maintenance covenants:

 

  

as of the last day of each fiscal quarter in 2021, Adjusted EBITDA (as defined in the Exit Credit Agreement) is not permitted to be lower than (i) $70 million for the four fiscal quarter period ending March 31, 2021, (ii) $40 million for the four fiscal quarter period ending June 30, 2021 and (iii) $25 million for the four fiscal quarter periods ending on each of September 30, 2021 and December 31, 2021;

 

  

as of the last day of each fiscal quarter ending on or after March 31, 2022, the ratio of Adjusted EBITDA to Cash Interest Expense (as defined in the Exit Credit Agreement) is not permitted to be less than (i) 2.00 to 1.00 for each four fiscal quarter period ending on or after March 31, 2022 until June 30, 2024, and (ii) 2.25 to 1.00 for each four fiscal quarter period ending thereafter; and

 

  

for each fiscal quarter ending on or after June 30, 2021, the ratio of (i) Asset Coverage Aggregate Rig Value (as defined in the Exit Credit Agreement) to (ii) the aggregate principal amount of loans and letters of credit outstanding under the Exit Credit Facility (the “Asset Coverage Ratio”) as of the last day of any such fiscal quarter is not permitted to be less than 2.00 to 1.00.

The Exit Credit Facility contains affirmative and negative covenants, representations and warranties and events of default that the Company considers customary for facilities of this type.

Notes Indenture

On the Effective Date, pursuant to the Backstop Commitment Agreement and in accordance with the Plan, Noble Parent and Finco consummated the Rights Offering of Notes and associated Ordinary Shares at an aggregate subscription price of $200 million. On the Effective Date, Finco issued an aggregate principal amount of $216 million of Notes, which includes the aggregate subscription price of $200 million plus a backstop fee of $16 million which was paid in kind. For additional information regarding the Notes, see “Description of the Notes.”

Sources and Uses of Cash

Our principal sources of capital in 2020 were cash generated from operating activities, funding from our 2017 Credit Facility and the CARES Act. Cash on hand during 2020 was primarily used for the following:

 

  

normal recurring operating expenses;

 

  

fees and expenses related to the Chapter 11 Cases; and

 

  

capital expenditures.

Our currently anticipated cash flow needs, both in the short-term and long-term, may include the following:

 

  

normal recurring operating expenses;

 

  

planned and discretionary capital expenditures; and

 

  

repayments of debt and interest.

We currently expect to fund these cash flow needs with cash generated by our operations, cash on hand, borrowings under our Exit Credit Facility and potential issuances of equity or long-term debt.

On March 27, 2020, the 45th President of the United States signed the CARES Act into law. The CARES Act makes significant changes to various areas of US federal income tax law by, among other things, allowing a five-year carryback period for 2018, 2019 and 2020 net operating losses (“NOLs”), accelerating the realization of

 

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remaining alternative minimum tax credits and increasing the interest expense limitation under Section 163(j) for years 2019 and 2020. The Company recognized an income tax benefit of $39.0 million as a result of the application of the CARES Act in its 2020 financial statements. Such $39.0 million tax benefit was comprised primarily of a current income tax receivable of $151.4 million, partially offset by non-cash deferred tax expense of $112.4 million related to NOL utilization. As of December 31, 2020, we had received $134.0 million of the income tax receivable related to the CARES Act, along with an additional receipt of $4.4 million of related interest.

Net cash provided by operating activities was $273.2 million for the year ended December 31, 2020 as compared to $186.8 million for the year ended December 31, 2019. The increase in net cash provided by operating activities for the year ended December 31, 2020 was primarily attributable to $151.2 million in tax refunds received offset by a reduction in cash flows from operating activity. We had working capital of $383.9 million and negative working capital of $94.8 million at December 31, 2020 and December 31, 2019, respectively.

Net cash used in investing activities for the year ended December 31, 2020 was $121.5 million as compared to $256.0 million for the year ended December 31, 2019. The variance primarily relates to the purchase and preparation of the Noble Joe Knight and the preparation of the Noble Johnny Whitstine to commence operations for their contracts in the fourth quarter and the second quarter of 2019, respectively.

Net cash provided by financing activities for the year ended December 31, 2020 was $107.4 million as compared to net cash used in financing activities of $200.7 million for the year ended December 31, 2019. The variance primarily relates to higher net borrowings of $108.9 million in the year ended December 31, 2020 as compared to net repayments of only $65.0 million in the year ended December 31, 2019 and the $106.7 million purchase of Shell’s non-controlling interest in the Bully I and Bully II joint ventures in the year ended December 31, 2019.

In March 2019, we completed cash tender offers for our Senior Notes due 2020 (the “2020 Notes”), our Senior Notes due 2021 (the “2021 Notes”), our Senior Notes due 2022 (the “2022 Notes”) and the 2024 Notes. Pursuant to such tender offers, we purchased $440.9 million aggregate principal amount of these senior notes for $400.0 million, plus accrued interest, using borrowings under the 2015 Credit Facility and cash on hand.

At December 31, 2020, we had a total contract drilling services backlog of approximately $1.6 billion, which includes a commitment of 67.0 percent of available days for 2021. For additional information regarding our backlog, see “—Contract Drilling Services Backlog.”

Capital Expenditures

Capital expenditures totaled $148.2 million, $306.4 million and $281.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Capital expenditures during 2020 consisted of the following:

 

  

$65.8 million for sustaining capital;

 

  

$23.9 million in major projects, including subsea and other related projects; and

 

  

$58.5 million for rebillable capital modifications.

Our total capital expenditure estimate for 2021 is expected to range between $170.0 million and $190.0 million, of which approximately $80.0 to $90.0 million is currently anticipated to be spent for sustaining capital.

From time to time we consider possible projects that would require expenditures that are not included in our capital budget, and such unbudgeted expenditures could be significant. In addition, while liquidity and preservation of capital remains our top priority, we will continue to evaluate acquisitions of drilling units from time to time.

 

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Pre-emergence Debt

2017 Credit Facility

In December 2017, Noble Cayman Limited, a Cayman Islands company and a wholly-owned indirect subsidiary of Finco, NIFCO, a Cayman Islands company and a wholly-owned indirect subsidiary of Finco, and Noble Holding UK Limited, a company incorporated under the laws of England and Wales and a wholly-owned direct subsidiary of Legacy Noble (“NHUK”), as parent guarantor, entered into a senior unsecured credit agreement (as amended, the “2017 Credit Facility”). In July 2019, we executed a first amendment to our 2017 Credit Facility, which, among other things, reduced the maximum aggregate amount of commitments thereunder from $1.5 billion to $1.3 billion. As a result of such reduction in the maximum aggregate amount of commitments, we recognized a net loss of approximately $0.7 million in the year ended December 31, 2019.

Prior to the filing of the Chapter 11 Cases, the 2017 Credit Facility was scheduled to mature in January 2023. Borrowings were available for working capital and other general corporate purposes. The 2017 Credit Facility provided for a letter of credit sub-facility in the amount of $15.0 million, with the ability to increase such amount up to $500.0 million with the approval of the lenders. The 2017 Credit Facility had provisions that varied the applicable interest rates for borrowings based upon our debt ratings. Borrowings under the 2017 Credit Facility bore interest at LIBOR plus an applicable margin. NHUK guaranteed the obligations of the borrowers under the 2017 Credit Facility. In addition, certain indirect subsidiaries of Legacy Noble that owned rigs were guarantors under the 2017 Credit Facility.

In April 2020, we borrowed $100.0 million under the 2017 Credit Facility to pay down our indebtedness under the Seller Loans (as defined herein) as further described below. At December 31, 2020, we had $545.0 million of borrowings outstanding under the 2017 Credit Facility. At December 31, 2020, we had $8.8 million of letters of credit issued under the 2017 Credit Facility and an additional $6.0 million in letters of credit and surety bonds issued under unsecured or cash collateralized bilateral arrangements.

The filing of the Chapter 11 Cases constituted events of default that accelerated the Company’s obligations under the indentures governing our then outstanding senior notes and under our 2017 Credit Facility. In addition, the unpaid principal and interest due under our then outstanding senior notes and 2017 Credit Facility became immediately due and payable. However, any efforts to enforce such payment obligations with respect to such senior notes and 2017 Credit Facility were automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code. See “Note 1—Organization and Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus for additional information.

On the Effective Date, all outstanding obligations under the 2017 Credit Facility were terminated and the holders of claims under the 2017 Credit Facility had such obligations refinanced through the Exit Credit Facility. On the Effective Date, all liens and security interests granted to secure such obligations were terminated and are of no further force and effect.

2015 Credit Facility

Effective January 2018, in connection with entering into the 2017 Credit Facility, we amended our $300.0 million senior unsecured credit facility that would have matured in January 2020 and was guaranteed by our indirect, wholly-owned subsidiaries, Noble Holding (U.S.) LLC and Noble Holding International Limited (“NHIL”), a finance subsidiary of Finco, (as amended, the “2015 Credit Facility”). As a result of the 2015 Credit Facility’s reduction in the aggregate principal amount of commitments, we recognized a net loss of approximately $2.3 million in the year ended December 31, 2018. On December 20, 2019, we repaid $300.0 million of outstanding borrowings and terminated the 2015 Credit Facility.

 

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Seller Loans

In February 2019, we purchased the Noble Joe Knight for $83.8 million with a $53.6 million seller-financed secured loan (the “2019 Seller Loan”). The 2019 Seller Loan had a term of four years and required a 5% principal payment at the end of the third year with the remaining 95% of the principal due at the end of the term. The 2019 Seller Loan bore a cash interest rate of 4.25% and the equivalent of a 1.25% interest rate paid-in-kind over the four-year term of the 2019 Seller Loan. Based on the terms of the 2019 Seller Loan, the 1.25% paid-in-kind interest rate was accelerated into the first year, resulting in an overall first year interest rate of 8.91%, of which only 4.25% was payable in cash. Thereafter, the paid-in-kind interest ended and the cash interest rate of 4.25% was payable for the remainder of the term.

In September 2018, we purchased the Noble Johnny Whitstine for $93.8 million with a $60.0 million seller-financed secured loan (the “2018 Seller Loan” and, together with the 2019 Seller Loan, the “Seller Loans”). The 2018 Seller Loan had a term of four years and required a 5% principal payment at the end of the third year with the remaining 95% of the principal due at the end of the term. The 2018 Seller Loan bore a cash interest rate of 4.25% and the equivalent of a 1.25% interest rate paid-in-kind over the four-year term of the 2018 Seller Loan. Based on the terms of the 2018 Seller Loan, the 1.25% paid-in-kind interest rate was accelerated into the first year, resulting in an overall first year interest rate of 8.91%, of which only 4.25% was payable in cash. Thereafter, the paid-in-kind interest ended and the cash interest rate of 4.25% was payable for the remainder of the term.

Both of the Seller Loans were guaranteed by Finco and each was secured by a mortgage on the applicable rig and by the pledge of the shares of the applicable single-purpose entity that owned the relevant rig. Each Seller Loan contained a debt to total capitalization ratio requirement that such ratio not exceed 0.55 at the end of each fiscal quarter, a $300.0 million minimum liquidity financial covenant and an asset and revenue covenant substantially similar to the Guaranteed Notes, as well as other covenants and provisions customarily found in secured transactions, including a cross default provision. Each Seller Loan required immediate repayment on the occurrence of certain events, including the termination of the drilling contract associated with the relevant rig or circumstances in connection with a material adverse effect.

In April 2020, the Company agreed with the lender under the Seller Loans to pay off 85% of the outstanding principal amount of the Seller Loans in exchange for a discount to the outstanding loan balance. On April 20, 2020, the Company made a payment of $48.1 million under the 2019 Seller Loan and $53.6 million under the 2018 Seller Loan, and, upon the lender’s receipt of such payment, interest ceased accruing, and the financial covenants set forth in the agreements relating to the Seller Loans ceased to apply. On July 20, 2020, at the conclusion of the 90-day period following the payment date, all outstanding amounts were reduced to zero, all security was released, and the Seller Loans were terminated.

As a result of the early repayment of the Seller Loans and the conclusion of the 90-day period following the payment date, we recognized gains of approximately $17.3 million in the year ended December 31, 2020.

Senior Notes

In March 2019, we completed cash tender offers for the 2020 Notes, the 2021 Notes, the 2022 Notes and the 2024 Notes. Pursuant to such tender offers, we purchased $440.9 million aggregate principal amount of these senior notes for $400.0 million, plus accrued interest, using cash on hand and borrowings under the 2015 Credit Facility. As a result of these transactions, we recognized a net gain of approximately $31.3 million.

On the Effective Date, in accordance with the Plan, all outstanding obligations under our senior notes were cancelled and the indentures governing such obligations were cancelled, except to the limited extent expressly set forth in the Plan.

 

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Share Capital

Prior to our emergence from bankruptcy, the declaration and payment of dividends by Legacy Noble required the authorization of the board of directors of Legacy Noble, provided that such dividends on issued share capital could be paid only out of Legacy Noble’s “distributable reserves” on its statutory balance sheet in accordance with English law. Therefore, Legacy Noble was not permitted to pay dividends out of share capital, which included share premium. Legacy Noble had not paid dividends since the third quarter of 2016. The payment of future dividends by Noble Parent will depend on the Company’s results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions and other factors deemed relevant by the Board; however, at this time, we do not expect that Noble Parent would pay any dividends in the foreseeable future.

At Legacy Noble’s 2020 Annual General Meeting, Legacy Noble’s shareholders authorized its board of directors to increase share capital through the issuance of up to approximately 8.7 million ordinary shares (at then current nominal value of $0.01 per share). That authority to allot shares expired on the Effective Date. Other than shares issued to Legacy Noble’s directors under the Noble Corporation 2017 Director Omnibus Plan, the authority was not used to allot shares during the year ended December 31, 2020. Pursuant to the Amended and Restated Memorandum of Association of Noble Parent, the share capital of Noble Parent is $6,000 divided into 500,000,000 ordinary shares of a par value of $0.00001 each and 100,000,000 shares of a par value of $0.00001, each of such class or classes having the rights as the Board may determine from time to time. Pursuant to the Memorandum of Association of Finco, the share capital of Finco is $55,000,000 divided into 400,000,000 shares of a par value of $0.10 each and 15,000,000 preferred shares of a par value of $1.00 each.

In accordance with the Plan, all agreements, instruments and other documents evidencing, relating to or otherwise connected with any of Legacy Noble’s equity interests outstanding prior to the Effective Date, including all equity-based awards, were cancelled and all such equity interests have no further force or effect after the Effective Date. Pursuant to the Plan, the holders of Legacy Noble’s ordinary shares, par value $0.01 per share, outstanding prior to the Effective Date received their pro rata share of the Tranche 3 Warrants to acquire Ordinary Shares.

Share Repurchases

Under English law, Legacy Noble was only permitted to purchase its own shares by way of an “off-market purchase” in a plan approved by shareholders. No shareholder authority to repurchase shares of Legacy Noble was in effect at the Effective Date, and there is currently no share repurchase plan in place for Noble Parent. During the years ended December 31, 2020, 2019 and 2018, Legacy Noble did not repurchase any of its shares.

Summary of Contractual Cash Obligations and Commitments

The following table summarizes our contractual cash obligations and commitments (in thousands):

 

     Payments Due by Period    
  For the Years Ending December 31,       
  Total  2021  2022  2023  2024  2025  Thereafter  Other 

Contractual Cash Obligations

        

Debt obligations (1)

 $3,997,926 $3,997,926 $—   $—   $—   $—   $—   $—  

Interest payments (1)

  110,301  110,301  —     —     —     —     —     —   

Operating leases

  42,040  8,594  5,545  3,567  3,629  3,687  17,018  —   

Pension plan contributions

  140,046  19,390  11,791  12,375  12,663  13,200  70,627  —   

Tax reserves (2)

  42,501  —     —     —     —     —     —     42,501
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total contractual cash obligations

 $4,332,814 $4,136,211 $17,336 $15,942 $16,292 $16,887 $87,645 $42,501
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

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(1)

Debt obligations and interest payments are included in “Liabilities subject to compromise.” Since the Petition Date, the Company operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with provisions of the Bankruptcy Code. On the Effective Date, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases. See “Note 2—Chapter 11 Proceedings” to our consolidated financial statements included elsewhere in this prospectus.

 

(2)

Tax reserves are included in “Other” due to the difficulty in making reasonably reliable estimates of the timing of cash settlements to taxing authorities. See “Note 12—Income Taxes” to our consolidated financial statements included elsewhere in this prospectus.

At December 31, 2020, we had other commitments that we are contractually obligated to fulfill with cash if the obligations are called. These obligations include letters of credit that guarantee our performance as it relates to our drilling contracts, tax and other obligations in various jurisdictions. These letters of credit obligations are not normally called, as we typically comply with the underlying performance requirement.

The following table summarizes our other commercial commitments at December 31, 2020 (in thousands):

 

   Total   Amount of Commitment Expiration Per Period 
   2021   2022   2023   2024   2025   Thereafter 

Total letters of credit and commercial commitments

  $14,840  $9,184  $—    $—    $—    $—    $5,656
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Guarantees of Registered Securities Prior to Emergence

NHIL is a finance subsidiary of Finco and, prior to our emergence from the Chapter 11 Cases on the Effective Date, had issued the following registered securities, which, together with the indentures governing such registered securities, were cancelled on the Effective Date in accordance with the Plan: the 2020 Notes, the 2021 Notes, the 2022 Notes, the 2024 Notes, the Senior Notes due 2025, the Senior Notes due 2040, the Senior Notes due 2041, the Senior Notes due 2042 and the Senior Notes due 2045. Finco had fully and unconditionally guaranteed these registered securities and no other subsidiary of Finco had guaranteed these registered securities.

Financial Information about Guarantors, Issuers of Guaranteed Securities, Affiliates Whose Securities Collateralize a Registrant’s Securities and Consolidated Subsidiaries

As described herein, the Notes issued by Finco have been fully and unconditionally guaranteed, jointly and severally, on a senior secured second-priority basis, by the direct and indirect subsidiaries of Finco that are Credit Parties under the Exit Credit Facility (the “Guarantors”). The Notes and such guarantees are secured by second priority liens on the collateral securing the obligations under the Exit Credit Facility, including, among other things, (i) a pledge of the equity interests in Finco, (ii) pledges of the equity interests in the Guarantors and (iii) a lien on substantially all of the assets of Finco and the Guarantors (including the equity interests in substantially all of the other direct subsidiaries of Finco and the Guarantors), in each case, subject to certain exceptions and limitations (collectively, the “Collateral”). The Collateral also includes mortgages on certain rigs owned by the Company as of the Effective Date. We are providing the following information about the Guarantors and the Collateral in compliance with Rules 13-01 and 13-02 of Regulation S-X.

Note Guarantees

The guarantees by the Guarantors are unconditional, irrevocable, joint and several senior obligations of each Guarantor and rank equally in right of payment with all future senior indebtedness of such Guarantor and effectively senior to all of such Guarantor’s unsecured senior indebtedness. The guarantees rank senior in right of payment to any existing and future subordinated obligations of such Guarantor and are effectively junior to any

 

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obligations of such Guarantor that are secured by senior liens on the Collateral or secured by assets which do not constitute Collateral. Under the indenture governing the Notes, a Guarantor may be released and relieved of its obligations under its guarantee under certain circumstances, including: (1) upon Finco’s exercise of legal defeasance in accordance with the relevant provisions of the indenture governing the Notes, (2) in the event of any sale or other disposition of all of the capital stock of any Guarantor in compliance with the provisions of the indenture governing the Notes, (3) upon the dissolution or liquidation of a Guarantor, (3) with the requisite consent of the noteholders, (4) if such Guarantor is properly designated as an unrestricted subsidiary in accordance with the indenture governing the Notes, (5) upon the release or discharge of the Guarantor’s obligations under its guarantee or (6) with respect to certain future immaterial guarantors, upon a written notice from Finco to the trustee for the Notes.

Finco is a holding company with no significant operations or material assets other than the direct and indirect equity interests it holds in the Guarantors and other non-guarantor subsidiaries. Finco conducts its operations primarily through its subsidiaries. As a result, its ability to pay principal and interest on the Notes is dependent on the cash flow generated by its subsidiaries and their ability to make such cash available to Finco by dividend or otherwise. The Guarantors’ earnings will depend on their financial and operating performance, which will be affected by general economic, industry, financial, competitive, operating, legislative, regulatory and other factors beyond Finco’s control. Any payments of dividends, distributions, loans or advances to Finco by the Guarantors could also be subject to restrictions on dividends under applicable local law in the jurisdictions in which the Guarantors operate. In the event that Finco does not receive distributions from the Guarantors, or to the extent that the earnings from, or other available assets of, the Guarantors are insufficient, Finco may be unable to make payments on the Notes.

Pledged Securities of Affiliates

Pursuant to the terms of the Notes collateral documents, the collateral agent under the indenture governing the Notes may pursue remedies, or pursue foreclosure proceedings on the Collateral (including the equity of the Guarantors and other direct subsidiaries of Finco and the Guarantors), following an event of default under the indenture governing the Notes. The collateral agent’s ability to exercise such remedies is limited by the intercreditor agreement for so long as any priority lien debt is outstanding.

The pledged equity of the Guarantors constitutes substantially all of the securities of our affiliates which have been pledged to secure the obligations under the Notes. The value of the pledged equity is subject to fluctuations based on factors that include, among other things, general economic conditions and the ability to realize on the collateral as part of a going concern and in an orderly fashion to available and willing buyers and not under distressed circumstances. There is no trading market for the pledged equity interests.

Under the terms of the documents governing the Notes (the “Notes Documents”), Finco and the Guarantors will be entitled to the release of the Collateral from the liens securing the Notes under one or more circumstances, including (1) to the extent required by or pursuant to the terms of the Notes Documents; (2) to the extent that proceeds continue to constitute Collateral, in the event that Collateral is sold, transferred, disbursed or otherwise disposed of to third parties; or (3) as otherwise provided in the Notes Documents, including the release of the priority lien on such Collateral. Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the indenture governing the Notes, the lien on any pledged equity interests issued by such Guarantor and on any assets of such Guarantor will automatically terminate.

Summarized Financial Information

The summarized financial information below reflects the combined accounts of the Guarantors and the non-consolidated accounts of Finco (collectively, the “Obligors”), for the dates and periods indicated. The financial information is presented on a combined basis and intercompany balances and transactions between entities in the Obligor group have been eliminated.

 

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Summarized Balance Sheet Information

 

   December 31, 2020 
   Obligors 
   (In thousands) 

Assets

  

Current assets

  $461,587 

Amounts due from non-guarantor subsidiaries, current

   5,552,158 

Noncurrent assets

   3,590,865 

Amounts due from non-guarantor subsidiaries, noncurrent

   1,045,237 

Liabilities and Equity

  

Current liabilities

  $159,601 

Amounts due to non-guarantor subsidiaries, current

   5,532,634 

Noncurrent liabilities

   120,033 

Amounts due to non-guarantor subsidiaries, noncurrent

   480,460 

Summarized Statement of Operations Information

 

   Year Ended
December 31, 2020
 
   Obligors (1) 
   (In thousands) 

Operating revenues

  $895,295 

Operating costs and expenses

   4,320,475 

Income (loss) from continuing operations before income taxes

   (3,414,898

Net income (loss)

  $(3,468,407

 

(1)

Includes operating revenue of $88.2 million, operating costs and expenses of $23.7 million and other expense of $3.3 million attributable to transactions with non-guarantor subsidiaries.

Critical Accounting Policies

We consider the following to be our critical accounting policies and estimates since they are very important to the understanding of our financial condition and results and require our most subjective and complex judgments. We have discussed the development, selection and disclosure of such policies and estimates with the Audit Committee of the Board. For a discussion of our significant accounting policies, see “Note 1— Organization and Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus.

We prepare our consolidated financial statements in accordance with GAAP, which require us to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. These estimates require significant judgments and assumptions. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

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Principles of Consolidation

The consolidated financial statements included elsewhere in this prospectus include our accounts and those of our wholly-owned subsidiaries and entities in which we hold a controlling financial interest. Until December 3, 2019, our consolidated financial statements included the accounts of two joint ventures, in each of which we owned a 50 percent interest. On December 3, 2019, we acquired the remaining 50 percent interest not owned by us and as a result the two joint ventures became our wholly-owned subsidiaries. Our historical ownership interest in the joint ventures met the definition of variable interest under FASB codification and we determined that we were the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation-UK Companies Act 2006 Section 435 Statement

The consolidated financial statements included elsewhere in this prospectus have been prepared in accordance with GAAP, which the Board considers to be the most meaningful presentation of our results of operations and financial position. The consolidated financial statements included elsewhere in this prospectus do not constitute statutory accounts required by the UK Companies Act 2006 (“Companies Act”), which will be prepared in accordance with International Financial Reporting Standards, as adopted by the European Union and delivered to the Registrar of Companies in the UK.

Property and Equipment

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. At December 31, 2020 and 2019, we had $99.8 million and $88.9 million of construction-in-progress, respectively. Such amounts are included in “Property and equipment, at cost” in the Consolidated Balance Sheets included elsewhere in this prospectus. 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 forty years.

Interest is capitalized on construction-in-progress using the weighted average cost of debt outstanding during the period of construction. During the years ended December 31, 2020, 2019 and 2018, there was zero, $9.6 million and $2.9 million capitalized interest, 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 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 the Consolidated Balance Sheets included elsewhere in this prospectus. Such amounts, net of accumulated depreciation, totaled $129.6 million and $143.4 million at December 31, 2020 and 2019, respectively. Depreciation expense from continuing operations related to overhauls and asset replacement totaled $55.4 million, $61.3 million and $66.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We evaluate the impairment of property and equipment whenever events or changes in circumstances (including the decision to cold stack, retire or sell a rig) indicate that the carrying amount of an asset may not be recoverable. An impairment loss on our property and equipment may exist 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.

 

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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 or piece of equipment, we may take an impairment loss in the future.

During the years ended December 31, 2020, 2019 and 2018, we recognized a non-cash loss on impairment of $3.9 billion, $615.3 million and $802.1 million, respectively, related to our long-lived assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview” and “Note 6—Loss on Impairment” to our consolidated financial statements included elsewhere in this prospectus for additional information.

Revenue Recognition

The activities that primarily drive the revenue earned in our drilling contracts include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services.

Our standard drilling contracts require that we operate the rig at the direction of the customer throughout the contract term (which is the period we estimate to benefit from the corresponding activities and generally ranges from two to 60 months). The activities performed and the level of service provided can vary hour to hour. Our obligation under a standard contract is to provide whatever level of service is required by the operator, or customer, over the term of the contract. We are, therefore, under a stand-ready obligation throughout the entire contract duration. Consideration for our stand-ready obligation corresponds to distinct time increments, though the rate may be variable depending on various factors, and is recognized in the period in which the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. We have elected to exclude from the transaction price measurement all taxes assessed by a governmental authority. See further discussion regarding the allocation of the transaction price to the remaining performance obligations below.

The amount estimated for variable consideration may be subject to interrupted or restricted rates and is only included in the transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will not occur throughout the term of the contract (“constrained revenue”). When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

Dayrate Drilling Revenue. Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given hour.

Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract and, therefore, the associated revenue is allocated to the overall performance obligation and the associated pre-operating costs are deferred. We record a contract liability for mobilization fees received and a deferred asset for costs. Both revenue and pre-operating costs are recognized ratably over the initial term of the related drilling contract.

 

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In most contracts, there is uncertainty as to the amount of expected demobilization revenue due to contractual provisions that stipulate that certain conditions must be present at contract completion for such revenue to be received and as to the amount thereof, if any. For example, contractual provisions may require that a rig demobilize a certain distance before the demobilization revenue is payable or the amount may vary dependent upon whether or not the rig has additional contracted work within a certain distance from the wellsite. Therefore, the estimate for such revenue may be constrained, as described earlier, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions. In cases where demobilization revenue is expected to be received upon contract completion, it is estimated as part of the overall transaction price at contract inception and recognized in earnings ratably over the initial term of the contract with an offset to an accretive contract asset.

Contract Preparation Revenue. Some of our drilling contracts require downtime before the start of the contract to prepare the rig to meet customer requirements. At times, we may be compensated by the customer for such work (on either a fixed lump-sum or variable dayrate basis). These activities are not considered to be distinct within the context of the contract and, therefore, the related revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for contract preparation fees received, which is amortized ratably to contract drilling revenue over the initial term of the related drilling contract.

Bonuses, Penalties and Other Variable Consideration. We may receive bonus increases to revenue or penalty decreases to revenue. Based on historical data and ongoing communication with the operator/customer, we are able to reasonably estimate this variable consideration. We will record such estimated variable consideration and re-measure our estimates at each reporting date. For revenue estimated, but not received, we will record to “Prepaid expenses and other current assets” on our Consolidated Balance Sheets included elsewhere in this prospectus.

Capital Modification Revenue. From time to time, we may receive fees from our customers for capital improvements to our rigs to meet contractual requirements (on either a fixed lump-sum or variable dayrate basis). Such revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract as these activities are integral to our drilling activities and are not considered to be a stand-alone service provided to the customer within the context of our contracts. We record a contract liability for such fees and recognize them ratably as contract drilling revenue over the initial term of the related drilling contract.

Revenues Related to Reimbursable Expenses. We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is constrained revenue and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer as “Reimbursables and other” in our Consolidated Statements of Operations included elsewhere in this prospectus. Such amounts are recognized ratably over the period within the contract term during which the corresponding goods and services are to be consumed.

Deferred revenues from drilling contracts totaled $59.9 million and $65.1 million at December 31, 2020 and 2019, respectively. Such amounts are included in either “Other current liabilities” or “Other liabilities” in the Consolidated Balance Sheets included elsewhere in this prospectus, based upon our expected time of recognition. Related expenses deferred under drilling contracts totaled $13.9 million at December 31, 2020 as compared to $30.8 million at December 31, 2019 and are included in either “Prepaid expenses and other current assets,” “Other assets,” or “Property and equipment, net” in the Consolidated Balance Sheets included elsewhere in this prospectus, based upon our expected time of recognition.

 

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We record reimbursements from customers for “out-of-pocket” expenses as revenues and the related direct cost as operating expenses.

Income Taxes

We currently operate, and have in the past operated, in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions that we believe have a greater than 50 percent likelihood of being sustained upon challenge by a tax authority. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments. Our gross deferred tax asset balance at year-end reflects the application of our income tax accounting policies and is based on management’s estimates, judgments and assumptions regarding realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates. The Company has adopted an accounting policy to look through the outside basis of partnerships and all other flow-through entities and exclude these from the computation of deferred taxes.

The IRS (as defined herein) has completed its examination procedures, including all appeals and administrative reviews, for the taxable years ended December 31, 2012 through December 31, 2017. In May 2020, the IRS examination team notified us that it was no longer proposing any adjustments with respect to our tax reporting for the taxable years ended December 31, 2012 through December 31, 2017. Subsequent to our filing of an Application for Tentative Refund with the IRS under the CARES Act in the months of April and August 2020, the IRS informed us that it would be conducting a limited scope examination of the taxable years ended December 31, 2012, 2013, 2014, 2018 and 2019. In the first quarter of 2020, we filed a foreign tax credit refund claim for taxable year 2009. The IRS is currently auditing taxable year 2009 in relation to our refund claim. We believe that we have accurately reported all amounts in our returns.

Audit claims of approximately $96.1 million attributable to income and other business taxes were assessed against Noble entities in Mexico related to tax years 2007, 2009 and 2010, in Australia related to tax years 2013 to 2016, in Guyana related to tax years 2019 and 2020 and in Saudi Arabia related to tax years 2015 to 2018. We intend to vigorously defend our reported positions, and believe the ultimate resolution of the audit claims will not have a material adverse effect on our consolidated financial statements.

Insurance Reserves

We maintain various levels of self-insured retention for certain losses including property damage, loss of hire, employment practices liability, employers’ liability and general liability, among others. We accrue for property damage and loss of hire charges on a per event basis.

Employment practices liability claims are accrued based on actual claims during the year. Maritime employer’s liability claims are generally estimated using actuarial determinations. General liability claims are estimated by our internal claims department by evaluating the facts and circumstances of each claim (including incurred but not reported claims) and making estimates based upon historical experience with similar claims. At December 31, 2020 and 2019, loss reserves for personal injury and protection claims totaled $30.9 million and $27.9 million, respectively, and such amounts are included in “Other liabilities” and “Liabilities subject compromise” in the Consolidated Balance Sheets included elsewhere in this prospectus.

Certain Significant Estimates and Contingent Liabilities

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

 

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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 consolidated financial statements. We follow FASB standards regarding contingent liabilities, which are discussed in “Note 16—Commitments and Contingencies” to our consolidated financial statements included elsewhere in this prospectus.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as that term is defined in Item 303(a)(4)(ii) of Regulation S-K.

New Accounting Pronouncements

See “Note 1—Organization and Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus for a description of the recent accounting pronouncements.

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 currency exchange rates or equity prices, as further described below.

Foreign Currency Risk

Although we are a Cayman Islands company, we define foreign currency as any non-US denominated currency. Our functional currency is the US Dollar. However, outside the United States, a portion of our expenses are incurred in local currencies. Therefore, when the US Dollar weakens (strengthens) in relation to the currencies of the countries in which we operate, our expenses reported in US 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 periodically 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. These contracts are primarily accounted for as cash flow hedges, with the effective portion of changes in the fair value of the hedge recorded on the Consolidated Balance Sheets included elsewhere in this prospectus and in “Accumulated other comprehensive income (loss)” (“AOCI”). Amounts recorded in AOCI are reclassified into earnings in the same period or periods that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of the hedged item is recorded directly to earnings. We have documented policies and procedures to monitor and control the use of derivative instruments. We do not engage in derivative transactions for speculative or trading purposes, nor are we a party to leveraged derivatives.

Several of our regional shorebases have a significant amount of their cash operating expenses payable in local currencies. To limit the potential risk of currency fluctuations, we periodically enter into forward contracts, which have historically settled monthly in the operations’ respective local currencies. All of these contracts had a maturity of less than 12 months. During 2020, we did not enter into any forward contracts. During 2019, we entered into forward contracts of approximately $15.8 million, all of which settled during 2019. At both December 31, 2020 and 2019, we had no outstanding derivative contracts. Based on current projections, a 10% increase in the average exchange rates of all foreign currencies would hypothetically increase our future estimated operating expenses by approximately $11.0 million.

 

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Market Risk

We have a US noncontributory defined benefit pension plan that covers certain salaried employees and a US noncontributory defined benefit pension plan that covers certain hourly employees, whose initial date of employment is prior to August 1, 2004 (collectively referred to as our “qualified US plans”). These plans are governed by the Noble Drilling Employees’ Retirement Trust. The benefits from these plans are based primarily on years of service and, for the salaried plan, employees’ compensation near retirement. These plans are designed to qualify under the Employee Retirement Income Security Act of 1974 (“ERISA”), and our funding policy is consistent with funding requirements of ERISA and other applicable laws and regulations. We make cash contributions, or utilize credits available to us, for the qualified US plans when required. The benefit amount that can be covered by the qualified US plans is limited under ERISA and the Code (as defined herein). Therefore, we maintain an unfunded, nonqualified excess benefit plan designed to maintain benefits for specified employees at the formula level in the qualified salary US plan. We refer to the qualified US plans and the excess benefit plan collectively as the “US plans.”

In addition to the US plans, Noble Drilling (Land Support) Limited, an indirect, wholly-owned subsidiary of Noble Parent, maintains a pension plan that covers all of its salaried, non-union employees, whose most recent date of employment is prior to April 1, 2014 (referred to as our “non-US plan”). Benefits are based on credited service and employees’ compensation, as defined by the non-US plan.

The Company’s pension plan assets are exposed to the market prices of debt and equity securities. Changes to the pension plan asset values can impact the Company’s pension expense, funded status and future minimum funding requirements. The Company aims to reduce risk through asset diversification and by investing in long duration fixed-income securities that have a duration similar to that of its pension liabilities. At December 31, 2020, the value of the investments in the pension funds was $306.2 million, and a hypothetical 10.0% percent decrease in the value of the investments in the fund would have reduced the value of the fund by approximately $30.6 million. A significant decline in the value of pension assets could require the Company to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. In addition, a decline in the fair value of these plan assets, in the absence of additional cash contributions to the plans by the Company, could increase the amount of pension cost required to be recorded in future periods by the Company.

 

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BUSINESS

Overview

Noble is a leading offshore drilling contractor for the oil and gas industry. We provide contract drilling services to the international oil and gas industry with our global fleet of mobile offshore drilling units. We focus on a balanced, high-specification fleet of floating and jackup rigs and the deployment of our drilling rigs in oil and gas basins around the world. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.

On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed the Chapter 11 Cases in the Bankruptcy Court. On September 4, 2020, the Debtors filed with the Bankruptcy Court the Plan, which was subsequently amended on October 8, 2020 and October 13, 2020 and modified on November 18, 2020, and the Disclosure Statement. On September 24, 2020, six additional subsidiaries of Legacy Noble filed the Chapter 11 Cases in the Bankruptcy Court. On November 20, 2020, the Bankruptcy Court entered an order confirming the Plan. In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date, Legacy Noble and certain of its subsidiaries effectuated certain restructuring transactions, pursuant to which Legacy Noble formed Noble Parent as an indirect, wholly-owned subsidiary of Legacy Noble and transferred to Noble Parent substantially all of the subsidiaries and other assets of Legacy Noble. On the Effective Date, the Plan became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Chapter 11 Proceedings and Going Concern” for a description of the events that occurred on the Effective Date, including the issuance of the Ordinary Shares, the Tranche 1 Warrants, the Tranche 2 Warrants and the Tranche 3 Warrants. In accordance with the Plan, Legacy Noble and its remaining subsidiary will in due course be wound down and dissolved in accordance with applicable law.

Finco was an indirect, wholly-owned subsidiary of Legacy Noble prior to the Effective Date and has been a direct, wholly-owned subsidiary of Noble Parent since the Effective Date. Noble Parent’s principal asset is all of the shares of Finco. Finco has no public equity outstanding. The consolidated financial statements of Noble Parent have been included in this registration statement because they include the accounts of Finco and Noble Parent conducts substantially all its business through Finco and its subsidiaries.

Contract Drilling Services

We report our contract drilling operations as a single reportable segment, Contract Drilling Services, which reflects how we manage our business. The mobile offshore drilling units comprising our offshore rig fleet operate in a global market for contract drilling services and are often redeployed to different regions due to changing demands of our customers, which consist primarily of large, integrated, independent and government-owned or controlled oil and gas companies throughout the world.

We typically provide contract drilling services under an individual contract, on a dayrate basis. 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:

 

  

contract duration extending over a specific period of time or a period necessary to drill a defined number of wells;

 

  

payment of compensation to us (generally in US 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 (“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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provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed, (ii) if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract or (iii) for convenience;

 

  

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 by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies;

 

  

provisions that allow us to recover certain cost increases from our customers in certain long-term contracts; and

 

  

provisions that require us to lower dayrates for documented cost decreases in certain long-term contracts.

Generally, our contracts allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another. When market conditions require us to assume these costs, our operating margins are reduced accordingly. For shorter moves, such as “field moves,” our customers have generally agreed to assume the costs of moving the unit in the form of a reduced dayrate or “move rate” while the unit is being moved. Under current market conditions, we are much less likely to receive full reimbursement of our mobilization and demobilization costs.

Contracts often contain early termination provisions permitting the customer to terminate the contract if the unit is lost or destroyed or if operations are suspended for a specified period of time due to breakdown of equipment or breach of contract. In addition, the terms of our drilling contracts permit the customer to terminate the contract after specified notice periods by tendering contractually specified termination amounts and, in often cases, without any payment or a modest payment.

During periods of depressed market conditions, such as the one we experienced for a number of years, our customers may attempt to renegotiate or repudiate their contracts with us although we seek to enforce our rights under our contracts. The renegotiations may include changes to key contract terms, such as pricing, termination and risk allocation.

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—Contract Drilling Services Backlog.”

Drilling Fleet

Noble is a leading offshore drilling contractor for the oil and gas sector. Noble owns and operates one of the most modern, versatile and technically advanced fleets of mobile offshore drilling units in the offshore drilling industry. Noble provides contract drilling services with a fleet of 19 offshore drilling units, consisting of seven floaters and 12 jackups at the date of this prospectus, focused largely on ultra-deepwater and high-specification drilling opportunities in both established and emerging regions worldwide. Each type of drilling rig is described further below. Several factors determine the type of unit most suitable for a particular job, the most significant of which include the water depth and the environment of the intended drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. At December 31, 2020, our fleet was located in Far East Asia, the Middle East, the North Sea, Oceania, South America and the US Gulf of Mexico.

Floaters

Our floating fleet consists of the following:

A drillship is a type of floating drilling unit that is based on the ship-based hull of the vessel and equipped with modern drilling equipment that gives it the capability of easily transitioning from various worldwide

 

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locations and carrying high capacities of equipment while being able to drill ultra-deepwater oil and gas wells in up to 12,000 feet of water. Drillships can stay directly over the drilling location without anchors in open seas using a dynamic positioning system (“DPS”), which coordinates position references from satellite signals and acoustic seabed transponders with the drillship’s six to eight thrusters to keep the ship directly over the well that is being drilled. Drillships are selected to drill oil and gas wells for programs that require a high level of simultaneous operations, where drilling loads are expected to be high, or where there are occurrences of high ocean currents, where the drillship’s hull shape is the most efficient. Noble’s fleet consists of six drillships capable of water depths from 10,000 feet to 12,000 feet.

Semisubmersible drilling units are designed as a floating drilling platform incorporating one or several pontoon hulls, which are submerged in the water to lower the center of gravity and make this type of drilling unit exceptionally stable in the open sea. Semisubmersible drilling units are generally categorized in terms of the water depth in which they are capable of operating, from the mid-water range of 300 feet to 4,000 feet, the deepwater range of 4,000 feet to 7,500 feet, to the ultra-deepwater range of 7,500 feet to 12,000 feet as well as by their generation, or date of construction. This type of drilling unit typically exhibits excellent stability characteristics, providing a stable platform for drilling in even rough seas. Semisubmersible drilling units hold their position over the drilling location using either an anchored mooring system or a DPS and may be self-propelled. Noble’s fleet consists of one moored ultra-deepwater semisubmersible drilling unit.

Jackups

Noble’s fleet of modern, high-specification jackup drilling units gives us the flexibility to provide drilling solutions to our customers who have drilling requirements in the shallower waters of the continental shelf, in depths ranging from less than 100 feet to as deep as 500 feet of water with drilling hookloads up to 2,500,000. Jackup rigs can be used in open water exploration locations, as well as over fixed, bottom-supported platforms. A jackup drilling unit is a towed mobile vessel consisting of a floating hull equipped with three or four legs, which are lowered to the seabed at the drilling location. The hull is then elevated out of the water by the jacking system using the legs to support weight of the hull and drilling equipment against the seabed. Once the hull is elevated to the desired level, or jacked up, the drilling package can be extended out over an existing production platform or the open water location and drilling can commence. Noble’s fleet of 12 jackups varies from two units capable of drilling in up to 375 feet of water to premium and high-specification units capable of drilling in up to 500 feet of water.

 

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The following table presents certain information concerning our offshore fleet at March 10, 2021. We own and operate all of the units included in the table.

 

Name

 Make  Year Built
or Rebuilt (1)
  Water
Depth
Rating
(feet) (2)
  Drilling
Depth
Capacity
(feet)
  Location  Status (3) 

Floaters—7

      

Drillships—6

      

Noble Bob Douglas

  GustoMSC P10000   2013 N   12,000   40,000   Guyana   Active 

Noble Don Taylor

  GustoMSC P10000   2013 N   12,000   40,000   Guyana   Active 

Noble Globetrotter I

  Globetrotter Class   2011 N   10,000   30,000   US Gulf of Mexico   Active 

Noble Globetrotter II

  Globetrotter Class   2013 N   10,000   30,000   US Gulf of Mexico   Active 

Noble Sam Croft

  GustoMSC P10000   2014 N   12,000   40,000   Suriname   Active 

Noble Tom Madden

  GustoMSC P10000   2014 N   12,000   40,000   Guyana   Active 

Semisubmersibles—1

 

     

Noble Clyde Boudreaux

  
F&G 9500 Enhanced
Pacesetter
 
 
  2007 R   10,000   35,000   Malaysia   Active 

Independent Leg Cantilevered Jackups—12

 

    

Noble Hans Deul (4)

  F&G JU-2000E   2009 N   400   30,000   UK   Active 

Noble Houston Colbert (4)

  F&G JU-3000N   2014 N   400   30,000   UK   Available 

Noble Joe Knight

  
GustoMSC CJ46-
x100-D

 
  2018 N   375   30,000   Saudi Arabia   Active 

Noble Johnny Whitstine

  
GustoMSC CJ46-
x100-D

 
  2018 N   375   30,000   Saudi Arabia   Active 

Noble Lloyd Noble (4)

  
GustoMSC CJ70-
x150-ST

 
  2016 N   500   32,000   Norway   Shipyard 

Noble Mick O’Brien (4)

  F&G JU-3000N   2013 N   400   30,000   Qatar   Active 

Noble Regina Allen (4)

  F&G JU-3000N   2013 N   400   30,000   Trinidad and Tobago   Active 

Noble Roger Lewis (4)

  F&G JU-2000E   2007 N   400   30,000   Saudi Arabia   Active 

Noble Sam Hartley (4)

  F&G JU-3000N   2014 N   400   30,000   UK   Active 

Noble Sam Turner (4)

  F&G JU-3000N   2014 N   400   30,000   Denmark   Active 

Noble Scott Marks (4)

  F&G JU-2000E   2009 N   400   30,000   Saudi Arabia   Active 

Noble Tom Prosser (4)

  F&G JU-3000N   2014 N   400   30,000   Australia   Active 

 

(1)

Rigs designated with an “R” were modified, refurbished or otherwise upgraded in the year indicated by capital expenditures of an amount deemed material by management. Rigs designated with an “N” are newbuilds.

 

(2)

Rated water depth for drillships and semisubmersibles reflects the maximum water depth for which a floating rig has been designed for drilling operations.

 

(3)

Rigs listed as “active” are operating, preparing to operate or under contract; rigs listed as “available” are actively seeking contracts and may include those that are idle or warm stacked; rigs listed as “shipyard” are in a shipyard for construction, repair, refurbishment or upgrade; rigs listed as “stacked” are idle without a contract and have reduced or no crew and are not actively marketed in present market conditions.

 

(4)

Harsh environment capability.

Market

The offshore contract drilling industry is a highly competitive and cyclical business. Demand for offshore drilling services is driven by the offshore exploration and development programs of oil and gas operators, which in turn are influenced by many factors, including, but not limited to, the price and price stability of oil and gas, the availability and relative cost of offshore oil and gas resources within the oil and gas portfolio of each operator, general global economic conditions, energy demand, the operator’s strategy toward renewable energy sources, environmental considerations and national oil and gas policy.

 

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In the provision of offshore contract drilling services, competition is largely governed by price but involves numerous other factors as well. Rig availability, location, suitability and technical specifications are the primary factors in determining which rig is qualified for a job, and additional factors are considered when determining which contractor is awarded a job, including experience of the workforce, efficiency, safety performance record, condition of equipment, operating integrity, reputation, industry standing and client relations. In addition to having one of the newest fleets in the industry among our peer companies, we strive to keep our assets well-maintained and technologically competitive.

We maintain a global operational presence and compete in many of the major offshore oil and gas basins worldwide. All our drilling rigs are mobile, and we may mobilize our drilling rigs among regions for a variety of reasons, including to respond to customer requirements. We compete in both the jackup and floating rig market segments, each of which may have different supply and demand dynamics at a given period in time or in different regions.

Since late 2014, the offshore drilling industry has experienced a severe and prolonged downturn driven by a combination of an oversupply of drilling rigs, weak and volatile crude oil prices exacerbated in early 2020 by production level disagreements by OPEC+, reductions in global offshore exploration and development activities, and the impacts of COVID-19.

The global mitigation efforts associated with preventing the spread of COVID-19 have significantly slowed global economic activity, leading to a precipitous drop in oil demand in 2020. As the year progressed, some countries began to ease lock-down restrictions, resulting in an increase in oil demand; however, current demand and near-term demand forecasts still lag pre-COVID-19 demand levels. As the demand imbalance played out during the year, crude price volatility lessened as OPEC+ agreed to production level cuts through early 2021. In early 2021, Brent crude averaged $55-$60 per barrel, up from an average of approximately $40 per barrel in 2020. Despite the current price recovery, uncertainty remains around the current level of oil prices as a result of the on-going effects of COVID-19 and the early stage of global vaccine efforts, as well as the uncertainty surrounding the longevity of the OPEC+ production agreements. Finally, a growing number of the major oil companies, including some of our customers, have signaled increased commitments toward the transition to renewable energy sources. As international majors commit to these renewable energy sources, capital investments could be diverted from longer-term fossil fuel projects, creating even more competition among premium offshore drilling assets.

We believe the convergence of events in 2020 and early 2021 have lengthened an already challenging and slow recovery in our industry. Despite these challenges and demand projections, we believe that oil and gas demand will rebalance and oil and gas will remain an important portion of the world’s energy mix. We expect that the return of stable oil demand and prices coupled with the continued attrition of rigs in the global offshore fleet will bring improved market conditions for our services. Our young and technologically advanced fleet is well positioned to compete as market dynamics improve.

Significant Customers

Offshore contract drilling operations accounted for approximately 94 percent, 95 percent and 96 percent of our operating revenues for the years ended December 31, 2020, 2019 and 2018, respectively. During the three years ended December 31, 2020, we principally conducted our contract drilling operations in Canada, Far East Asia, the Middle East, the North Sea, Oceania, the Black Sea, Africa, South America and the US Gulf of Mexico. Revenues from Exxon, Shell, Equinor and Saudi Aramco accounted for approximately 26.6 percent, 21.7 percent, 14.3 percent and 13.8 percent, respectively, of our consolidated operating revenues for the year ended December 31, 2020. Revenues from Shell, ExxonMobil, Equinor and Saudi Aramco accounted for approximately 36.5 percent, 13.7 percent, 13.1 percent and 11.9 percent, respectively, of our consolidated operating revenues, which includes the Noble Bully II contract buyout, for the year ended December 31, 2019. Excluding the Noble Bully II contract buyout, revenues from Shell, ExxonMobil, Equinor and Saudi Aramco

 

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accounted for approximately 27.1 percent, 15.7 percent, 15.1 percent and 13.6 percent, respectively, of our consolidated operating revenues for the year ended December 31, 2019. Revenues from Shell, Equinor and Saudi Aramco accounted for approximately 38.8 percent, 15.5 percent and 14.5 percent, respectively, of our consolidated operating revenues for the year ended December 31, 2018. No other customer accounted for more than 10 percent of our consolidated operating revenues in 2020, 2019 or 2018.

Human Capital

At December 31, 2020, we had approximately 1,500 employees, excluding approximately 800 persons we engaged through labor contractors or agencies. Approximately 88 percent of our workforce is located offshore. We are not a party to any material collective bargaining agreements, and we consider our employee relations to be satisfactory.

We are fully committed to operating our business with honesty and integrity. Our reputation depends on our directors, officers, employees and others working on our behalf assuming a personal responsibility for our business conduct. Our compliance program is focused on ensuring adherence with the highest ethical standards and applicable laws and setting the tone for an ethical work environment. Noble’s commitment to a strong compliance culture is fundamental to who we are as a leading offshore drilling contractor. Noble’s Code of Business Conduct and Ethics provides the foundation for our culture and underscores our commitment to our core values of safety, environmental stewardship, honesty and integrity, respect and performance. It also includes our responsibility and commitment to follow all applicable laws as well as our own internal policies, and requires any supplier or third party who works with Noble to comply with similar fundamental principles.

Operating our business in a socially responsible way is integral to who we are. Internally, our employee-focused programs such as recruitment and promotion opportunities, safety and environmental stewardship, and training and continuing education are key to our commitment to the personal and professional growth of our workforce. Externally, our dedication is evidenced by our affiliations and how we contribute to and invest in the communities where we operate.

Recruitment and Promotions. We value a healthy culture of ingenuity and adaptability where everyone has an equal opportunity to thrive. We recognize that an inclusive and diverse workforce is key to the advancement and retention of the best qualified people leading to strong innovation and our continued success. We are committed to a policy of recruitment and promotion based upon job qualifications, performance and merit without discrimination.

Safety and Environmental Stewardship. Noble is committed to delivering excellent health, safety and environmental (“HSE”) performance as part of our business strategy in order to add further value for employees, customers, and shareholders. Safety and environmental stewardship are the cornerstone of who we are, what we stand for and what we do every day to deliver a high-quality operation. All personnel, regardless of job or position onboard our vessels or at any Noble facility, has the authorization and obligation to immediately stop any unsafe act, practice or job that that poses any risk or danger to people or the environment. Noble’s pursuit of exceptional HSE performance begins with our strong corporate culture and by starting SAFE every day: one tour, one task and one person at a time. SAFE is an acronym for the phrase: follow Standards, be Accountable, stay Focused, achieve Excellence. Daily, the crew onboard each rig work together to achieve specific safety and environmental objectives and if all objectives are met, then the day is counted as a SAFE Day. Under our SAFE Day program, in 2020, our rigs achieved the SAFE objectives 98.6% of available days, which is an increase over 2019 performance, and our total recordable incident rate for 2020 decreased 38% from the prior year.

Training and Continuing Education. We place considerable value on the training and development of our employees and maintain a practice of keeping them informed on matters affecting them, as well as on the performance of the Company. Accordingly, we conduct formal and informal meetings with employees, maintain a Company intranet website with matters of interest, issue periodic publications of Company activities and other

 

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matters of interest, and offer a variety of in-house training, including through NobleAdvances, our state-of-the-art training facility in Sugar Land, Texas. When travel became a challenge, we developed and enhanced virtual and worksite training courses, some of which are facilitated through our rig-based leadership and are accredited through the International Association of Drilling Contractors.

In consideration of the negative impact of COVID-19 on our employees, customers, suppliers and the communities in which we operate, as well as associated human rights concerns that may exist in the areas in which we operate, we have taken, and will continue to take, incremental measures to monitor, identify and manage risks associated with the COVID-19 pandemic. Throughout the pandemic, we have continued operations in support of essential infrastructure in the energy industry while carefully ensuring worker safety. We have been able to maintain operation of our rigs by implementing several mitigations, such as extending crew schedules to offset travel delays due to limitations or restrictions, implementing quarantine measures in advance of persons boarding our rigs to prevent the spread of COVID-19 on board and enhancing crew health monitoring and response measures to prevent an outbreak on board any of our vessels. We have also continued the operation of our shore-side offices by implementing social distancing programs and implementing staggered rotational schedules for facility employees to reduce the number of persons on site. In addition, we have increased internal contingency planning, protective measures and employee communications and reinforced our employee wellness programs with all offshore and shore-side employees to offset the potential impact on employees both personally and professionally.

Governmental Regulations and Environmental Matters

Political developments and numerous governmental regulations, which may relate directly or indirectly to the contract drilling industry, affect many aspects of our operations. Our contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipping, supplying and operation of drilling units, environmental protection and related recordkeeping, health and safety of personnel, safety management systems, the reduction of atmospheric emissions that contribute to a cumulative effect on the overall air quality and environment (commonly referred to as greenhouse gases), currency conversions and repatriation, oil and gas exploration and development, taxation of capital equipment, taxation of offshore earnings and earnings of expatriate personnel, employee benefits and use of local employees, content and suppliers by foreign contractors. A number of countries actively regulate and control the ownership of concessions and companies holding concessions, the exportation of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government actions, including initiatives by OPEC, may continue to contribute to oil price volatility. In some areas of the world, this government activity has adversely affected the amount of exploration and development work done by oil and gas companies and influenced their need for offshore drilling services, and likely will continue to do so.

The regulations applicable to our operations include provisions that regulate the discharge of materials into the environment or require remediation of contamination under certain circumstances. Many of the countries in whose waters we operate from time to time regulate the discharge of oil and other contaminants in connection with drilling and marine operations. Failure to comply with these laws and regulations, or failure to obtain or comply with permits, may result in the assessment of administrative, civil and criminal penalties, imposition of remedial requirements and the imposition of injunctions to force future compliance. Although these requirements impact the oil and gas and energy services industries, generally they do not appear to affect us in any material respect that is different, or to any materially greater or lesser extent, than other companies in the energy services industry. However, our business and prospects could be adversely affected by regulatory activity that prohibits or restricts our customers’ exploration and production activities, resulting in reduced demand for our services or imposing environmental protection requirements that result in increased costs to us, our customers or the oil and natural gas industry in general.

The following is a summary of some of the existing laws and regulations that apply in the United States and Europe, which serves as an example of the various laws and regulations to which we are subject. While laws vary

 

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widely in each jurisdiction, each of the laws and regulations below addresses regulatory issues similar to those in most of the other jurisdictions in which we operate.

Offshore Regulation and Safety. In response to the Macondo well blowout incident in April 2010, the United States Congress, the US Department of Interior, through the BOEM and the BSEE, and the US Department of Homeland Security, through the United States Coast Guard (“USCG”), have undertaken an aggressive overhaul of the offshore oil and natural gas related regulatory processes, which has significantly impacted oil and gas development and operational requirements in the US Gulf of Mexico. Such actions by the US government has, on occasion, served as a leading indicator for similar regulatory developments or requirements by other countries where, from time to time, new rules, regulations and requirements in the United States and in other countries have been proposed and implemented that materially limit or prohibit, and increase the cost of, offshore drilling and related operations. Other similar regulations impact certain operational requirements on rigs and govern liability for vessel or cargo loss, or damage to life, property, or the marine environment. See “Risk Factors—Regulatory and Legal Risks—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” and “Risk Factors—Regulatory and Legal Risks—Governmental laws and regulations may add to our costs, result in delays, or limit our drilling activity” for additional information.

Spills and Releases. The US Oil Pollution Act of 1990 (“OPA”), the Comprehensive Environmental Response, Compensation, and Liability Act in the United States (“CERCLA”), and similar regulations, including but not limited to the International Convention for the Prevention of Pollution from Ships (“MARPOL”), adopted by the International Maritime Organization (“IMO”), as enforced in the United States through the domestic implementing law called the Act to Prevent Pollution from Ships, impose certain operational requirements on offshore rigs operating in the United States and govern liability for leaks, spills and blowouts involving pollutants. OPA imposes strict, joint and several liabilities on “responsible parties” for damages, including natural resource damages, resulting from oil spills into or upon navigable waters, adjoining shorelines or in the exclusive economic zone of the United States. A “responsible party” includes the owner or operator of an onshore facility and the lessee or permit holder of the area in which an offshore facility is located. CERCLA and similar state and foreign laws and regulations, impose joint and several liabilities, without regard to fault or the legality of the original act, on certain classes of persons that contributed to the release of a “hazardous substance” into the environment. In the course of our ordinary operations, we may generate waste that may fall within the scope of CERCLA’s definition of a “hazardous substance.” However, we have to-date not received any notification that we are, or may be, potentially responsible for cleanup costs under CERCLA.

Regulations under OPA require owners and operators of rigs in United States waters to maintain certain levels of financial responsibility. The failure to comply with OPA’s requirements may subject a responsible party to civil, criminal, or administrative enforcement actions. We are not aware of any action or event that would subject us to liability under OPA, and we believe that compliance with OPA’s financial assurance and other operating requirements will not have a material impact on our operations or financial condition.

Waste Handling. The US Resource Conservation and Recovery Act (“RCRA”), and similar state, local and foreign laws and regulations govern the management of wastes, including the treatment, storage and disposal of hazardous wastes. RCRA imposes stringent operating requirements, and liability for failure to meet such requirements, on a person who is either a “generator” or “transporter” of hazardous waste or an “owner” or “operator” of a hazardous waste treatment, storage or disposal facility. RCRA and many state counterparts specifically exclude from the definition of hazardous waste drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil and natural gas. As a result, our operations generate minimal quantities of RCRA hazardous wastes. We do not believe the current costs of managing our wastes, as they are presently classified, to be significant. However, any repeal or modification of this or similar exemption in similar state statutes, would increase the volume of hazardous waste we are required to manage and dispose of, and would cause us, as well as our competitors, to incur increased operating expenses with respect to our US operations.

 

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Water Discharges. The US Federal Water Pollution Control Act of 1972, as amended, also known as the “Clean Water Act,” and similar state laws and regulations impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water. In addition, the USCG has promulgated requirements for ballast water management as well as supplemental ballast water requirements, which includes limits and, in some cases, water treatment requirements applicable to specific discharge streams, such as deck runoff, bilge water and gray water. Further, in October 2020, the United States Environmental Protection Agency (“EPA”) published proposed national standards of performance for incidental discharges pursuant to the Vessel Incidental Discharge Act. The proposed rule would establish discharge standards for a range of vessels, including mobile offshore drilling units. We do not anticipate that compliance with these laws and regulations will cause a material impact on our operations or financial condition.

Air Emissions. The US Federal Clean Air Act and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and natural gas operations. New facilities may be required to obtain permits before operations can commence, and existing facilities may be required to obtain additional permits, and incur capital costs, in order to remain in compliance. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Clean Air Act and associated state laws and regulations. In general, we believe that compliance with the Clean Air Act and similar state laws and regulations will not have a material impact on our operations or financial condition.

Climate Change. Climate change is an environmental, social and economic challenge facing everyone today. We are committed to continuous improvement and a sustainable energy future, supported by our efforts to protect the environment throughout our operations and safely provide reliable and efficient services to allow access to resources essential for human and economic prosperity. There is increasing attention concerning the issue of climate change and the effect of GHG emissions. The EPA regulates the permitting of GHG emissions from stationary sources under the Clean Air Act’s Prevention of Significant Deterioration and Title V permitting programs, which require the use of “best available control technology” for GHG emissions from new and modified major stationary sources, which can sometimes include our rigs. The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States, including, among other things, certain onshore and offshore oil and natural gas production facilities, on an annual basis.

Moreover, in 2005, the Kyoto Protocol to the 1992 United Nations Framework Convention on Climate Change, which establishes a binding set of emission targets for GHGs, became binding on all countries that had ratified it. In 2015, the United Nations (“U.N.”) Climate Change Conference in Paris resulted in the creation of the Paris Agreement. In September 2016, the US deposited its instrument of acceptance of the Paris Agreement, which later entered into force on November 4, 2016. The Paris Agreement requires countries to review and “represent a progression” in their nationally determined contributions, which set emissions reduction goals, every five years beginning in 2020. In November 2019, the US submitted formal notification to the U.N. of its decision to withdraw from the Paris Agreement, which took effect on November 4, 2020. However, in January 2021, shortly after Joseph Biden was sworn into office as the President of the United States, a series of executive orders were issued regarding climate change, which in part led to the US again depositing an instrument of acceptance of the Paris Agreement, which thereafter re-entered into force for the US on February 19, 2021. The terms of the Paris Agreement and the executive orders are expected to result in additional regulations or changes to existing regulations, which could have a material adverse effect on our business in the US and that of our customers. In addition, incentives to conserve energy or use alternative energy sources in many of the countries where we currently operate or may operate in the future, could have a negative impact on our business in those countries and worldwide. See “Risk Factors—Regulatory and Legal Risks—Governmental laws and regulations may add to our costs, result in delays, or limit our drilling activity” for additional information.

Countries in the European Union (“EU”) implement the U.N.’s Kyoto Protocol on GHG emissions through the Emissions Trading System (“ETS”). The ETS program establishes a GHG “cap and trade” system for certain

 

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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 GHG reductions from these sectors. In September 2020, the European Commission presented a plan to increase the EU’s GHG reduction target to at least 55% by 2030 in accordance with the European Green Deal. In order to reach this goal, the European Commission has proposed potential revisions and expansions of the EU ETS.

In addition, the UK government implemented its own ETS in January 2021 to replace the UK’s participation in the EU ETS. The UK has also introduced an auction price floor to prevent carbon prices from dropping below a set level during the initial implementation of the UK ETS. The cost of compliance with the UK ETS and the EU ETS can be expected to increase over time. Additional member state climate change legislation may result in potentially material capital expenditures.

Worker Safety. The US Occupational Safety and Health Act (“OSHA”) and other similar laws and regulations govern the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. EU member states have also adopted regulations pursuant to EU 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. We believe that we are in substantial compliance with OSHA requirements and EU directive 2013/30/EU (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 the directive’s implementation.

International Regulatory Regime. The 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 and revised MARPOL, including Annex VI to MARPOL, which limits the main air pollutants contained in exhaust gas from ships, including sulfur oxides (“SOx”) and nitrous oxides (“NOx”), prohibits deliberate emissions of ozone depleting substances, regulates shipboard incineration and the emissions of volatile organic compounds from tankers, sets a progressive reduction globally in emissions of SOx, NOx and particulate matter, introduces emission control areas to reduce emissions of those air pollutants further in designated sea areas, and effective from January 1, 2020, reduces the global sulfur limit in fuel oil from the current 3.50% to 0.50% m/m (mass by mass) sulfur content. Prior to January 1, 2020, our rigs were operating and continue to operate with low sulfur fuel oil at or below the global limits of 0.50%.

The IMO has also 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, (the “BWM Convention”) and the International Convention for Civil Liability for Bunker Oil Pollution Damage of 2001 (the “Bunker Convention”). The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast of water exchange requirements, to be replaced in time with a requirement for mandatory ballast water treatment. The Bunker Convention provides a liability, compensation and compulsory insurance system for the victims of oil pollution damage caused by spills of bunker oil. We believe that all of our drilling rigs are currently compliant in all material respects with these regulations. However, the IMO continues to review and introduce new regulations. It is impossible to predict what additional

 

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regulations, if any, may be passed by the IMO and what effect, if any, such regulation may have on our operations.

Insurance and Indemnification Matters

Our operations are subject to many hazards inherent in the drilling business, including blowouts, fires, collisions, groundings, punch-throughs, 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 natural gas producing formations, and could result in claims by employees, customers or third parties and fines and penalties.

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, generally 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. Also, we generally obtain a mutual waiver of consequential losses in our drilling contracts.

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 units. 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. In the current market, we are under increasing pressure to accept exceptions to the above-described allocations of risk and, as a result, take on more risk. In such cases where we agree, we generally limit the exposure with a monetary cap and other restrictions.

In addition to the contractual indemnities described above, we also carry Protection and Indemnity (“P&I”) insurance, which is a comprehensive general liability insurance program covering liability resulting from offshore operations. Our 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. Our P&I insurance program is renewed in April of each year and currently has a standard deductible of $10.0 million per occurrence, with maximum liability coverage of $750.0 million. We also carry hull and machinery insurance that protects us against physical loss or damage to our drilling rigs, subject to a deductible that is currently $5.0 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—Risk Related to Our Business and Operations—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 the risks and hazards we face.”

The above description of our insurance program and the indemnification provisions of our drilling contracts is only a summary as of the time of preparation of this prospectus, and is general in nature. 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.

Legal Proceedings

There have been no material legal proceedings requiring disclosure under the federal securities laws within the past ten years that are material to an evaluation of the ability or integrity of our directors or executive officers, except that, as previously disclosed, we voluntarily filed a petition under Chapter 11 of the Bankruptcy Code in July 2020.

 

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Available Information

Finco’s and Noble Parent’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at our website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

You may also find information related to Noble Parent’s corporate governance, board committees and company code of ethics (and any amendments or waivers of compliance) at our website. Among the documents you can find there are the following documents of Noble Parent:

 

  

Amended and Restated Articles of Association (the “Articles”);

 

  

Code of Business Conduct and Ethics;

 

  

Corporate Governance Guidelines;

 

  

Audit Committee Charter;

 

  

Compensation Committee Charter;

 

  

Nominating, Governance and Sustainability Committee Charter; and

 

  

Finance Committee Charter.

Our website address is http://www.noblecorp.com. Investors should also note that Finco and Noble Parent announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may use the investor relations section of our website to communicate with our investors. It is possible that the financial and other information posted there could be deemed to be material information. The information contained on or linked to or from our website is not part of, and is not incorporated by reference into, this prospectus.

 

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MANAGEMENT

Finco is a wholly-owned subsidiary of Noble Parent. As of the Effective Date, in accordance with the Plan, Noble Parent appointed five new members to the Board to replace all of the directors who had served on the board of directors of Legacy Noble, other than the director also serving as President and Chief Executive Officer, who was appointed to the Board pursuant to the Plan. The Board consists of a single class of directors with the initial term of office to expire at the 2022 annual meeting of shareholders of Noble Parent and then at the next succeeding annual meeting of shareholders thereafter or the date on which the successor of such director is elected. Executive officers of Noble Parent serve at the discretion of the Board, subject to the applicable employment agreements.

The following table presents certain information with respect to Noble Parent’s executive officers and directors as of the date of this prospectus:

 

Name

  Age  

Position with Noble Parent

Robert W. Eifler

  41  Director, President and Chief Executive Officer

Patrick J. Bartels, Jr.

  45  Director

Alan J. Hirshberg

  59  Director

Ann D. Pickard

  65  Director

Charles M. Sledge

  55  Director and Chairman of the Board

Melanie M. Trent

  56  Director

Richard B. Barker

  40  Senior Vice President and Chief Financial Officer

William E. Turcotte

  57  Senior Vice President, General Counsel and Corporate Secretary

Blake A. Denton

  42  Vice President, Marketing and Contracts

Joey M. Kawaja

  47  Vice President of Operations

Laura D. Campbell

  49  Vice President, Chief Accounting Officer and Controller

Directors

Robert W. Eifler. Mr. Eifler was named President and Chief Executive Officer of the Company in May 2020. Previously, Mr. Eifler served as Senior Vice President, Commercial of the Company from August 2019 until assuming his position as President and Chief Executive Officer of the Company. Mr. Eifler served as Senior Vice President, Marketing and Contracts of the Company from February 2019 to August 2019, and as Vice President and General Manager—Marketing and Contracts of the Company from July 2017 to February 2019. Before that, Mr. Eifler led the Company’s marketing and contracts efforts for the Eastern Hemisphere while based in London. From November 2013 to March 2015, Mr. Eifler worked for Hercules Offshore, Inc., an offshore driller, as Director, International Marketing. Mr. Eifler originally joined the Company in February 2005 as part of the management development program and held numerous operational and marketing roles with increasing responsibility around the world until joining Hercules Offshore, Inc. in 2013. Mr. Eifler brings to the Board extensive knowledge of the Company and the industry as the President and Chief Executive Officer of the Company.

Patrick J. Bartels, Jr. Mr. Bartels has served as the Managing Member of Redan Advisors LLC, a firm that provides fiduciary services, including board of director representation and strategic planning advisory services for domestic and international public and private business entities, since December 2018. Prior to founding Redan Advisors LLC, Mr. Bartels was a senior investment professional with 20 years of experience. His professional experience includes investing in complex financial restructurings and process-intensive situations in North America, Asia and Europe in a broad universe of industries. Mr. Bartels has served as a director on numerous public and private boards of directors with an extensive track-record of driving value-added returns for all stakeholders through governance, incentive alignment, capital markets transactions, and mergers and acquisitions. Mr. Bartels currently serves on the board of Arch Resources, Inc. and on several private company

 

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boards. He previously served on the boards of WCI Communities, Inc., Libbey Inc., B. Riley Principal Merger Corp., and B. Riley Principal Merger Corp. II, and on several private company boards. From 2002 to November 2018, Mr. Bartels served as a Managing Principal at Monarch Alternative Capital LP, a private investment firm that focused primarily on event-driven credit opportunities. Prior to Monarch Alternative Capital LP, he served as Research Analyst for high yield investments at INVESCO, where he analyzed primary and secondary debt offerings of companies in various industries. Mr. Bartels began his career at PricewaterhouseCoopers LLP, where he was a Certified Public Accountant. He holds the Chartered Financial Analyst designation. Mr. Bartels received a Bachelor of Science in Accounting with a concentration in Finance from Bucknell University. Mr. Bartels brings to the Board extensive accounting, financial and investment experience, as well as experience as a director for multiple companies including several that have undertaken bankruptcy and restructuring processes.

Alan J. Hirshberg. Mr. Hirshberg has served as a Senior Advisor at Blackstone Management Partners since January 2019. He joined ConocoPhillips in 2010 as its Senior Vice President, Planning and Strategy, and retired in January 2019 as its Executive Vice President, Production, Drilling and Projects, a position he held since April 2016. In this role, he had responsibility for ConocoPhillips’ worldwide operations, as well as supply chain, aviation, marine, major projects, drilling and engineering functions. Prior to joining ConocoPhillips, Mr. Hirshberg worked at Exxon and ExxonMobil for 27 years, serving in various senior leadership positions in upstream research, production operations, major projects and strategic planning. His last role at ExxonMobil was Vice President of Worldwide Deepwater and Africa Projects. Mr. Hirshberg is currently on the boards of Falcon Minerals Corporation and McDermott International, and also serves on several private company boards. Mr. Hirshberg received Bachelor and Master of Science degrees in Mechanical Engineering from Rice University. Mr. Hirshberg brings to the Board significant knowledge and insight into overseeing management of strategic initiatives and global operations.

Ann D. Pickard. Ms. Pickard retired from Royal Dutch Shell in 2016. Ms. Pickard held numerous positions of increasing responsibility during her 15-year tenure with Shell. She last served as Executive Vice President, Arctic and was responsible for Shell’s Arctic exploration efforts. This followed three successful years as Executive Vice President of Shell’s Exploration and Production business and Country Chair of Shell in Australia where she oversaw Gas Commercialization, Manufacturing, Chemicals, Supply and Distribution, Retail, Lubricants, Trading and Shipping, and Alternative Energy. Ms. Pickard was previously Shell’s Regional Executive Vice President for Sub Saharan Africa. Based in Lagos, Nigeria, she was accountable for Shell’s Exploration & Production, Natural Gas, and Liquefied Natural Gas (LNG) activities in the region. Before that, Ms. Pickard was Director, Global Businesses and Strategy and a member of the Shell Gas & Power Executive Committee with responsibility for Global LNG, Power, and Gas & Power Strategy. Ms. Pickard joined Shell in 2000 after an 11-year tenure with Mobil prior to its merger with Exxon. Ms. Pickard has significant business experience throughout South America, Australia, the countries of the former Soviet Union, the Middle East and Africa. Ms. Pickard is a director of KBR, Inc., where she is the Chairman of the Health, Safety, Security, Environment and Social Responsibility Committee and a member of the Audit Committee, a director of Woodside Petroleum Ltd., where she serves as the Chairman of the Sustainability Committee, and The University of Wyoming Foundation, where she serves on the Budget/Audit Committee. In addition, Ms. Pickard is a member of Chief Executive Women. She was a member of the Advisory Council of the Eurasia Foundation and Global Agenda Council on the Arctic for the World Economic Forum. Ms. Pickard also served on the Board of Advisors of Catalyst and was a director of Westpac Banking Corporation. Ms. Pickard holds a Bachelor of Arts degree from the University of California, San Diego and a Master of Arts degree from the University of Pennsylvania. Ms. Pickard brings to the Board significant global business and leadership experience and deep industry knowledge.

Charles M. Sledge. Mr. Sledge previously served as the Chief Financial Officer of Cameron International Corporation, an oilfield services company, from 2008 until its sale to Schlumberger Limited in 2016. Prior to that, he served as the Corporate Controller of Cameron International Corporation from 2001 until 2008. He currently serves on the boards of Weatherford International plc, where he serves as chairman, Talos Energy LLC,

 

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Vine Oil and Gas LP and Expro International, where he serves as non-executive chairman. He previously served on the boards of Templar Energy and Stone Energy. Mr. Sledge received a BS in Accounting from Louisiana State University. Mr. Sledge brings to the Board experience and knowledge gained as an executive officer in the energy industry and extensive accounting and financial experience.

Melanie M. Trent. Ms. Trent previously served in various legal, administrative and compliance capacities for Rowan Companies plc, from 2005 until April 2017, including as an Executive Vice President, General Counsel and Chief Administrative officer from 2014 until April 2017, as Senior Vice President, Chief Administrative Officer and Company Secretary from 2011 until 2014, and as Vice President and Corporate Secretary from 2010 until 2011. Prior to her tenure at Rowan Companies plc, Ms. Trent served in various legal, administrative and investor relations capacities for Reliant Energy Incorporated, served as counsel at Compaq Computer Corporation and as an associate at Andrews Kurth LLP. Ms. Trent serves on the boards of Diamondback Energy, Inc., an oil and natural gas company, Arcosa, Inc., a company focused on construction, energy and transportation products and services, and Frank’s International, a global oil services company that provides tubular running services and fabrication and specialty well construction and well intervention solutions. Ms. Trent holds a Bachelor’s degree from Middlebury College and a Juris Doctorate degree from Georgetown University Law Center. Ms. Trent brings to the Board strong industry knowledge gained from senior management positions in the offshore drilling sector and experience as a director for diverse, energy-related companies.

Executive Officers

Robert W. Eifler. See “—Directors” above.

Richard B. Barker. Mr. Barker was named Senior Vice President and Chief Financial Officer of the Company in March 2020. Mr. Barker served as Managing Director of Moelis & Company, a leading global independent investment bank, where he specialized in advising oilfield services and equipment clients in the oil and gas sector, from August 2019 to March 2020. He has 15 years of investment banking experience working with oil and gas companies globally. Prior to joining Moelis & Company, Mr. Barker was Managing Director and Head of Oilfield Services for North America at JPMorgan Chase & Co., where he held roles of increasing responsibility from May 2015 to August 2019. From May 2011 to May 2015, he worked at Tudor, Pickering, Holt & Co., most recently as Executive Director, where he worked with oilfield services companies on a variety of strategic matters, including mergers and acquisitions, equity financing and capital structure policy. Mr. Barker began his investment banking career at Goldman Sachs, where he spent over five years through May 2011 in its Natural Resources Group.

William E. Turcotte. Mr. Turcotte was named Senior Vice President and General Counsel of the Company in December 2008. He was named Corporate Secretary of the Company in January 2018. Prior to joining the Company, Mr. Turcotte served as Senior Vice President, General Counsel and Corporate Secretary of Cornell Companies, Inc., a private corrections company, since March 2007. He served as Vice President, Associate General Counsel and Assistant Secretary of Transocean, Inc., an offshore oil and gas drilling contractor, from October 2005 to March 2007, and as Associate General Counsel and Assistant Secretary from January 2000 to October 2005. From 1992 to 2000, Mr. Turcotte served in various legal positions with Schlumberger Limited in Houston, Caracas and Paris. Mr. Turcotte was in private practice prior to joining Schlumberger Limited.

Blake A. Denton. Mr. Denton was named Vice President of Marketing and Contracts of the Company in March 2020. Previously, Mr. Denton served as Director of Marketing and Contracts for the Company from January 2017 until assuming his position as Vice President, where he led the Company’s marketing and contracts efforts for the Middle East and India while based in Dubai. Prior to that, Mr. Denton served as the Company’s Project Director from March 2012 to January 2017 based in Korea and Houston, and as Project Manager from August 2010 to March 2012 based in Singapore. Before that, Mr. Denton led the Company’s newbuild project electrical engineering efforts for dynamically positioned drilling assets as a consultant based first in Houston and

 

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then in Singapore. Before joining the Company, Mr. Denton worked for a Houston-based electrical integration company supplying power generation and controls equipment primarily to the marine and drilling industry worldwide.

Joey M. Kawaja. Mr. Kawaja was named Vice President of Operations of the Company in October 2020. Mr. Kawaja has over 25 years of experience in offshore rig operations and project management. Previously, Mr. Kawaja served as Regional Manager—Western Hemisphere for the Company from August 2014 until assuming his position as Vice President of Operations, where he led all of the Company’s shorebased and offshore operations in North and South America. Prior to that, Mr. Kawaja served in various roles, including Operations Manager, Drilling Superintendent and Project Manager, since joining the Company in 1996.

Laura D. Campbell. Ms. Campbell was named Vice President and Controller of the Company in August 2018. Ms. Campbell is also the Company’s Principal Accounting Officer and was named Chief Accounting Officer in January 2021. Prior to joining the Company, Ms. Campbell served as Assistant Controller, Policy and Corporate Reporting at Chevron Phillips Chemical Company LLC, a petrochemical company, from March 2017 until July 2018. Prior to that time, Ms. Campbell worked at the Company from 2007 to March 2017, serving in the positions of Assistant Controller and Director of Corporate Accounting. Ms. Campbell is a certified public accountant with over 25 years of experience.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes the compensation practices and decisions of Legacy Noble regarding its named executive officers (“NEOs”) for the year ended December 31, 2019.

This CD&A is intended to provide context for the information contained in the executive compensation tables that follow this discussion under the heading “2019 Compensation Information.” The 2019 compensation program and decisions described in this CD&A were determined by Legacy Noble’s compensation committee, which was composed of three independent directors: Jon A. Marshall, Chair, Julie H. Edwards and Gordon T. Hall.

Following our emergence from the Chapter 11 Cases on the Effective Date, compensation decisions for the named executive officers of Noble Parent are made by the current compensation committee of the Board, which is comprised of the following three independent directors: Melanie M. Trent, Chair, Alan J. Hirshberg and Charles M. Sledge.

As used in this “Executive and Director Compensation” section, when discussing time periods prior to the Effective Date, the terms “we,” “us,” “our,” and the “Company” refer to Legacy Noble and, as appropriate, its subsidiaries, the terms “Board” and “compensation committee” refer to the board of directors of Legacy Noble and the compensation committee of the board of directors of Legacy Noble, and the terms “share,” “shares” or “shareholders” refer to Legacy Noble’s ordinary shares and shareholders.

Executive Summary

Beginning in the fourth quarter of 2014, the offshore drilling industry has suffered through a historic, sustained downturn. Our business, and the business of other offshore drillers, has significantly declined, primarily due to two factors:

 

  

a dramatic fall in our customers’ offshore drilling capital spending as a result of the decline in, and volatility of, the price of oil and a strategic shift in capital spending to onshore oil and gas resources and away from offshore resources; and

 

  

an extreme over-supply of drilling rigs in the market.

As a result of these challenging market conditions, levels of offshore rig utilization have been adversely impacted and contract awards have generally been subject to an extremely competitive bidding process. Because of this, our contracts have included dayrates that are substantially lower than dayrates for the same class of rigs prior to this period of over supply and low demand for offshore drilling rigs. In 2020, the industry environment has further deteriorated due to uncertainty stemming from the 2020 Russia-Saudi Arabia oil price war as well as the ongoing COVID-19 pandemic. Reflecting these market factors, the Legacy Noble share price suffered a precipitous decline of over 98% from August 4, 2014 to March 18, 2020. The lasting effects of this downturn have taken their toll on the offshore drilling industry, forcing several industry participants into bankruptcy and resulting in industry-wide financial distress. In addition, the Company and several of its industry peers experienced departures of key executives. While the unexpected oil market events of March 2020 led to further uncertainty, the industry saw some positive signs in 2019, as higher average crude oil prices and customer spending offshore led to increased rig utilization. We believe that offshore exploration and production will continue to play a key role in supplying the world’s energy demand, driven by the offshore industry’s unique ability to meet customer needs for meaningful reserve replacement. In order to enhance our ability to reach sustained recovery, the compensation committee recognized that it was crucial for us to have compensation policies that allowed us to recruit and retain high quality executives capable of managing a complex, global business in a challenging environment, and to be able to motivate them to perform. The compensation committee incentivized our executives to focus on matters that could be managed in spite of poor market conditions, such as operational excellence.

 

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The compensation committee proactively managed and reshaped our compensation program since the downturn began in 2014 to 2020, balancing the competing needs of providing competitive compensation designed to recruit and retain executive talent while contributing to cost reductions of the organization. We measured achievement through performance factors such as contract drilling margin and EBITDA, which emphasized cost-reduction and revenue generation, to maximize the available return on the Company’s assets during the market downturn. These performance factors were key measures in our short and long-term incentive plans. As a result of the compensation committee’s efforts to reshape our compensation practices during the sustained market downturn, the total compensation opportunity provided to our CEO and the other NEOs was substantially lower over the last several years relative to the first five years of the 2010s. In addition, our performance-based programs generated outcomes that reflected our declining results and the state of the market. A substantial portion of our NEO compensation represented long-term equity-based incentives for future performance, not actual cash compensation. These long-term incentives were variable and tied to pre-determined Company performance goals and/or the market price of Legacy Noble’s ordinary shares. These long-term incentives were ultimately cancelled with our emergence from the Chapter 11 Cases.

Our NEOs

When used in this CD&A, our NEOs consist of the persons listed in the table below.

 

Name

  

Title

Julie J. Robertson (1)

  Chairman, President and Chief Executive Officer

Stephen M. Butz (2)

  Executive Vice President and Chief Financial Officer

William E. Turcotte

  Senior Vice President, General Counsel and Corporate Secretary

Scott W. Marks (3)

  Former Senior Vice President of Engineering

Robert W. Eifler (1)

  Senior Vice President—Commercial

Adam C. Peakes (2)

  Former Senior Vice President and Chief Financial O3cer

 

(1)

Ms. Robertson stepped down from her positions of President and Chief Executive Officer of the Company and transitioned to the position of Executive Chairman on May 21, 2020 and (ii) Mr. Robert W. Eifler succeeded Ms. Robertson as President and Chief Executive Officer of the Company on May 21, 2020. Ms. Robertson retired from her position as Executive Chairman on February 5, 2021.

 

(2)

Mr. Peakes resigned as Senior Vice President and Chief Financial Officer of the Company effective September 9, 2019, and on December 19, 2019, Mr. Butz was appointed as the Company’s Executive Vice President and Chief Financial Officer. Mr. Butz resigned as Executive Vice President and Chief Financial Officer of the Company effective March 30, 2020.

 

(3)

Mr. Marks retired as Senior Vice President of Engineering of the Company effective February 6, 2020.

Details of Our Compensation Program

Our Compensation Philosophy

We believe that strong corporate governance includes a compensation program that is designed to pay for performance and that closely aligns our executives’ interests with those of our shareholders. We emphasized the importance of aligning pay and performance by placing a majority of executive pay at risk and subjecting a substantial portion of our NEOs’ potential compensation to specific annual and long-term performance requirements that we believed were key drivers of the Company’s success. We also followed certain simple foundational rules and best practices, and we strictly prohibited certain practices that did not meet our compensation standards.

 

  

What We Did:

 

  

We paid for performance—a meaningful portion of NEO pay was contingent on attaining pre-established performance goals

 

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We mandated that at least 50% of all NEO annual equity awards be subject to attaining pre-established performance goals relative to our industry peers

 

  

We benchmarked the components of our compensation program to comparable peers

 

  

We required significant stock ownership by our directors and executives

 

  

We had a robust clawback provision enabling us to recoup previously paid cash and equity incentive compensation from our executive officers upon the occurrence of certain events

 

  

We consulted with an independent compensation consultant when designing our compensation program and setting target levels of performance

 

  

What We Didn’t Do:

 

  

No guaranteed term of employment for our NEOs

 

  

No pledging or hedging of Legacy Noble shares

 

  

No recycling of share or option awards under Legacy Noble’s long-term incentive program

 

  

No single trigger cash severance benefits upon a change of control

 

  

No repricing or buyout of underwater options

 

  

No director or officer stock sales unless share ownership guidelines are met

Our executive compensation program reflected the Company’s philosophy that executive compensation should be structured to closely align each executive’s interests with the interests of our shareholders, emphasizing equity-based incentives and performance-based pay. The primary objectives of the Company’s compensation program were to:

 

  

Motivate our executives to achieve key operating, safety and financial performance goals that enhanced long-term shareholder value;

 

  

Provide a strong pay-for-performance link between the compensation provided to executives and Company and individual performance relative to pre-determined targets and industry peers;

 

  

Reward performance in achieving targets without subjecting the Company to excessive or unnecessary risk; and

 

  

Establish and maintain a cost-effective, yet competitive, executive compensation program that enabled the Company to attract, motivate, reward and retain experienced and highly capable executives who would contribute to the long-term success of the Company.

Consistent with this philosophy, we sought to provide a total compensation package for the NEOs that was competitive in respect of our Peer Group (as defined below) for a given year. A substantial portion of total compensation was subject to Company and individual performance and relative total shareholder return (“TSR”) and was subject to forfeiture. In designing these compensation packages, the compensation committee annually reviewed each compensation component and compared its use and level to various internal and external performance standards and market reference points.

Components of our Compensation Program for our NEOs

The compensation program for our NEOs was designed to link pay with performance and consisted of the following components:

 

  

Base pay. This fixed cash component of compensation provided executives with salary levels set to be competitive with our Benchmark Peer Group (as described below).

 

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Annual incentive compensation. This performance-based component of compensation was funded based on financial, safety and environmental performance relative to internal targets or industry performance, and was paid as an annual cash bonus. The program encouraged and rewarded achievement of these goals as well as achievement of Company, team and individual objectives.

 

  

Performance-based long-term incentive awards. This component of compensation was based on the Company’s cumulative TSR and also, for awards made on or after 2017, Contract Drilling Margin, in each case, relative to our Driller Peer Group (as described below) over a three-year period. For 2019, these awards consisted of performance-vested restricted stock units (“PVRSUs”).

 

  

Time-based long-term incentive awards. This component of compensation, which vested over a three-year period, facilitated retention, aligned executives’ interests with the interests of our shareholders by increasing NEOs’ ownership of Legacy Noble shares, and tied executives’ compensation opportunities to the success of the Company. For 2019, these awards consisted of time-vested restricted stock units (“TVRSUs”).

 

  

Benefits. The retirement and health benefits that were available to our NEOs were described under “—How Compensation Components were Determined—Retirement Benefits.”

Board Process and Independent Review of Compensation Program

The compensation committee of the Board was responsible for determining the compensation of our directors and executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy. The compensation committee provided oversight on behalf of the Board in reviewing and administering the compensation programs, benefits, incentive and equity-based compensation plans. The compensation committee operated independently of management and received compensation advice and data from outside independent advisors.

The compensation committee charter authorized the committee to retain and terminate, as the committee deems necessary, independent advisors to provide advice and evaluation of the compensation of directors and executive officers, and other matters relating to compensation, benefits, incentive and equity-based compensation plans and corporate performance. The compensation committee was further authorized to approve the fees and other engagement terms of any independent advisor that it retained.

For 2019, the compensation committee engaged Meridian Compensation Partners, LLC, an independent consulting firm (“Meridian”), to serve as the committee’s compensation consultant. Meridian did not provide any additional services to the Company or any of our affiliates during 2019. The compensation committee reviewed the independence of Meridian as required by the NYSE rules relating to the engagement of its advisors. The compensation committee, after taking into consideration all relevant factors, including the required six-factor test, determined Meridian to be independent, consistent with NYSE requirements.

The compensation consultant reported to, and acted at the direction of, the compensation committee. The compensation consultant was independent of management, provided comparative market data regarding executive and director compensation to assist in establishing reference points for the principal components of compensation and provided information regarding compensation trends in the general marketplace, best practices, compensation practices of the Peer Groups described below, and regulatory and compliance developments. The compensation consultant regularly participated in the meetings of the compensation committee as well as met regularly with the committee in executive sessions without management present.

In determining compensation for our CEO, the compensation committee evaluated and assessed the CEO’s performance related to leadership, financial and operating results, board relations, achievement of team and individual objectives and other considerations. The compensation consultant provided market information and perspectives on market-based adjustments, which were included in the committee’s decision-making process. The compensation committee could incorporate these considerations, as well as compensation market information, into its adjustment decisions.

 

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In determining compensation for executive officers other than our CEO, our CEO consulted with the compensation consultant to review compensation market information and prior compensation decisions and to recommend compensation adjustments to the compensation committee. Our CEO could attend compensation committee meetings at the request of the committee, except when the compensation of our CEO was being discussed. The compensation committee reviewed and approved all compensation for our NEOs and directors.

Peer Groups and Benchmarking

We competed for talent with employers across many different sectors around the world, but our primary competitive market consists of offshore drilling companies and oilfield services companies. In making compensation decisions for our NEOs, each element of their total direct compensation was compared against published compensation data and data provided by the compensation consultant. Data from peer groups played an important role in the process used by the compensation committee to determine the design, components and award levels in our executive pay program. The compensation committee conducted a review of the compensation program on an annual basis to ensure that our compensation program worked as designed and intended and in light of then current market conditions. The following peer groups were used by the Company for the purposes indicated below:

 

Benchmark Peer Group

  
Used as benchmark for comparing each component of compensation program in 2019:  
Diamond Offshore Drilling, Inc. Helix Energy Solutions Group, Inc. Helmerich & Payne, Inc.
McDermott International, Inc. Oceaneering International, Inc. Precision Drilling Corporation
Oil States International, Inc. Patterson-UTI Energy, Inc. Superior Energy Services, Inc.
Tidewater Inc. Transocean Ltd. Valaris plc**
Driller Peer Group  
Used as benchmark for 2017, 2018 and 2019 PVRSU awards:  
Atwood Oceanics, Inc.* Diamond Offshore Drilling, Inc. Rowan Companies plc*
Seadrill Limited* Transocean Ltd. Valaris plc**

 

*

Atwood Oceanics, Inc. and Seadrill Limited were removed from the Driller Peer Group in 2018 as a result of acquisition or bankruptcy; Rowan Companies plc was removed from the Driller Peer Group in 2019 as a result of acquisition; and Seadrill Limited was added back to the Driller Peer Group for 2019 after emerging from bankruptcy.

 

**

Ensco plc, a member of our Benchmark Peer Group and Driller Peer Group, merged with Rowan Companies plc in 2019 and changed its name to Valaris plc.

Benchmark Peer Group. The compensation committee benchmarked compensation of the NEOs to the compensation of individuals in like positions in the companies included in the Benchmark Peer Group. The compensation committee did not benchmark executive compensation to specific levels or percentiles of the Benchmark Peer Group, but instead endeavored to be competitive within the Benchmark Peer Group with respect to the various components and the aggregate level of compensation of officers in comparable positions. The compensation committee believed that this approach gave the committee the flexibility to respond to individual circumstances and offer competitive compensation packages to our executives. We reassessed the composition of the Benchmark Peer Group in recent years at the time to ensure that companies with a smaller market cap were included in order to make the Benchmark Peer Group a better match to the Company’s profile and size.

Driller Peer Group. We used the Driller Peer Group to measure our performance for the vesting of performance-based long-term equity incentives. The compensation committee believed that the Driller Peer

 

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Group, which consisted of the Company’s direct competitors in the offshore drilling industry, was an appropriate benchmark against which to measure the Company’s actual performance in the complex and cyclical offshore drilling industry. The compensation committee also considered that the Driller Peer Group closely matched the reality of our industry, which the public markets recognize as a distinct subgroup within the broader oilfield services industry. The compensation committee elected to use the broader Benchmark Peer Group, which consisted of the type of companies we competed against to attract and retain executive talent, to benchmark each component of our compensation program because the market for executive talent is broader than just the offshore drilling industry and includes such closely related industries as oilfield services.

Over the past few years, the number of peers in the Driller Peer Group declined due to events such as bankruptcy and acquisitions. The compensation committee considered, in part due to shareholder feedback, whether other entities should be added to the Driller Peer Group in lieu of the bankrupt or acquired entities, but determined, based on advice of its independent consultant and considering comparable company and market conditions, that there were no other direct competitors in the offshore drilling industry that were appropriate to add to the Driller Peer Group. The compensation committee addressed the reduction of peers in the Driller Peer Group, in part, by adopting an “interpolation” scale to measure the relative results on long-term incentive awards. References to the “Peer Group” in this CD&A mean the Benchmark Peer Group and the Driller Peer Group, as the context requires. Noble Parent’s compensation committee intends to continue to review and assess the composition of the Driller Peer Group going forward.

How Compensation Components were Determined

Base Salary

Base salary levels of the NEOs were determined based on a combination of factors, including our compensation philosophy, market compensation data, competition for key executive talent, the NEO’s experience, leadership, prior contribution to the Company’s success, the Company’s overall annual budget for merit increases and the NEO’s individual performance in the prior year. The compensation committee conducted an annual review of the base salaries of NEOs taking these factors into account. As a result of shareholder feedback and continued challenging market conditions, we made reductions to our CEO’s base salary from 2014 through 2018. Our CEO’s 2019 base salary reflected a reduction of 16% from 2014 levels. The compensation committee also elected to freeze the salaries of our NEOs other than the CEO at 2014 levels through 2018. After multiple years of these salary reductions and salary freezes, the compensation committee approved the following salary increases for our NEOs effective February 1, 2019:

 

  

Ms. Robertson received a 4.1% increase (from $850,000 to $885,000);

 

  

Mr. Peakes received a 6.7% increase (from $450,000 to $480,000);

 

  

Mr. Turcotte received a 2.2% increase (from $460,000 to $470,000);

 

  

Mr. Marks received a 1.2% increase (from $425,000 to $430,000); and

 

  

Mr. Eifler received a 7.7% increase (from $325,000 to $350,000) and a subsequent 8.6% increase on August 1, 2019 in connection with his promotion to Senior Vice President—Commercial (to $380,000).

Short-Term Incentive Plan (STIP)

The STIP used by Legacy Noble, which is no longer in effect and has been replaced by a new short term incentive plan of Noble Parent following our emergence from bankruptcy, gave participants, including NEOs, the opportunity to earn annual cash bonuses in relation to specified target award levels defined as a percentage of their base salaries. STIP award sizes were developed based on a combination of factors, including our compensation philosophy, market compensation data, competition for key executive talent, the NEO’s experience, leadership, prior contribution to the Company’s success, the Company’s overall annual budget for merit increases and the NEO’s individual performance in the prior year.

 

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The success of the Company 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. The STIP was designed to reward executives for meeting these goals. Company performance determined STIP funding levels—accordingly, if performance thresholds were not met, STIP awards were not funded.

How the STIP Worked

 

  

Step 1: Determine STIP Company Funding Factor through Company Achievement of Three Factors:

 

  

EBITDA performance relative to a pre-determined target;

 

  

Total Recordable Incident Rate (“TRIR”) relative to International Association of Drilling Contractors (“IADC”) offshore industry average; and

 

  

Focus on spill prevention (Loss of Primary Containment) (“LOPC”) relative to a pre-determined target.

 

  

Step 2: Multiply STIP Company Funding Factor by Target Award (fixed % of Salary) to Determine Target Performance Bonus.

 

  

Step 3: Determine Individual Performance Factor, which would Determine Individual Adjustment to Performance Bonus, if any.

STIP—Company Performance Component

The Company performance component funding of the STIP was formulaic and calculated based on the three factors previously noted. Performance achievement directly determined STIP funding.

The Company performance component was based on aspects of our business that management could control. Thus, in establishing this performance component the compensation committee proceeded under the framework that, while management could not increase the price of oil or increase our customers’ capital spend on offshore drilling projects, management could proactively impact the productivity and efficiency of the Company’s assets and their operation in a safe and environmentally sound manner.

Accordingly, the STIP performance goals targeted financial efficiency and safety and environmental performance, all of which are key drivers of the Company’s business.

 

  

Financial performance was measured by the Company’s ability to achieve a certain level of EBITDA, which, in turn, required the Company to focus on the goals of cost-reduction and revenue generation in order to maximize the available return on the Company’s assets during a severe industry slowdown.

 

  

Safety and environmental achievement were measured by minimizing total recordable incidents and preventing spills.

Based on these pre-determined factors, the 2019 STIP achievement level was 150% of target funding. This funding resulted in a Company funding factor for NEOs (and other employees) equal to 1.50 times their target performance bonuses.

 

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For any individual, including our NEOs, the Company funding factor was multiplied by the applicable individual target award to calculate the preliminary performance bonus. Individual target awards were equal to a fixed percentage of base salary. The 2019 target awards for our NEOs are set forth in the table below:

 

Name

  2019 Target 

Julie J. Robertson

   110

Stephen M. Butz

   75

William E. Turcotte

   70

Scott W. Marks

   70

Robert W. Eifler

   70

Adam C. Peakes

   75

The components of the performance bonus, weighting factors and threshold, target and maximum levels for corporate personnel, including NEOs, for the 2019 plan year are set forth in the table below:

 

Component of
Performance Bonus

 

How Determined

 Weighting of
Component
 

2019 Target

 

Threshold/Target/Maximum or
Ranking with

Associated Bonus Pool Multiple

Financial

 

EBITDA relative to

actual Company

budget

 0.70 EBITDA of $257 million   Bonus Pool Multiple
 Threshold: 80% of Target 0.50
 Target: 100% of Target 1.00
 Maximum: 120% of Target 2.00

Safety

 

TRIR relative to IADC

industry average

 0.20 2nd quartile performance   Bonus Pool Multiple
  Threshold: 3rd quartile performance 0.50
    Target: 2nd quartile performance 1.00
    Maximum: 1st quartile performance and year-over-year performance improvement 2.00

Environmental Stewardship

 

 

 

LOPC events relative

to a pre-determined

target

 

 

 

0.10

 

 

 

2.51-3.00 calculated by multiplying the number of LOPC events by 200,000, then dividing by cumulative manhours for the year

   

 

 

Bonus Pool Multiple

  Threshold: 3.01 -3.50 0.50
  Target: 2.51-3.00 1.00
  Maximum: <2.50 events 2.00
     
      

 

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The 2019 results and the calculation of the performance component for corporate personnel, including NEOs for the 2019 plan year, are set forth in the table below:

 

Components of

Performance Bonus

 

Actual 2019 Results

 Bonus
Pool
Multiple
 Component
Payout

(Weighting X
Bonus

Pool
Multiple)
 

Significance of 2019 Results

Financial

 Consolidated EBITDA $329 million (excluding EBITDA contribution related to the Bully II termination payment) 2.00 1.40 Excluding the EBITDA contribution of $160 million related to the Bully II termination payment, consolidated EBITDA for 2019 was $329 million, exceeding the 2019 budgeted EBITDA of $257 million by more than 28% during the current historic industry downturn due to operating efficiency and cost reduction efforts undertaken by the Company. See below discussion of factors that went into setting 2019 budgeted EBITDA.

Safety

 TRIR of 0.54 for the period beginning October 1, 2018 and ending September 30, 2019 0.50 0.10 During 2019, the Company delivered high level process safety performance but saw a significant rise in personal injuries, resulting in 2019 TRIR of 0.56. The Company’s fourth quarter of 2019 performance improved and the TRIR was reduced by 59% from the previous quarter.

Environmental Stewardship

 

 

 

LOPC of 7.29

 

 

 

0.00

 

 

 

0.00

 

 

 

Measurement includes all LOPC events of any nature that result in either a spill contained on a rig or that is lost to sea. Despite the result, Company’s spill volume to sea was the best recorded performance in Company’s history.

Goal Achievement

 1.50 
  

 

 

Amount Funded

 1.50 

Since 2014, the formulaic funding factor for STIP ranged from 1.40 to 1.83 and the amount actually funded by the Company into the STIP pool ranged from 1.00 to 1.56.

More on our STIP Metrics

EBITDA Metric. Our target EBITDA ($257 million for 2019) was set each year based on our annual budgeted EBITDA, as approved by the full Board of Legacy Noble at the beginning of each year. As a result of the severe, multi-year downturn in our industry, our target 2019 EBITDA was lower than our actual 2018 EBITDA ($342 million), and this year-over-year reduction occurred in each year since 2015. The most important indicators of the strength of our business are rig count, utilization and average dayrate. During the downturn, these measures decreased substantially across the industry, and resulted in a significant reduction in the scale of Company operations that continued through 2019:

 

  

The average number of the Company’s operating drilling rigs decreased from 25 rigs during 2015 to 19 rigs during 2019;

 

  

The utilization of the Company’s rigs (a standard measure of how many days each rig works during a period) declined from 84% in 2015 to 78% in 2019; and

 

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The average dayrate for the Company’s rigs (a standard measure of the amount that each rig earns under contract during a period) declined from $358,423 in 2015 to $183,706 in 2019.

These and other factors reduced the earning capacity of the Company in 2019 as compared to prior years and, as a result, reduced our budgeted EBITDA, upon which the 2019 STIP target was based. Notwithstanding the historic downturn, the Company still was able to exceed its budgeted EBITDA by focusing on cost containment measures and maximizing revenue.

Safety Measure and Environmental Compliance Program Metric. Safety and environmental compliance are crucially important to the success of the Company. Our customers demand that we excel in both categories and excellence in these areas has become a marketing and regulatory imperative. In addition, the compensation committee believed that safety and environmental stewardship were key proxies for operational excellence and discipline.

The compensation committee used TRIR, a well-recognized measure of safety in the drilling industry, to assess the Company’s safety performance. TRIR measures the overall number of recordable incidents. In order to minimize TRIR, the Company must minimize all rig incidents. The compensation committee chose the target and maximum metrics for TRIR based on a review of Company performance and industry data, and believed the use of TRIR relative to industry performance was a rigorous measure of the Company’s safety performance, requiring the Company to maintain a very low rate of recordable incidents. During 2019, the Company delivered high level process safety performance but saw a significant rise in personal injuries, specifically in the months of July and August, resulting in 2019 TRIR of 0.56. For comparison to IADC for the 12-month time period through the end of the third quarter of 2019, the Company was in the third quartile. The Company’s fourth quarter of 2019 performance improved and the TRIR was reduced by 59% from the previous quarter.

In addition to safety, one of the Company’s core values is environmental stewardship, and the Company is committed to protecting the environment. Each year, the compensation committee reviews the Company’s defined environmental objectives in support of outstanding environmental performance and continuous improvement, and for 2019 chose LOPC to focus on prevention of spills from fluid transfer events, both those contained on a rig and losses to sea. During 2019, our spill volume to sea was the lowest recorded performance in the Company’s history.

STIP – Individual Goals Component

Individual target performance bonuses could be adjusted upward or downward to reflect merit, individual and team performance and/or additional selected criteria, subject to the approval of the compensation committee. Under this authority, the compensation committee adjusted Ms. Robertson’s individual achievement factor under the 2019 STIP in recognition of her extraordinary efforts managing the Company during the challenging industry downturn, including the integral role she played in maintaining and strengthening a key customer relationship. 2019 STIP awards are listed in the table below:

 

Name (1)

  2018
Salary
   X   STIP
 Target 
  X   Award
Factor
   X   Individual
Achievement
   2019 STIP 

Julie J. Robertson

  $885,000    X    110  X    1.50    X    1.33   $1,947,000 

William E. Turcotte

  $470,000    X    70  X    1.50    X    1.00   $493,500 

Robert W. Eifler

  $380.000    X    70  X    1.50    X    1.00   $399,000 

 

(1)

Mr. Butz joined the Company in December 2019 and did not receive a STIP award for 2019. Mr. Marks retired from the Company prior to the STIP payment date and did not receive a STIP award for 2019. Mr. Peakes resigned from the Company prior to the STIP payment date and did not receive a STIP award for 2019.

If, on a cumulative basis, the sum of STIP awards was greater than the formulaic STIP funding pool, STIP awards were reduced to remain within the constraints of the funding pool.

 

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Long-Term Incentives

We believe it is important to reward executive officers and key employees who demonstrate superior performance in their current position, as well as the likelihood of high-level performance in the future, with long-term incentive compensation. Such long-term incentive compensation is consistent with our overall compensation philosophy to align executives’ and employees’ interests with the interests of our shareholders.

The value of long-term incentive compensation awards has historically been determined annually based on the analysis of competitive data. In particular, this value was developed considering our objectives for this component of total compensation relative to the pay of the companies in the Benchmark Peer Group and was set to be competitive with the Benchmark Peer Group. Our CEO recommended for consideration and approval by the compensation committee the total value of awards for all positions other than his or her own. The compensation committee determined the total award value for our CEO and, based in part on the CEO’s recommendations, for the other NEOs. In response to the prolonged market downturn since 2014 and shareholder feedback, the compensation committee reduced the value of equity awards to our NEOs to reflect our pay-for-performance philosophy. For instance, the value of the 2019 LTIP award to our then-current CEO, Ms. Robertson, was reduced by 27% from the 2014 level, and we further reduced the value of the 2020 target LTIP grant to our successor CEO, Mr. Eifler, by 41% compared to the 2019 target LTIP grant to Ms. Robertson.

In connection with our emergence from the Chapter 11 Cases, on the Effective Date, all outstanding equity awards were cancelled.

Performance-Vested Restricted Stock Units

Through 2019, PVRSUs constituted 50% of the annual award value and vested based on the achievement of specified corporate performance criteria over a three-year performance cycle. Commencing in 2020, in response to shareholder feedback, the Company increased the percentage of NEO long-term incentive awards that were performance-vested to 55% of the annual award. All PVRSUs that remained outstanding and unvested at the time of our bankruptcy filing were cancelled.

The number of PVRSUs that vest was determined after the end of the applicable performance period. Any PVRSUs that did not vest were forfeited. Upon vesting, PVRSUs converted into unrestricted shares. In setting the target number of PVRSUs, the compensation committee took 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.

The compensation committee approved the target award levels set forth in the tables below because it believed that if the Company performed at or above the median relative to the companies in the applicable Peer Group, compensation levels should be commensurate with this performance. If the Company performed below this level, our compensation levels would be lower than the 50th percentile. The maximum number of PVRSUs that could be awarded was 200% of the target award level.

From 2017 to 2020, PVRSU vesting was based on two performance measures, relative TSR and relative Contract Drilling Margin. Both performance measures were calculated on the same scale relative to the companies in the Driller Peer Group. Each performance measure was equally weighted (or 50/50) in the overall vesting calculation.

To determine the number of PVRSUs that would vest, the percentile ranking of relative TSR and relative Contract Drilling Margin for the ordinary shares of Legacy Noble was computed relative to the companies in the Driller Peer Group at the end of the performance cycle. Then, the Driller Peer Group percentile ranking was cross-referenced according to the tables below to determine the percentage of PVRSUs that would vest. Vesting occurred at the average of the measured ranking for the two performance measures. In each case, the Company needed to exceed a threshold performance level in order for any of the PVRSUs to vest.

 

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As a result of shareholder feedback, the compensation committee added the relative Contract Drilling Margin performance measure in 2017, in part, to place more emphasis on the goals of revenue generation and cost reduction in order to maximize the available return on the Company’s assets during the downturn.

PVRSU Performance Payout Scale

The performance payout scale in the first table below was applicable for the 2017-2019 performance cycle. The performance payout scale in the second table below was applicable for the 2018-2020 and 2019-2021 performance cycles. As described further above, both the relative TSR performance measure and the relative Contract Drilling Margin performance measure were calculated using these scales relative to the companies in the Driller Peer Group.

 

Noble Ranking Among

Driller Peer Group*

  

Performance

Percentage

1st of 7 (Maximum Level)

  200%

2nd of 7

  166.66%

3rd of 7

  133.34%

4th of 7

  100%

5th of 7

  66.66%

6th of 7

  33.34%

7th of 7

  0%

 

Noble Ranking Among
Driller Peer Group

  

Performance

Percentage

1st of 5

  200%

2nd and 3rd of 5

  Payout was interpolated between 50% and 200% based on Noble’s performance ranking relative to the companies in the 1st and 4th position

4th of 5

  50%

5th of 5

  0%

 

*

Two of the entities in our Driller Peer Group were removed due to acquisition. As a result, the measurement was relative to the four remaining peers.

PVRSU Earned Percentages

Our NEOs forfeited, or were on track to forfeit, a portion of the PVRSUs awarded to them based on actual or expected performance during the applicable performance period. In addition, because of the decline in Legacy Noble’s share price, NEOs also experienced substantial decline in the value of awards, both vested and unvested. As a result, our PVRSUs had a low retention value, which contributed to executive turnover.

 

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The following table shows, for PVRSUs that had recently vested and those that were in-progress as of the time periods presented, the amount vested or on track to be vested (as a percentage of maximum) and the market value of such vested (or to be vested) award (as a percentage of target shares). As noted above, all unvested awards were cancelled as a result of our bankruptcy so that no vesting after our bankruptcy filing was possible.

 

Historical / In-Progress

Performance Cycles

 

Past / Future

Vesting Date

 

Performance Measure

 Percent of
Shares Vested (1)
 Percent of Target
Value Realized (2)
2016-2018 February 2019 TSR Relative to Driller Peer Group 30% 3%
2017-2019 March 2020 TSR Relative to Driller Peer Group & Relative Contract Drilling Margin 75% 6%
2018-2020 February 2021 TSR Relative to Driller Peer Group & Relative Contract Drilling Margin 62.5% 8%
2019-2021 February 2022 TSR Relative to Driller Peer Group & Relative Contract Drilling Margin 67.5% 12%

 

(1)

Represents percentage of the maximum awards that vested for the applicable historical performance cycles, and represents percentage of the maximum awards expected to vest based on performance to date for the applicable in-progress performance cycles.

 

(2)

Represents the market value of shares on the vesting date as a percentage of the original target value on the date of award for historical performance cycles, and for in-progress performance cycles represents the 3/18/20 market value of shares expected to vest based on performance to date as a percentage of the original target value on the date of award.

Time-Vested Restricted Stock Units

Through 2019, TVRSUs constituted 50% of the annual award value and were scheduled to vest one-third per year over three years commencing one year from the award date. Commencing in 2020, in response to shareholder feedback, the Company decreased the percentage of NEO long-term incentive awards that were time-vested to 45% of the annual award. Upon vesting, these units converted automatically into unrestricted shares. The compensation committee believed that TVRSUs remained an important element of compensation as they promoted retention, rewarded individual and team achievement and aligned executives with the interests of shareholders. Moreover, while TVRSUs were not earned based on performance criteria, the compensation committee believed that, because the ultimate value of the awards was linked directly to the performance of Legacy Noble’s shares over time, TVRSUs also acted to support management performance.

Retention Bonuses

The compensation committee recognized that it was critical to retain key leaders who were instrumental to achieving our business and strategic objectives. The depressed offshore drilling market resulted in a Legacy Noble share price decline that greatly reduced the value of management’s outstanding equity and attendant retention value, which led to high turnover in senior level positions at the Company. To address these concerns, in February 2019, the Company awarded one-time cash-based retention awards to certain NEOs, other than Ms. Robertson. The retention award values were $900,000, $920,000, $850,000 and $650,000 for Mr. Peakes, Mr. Turcotte, Mr. Marks and Mr. Eifler, respectively. 50% of the cash amount under such awards was paid to the respective individual on December 31, 2020, with the remaining 50% being payable on December 31, 2021, subject to the individual being employed by the Company on such date. Mr. Peakes and Mr. Marks forfeited their awards when they left the Company on September 9, 2019 and February 6, 2020, respectively. Ms. Robertson did not participate in these retention awards.

Retirement Benefits

We offered retirement programs that were intended to supplement the personal savings and social security for covered officers and other employees. The programs included the Noble Drilling Services Inc. 401(k) and

 

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Profit Sharing Plan, the Noble Drilling Services Inc. 401(k) Savings Restoration Plan, the Noble Drilling Services Inc. Salaried Employees’ Retirement Plan, and the Noble Drilling Services Inc. Retirement Restoration Plan. The Company believed that the retirement programs described below assisted the Company 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.

 

Plan

 

Description & Eligibility

 

Benefits & Vesting

401(k) and Profit Sharing Plan Qualified defined contribution plan that enabled qualified employees, including NEOs, 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. Company made annual discretionary contribution of 2.0% of base pay for 2019. Fully vested after three years of service or upon retirement, death or disability.
401(k) Savings Restoration Plan Unfunded, nonqualified employee benefit plan under which specified employees could defer compensation in excess of 401(k) plan limits. Vesting and, to the extent an employee was prohibited from participating in the 401(k) Savings Plan, matching provisions mirrored 401(k) Savings Plan.
Salaried Employees’ Retirement Plan* Qualified defined benefit pension plan available to participants originally hired on or before July 31, 2004. Benefits were determined by years of service and average monthly compensation near retirement.
Retirement Restoration Plan* Unfunded, nonqualified defined benefit pension plan available to participants originally hired on or before July 31, 2004. Eligible compensation in excess of IRS annual compensation limit for a given year was considered in the Retirement Restoration Plan.

 

*

Plan amended effective December 31, 2016 to cease future benefit accruals.

For additional information regarding these plans, please see the description under “2019 Compensation Information—Retirement Payments and Benefits” and the “Potential Benefits upon Retirement or Termination” table.

Other Benefits and Perquisites

The Company provides healthcare, life and disability insurance, and other employee benefit programs to its employees, including NEOs, which the Company believes assists in maintaining a competitive position in terms of attracting and retaining officers and other employees. These employee benefits plans are provided on a non-discriminatory basis to all employees.

The Company provides only minimal perquisites and other personal benefits to NEOs. The Company and the compensation committee believe these are reasonable and consistent with its overall compensation program. Attributed costs of perquisites for NEOs for the year ended December 31, 2019 are included in the All Other Compensation column of the Summary Compensation Table.

Share Ownership Policy and Holding Requirements

Legacy Noble’s share ownership policy included minimum share ownership thresholds for all of our directors and officers, including NEOs. Legacy Noble’s share ownership guidelines for executives and directors

 

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required them to hold shares with an aggregate value in excess of a certain multiple of their base salary or annual retainer, as set forth below, before they could sell any shares.

 

Position

  

Minimum Ownership Thresholds

  

Holding Requirements

Chief Executive Officer

  5.0 times Base Salary  NO SALES UNTIL OWNERSHIP GUIDELINES WERE FULLY MET

Executive Vice President

  3.0 times Base Salary

Senior Vice President

  2.0 times Base Salary

Vice President

  1.0 times Base Salary

Independent Director

  6.0 times Annual Retainer

A director or officer was not allowed to sell shares until the holding requirements were met. Once a director or officer met the applicable share ownership requirements, the share ownership policy requirements were deemed satisfied even if there was a subsequent drop in the Legacy Noble share price that would result in a shareholding value that was below the threshold. However, a director or officer who had been “deemed” to meet the applicable ownership requirement could not sell or dispose of any shares for cash thereafter until the applicable ownership requirement was actually met.

All of our then current directors and NEOs were in compliance with the Legacy Noble share ownership policy.

Securities Trading Policy and Timing of Equity-Based Awards

The Company’s policy on trading in Legacy Noble shares prohibited directors, officers, employees and agents from hedging or engaging in short sale transactions or buying or selling puts or calls involving Legacy Noble securities, and prohibited purchases of Legacy Noble securities on margin. The Company’s policy on trading in Legacy Noble shares also prohibited directors, officers, employees and agents from purchasing or selling Legacy Noble securities while in possession of any material information about the Company or its operations that had not been publicly disclosed. As such, and in addition to our pre-clearance procedures, directors, officers and certain designated employees and consultants were prohibited from buying or selling Legacy Noble securities during our quarterly blackout periods (which began on the first day of the month following the end of each fiscal quarter and extended until one full trading day had elapsed after the day on which the Company’s quarterly or annual earnings for the applicable period are released) and during certain situation-specific blackout periods in which developments known to the Company have not yet been disclosed to the public. However, the Company did permit directors, officers or employees to enter into Rule 10b5-1 sales or purchase plans in accordance with our pre-clearance procedures if they so desired.

The Company’s practice had 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.

Clawback Provisions

The Company’s clawback policy provided that at any time there was a material and negative restatement of the Company’s reported financial results, the cash and equity incentive compensation awarded or paid to any executive officer during the previous three years would be subject to recoupment, if the Board determined that the executive officer’s intentional misconduct or gross negligence materially contributed to such restatement. Base salary was not subject to clawback under this policy.

In addition, Section 304 of the Sarbanes-Oxley Act of 2002 generally requires U.S.-listed public company chief executive officers and chief financial officers to disgorge bonuses, other incentive-based or equity-based compensation and profits on sales of company stock that they receive within the 12-month period following the public release of financial information if there is a restatement because of material noncompliance, due to misconduct, with financial reporting requirements under the federal securities laws.

 

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The Company will continue to monitor applicable rule-making actions of the SEC in order to meet any future clawback requirements.

Change of Control Arrangements

NEOs serving at December 31, 2019 were parties to change of control employment agreements which we offered to certain senior executives since 1998. These agreements would become effective only upon a change of control (within the meaning set forth in the agreement). If a defined change of control occurred and the employment of the NEO was terminated either by us (for reasons other than death, disability or cause) or by the officer (for good reason or, for Mr. Turcotte’s arrangement only, 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 would receive payments and benefits set forth in the agreement. The terms of the agreements are summarized under “—2019 Compensation Information—Potential Payments on Termination or Change of Control—Change of Control Employment Agreements.” We believed a “double trigger” requirement, rather than a “single trigger” requirement (which would be satisfied simply if a change of control occurs), increased shareholder value because it prevented an immediate unintended windfall to the NEOs in the event of a friendly (non-hostile) change of control.

In October 2011, the Board revised the form of change of control employment agreement for executive officers. The terms of the new form of employment agreement were substantially the same as the prior agreements described above, except the new form only provided benefits in the event of certain terminations by us following a change of control for reasons other than death, disability or “cause” or by the officer for “good reason” and did not provide for an Excise Tax Payment (as defined below). In February 2012, the Board further revised the form of change of control agreement and the Noble Corporation 1991 Stock Option and Restricted Stock Plan, as amended (the “1991 Plan”), to change the definition of change in control such that the percentage of our shares that must be acquired by an individual, entity or group to trigger a change in control was increased from 15% to 25%. Mr. Peakes, Mr. Marks, Mr. Butz and Mr. Eifler were parties to the most recent form of change of control employment agreement (although such change of control agreement essentially was terminated for Mr. Butz as a result of his entry into a separation agreement in connection with his resignation). None of the other NEOs were parties to this most recent form of agreement. Our forms of equity award agreements for executive officers included a definition of change of control that was consistent with the definition of change of control in our incentive plans.

Impact of Accounting and Tax Treatments of Compensation

As a result of tax reform that became effective on January 1, 2018, future grants of performance awards will no longer be eligible to qualify as “qualified performance-based compensation” under Section 162(m) of the Code. However, it could have been possible for performance awards that were outstanding as of November 2, 2017 (“Legacy Awards”) to continue to qualify as “qualified performance-based compensation” for such purposes, so long as the awards were not modified in any material respect after such date (and assuming that the awards otherwise satisfied any additional transition relief guidance issued by the IRS). Section 162(m) of the Code generally limits the deductibility for federal income tax purposes of annual compensation paid to certain top executives of a company to $1 million per covered employee in a taxable year (except to the extent such compensation qualifies as (among other things) “qualified performance-based compensation” as of November 2, 2017 and thereafter for purposes of Section 162(m) of the Code).

Conclusion

We believe our current compensation program’s components and levels are appropriate for our industry and will provide a direct link to enhancing shareholder value and advancing the core principles of our compensation philosophy and objectives to ensure the long-term success of our Company. We will continue to monitor current

 

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trends and issues in our industry, as well as the effectiveness of our program with respect to our NEOs, to properly consider and modify our program where and when appropriate.

Compensation Committee Interlocks and Insider Participation

During 2019, the compensation committee was comprised of Jon A. Marshall, Chair, Julie H. Edwards and Gordon T. Hall. All of the directors who served as members of the compensation committee during 2019 were independent non-executive directors. None of the members of the compensation committee during 2019 had served as an officer or employee of the Company, and none of our executive officers had served as a member of a compensation committee or board of directors of any other entity which had an executive officer serving as a member of the Board.

2019 Compensation Information

The following table sets forth the compensation of our NEOs during 2019 pursuant to the applicable rules of the SEC.

Summary Compensation Table

 

Name
and
Principal
Position

 Year  Salary  Bonus (1)  Stock
Awards (2)
  Option
Awards
  Non-Equity
Incentive Plan
Compensation (1)
  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (3)
  All Other
Compensation (4)
  Total 

Julie J. Robertson: Current Chairman, President and Chief Executive Officer; Former Executive Vice President and Corporate Secretary (12)

 

  2019  $882,083   —    $4,771,239   —    $1,947,000  $1,092,894  $255,428 (6)  $8,948,644 
  2018  $842,917   —    $5,522,870   —    $1,439,900  $0(5)  $89,268 (6)  $7,894,955 
  2017  $595,000   —    $2,596,618   —    $750,000  $392,439  $107,357 (6) $4,441,414 

Stephen M. Butz: Executive Vice President and Chief Financial Officer (13)

 

  2019  $18,774    —     —     —     —     965(7)  $19,739 

William E. Turcotte: Senior Vice President, General Counsel and Corporate Secretary

 

  2019  $469,167   —    $1,044,653   —    $493,500   —    $33,354 (8)  $2,040,674 
  2018  $460,000   —    $1,460,408   —    $460,460   —    $22,958 (8)  $2,403,826 
  2017  $460,000   —    $1,467,656   —    $466,440   —    $21,495 (8)  $2,415,591 

Scott W. Marks: Former Senior Vice President, Engineering (14)

 

  2019  $429,583   —    $723,222   —     —    $577,192  $33,980 (9)  $1,763,977 
  2018  $425,000   —    $786,370   —    $425,425  $0(4)  $26,705 (9)  $1,663,500 

Robert W. Eifler: Senior Vice President—Commercial (15)

 

  2019  $360,417   —    $683,038   —    $399,000   —    $40,062 (10)  $1,482,517 
  2018  $325,000   —    $898,713   —    $300,300   —    $26,379 (10)  $1,550,392 

Adam C. Peakes: Former Senior Vice President and Chief Financial Officer (13)

 

  2019  $337,500   —    $1,366,083   —     —     —    $1,019,924 (11)  $2,723,507 
  2018  $450,000   —    $1,909,759   —    $485,100   —    $19,056 (11)  $2,863,915 
  2017  $425,048   —    $3,406,330   —    $491,400   —    $11,403 (11)  $4,334,181 

 

(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. With respect to PVRSUs, amounts were based on probable achievement level of the underlying performance conditions as of the grant date. A description of the assumptions made in our valuation of restricted stock units and stock option awards is set forth in Note 8 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year

 

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 ended December 31, 2019 (the “2019 Form 10-K”). The maximum value of the PVRSUs, calculated as the maximum number of shares that could be issued multiplied by the market price of the shares on the grant date, is as follows: Ms. Robertson – $4,431,448; Mr. Turcotte – $970,256; Mr. Marks—$671,717; Mr. Eifler—$634,395; and Mr. Peakes—$1,268,796. Mr. Butz was not granted any PVRSUs in 2019.

 

(3)

The amounts in this column represent the aggregate change in the actuarial present value of each NEO’s accumulated benefit under the Noble Drilling Services Inc. Salaried Employees’ Retirement Plan and the Noble Drilling Services Inc. Retirement Restoration Plan for the year. There are no deferred compensation earnings reported in this column, as the Company’s nonqualified deferred compensation plans did not provide above-market or preferential earnings on deferred compensation.

 

(4)

On January 1, 2019, the Noble Drilling Services Inc. 401(k) Savings Plan and the Noble Drilling Services Inc. Profit Sharing Plan were merged into the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan. Amounts disclosed for 2017 and 2018 are the sum of the contributions to former plans.

 

(5)

Pension and nonqualified deferred compensation accounts incurred losses during 2018 as follows: Ms. Robertson—($406,551); and Mr. Marks—($237,350).

 

(6)

The amount in the All Other Compensation column includes Company contributions to the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan ($22,300 for 2019, $21,900 for 2018, and $16,200 for 2017), foreign tax payments in connection with time spent on business in the United Kingdom ($194,898 for 2019) and a former expatriate assignment ($52,469 for 2018 and $71,722 for 2017), accrued dividend equivalents on PVRSUs awarded on the applicable performance measures over the 2016-2018 performance cycle ($20,086 for 2019), and premiums paid by the Company for life, AD&D, and business travel and accident insurance and for tax preparation services.

 

(7)

The amount in the All Other Compensation column includes Company contributions to the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan, and premiums paid by the Company for life, AD&D, and business travel and accident insurance.

 

(8)

The amount in the All Other Compensation column includes Company contributions to the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan ($17,200 for 2019, $16,900 for 2018, and $17,725 for 2017), accrued dividend equivalents on PVRSUs awarded on the applicable performance measures over the 2016-2018 performance cycle ($11,353 for 2019), and premiums paid by the Company for life, AD&D, and business travel and accident insurance.

 

(9)

The amount in the All Other Compensation column includes Company contributions to the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan and the Noble Drilling Services Inc. Retirement Restoration Plan ($22,300 for 2019, and $21,900 for 2018), and premiums paid by the Company for life, AD&D, and business travel and accident insurance.

 

(10)

The amount in the All Other Compensation column includes Company contributions to the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan ($15,618 for 2019 and $16,950 for 2018), foreign tax payments in connection with a former expatriate assignment ($17,109 for 2019 and $5,070 for 2018), and premiums paid by the Company for life, AD&D, and business travel and accident insurance and for tax preparation services.

 

(11)

The amount in the All Other Compensation column includes Company contributions to the Noble Drilling Services Inc. 401(k) and Profit Sharing Plan ($16,095 for 2019, $16,950 for 2018 and $11,340 for 2017), a separation payment of $1,000,000, and premiums paid by the Company for life, AD&D, and business travel and accident insurance.

 

(12)

Ms. Robertson served as Executive Vice President and Corporate Secretary of the Company until her appointment as Chairman, President and Chief Executive Officer of the Company as of January 11, 2018. Ms. Robertson stepped down from her positions of President and Chief Executive Officer of the Company and transitioned to the position of Executive Chairman on May 21, 2020. Ms. Robertson retired from her position as Executive Chairman on February 5, 2021.

 

(13)

Mr. Peakes resigned as Senior Vice President and Chief Financial Officer of the Company effective September 9, 2019, and on December 19, 2019, Mr. Butz was appointed as Executive Vice President and Chief Financial Officer of the Company. Mr. Butz resigned as Executive Vice President and Chief Financial Officer of the Company effective March 30, 2020.

 

(14)

Mr. Marks retired as Senior Vice President of Engineering of the Company effective February 6, 2020.

 

(15)

Mr. Eifler succeeded Ms. Robertson as President and Chief Executive Officer of the Company on May 21, 2020.

 

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Grants of Plan-Based Awards

The following table sets forth certain information about grants of plan-based awards during the year ended December 31, 2019 to each of the NEOs. In connection with our emergence from the Chapter 11 Cases, on the Effective Date, all existing equity of Legacy Noble was cancelled, including all outstanding restricted stock awards for each NEO. For a description of the material terms of the awards reported in the Grants of Plan-Based Awards table, including performance-based conditions and vesting schedules applicable to such awards, see “—Compensation Discussion and Analysis—How Compensation Components were Determined.”

 

     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
(#)
  Exercise or
Base Price
of
Option
Awards
($/Sh)
  Grant Date
Fair Value
of Stock
and
Option
Awards (4)
 

Name

 Grant
Date
  Target ($)  Threshold
(#)
  Target
(#)
  Maximum
(#)
 

Julie J. Robertson

  21-Feb-19  $973,500   353,950   707,899   1,415,798   707,899   —     —    $4,771,239 

William E. Turcotte

  21-Feb-19  $329,000   77,497   154,993   309,986   154,993   —     —    $1,044,653 

Scott W. Marks

  21-Feb-19  $301,000   53,652   107,303   214,606   107,303   —     —    $723,222 

Robert W. Eifler

  21-Feb-19  $266,000   50,671   101,341   202,682   101,341   —     —    $683,038 

Adam C. Peakes (5)

  21-Feb-19  $360,000   101,342   202,683   405,366   202,683   —     —    $1,366,083 

 

(1)

Represents the dollar value of the target amount of Performance Bonuses awarded under the STIP. The Performance Bonus awarded to the NEOs under the STIP is set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.

 

(2)

Represents PVRSUs awarded during the year ended December 31, 2019 under the Noble Corporation plc 2015 Omnibus Incentive Plan, as amended (the “Legacy Noble Incentive Plan”). PVRSUs were awarded at the target level and vested, if at all, over a three-year performance cycle. Any PVRSUs that did not vest in such performance cycle were forfeited. If the Company’s performance achievement was above the target level, additional shares would be granted up to the maximum amount.

 

(3)

Represents TVRSUs awarded during the year ended December 31, 2019 under the Legacy Noble Incentive Plan. TVRSUs vested over three years, with one-third vesting per year on each anniversary of the grant date.

 

(4)

Represents the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718.

 

(5)

Mr. Peakes resigned from the Company effective September 9, 2019. Upon his resignation, his TVRSUs and PVRSUs were cancelled.

 

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information about outstanding equity awards at December 31, 2019 held by the NEOs. In connection with our emergence from the Chapter 11 Cases, on the Effective Date, all outstanding equity awards were cancelled.

 

  Option Awards (1)  Stock Awards 

Name (5)

 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)
 

Julie J. Robertson

  41,210   —    $30.59   3-Feb-22   1,098,621 (7)  $1,340,318   1,299,170 (11)  $1,584,987 
  41,792   —    $31.33   4-Feb-21     
  24,934   —    $32.78   6-Feb-20     

William E. Turcotte

  11,646 (6)   —    $30.59   3-Feb-22   209,646 (8)  $255,768   293,714 (12)  $358,331 
  11,811 (6)   —    $31.33   4-Feb-21     
  7,333 (6)   —    $32.78   6-Feb-20     

Scott W. Marks

  12,542   —    $30.59   3-Feb-22   178,517 (9)  $217,791   245,835 (13)  $299,919 
  10,903   —    $31.33   4-Feb-21     
  5,133   —    $32.78   6-Feb-20     

Robert W. Eifler

  —     —     —     —     190,514 (10)  $232,427   187,178 (14)  $228,357 

 

(1)

For each NEO, represents nonqualified stock options awarded under the 1991 Plan.

 

(2)

Except as otherwise noted, the numbers in this column represent TVRSUs awarded under the Legacy Noble Incentive Plan. All outstanding units were cancelled in connection with our emergence from the Chapter 11 Cases on the Effective Date.

 

(3)

The market value was computed by multiplying the closing market price of the shares at December��31, 2019 ($1.22 per share) by the number of units that had not vested.

 

(4)

The numbers in this column represent PVRSUs and are calculated based on the assumption that the applicable target performance goal was achieved. All outstanding units were cancelled in connection with our emergence from the Chapter 11 Cases on the Effective Date.

 

(5)

Mr. Peakes resigned from the Company effective September 9, 2019. Upon his resignation, his TVRSUs and PVRSUs were cancelled. Mr. Butz was appointed as Executive Vice President and Chief Financial Officer of the Company on December 19, 2019 and TVRSUs and PVRSUs were not awarded during 2019. As such, no amounts for Mr. Peakes or Mr. Butz are included in the Outstanding Equity Awards at Fiscal Year-End table.

 

(6)

Pursuant to a domestic relations order entered into on September 1, 2019, 11,646, 11,811 and 7,334 of the 23,292, 23,622, and 14,667 unexercised options awarded to Mr. Turcotte on February 3, 2012, February 4, 2011 and February 6, 2010, respectively, were transferred to his ex-wife. Mr. Turcotte no longer reports as beneficially owned any securities transferred to his ex-wife.

 

(7)

Of these units, 61,050 vested on January 11, 2020, 214,593 vested on February 2, 2020, 54,029 vested on February 3, 2020, 235,966 vested on February 21, 2020, 61,050 would vest on January 11, 2021, 235,966 would vest on February 21, 2021 and 235,967 would vest on February 21, 2022.

 

(8)

Pursuant to a domestic relations order entered into on September 1, 2019, 68,875 of the 278,521 units awarded to Mr. Turcotte were transferred to his ex-wife. Mr. Turcotte no longer reports as beneficially owned any securities transferred to his ex-wife. Of the units remaining, 28,129 vested on February 2, 2020, 17,407 vested on February 3, 2020, 37,973 vested on February 21, 2020, 34,174 would vest on February 2, 2021, 44,948 would vest on February 21, 2021 and 47,015 would vest on February 21, 2022.

 

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(9)

Of these units, 25,036 vested on February 2, 2020, 21,142 vested on February 3, 2020, and 132,339 were forfeited due to Mr. Marks’ retirement on February 6, 2020.

 

(10)

Of these units, 28,612 vested on February 2, 2020, 4,206 vested on February 3, 2020, 33,780 vested on February 21, 2020, 27,742 would vest on July 17, 2020, 28,613 would vest on February 2, 2021, 33,780 would vest on February 21, 2021 and 33,781 would vest on February 21, 2022.

 

(11)

Includes 707,899, 429,185 and 162,086 PVRSUs that would vest based on the applicable performance measures over the 2019-2021, 2018-2020 and 2017-2019 performance cycles, respectively.

 

(12)

Pursuant to a domestic relations order entered into on September 1, 2019, 92,378 of the 386,092 units awarded to Mr. Turcotte were transferred to his ex-wife. Mr. Turcotte no longer reports as beneficially owned any securities transferred to his ex-wife. Of the units remaining 141,044, 101,824 and 50,846 PVRSUs would vest based on the applicable performance measures over the 2019-2021, 2018-2020 and 2017-2019 performance cycles, respectively.

 

(13)

Includes 107,303, 75,107 and 63,425 PVRSUs that would vest based on the applicable performance measures over the 2019-2021, 2018-2020 and 2017-2019 performance cycles, respectively. Of these, 68,555 and 22,950 for the 2019-2021 and 2018-2020 performance cycles, respectively, were forfeited due to Mr. Marks’ retirement on February 6, 2020.

 

(14)

Includes 101,341 and 85,837 PVRSUs that would vest based on the applicable performance measures over the 2019-2021 and 2018-2020 performance cycles, respectively.

Option Exercises and Stock Vested

The following table sets forth certain information about the amounts received upon the exercise of options or the vesting of restricted stock units during the year ended December 31, 2019 for each of the NEOs on an aggregated basis.

 

   Option Awards   Stock Awards (1) 

Name

  Number of
Shares Acquired
on Exercise (#)
   Value Realized
on Exercise ($)
   Number of
Shares Acquired
on Vesting (#)
   Value Realized
on Vesting ($)
(2)
 

Julie J. Robertson

   —      —      338,020   $1,638,644 

William E. Turcotte

   —      —      123,648   $556,516 

Scott W. Marks

   —      —      79,749   $361,027 

Robert W. Eifler

   —      —      46,965   $175,186 

Adam C. Peakes (3)

   —      —      128,371   $568,562 

 

(1)

Represents restricted stock unit awards under the Legacy Noble Incentive Plan for each NEO.

 

(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 shares that vested on such date.

 

(3)

Mr. Peakes resigned from the Company effective September 9, 2019.

Retirement Payments and Benefits

The following table sets forth certain information about retirement payments and benefits under Legacy Noble’s defined benefit plans for each of the NEOs that were participants in the Noble Drilling Services Inc. Salaried Employees’ Retirement Plan and the Noble Drilling Services Inc. Retirement Restoration Plan.

 

Name

  

Plan Name

  Number of
Years Credited
Service (#) (1)
  Present Value
of Accumulated
Benefit ($)
(1)(2)
   Payments
During Last
Fiscal Year ($)
 

Julie J. Robertson

  Salaried Employees’ Retirement Plan  28  $1,421,952    —   
  Retirement Restoration Plan  28  $5,786,679    —   

Scott W. Marks

  Salaried Employees’ Retirement Plan  25.915  $1,013,694    —   
  Retirement Restoration Plan  25.915  $2,224,831   

 

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(1)

Computed as of December 31, 2019, which is the same pension plan measurement date used for financial statement reporting purposes for our audited consolidated financial statements and notes thereto included in the 2019 Form 10-K.

 

(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 Services Inc. 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 our audited consolidated financial statements in the 2019 Form 10-K.

Noble Retirement Plans

Under the Noble Drilling Services Inc. 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 the Company or its subsidiaries, regardless of any subsequent periods of employment or periods of separation from employment with the Company or its subsidiaries.

A participant who is employed by the Company or any of its affiliated companies on or after his or her 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 or her required beginning date or the date of termination of his or her employment for any reason other than death or transfer to the employment of another of the Company’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 the Company 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 or her 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. In lieu of the normal form of payment, the participant may elect to receive 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:

 

  

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 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).

The average monthly compensation is defined in the plan generally to mean the participant’s average monthly rate of compensation from the Company 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

 

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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 SARs). Compensation includes salary reduction contributions by the participant under any plan maintained by the Company or any of its affiliated companies. Compensation may not exceed the annual compensation limit as specified by the IRS 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 Services Inc. Retirement Restoration Plan. The Company had not granted extra years of credited service under the restoration plan to any of the NEOs.

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 or her employment with the Company 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 the Company’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 the Company’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 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 $5,000 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 Services Inc. Retirement Restoration Plan is an unfunded, nonqualified plan that provides the benefits under the Noble Drilling Services Inc. Salaried Employees’ Retirement Plan’s benefit formula that cannot be provided by the Noble Drilling Services Inc. Salaried Employees’ Retirement Plan because of the annual compensation and annual benefit limitations applicable to the Noble Drilling Services Inc. Salaried Employees’ Retirement Plan under the Code. A participant’s benefit under the Noble Drilling Services Inc. 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 or her designated beneficiary) at the time benefits commence being paid to or with respect to such participant under the Noble Drilling Services Inc. 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 Services Inc. 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 Services Inc. Retirement Restoration Plan that accrued or became vested after December 31, 2004 will be paid to such participant (or in the event of his or her death, to his or her designated beneficiary) in a single lump sum payment following such participant’s separation from service with the Company and its subsidiaries. Ms. Robertson and Mr. Marks participated in the Noble Drilling Services Inc. Retirement Restoration Plan.

During the fourth quarter of 2016, Noble approved amendments, effective as of December 31, 2016, to the defined benefit plans. With these amendments, employees and alternate payees will accrue no future benefits under the plans after December 31, 2016. However, these amendments will not affect any benefits earned

 

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through that date. Benefits for the affected plans are primarily based on years of service and employees’ compensation near December 31, 2016.

Nonqualified Deferred Compensation

The following table sets forth for the NEOs certain information as of December 31, 2019 and for the year then ended about the Noble Drilling Services Inc. 401(k) Savings Restoration Plan.

 

Name

  Executive
Contributions
in Last FY
($) (1)
   Company
Contributions
in Last FY
($) (2)
   Aggregate
Earnings in
Last FY ($)
   Aggregate
Withdrawals/
Distributions ($)
   Aggregate
Balance at
Last FYE ($) (3)
 

Julie J. Robertson

   —      —     $513,327    —     $2,985,486 

Adam C. Peakes (5)

  $38,419    —     $19,491    —     $129,973 

William E. Turcotte (4)

   —      —      —      —      —   

Scott W. Marks

  $50,128   $966   $211,176    —     $1,293,318 

Robert W. Eifler

  $78,457    —     $13,337    —     $107,276 

 

(1)

The Executive Contributions reported in this column are also included in the Salary column of the Summary Compensation Table.

 

(2)

The Company Contributions reported in this column are also included in the All Other Compensation column of the Summary Compensation Table.

 

(3)

The following amounts of the aggregate balance at last fiscal year end reported in this column were previously reported as compensation to the NEO in the Company’s Summary Compensation Table for previous years: Ms. Robertson—$859,131; Mr. Peakes—$83,171; Mr. Marks—$17,875; and Mr. Eifler—$17,875.

 

(4)

Not a participant in the Noble Drilling Services Inc. 401(k) Savings Restoration Plan during 2019.

 

(5)

Mr. Peakes resigned from the Company effective September 9, 2019.

The Noble Drilling Services Inc. 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 Services Inc. 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 specified employees of the Company and its subsidiaries may elect to defer compensation in excess of amounts deferrable under the Noble Drilling Services Inc. 401(k) and Profit Sharing 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 Services Inc. 401(k) and Profit Sharing Plan.

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 the Company, 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 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 Services Inc. 401(k) and Profit Sharing 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 Services Inc. 401(k) and Profit Sharing Plan contribution limitation for such year imposed by the compensation committee.

 

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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 the Company and its subsidiaries. Mr. Peakes, Mr. Marks and Ms. Robertson were participants prior to leaving Noble, and Mr. Eifler is a participant, in the Noble Drilling Services Inc. 401(k) Savings Restoration Plan and in the Noble Drilling Services Inc. 2009 401(k) Savings Restoration Plan.

Potential Payments on Termination or Change of Control

Change of Control Employment Agreements

The Company guaranteed the performance of a change of control employment agreement entered into by a subsidiary of the Company with each executive officer as of November 20, 2013 (when the original agreements were restated). These change of control employment agreements would become effective upon a change of control of the Company (as described below) or a termination of employment in connection with or in anticipation of such a change of control, and would remain effective for three years thereafter.

The agreement that was in place as of December 31, 2019 provided that if the officer’s employment was 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 included a material diminution of responsibilities or compensation and which allowed us 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, the officer would receive or be entitled to the following benefits:

 

  

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 the change of control (the “Highest Bonus”), (ii) an amount equal to 18 times the highest monthly COBRA premium (within the meaning of Section 4980B of the Code) 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 amount equal to one, two, or three times the sum of the officer’s annual base salary (as defined in the agreement, based on the highest monthly salary paid in the 12 months prior to the change of control) and the officer’s Highest Bonus (the “Severance Amount”);

 

  

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 became reemployed with another employer and was eligible to receive welfare benefits under another employer provided plan, the welfare benefits provided by the Company 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 the Company and its affiliated companies in which the officer would have been eligible to participate had the officer’s employment continued for three years after termination 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 would be in the same after-tax position as if no excise tax under Section 4999 of the Code (the so-called Parachute Payment excise tax), if any, had been imposed (the “Excise Tax Payment”), although the Excise Tax Payment had been eliminated for all future executive officers; provided, however, that the total payment due to the officer would 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

 

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the 100 percent vesting of all benefits under the Legacy Noble Incentive Plan and any other similar plan to the extent such vesting was permitted under the Code.

A “change of control” was defined in the agreement to mean:

 

  

the acquisition by any individual, entity or group of 15 percent or more of the Company’s outstanding shares, but excluding any acquisition directly from the Company or by the Company, 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 were satisfied;

 

  

individuals who constituted the incumbent board of directors (as defined in the agreement) of the Company ceased for any reason to constitute a majority of the board of directors;

 

  

consummation of a reorganization, merger, amalgamation or consolidation of the Company, unless following such a reorganization, merger, amalgamation or consolidation (i) more than 50 percent of the then outstanding shares of common stock (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 were 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 the Company or any person beneficially owning immediately prior to such transaction 15 percent or more of the outstanding shares, beneficially owned 15 percent or more of the then outstanding shares of common stock (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 the Company 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 the Company, other than to a company, for which following such sale or other disposition, (i) more than 50 percent of the then outstanding shares of common stock (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 were 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 the Company or any person beneficially owning immediately prior to such transaction 15 percent or more of the outstanding shares, beneficially owned 15 percent or more of the then outstanding shares of common stock (or equivalent security) of such company 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 such company were members of the incumbent board of directors of the Company 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 the Company of a complete liquidation or dissolution of the Company.

However, a “change of control” would not occur as a result of a transaction if (i) the Company became 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 were the same as the shareholdings immediately prior to such transaction or (B) the shares of the Company’s voting securities outstanding immediately prior to such transaction constituted, or were 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” meant (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 was materially detrimental to the Company or its affiliates.

 

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Payments to “specified employees” under Section 409A of the Code could be delayed until six months after the termination of the officer’s employment.

The agreement contained 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 the Company or any of its affiliated companies, with certain exceptions set forth expressly in the provision. Any term or condition of the agreement could be waived at any time by the party entitled to have the benefit thereof (whether the subsidiary of the Company party to the agreement or the officer) if evidenced by a writing signed by such party.

The agreement provided that payments thereunder did 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 the Company or any of its affiliated companies providing benefits to the officer.

Assuming a change of control had taken place on December 31, 2019 and the employment of the NEO was terminated either (1) by us 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 NEOs.

 

Potential Benefits Upon Retirement or Termination

 

 

Payment or Benefit

  Julie J.
Robertson
   Stephen
M. Butz
   William E.
Turcotte
   Scott W.
Marks
   Robert W.
Eifler
 

Accrued Obligations

  $1,954,597   $35,221   $506,740   $455,180   $434,318 

Severance Amount

  $8,496,000   $1,650,000   $2,890,500   $2,582,850   $2,337,000 

Welfare Benefit Continuation

  $24,518   $45,055   $24,359   $34,216   $45,083 

Supplemental Retirement Amount (1)

   —      —      —      —      —   

Excise Tax Payment

  $4,633,259    —      —      —      —   

Outplacement Services (2)

  $50,000   $50,000   $50,000   $50,000   $50,000 

Accelerated Vesting of Options and Restricted Stock Units (3)

  $2,925,305    —     $614,099   $517,710   $460,784 

 

(1)

During the fourth quarter of 2016, Noble approved amendments, effective as of December 31, 2016, to the defined benefit plans. With these amendments, employees and alternate payees would accrue no future benefits under the plans after December 31, 2016.

 

(2)

Represents an estimate of the costs to the Company of outplacement services for six months.

 

(3)

The total number of restricted stock units held at December 31, 2019 (the last trading day of 2019), and the aggregate value of accelerated vesting thereof at December 31, 2019 (computed by multiplying $1.22, the closing market price of the shares at December 31, 2019, by the total number of restricted stock units held), were as follows: Ms. Robertson—2,397,791 units valued at $2,925,305; Mr. Turcotte—503,360 units valued at $614,099; Mr. Marks—424,352 units valued at $517,710; and Mr. Eifler—377,692 units valued at $460,784. Upon emergence from the Chapter 11 Cases on the Effective Date, all existing equity was cancelled, including all outstanding restricted stock awards for each NEO.

The agreement provided that if the officer’s employment was terminated within three years after a change of control by reason of disability or death, the agreement would 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 was terminated for cause within the three years after a change of control, the agreement would terminate without

 

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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 terminated 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 would 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 approved a new form of change of control employment agreement for executive officers. The terms of the new form of employment agreement were substantially the same as the agreements described above, except the new form only provided benefits in the event of certain terminations by us for reasons other than death, disability or “cause” or by the officer for “good reason” and did 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%. Mr. Butz and Mr. Eifler were parties to a change of control employment agreement in the form approved in February 2012. None of the other NEOs were party to these new forms of employment agreement. Mr. Peakes’ change of control employment agreement was terminated at the time of his resignation on September 9, 2019, Mr. Marks’ agreement was terminated at the time of his retirement on February 6, 2020, and the change of control agreements for Ms. Robertson and Mr. Butz were essentially terminated as a result of their entry into the transition agreement and separation agreement, respectively.

The Legacy Noble Incentive Plan

Pursuant to the Legacy Noble Incentive Plan, upon a change in control, the compensation committee had the discretion to take any one or more of the following actions: (i) provide for the substitution of a new award or other arrangement for an award or the assumption of the award, (ii) provide for acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, the award and, if the transaction is a cash merger, provide for the termination of any portion of the award that remains unexercised at the time of such transaction, or (iii) cancel any such awards and deliver to the participants cash in an amount equal to the fair market value of such awards on the date of such event.

The Legacy Noble Incentive Plan defined “change in control” in a manner that was consistent with the definition in the change of control employment agreements to which our NEOs were party, which are described above under “—Change of Control Employment Agreements.”

All of Legacy Noble’s equity interests outstanding prior to the Effective Date, including equity awards under the Legacy Noble Incentive Plan, were cancelled on the Effective Date in accordance with the Plan.

Restricted Stock Units

We granted TVRSUs and PVRSUs in 2017, 2018 and 2019, some of which continued to be subject to vesting restrictions.

Assuming that either the NEO’s employment terminated on December 31, 2019 due to disability, death or retirement or, in the event of the restricted stock units, a change of control had taken place on that date, the first table below sets forth certain information about TVRSUs subject to accelerated vesting for the indicated NEOs.

Our PVRSU agreements provided for the vesting of 50 percent of the awards for each of the 2017-2019, 2018-2020 and 2019-2021 cycles upon the occurrence of a change of control of the Company (whether with or

 

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without termination of employment of the officer by the Company or an affiliate). The agreements also provided 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 was also subject to the actual performance achieved and may not have resulted in an award. The agreements defined a change of control as set out in the Legacy Noble Incentive Plan, provided the change of control also satisfied the requirements of Section 409A of the Code.

Assuming that a change of control had taken place on December 31, 2019, the following table sets forth certain information about restricted stock units subject to accelerated vesting for the indicated NEOs. The amounts in the second table below include the restricted stock units that were awarded with respect to the 2017-2019 cycle. In connection with our emergence from the Chapter 11 Cases, on the Effective Date, all existing equity was cancelled, including all outstanding restricted stock awards for each NEO.

 

Time-Vested Restricted Stock Units

 

 

Name

  Number of TVRSUs
Subject to Acceleration
of Vesting
   Aggregate Value of
Acceleration
of Vesting
 

Julie J. Robertson

   1,098,621   $1,340,318 

William E. Turcotte

   209,646   $255,768 

Scott W. Marks

   178,517   $217,791 

Robert W. Eifler

   190,514   $232,427 

 

Performance-Vested Restricted Stock Units

 

 

Name

  Number of PVRSUs
Subject to Acceleration
of Vesting
   Aggregate Value of
Acceleration
of Vesting (1)
 

Julie J. Robertson

   1,299,170   $1,584,987 

William E. Turcotte

   293,714   $358,331 

Scott W. Marks

   245,835   $299,919 

Robert W. Eifler

   187,178   $228,357 

 

(1)

The table includes amounts associated with restricted stock units awarded for the 2017-2019 cycle. Excluding this award, the number of PVRSUs and the aggregate values would be: Ms. Robertson—1,137,084 units valued at $1,387,242; Mr. Turcotte—242,868 units valued at $296,299; Mr. Marks—182,410 units valued at $222,540; and Mr. Eifler—187,178 units valued at $228,357.

Resignation of Former CFO

Mr. Peakes resigned as Senior Vice President and Chief Financial Officer of the Company effective September 9, 2019. Upon his resignation, he received a $1,000,000 separation payment and his TVRSUs and PVRSUs were cancelled.

CEO Pay Ratio

Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, requires that we compare the compensation paid to our “median” employee to the compensation paid to our CEO.

For 2019:

 

  

The median of the annual total compensation of all employees of our company (other than the CEO) was $116,179; and

 

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The annual total compensation of our CEO, Ms. Robertson, as reported in the Summary Compensation Table included herein, was $8,948,644.

 

  

Based on this information, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees (the “CEO Pay Ratio”) was reasonably estimated to be 77 to 1.

To calculate the CEO Pay Ratio, we identified the median of the annual total compensation of all our employees, as well as the annual total compensation of our median employee and our CEO. In order to make these determinations, we took the following steps:

 

  

We determined that, as of October 1, 2017, our employee population consisted of approximately 1,924 individuals. This population included all of our employees, and only excluded third-party contractors and temporary workers. We selected October 1, 2017 as our identification date for determining our median employee because it enabled us to make such identification in a reasonably efficient and economic manner. The applicable SEC rules require us to identify a median employee only once every three years, as long as there have been no changes in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change to our pay ratio disclosure. Because there had been no changes in our employee population or compensation arrangements that we believed would significantly impact our pay ratio disclosure, we used the same median employee for our 2019 pay ratio that we used for our 2017 pay ratio, although we updated the calculation of the total compensation earned by that employee for 2019.

 

  

We used a consistently applied compensation measure to identify our 2017 median employee by comparing the amount of salary or wages, bonuses, equity and other income earned during 2017 and annualized the compensation for any full-time or part-time employees that were hired in 2017 but were not employed for all of 2017. There had been no change in the median employee’s circumstances that we reasonably believed would result in a significant change to our pay ratio disclosure.

Using the median employee identified in 2017, we combined all of the elements of such employee’s compensation for the 2019 year in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $116,179. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2019 Summary Compensation Table included herein.

Please keep in mind that under the SEC’s rules and guidance, there are numerous ways to determine the compensation of a company’s median employee, including variations in the employee population sampled, the elements of pay and benefits used and assumptions made. In addition, no two companies have identical employee populations or compensation programs, and pay, benefits and retirement plans differ by country even within the same company. As such, our CEO Pay Ratio may not be comparable to the pay ratio reported by other companies, including our peer companies in the offshore drilling industry.

Director Compensation

The compensation committee sets the compensation of our directors. In determining the appropriate level of compensation for our directors, the compensation committee considers the commitment required from our directors in performing their duties on behalf of the Company, as well as comparative information the committee obtains from compensation consulting firms and from other sources. Set forth below is a description of the compensation of our directors for 2019.

We compete with many companies to attract, motivate and retain experienced and highly capable individuals to serve as our directors, some of which are much larger than we are. Moreover, the offshore drilling industry is a very complex, technical and international business in the energy sector, which we believe requires directors who understand and have experience in these particular areas. Although the difficult economic

 

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environment of the last few years has reduced our size (measured by market cap) relative to those we compete with for director talent, which are primarily oilfield service companies, our business is no less complex, technical or international, and we must attract and retain individuals of high ability to serve as directors.

Annual Retainers and Other Fees and Expenses

In 2019, we paid our non-employee directors an annual retainer of $50,000, in four quarterly installments. Non-employee directors could elect to receive all or a portion of the retainer in shares. Since the 2014 downturn in our business, the Board took a number of actions to more closely align director compensation with Company size and performance. In 2018, we reduced fees for telephonic meetings. In 2017, we reduced meeting fees and the annual retainer paid to our lead director and committee chairpersons. In 2019, meeting fees were $2,000 per meeting, except that fees for telephonic meetings were $1,000 per meeting, the annual retainer paid to our lead director was $22,500, the annual retainer paid to our audit and compensation committee chairpersons was $20,000, and the annual retainer for all other committee chairpersons was $10,000. As discussed further below, the Board also acted to reduce the equity component of director compensation.

We also reimbursed directors for travel, lodging and related expenses they incurred in attending Board and committee meetings, and for related activities in connection with their duties as directors. Our directors did not receive any additional compensation from the Company in the form of retirement or deferred compensation plans or otherwise.

Annual Equity Grants

In order to better align the interests of our directors and our shareholders, we historically made an annual equity grant to our non-employee directors. During the last few years prior to 2019, the Board acted to reduce the value of such annual equity grant from $250,000 in 2015 to $225,000 in 2016 and to $200,000 in 2017 and 2018. In 2019, the Board elected to set the equity award at a number of shares equal to that awarded in 2018, which, due to the fall in Legacy Noble’s share price, reduced the value of the 2019 director equity grant by 28%. All equity awards to directors under the Noble Corporation plc 2017 Director Omnibus Plan (the “Legacy Noble Director Plan”) (other than shares issued to pay the quarterly retainer) were subject to a one-year vesting period. All of Legacy Noble’s equity interests outstanding prior to the Effective Date, including equity awards under the Legacy Noble Director Plan, were cancelled on the Effective Date in accordance with the Plan.

During 2019, each non-employee director received an equity grant of 42,918 restricted stock units. Such restricted stock units became vested on February 21, 2020 and are consequently not shown in the 2019 director compensation table below.

Director Compensation for 2019

The following table shows the compensation of our outside directors for the year ended December 31, 2019.

 

Name

  Fees Earned or
Paid in Cash (1)
   Stock Awards
(2)
   All Other
Compensation
   Total (3) 

Julie H. Edwards

  $103,625   $134,333    —     $237,958 

Gordon T. Hall

  $114,875   $134,333    —     $249,208 

Roger W. Jenkins

  $78,000   $134,333    —     $212,333 

Scott D. Josey

  $88,000   $134,333    —     $222,333 

Jon A. Marshall

  $107,000   $134,333    —     $241,333 

Mary P. Ricciardello

  $98,000   $134,333    —     $232,333 

 

(1)

Includes the portion of the $50,000 annual retainer paid to our directors in shares under the Legacy Noble Director Plan, if any.

 

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(2)

Represents the aggregate grant date fair value of the awards completed in accordance with FASB ASC Topic 718. As of December 31, 2019, each non-employee director held 42,918 restricted stock units.

 

(3)

Director total compensation varied based upon the number of Board and committee meetings attended and whether such director was a chairperson of a committee or the lead director.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Director Independence

Legacy Noble’s ordinary shares were previously listed and traded on the NYSE until the shares were delisted in August 2020. During Legacy Noble’s tenure as an NYSE-listed company, we were required to comply with the rules of the NYSE and were subject to the related rules and regulations of the SEC. Although Noble Parent has not been listed on a national exchange since its delisting, we have continued to look to the NYSE regulations for guidance, among other reasons, as a matter of best practices and in connection with Noble Parent’s plan to list its equity on a national securities exchange again in the future.

The Board has determined that:

 

 (a)

each of Mr. Bartels, Mr. Hirshberg, Ms. Pickard, Mr. Sledge and Ms. Trent qualifies as an “independent” director under the NYSE corporate governance rules;

 

 (b)

each of Mr. Bartels, Ms. Pickard and Mr. Sledge, constituting all the members of the audit committee, qualifies as “independent” under Rule 10A-3 of the Exchange Act; and

 

 (c)

each of Ms. Trent, Mr. Hirshberg and Mr. Sledge, constituting all the members of the compensation committee, qualifies as:

 

 (i)

“independent” under Rule 10C-1(b)(1) under the Exchange Act and the applicable rules of the NYSE; and

 

 (ii)

a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act.

Independent non-management directors comprise in full the membership of each committee of the Board.

Mr. Eifler, the Company’s current President and Chief Executive Officer, is not independent because of his service as a member of senior management.

In order for a director to be considered independent under the NYSE rules, the Board must affirmatively determine that the director has no material relationship with the Company other than in his or her capacity as a director of the Company.

The Company’s corporate governance guidelines provide that a director will not be independent if,

 

  

the director is, or during the preceding three years was, employed by the Company;

 

  

an immediate family member of the director is, or during the preceding three years was, an executive officer of the Company;

 

  

the director or an immediate family member of the director received, within any 12-month period during the preceding three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such service is not contingent in any way on continued service);

 

  

the director is a current partner or employee of a firm that is the Company’s internal or external auditor, an immediately family member of the director is a current partner of such a firm, an immediate family member of the director is a current employee of such a firm and personally works on the Company audit, or the director or an immediate family member of the director was, during the preceding three years, a partner or employee of such a firm an personally worked on the Company’s audit within that time;

 

  

the director or an immediate family member of the director is, or during the preceding three years was, employed as an executive officer of another company where any of the Company’s present executives served on that company’s compensation committee at the same time; or

 

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the director currently is an executive officer or an employee, or an immediate family member of the director is an executive officer, of a company that made payments to, or received payments from, the Company for property or services in an amount which, in any single fiscal year within the last three fiscal years, exceeded the greater of $1 million or two percent of such other company’s consolidated gross revenues.

The following will not be considered by the Board to be a material relationship that would impair a director’s independence—if a director is an executive officer of, or beneficially owns in excess of a 10 percent equity interest in, another company:

 

  

that does business with the Company, and the amount of the annual payments to the Company is less than five percent of the annual consolidated gross revenues of the Company;

 

  

that does business with the Company, and the amount of the annual payments by the Company to such other company is less than five percent of the annual consolidated gross revenues of the Company; or

 

  

to which the Company was indebted at the end of its last fiscal year in an aggregate amount that is less than five percent of the consolidated assets of the Company.

For relationships not covered by the guidelines in the immediately preceding paragraph, the determination of whether the relationship is material or not, and therefore whether the director would be independent or not, is made by our directors who satisfy the independence guidelines described above. These independence guidelines used by the Board are set forth in our corporate governance guidelines, which are published under the “Corporate Governance” section of our website at www.noblecorp.com.

In addition, in order to determine the independence under the NYSE rules of any director who will serve on the compensation committee, the Board must consider all factors specifically relevant to determining whether a director has a relationship to the Company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

 

  

the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the Company to such director; and

 

  

whether such director is affiliated with the Company, one of our subsidiaries or an affiliate of one of our subsidiaries.

Policies and Procedures Relating to Transactions with Related Persons

Transactions with related persons are 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 Articles of Noble Parent and the provisions of Cayman company law), the procedures described below for director and officer questionnaires and the other procedures described below.

Our Code of Business Conduct and Ethics provides that business decisions must be made free from any conflicts of interest. 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 their supervisor or other appropriate personnel. Any waiver of the Code of Business Conduct and Ethics may only be made by the Board or a committee of the Board. Cayman company law and the Articles also contain specific provisions relating to the approval and authorization of conflicts of interests by members of the Board, in addition to our Code of Business Conduct and Ethics. A conflict of interest exists when an individual’s actual or apparent personal interest is adverse to or otherwise in conflict with the interests of the Company.

 

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Our Code of Business Conduct and Ethics sets forth several examples of potential conflicts of interest, including:

 

  

hiring someone that one has a close personal or family relationship with, or placing a family member or close personal friend in a position that reports to oneself;

 

  

making an undisclosed material investment or holding an undisclosed financial interest in an outside company doing business with the Company;

 

  

serving in a management or director capacity at another company in the contract drilling or energy services industry;

 

  

using material non-public information that one learns about from his or her position at the Company to invest in companies or securities;

 

  

disclosing confidential information about the Company’s business without proper authorization;

 

  

buying, selling or leasing equipment or property to or from the Company without proper authorization; and

 

  

accepting gifts or extravagant entertainment from someone soliciting business or information from the Company.

In addition, our administrative policy manual, which applies to all our employees, includes additional examples of what the Company considers to be a conflict of interest, including when:

 

  

subject to certain limited exceptions, any employee or any member of his or her immediate family purchases leasehold or mineral interests in any geological area that the Company is involved in or is contemplating becoming involved in, unless such purchase is approved by the Board; and

 

  

a full-time employee has outside employment without the approval of his or her supervisor.

Each year, we require all our directors, nominees for director and executive officers to complete and sign a questionnaire in connection with our annual report and, if applicable, 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. For this purpose, we consider “related persons” and “related person transactions” to be as defined in Item 404(a) of Regulation S-K. In addition, we 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. There were no related-party transactions in 2020 that were required to be reported pursuant to the applicable disclosure rules of the SEC, except as described herein. Pursuant to the charter of our audit committee, it is the responsibility of such committee to review, and if appropriate, approve related party transactions.

Transactions with Related Persons Related to the Chapter 11 Cases

Rights Offering and Backstop Commitment Agreement

Legacy Noble entered into the Backstop Commitment Agreement with the Backstop Parties, which include certain of Legacy Noble’s significant shareholders, on October 12, 2020, pursuant to which the issuance of the Notes were fully backstopped by the Ad Hoc Guaranteed Group and the Ad Hoc Legacy Group (each as defined in the Restructuring Support Agreement). Participation in the Rights Offering of Notes was offered to the holders of the Guaranteed Notes and the Legacy Notes. On the Effective Date, and pursuant to the terms of the Plan, Finco issued an aggregate principal amount of $216 million of Notes, which includes the aggregate subscription price of $200.0 million plus a backstop fee of $16.0 million which was paid in kind.

 

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Registration Rights Agreements

Equity Registration Rights Agreement

On the Effective Date, Noble Parent entered into a registration rights agreement (the “Equity Registration Rights Agreement”) with certain parties who received Ordinary Shares under the Plan (“RRA Shareholders”). Under the Equity Registration Rights Agreement, RRA Shareholders have certain demand and piggyback registration rights, subject to the limitations set forth in the Equity Registration Rights Agreement. Pursuant to their underwritten offering registration rights, RRA Shareholders have the right to demand Noble Parent register underwritten offerings of any or all of their Registrable Securities (as defined in the Equity Registration Rights Agreement) pursuant to an effective registration statement, subject to certain conditions, including that the aggregate proceeds expected to be received from such an offering is equal to or greater than $20 million, unless such demand is not pursuant to a shelf registration statement, in which case certain RRA Shareholders may require Noble Parent register an underwritten offering for an amount that would enable all remaining Registrable Securities to be included in such offering. In addition, the Equity Registration Rights Agreement requires Noble Parent to register for resale such Registrable Securities pursuant to Rule 415 under the Securities Act, including by filing a registration statement on Form S-1 or Form S-3 by the applicable deadline set forth in the Equity Registration Rights Agreement.

Notes Registration Rights Agreement

On the Effective Date, Finco entered into the Registration Rights Agreement with the RRA Noteholders. Under the Registration Rights Agreement, RRA Noteholders have certain demand and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. Pursuant to their underwritten offering registration rights, RRA Noteholders have the right to demand Finco register underwritten offerings of any or all of their Registrable Securities (as defined in the Registration Rights Agreement) pursuant to an effective registration statement, subject to certain conditions, including that the aggregate proceeds expected to be received from such an offering is equal to or greater than $20 million, unless such demand is not pursuant to a shelf registration statement, in which case certain RRA Noteholders may require Finco register an underwritten offering for an amount that would enable all remaining Registrable Securities to be included in such offering. In addition, the Registration Rights Agreement requires Finco to register for resale such Registrable Securities pursuant to Rule 415 under the Securities Act, including by filing a registration statement on Form S-1 or Form S-3 by the applicable deadline set forth in the Registration Rights Agreement.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Finco is a wholly-owned subsidiary of Noble Parent. The following table sets forth information with respect to the beneficial ownership of Noble Parent’s Ordinary Shares, as of the Effective Date, by:

 

  

each member of the Board;

 

  

each of Noble Parent’s named executive officers;

 

  

all of Noble Parent’s directors and executive officers as a group; and

 

  

each person known to us to beneficially own more than 5% of the Ordinary Shares.

The percentage ownership information shown in the table is based upon 50,000,000 Ordinary Shares outstanding as of the Effective Date. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities, or have the right to acquire such powers within 60 days. Under these rules, more than one person may be deemed beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. The information contained in the following table is not necessarily indicative of beneficial ownership for any other purpose, and the inclusion of any Ordinary Shares in the table does not constitute an admission of beneficial ownership of those Ordinary Shares. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them, subject to applicable community property laws.

Unless otherwise indicated, the address of each director and executive officer of Noble Parent is c/o Noble Corporation, 13135 Dairy Ashford, Suite 800, Sugar Land, Texas 77478.

 

   Ordinary Shares Beneficially Owned 

Name of Beneficial Owner

  Number of Ordinary Shares   Percent of Class 

Directors:

    

Patrick J. Bartels, Jr.

   —      —  

Robert W. Eifler

   —      —  

Alan J. Hirshberg

   —      —  

Ann D. Pickard

   —      —  

Charles M. Sledge

   —      —  

Melanie M. Trent

   —      —  

Named Executive Officers (excluding any director listed above):

    

Richard B. Barker

   —      —  

Julie J. Robertson

   —      —  

William E. Turcotte

   —      —  

Joey M. Kawaja

   —      —  

Laura D. Campbell

   —      —  

Barry M. Smith

   —      —  

Stephen M. Butz

   —      —  

All directors and executive officers as a group (11 persons)

   —      —  

5% or Greater Shareholders:

    

Investors for which Pacific Investment Management Company LLC serves as investment manager, adviser or sub-adviser (1)

   21,045,227    41.6

Investors for which Canyon Capital Advisors LLC serves as investment manager (2)

   4,976,727    9.9

GoldenTree Funds (3)

   3,131,675    6.3

Avenue Energy Opportunities Partners II, LLC (4)

   2,896,509    5.8

 

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(1)

According to information provided by Pacific Investment Management Company LLC, consists of 20,419,401 Ordinary Shares and 625,826 Emergence Warrants. Pacific Investment Management Company LLC, as the investment manager, adviser or sub-adviser of the funds and accounts who are the holders of record of such securities, may be deemed to have or to share voting and dispositive power over such securities. The address for such funds and accounts is c/o Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, California 92660.

 

(2)

According to information provided by Canyon Capital Advisors LLC, consists of 4,706,755 Ordinary Shares and 269,972 Emergence Warrants. The address for Canyon Capital Advisors LLC is 2000 Avenue of the Stars, 11th Floor, Los Angeles, California 90067.

 

(3)

According to information provided by the GoldenTree Funds (as defined herein), consists of (i) 3,012,494 Ordinary Shares beneficially owned by GTAM 110 Designated Activity Company, (ii) 65,211 Ordinary Shares beneficially owned by GT NM, LP and (iii) 53,970 Ordinary Shares beneficially owned by San Bernardino County Employees Retirement Association; and reflects the issuance of Penny Warrants in exchange for Ordinary Shares pursuant to the Exchange Agreement. GTAM 110 Designated Activity Company, GT NM, LP and San Bernardino County Employees Retirement Association are collectively referred to as the “GoldenTree Funds.” Investment power over the GoldenTree Funds is held by GoldenTree Asset Management LP (the “GoldenTree Advisor”). The general partner of the GoldenTree Advisor is GoldenTree Asset Management LLC (the “GoldenTree General Partner”). Steven A. Tananbaum is the managing member of the GoldenTree General Partner. The address for the GoldenTree Funds is 300 Park Ave, 21st Floor, New York, New York 10022.

 

(4)

According to information provided by Avenue Energy Opportunities Partners II, LLC (the “Avenue General Partner”), consists of (i) 203,757 Ordinary Shares beneficially owned by Avenue Energy Opportunities Fund II, L.P. (“Avenue Fund II”) and (ii) 2,692,752 Ordinary Shares beneficially owned by Avenue Energy Opportunities Fund II AIV, L.P (“Avenue Fund II AIV”). The Avenue General Partner is the general partner of each of Avenue Fund II and Avenue Fund II AIV. GL Energy Opportunities Partners II, LLC is the managing member of the Avenue General Partner. The address for the Avenue General Partner is 11 West 42nd Street, 9th Floor, New York, New York 10036.

 

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DESCRIPTION OF THE NOTES

On February 5, 2021, the initial notes (as defined below) were issued under an indenture (the “indenture”) by and among NFC (as defined below), as issuer, certain subsidiaries of NFC, as subsidiary guarantors, and U.S. Bank National Association, as trustee and as collateral agent. The following summary is not complete and is qualified by reference to provisions of the notes and the indenture. You may request copies of the form of the notes, the indenture and the other agreements described in this “Description of the Notes” at our address set forth under “Prospectus Summary—Our Offices.” Capitalized terms used and not defined in this description, including under “—Definitions” below, have the meaning given them in the indenture.

In this section, unless otherwise expressly stated or the context otherwise requires, references to:

 

  

NFC,” “we,” “our,” “us” and the “Company” mean Noble Finance Company, excluding its subsidiaries;

 

  

notes” refer to the 11%/ 13%/ 15% Senior Secured PIK Toggle Notes due 2028; and

 

  

subsidiary guarantors” refer to certain Subsidiaries of NFC that provide guarantees of the notes from time to time.

Brief Description of the Notes and the Notes Guarantees

The notes:

 

  

are senior obligations of the Company;

 

  

are secured by a second-priority security interest in the Collateral (subject to Permitted Liens) owned by the Company;

 

  

are guaranteed on a senior secured basis by each subsidiary guarantor;

 

  

rank equally in right of payment with all future senior indebtedness of the Company but, to the extent the value of the Collateral exceeds the aggregate amount of all Priority Lien Debt, are effectively senior to all of the Company’s unsecured senior indebtedness;

 

  

rank senior in right of payment to any existing and future subordinated obligations of the Company;

 

  

are effectively junior to any obligations of the Company that are either (i) secured by a Lien on the Collateral that is senior or prior to the Liens securing the notes, including the Permitted Liens securing Priority Lien Debt, and to other Permitted Liens, or (ii) secured with property or assets that do not constitute Collateral to the extent of the value of the assets securing such Indebtedness; and

 

  

are structurally subordinated to all future Indebtedness, claims of holders of Preferred Stock and other liabilities of the Company’s Subsidiaries that do not guarantee the notes.

The notes are secured by a Cayman Islands law governed share mortgage between Noble Corporation, the direct parent company of the Company, and the collateral agent, pursuant to which 100% of the Capital Stock of the Company is mortgaged or pledged on a limited recourse basis. Noble Corporation has not guaranteed the notes. Persons other than the Company and the subsidiary guarantors own some or all of the Capital Stock of certain subsidiary guarantors; the notes are secured by a pledge of such Capital Stock, but the Pledgors of such Capital Stock have not guaranteed the notes.

The notes guarantees of the notes by each subsidiary guarantor:

 

  

are a senior obligation of such subsidiary guarantor;

 

  

are secured by a second-priority security interest in the Collateral (subject to Permitted Liens) owned by such subsidiary guarantor;

 

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rank equally in right of payment with all future senior indebtedness of such subsidiary guarantor but, to the extent the value of the Collateral exceeds the aggregate amount of all Priority Lien Debt, are effectively senior to all of such subsidiary guarantor’s unsecured senior indebtedness;

 

  

rank senior in right of payment to any existing and future subordinated obligations of such subsidiary guarantor; and

 

  

are effectively junior to any obligations of such subsidiary guarantor that are either (i) secured by a Lien on the Collateral that is senior or prior to the Liens securing such subsidiary guarantor’s notes guarantee, including the Permitted Liens, or (ii) secured with property or assets that do not constitute Collateral to the extent of the value of the assets securing such Indebtedness.

Because we conduct our operations primarily through our subsidiaries and substantially all of our consolidated assets are held by our subsidiaries, we depend on the cash flow of our subsidiaries to meet our obligations, including our obligations under the notes. The notes are initially guaranteed by only certain of our current subsidiaries. However, as described under “—Notes Guarantees,” notes guarantees may be released under certain circumstances. In addition, our future subsidiaries are required to guarantee and pledge Collateral to secure the notes only as described in “—Certain Covenants—Further Instruments and Acts; Further Assurances; Additional Guarantors.” Claims of creditors of our Subsidiaries that are not subsidiary guarantors, including trade creditors and creditors holding Indebtedness or guarantees issued by such Subsidiaries, and claims of preferred stockholders of such Subsidiaries, generally will have priority with respect to the assets and earnings of such Subsidiaries over the claims of the creditors of the Company, including holders. Accordingly, the notes are effectively subordinated to creditors (including trade creditors) and preferred stockholders, if any, of Subsidiaries that are not subsidiary guarantors.

General

The notes will mature on February 15, 2028 and bear interest, at our option for each interest payment date, at the per annum rates of (i) 11% payable in cash, (ii) 13%, with 6.5% per annum of such interest to be payable in cash and 6.5% per annum of such interest to be payable by issuing additional notes (“PIK notes”), or (iii) 15%, with the entirety of such interest to be payable by issuing PIK notes. Interest on the notes will be paid semi-annually, in arrears, on February 15 and August 15, commencing August 15, 2021, to the holders of record at the close of business on the February 1 and August 1 immediately preceding the applicable interest payment date. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months.

If the Company elects to issue PIK notes in partial or complete satisfaction of interest due and payable on the notes (in each case, a “PIK Payment”), the Company shall deliver a written order signed by two of its officers to the trustee, and the trustee shall authenticate and make available for delivery such PIK notes, rounded down to the nearest dollar, on the relevant interest payment date.

If any interest payment date, redemption date or maturity date of the notes is not a business day at any place of payment, then payment of the principal, premium, if any, and interest may be made on the next business day at that place of payment. In that case, no interest will accrue on the amount payable for the period from and after the applicable interest payment date, redemption date or maturity date, as the case may be.

The notes were initially limited to $216 million aggregate principal amount. We may, from time to time, without giving notice to or seeking the consent of the holders of the notes, issue PIK notes, and they will have the same ranking, interest rate, maturity and other terms as the initial notes. Any PIK notes together with the initial notes will constitute a single series of debt securities under the indenture.

Subject to the limitation on subsidiary indebtedness described under “—Certain Covenants— Limitation on Indebtedness,” we may, from time to time, without giving notice to or seeking the consent of the holders of the

 

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notes, issue additional notes having the same ranking, interest rate, maturity and other terms as the notes issued in this offering. Any additional notes having such similar terms together with the previously issued notes will constitute a single series of debt securities under the indenture.

The initial notes were issued, and it is anticipated that any PIK notes and additional notes will be issued, in book-entry form and represented by one or more global notes deposited with, or on behalf of, The Depository Trust Company, as Depositary (the “Depositary” or “DTC”), and registered in the name of Cede & Co., its nominee. This means that you will not be entitled to receive a certificate for the notes that you own or purchase except under the limited circumstances described below under the caption “—Book-Entry, Delivery and Form.” If any of the notes are issued in certificated form, they will be issued only in fully registered form without coupons, in minimum denominations of $1 and integral multiples of $1 in excess thereof.

So long as the notes are in book-entry form, you will receive payments and may transfer notes only through the facilities of the Depositary and its direct and indirect participants. See “—Book-Entry, Delivery and Form” below. We will maintain an office or agency in the Borough of Manhattan, The City of New York where notices and demands in respect of the notes and the indenture may be delivered to us and where certificated notes may be surrendered for payment, registration of transfer or exchange. That office or agency will initially be the office of the agent of the trustee in the City of New York, which is currently located at U.S. Bank National Association, 100 Wall Street, Suite 1600, New York, New York 10005, Attention: Global Corporate Trust Services.

So long as the notes are in book-entry form, we will make cash payments on the notes to the Depositary or its nominee, as the registered owner of the notes, by wire transfer of immediately available funds. If notes are issued in definitive certificated form under the limited circumstances described below under the caption “—Book-Entry, Delivery and Form,” we will pay cash interest by check mailed to the addresses of the persons entitled to payment or, in the case of notes in the principal amount of at least $1,000,000, by wire transfer to bank accounts in the United States designated in writing to the trustee at least 30 days before the applicable payment date by the persons entitled to payment.

We will pay principal of and any premium on the notes at their stated maturity, upon redemption or otherwise, upon presentation of the notes at the office of the trustee, as our paying agent. In our discretion, we may appoint one or more additional paying agents and security registrars and designate one or more additional places for payment and for registration of transfer, but we must at all times maintain a place of payment of the notes and a place for registration of transfer of the notes in the Borough of Manhattan, The City of New York.

No service charge will be made for any registration, transfer or exchange of the notes, but we may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection therewith.

We will be entitled to redeem the notes at our option as described below under the captions “—Optional Redemption” and “—Tax Redemption.” You will not be permitted to require us to redeem or repurchase the notes. The notes will not be subject to a sinking fund.

The indenture will be qualified under the Trust Indenture Act of 1939, as amended (the “TIA”), and we will be required to comply with the provisions of the TIA.

Notes Guarantee

The indenture provides that each subsidiary guarantor unconditionally and irrevocably guarantees, jointly and severally, on a senior basis to each holder of Notes, to the trustee and the collateral agent that (i) full and punctual payment of the principal of (and premium, if any) and interest on the Notes, when due, whether by maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the indenture and (ii) full and punctual performance within applicable grace periods of all other obligations of the Company under the indenture. The guarantees are subject to the limitations as set forth in the indenture.

 

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The indenture provides that a subsidiary guarantor may not consolidate or amalgamate with or merge into any other person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of its assets to any person, other than to the Company or another subsidiary guarantor, unless either (i) such subsidiary guarantor is the surviving or resulting person or (ii) the person (if other than such subsidiary guarantor) formed by such consolidation or amalgamation or into which such subsidiary guarantor is merged, or the person which acquires, by sale, lease, conveyance, transfer or other disposition, all or substantially all of such subsidiary guarantor’s properties and assets, as applicable, shall expressly assume, by a supplemental indenture, such subsidiary guarantor’s obligations under its notes guarantee and, in which case such person would be substituted for such subsidiary guarantor in the indenture with the same effect as if it had been an original party to the indenture.

The notes guarantee of a subsidiary guarantor also will be automatically released with respect to the notes:

 

  

if we exercise our legal defeasance option or our covenant defeasance option as described under “—Discharge and Defeasance” or if our obligations under the indenture are satisfied and discharged as described under “—Discharge and Defeasance,” with respect to the notes;

 

  

upon any sale, transfer or disposition of the capital stock of a subsidiary guarantor, if as a result of such sale, transfer or disposition, such subsidiary guarantor is no longer a Restricted Subsidiary and immediately after giving effect thereto, the Company will be in compliance with the covenant described under “—Certain Covenants—Further Instruments and Acts; Further Assurances; Additional Guarantors”;

 

  

upon the dissolution or liquidation of such subsidiary guarantor, if immediately after giving effect thereto, the Company will be in compliance with the covenant described under “—Certain Covenants—Further Instruments and Acts; Further Assurances; Additional Guarantors”;

 

  

to the extent such release is approved, authorized or ratified in writing in accordance with “—Amendment, Supplement and Waiver”;

 

  

if such subsidiary guarantor is designated as an Unrestricted Subsidiary in accordance with “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries”;

 

  

upon such subsidiary guarantor being released from or discharged of its obligations under its notes guarantee; or

 

  

in the case of a Discretionary Guarantor, upon a written notice from us to the trustee requesting such release and certifying that such entity will no longer be a Discretionary Guarantor.

Optional Redemption

Within 120 days of any Change of Control, we (or the successor entity following such Change of Control) may redeem for cash all (but not less than all) of the outstanding notes, at a redemption price, if the redemption is (x) prior to (but not including) February 15, 2024, equal to the sum of (1) 106% of the principal amount of the notes to be redeemed plus (2) accrued and unpaid interest, if any, to, but excluding, the redemption date or (y) on or after February 15, 2024, equal to the redemption price applicable to the notes (expressed as a percentage of the principal amount of the notes to be redeemed) if redeemed during the 12-month period beginning on February 15, 2024 of the years indicated in the second immediately following paragraph.

Prior to February 15, 2024, we will be entitled at our option to redeem the notes, in whole or in part, at a redemption price equal to 106% of the principal amount of the notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date).

The redemption price for the notes to be redeemed on any redemption date that is on or after February 15, 2024 will be equal to the applicable percentage set forth below of the principal amount of the notes, plus accrued

 

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and unpaid interest thereon, if any, to, but excluding, the date of redemption (subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date) if redeemed during the 12-month period beginning on February 15 of the years indicated below:

 

YEAR

  PERCENTAGE 

2024

   106.000

2025

   104.000

2026

   102.000

2027 and thereafter

   100.000

Tax Redemption

The notes will be subject to redemption at any time, in whole but not in part, at a redemption price, if the redemption is (x) prior to (but not including) February 15, 2024, equal to 106% of the principal amount of the notes to be redeemed or (y) on or after February 15, 2024, equal to the redemption price applicable to the notes (expressed as a percentage of the principal amount of notes to be redeemed), in each case together with accrued and unpaid interest to, but not including, the date fixed for redemption (a “Tax Redemption Date”), plus all Additional Amounts (if any; the term “Additional Amounts” is defined in “—Tax Additional Amounts”) then due or 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, we are or would be required to pay Additional Amounts, and we cannot avoid any such payment obligation by taking reasonable measures available (including, for the avoidance of doubt, appointment of a new paying agent but excluding the reincorporation or reorganization of the Company), and the requirement arises as a result of:

 

  

any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of any Taxing Jurisdiction (as defined below) which change or amendment is announced or becomes effective after February 5, 2021 (or if the applicable Taxing Jurisdiction became a Taxing Jurisdiction on a date after February 5, 2021, such later date); or

 

  

any change in, or amendment to, the official application, administration or interpretation of such laws, regulations or rulings (including by virtue of a holding, judgment or order by a court of competent jurisdiction or a change in published practice), which change or amendment is announced and becomes effective after February 5, 2021 (or if the applicable Taxing Jurisdiction became a Taxing Jurisdiction after February 5, 2021, after such later date) (each of the first and second bullet points, a “Change in Tax Law”).

We will not give a notice of redemption for tax reasons later than ten days or earlier than 60 days before the earliest date on which we would be obligated to make such payment of Additional Amounts 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 notice of any notice of redemption pursuant to the foregoing, we will deliver to the trustee an opinion of independent tax counsel of recognized standing qualified under the laws of the relevant Taxing Jurisdiction to the effect that there has been a Change in Tax Law which would entitle us to redeem the notes. In addition, before we deliver a notice of redemption of the notes, we shall deliver to the trustee an officer’s certificate that we cannot avoid our obligation to pay Additional Amounts by taking reasonable measures available to us (including the appointment of a new paying agent but excluding the reincorporation or reorganization of the Company).

Redemption Procedures

We will give the applicable holders at least 15 days (but not more than 60 days) prior notice of any redemption. If less than all of the notes are redeemed, the trustee will select the notes to be redeemed on a pro rata basis (or in the case of global notes, in accordance with DTC procedures). The trustee may select for redemption notes and portions of notes in minimum denominations of $1 and integral multiples of $1 in excess thereof. Notices of redemption may be subject to one or more conditions precedent.

 

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On or before the redemption date, we will deposit with a paying agent (or the trustee) money sufficient to pay the redemption price and accrued interest on the notes to be redeemed on such date.

If notice of redemption has been given as provided in the indenture, and funds for the redemption of notes called for redemption have been made available on the redemption date referred to in such notice, interest will cease to accrue on the notes on the date fixed for such redemption specified in such notice (unless we default in the payment of the redemption price and accrued interest), and the only right of the holders of notes will be to receive payment of the redemption price plus accrued interest to, but not including, the date of redemption.

Open Market Repurchase

The Company and its affiliates may at any time and from time to time purchase notes in the open market or otherwise, at market or negotiated prices, so long as such acquisition does not otherwise violate the terms of the indenture.

Collateral

Description of Collateral. The notes and the notes guarantees are secured by second-priority security interests (subject to Permitted Liens) in the Collateral. Subject to the terms described below under “—Release,” the Collateral consists of substantially all of the property and assets of the Company and the subsidiary guarantors, other than Excluded Property, and the pledge of the Capital Stock of the Company.

The security interests securing the notes and the notes guarantees will be subject to all Permitted Liens.

The Company and the subsidiary guarantors will be able to incur additional Priority Lien Debt that would have a senior interest in the Collateral compared to the notes and the notes guarantees, as well as additional Parity Lien Obligations in the future that could equally and ratably share in the Collateral with the notes and the notes guarantees. The amount of such Indebtedness is limited by the covenants described under “—Certain Covenants—Limitation on Indebtedness” and “—Certain Covenants—Limitation on Liens.”

After-Acquired Property. From and after February 5, 2021 and subject to certain limitations, if the Company or any subsidiary guarantor acquires any property of the type that would constitute Collateral (excluding, for the avoidance of doubt, any Excluded Property), it shall as soon as practicable after the acquisition thereof execute and deliver such security instruments, financing statements and such certificates and opinions of counsel to vest in the collateral agent a perfected security interest (subject only to Permitted Liens which may include certain purchase money security interests) in such after-acquired property and to have such after-acquired property added to the Collateral, and thereupon all provisions of the indenture relating to the Collateral shall be deemed to relate to such after-acquired property to the same extent and with the same force and effect. If granting a security interest in such property requires the consent of a third party, the Company or the applicable subsidiary guarantor will use commercially reasonable efforts to obtain such consent with respect to the security interest for the benefit of the collateral agent on behalf of the holders. If such third party does not consent to the granting of the security interest after the use of such commercially reasonable efforts, the applicable entity will not be required to provide such security interest. It is possible that a third party might consent to the granting of first priority security interests for the benefit of the Priority Lien Debt but might not consent to the granting of security interests for the benefit of the notes and the notes guarantees.

Collateral Documents. The Grantors and the collateral agent entered into the Collateral Documents defining the terms of the security interests that secure the notes and the notes guarantees. These security interests will secure the payment and performance when due of all of the Obligations of the Company and the subsidiary guarantors under the notes, the indenture, the notes guarantees and the Collateral Documents, as provided in the

 

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Collateral Documents. By accepting a note, each holder thereof will be deemed to have irrevocably appointed the collateral agent to act as its agent under the Collateral Documents and irrevocably authorized the collateral agent to (i) perform the duties and exercise the rights, powers and discretions that are specifically given to it under the Collateral Documents or other documents to which it is a party, together with any other incidental rights, power and discretions and (ii) execute each document expressed to be executed by the collateral agent on its behalf. Since the holders of the notes are not parties to the Collateral Documents, such holders may not, individually or collectively, take any direct action to enforce any rights in their favor under the Collateral Documents. The holders of the notes may only act by instruction to the trustee, which shall instruct the collateral agent. Notwithstanding the foregoing, in the event that the Company and the subsidiary guarantors incur additional Parity Lien Obligations, the rights of the holders of the notes to direct the trustee and the collateral agent to take action with respect to the Collateral shall be limited as described below under the caption “—Second Lien Pari Passu Intercreditor Arrangements.”

Below is a description of certain provisions of the Collateral Documents. On February 5, 2021, the collateral agent entered into the Senior Lien Intercreditor Agreement having the terms described below under the caption “—First Lien-Second Lien Intercreditor Arrangements.” The terms of the Senior Lien Intercreditor Agreement restrict the actions permitted to be taken by the collateral agent with respect to the Collateral on behalf of the holders of the Parity Lien Debt. To the extent that any additional Priority Lien Debt or Parity Lien Debt are incurred by the Company or a subsidiary guarantor, the authorized representative of the holders of such Priority Lien Debt or Parity Lien Debt, as the case may be, will be joined as a party to the Senior Lien Intercreditor Agreement or the Collateral Agency Agreement, as the case may be, which Senior Lien Intercreditor Agreement and Collateral Agency Agreement provide that the representatives and holders of such additional Priority Lien Debt and Parity Lien Debt will be subject to the terms of the Senior Lien Intercreditor Agreement.

So long as no Event of Default shall have occurred and be continuing, and subject to certain terms and conditions, the Grantors will be entitled to exercise any voting and other consensual rights pertaining to all Capital Stock pledged pursuant to the Collateral Documents and to remain in possession and retain exclusive control over the Collateral (other than as set forth in the Collateral Documents), to operate the Collateral, to alter the Collateral and to collect, invest and dispose of any income thereon. The Collateral Documents, however, generally require the Grantors to deliver to the collateral agent and for the collateral agent to maintain in its possession certificates evidencing pledges of Capital Stock to the extent such Capital Stock are certificated and to use commercially reasonable efforts to subject all applicable deposit accounts and securities accounts to a control agreement in favor of the collateral agent; provided that so long as any Priority Lien Obligations are outstanding, the collateral agent will appoint the Priority Lien Agent (or its designee) as agent of the collateral agent for purposes of perfecting its security interest in any Collateral that may be in the possession or control of the Priority Lien Agent, including certificated securities, deposit accounts and securities accounts. Subject to the intercreditor provisions described below, upon the occurrence and during the continuance of an Event of Default, to the extent permitted by law and subject to the provisions of the Senior Lien Intercreditor Agreement and the Collateral Documents:

 

  

all of the rights of the Grantors to exercise voting or other consensual rights with respect to all Capital Stock included in the Collateral shall cease, and all such rights shall become vested in the collateral agent, which, to the extent permitted by law, shall have the sole right to exercise such voting and other consensual rights; and

 

  

the collateral agent may take possession of and sell the Collateral or any part thereof in accordance with the terms of applicable law and the Collateral Documents.

Upon the occurrence and during the continuance of an Event of Default, the Collateral Documents provide that the collateral agent will, at the direction of the holders of a majority in principal amount of the initial notes and the PIK notes then outstanding (or their representative), foreclose upon and sell the applicable Collateral and to distribute the net proceeds of any such sale to the holders of Parity Lien Obligations in accordance with, and

 

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subject to, the provisions of the Senior Lien Intercreditor Agreement. However, the collateral agent’s right to take actions with respect to the Collateral will be severely limited for so long as any Priority Lien Obligations are outstanding. In general, if any Priority Lien Obligations are outstanding, all enforcement decisions with respect to the Collateral will be made by the holders of Priority Lien Debt (or their representative). In the event of the enforcement of the security interests following an Event of Default at a time when no Priority Lien Debt are outstanding, the collateral agent, in accordance with the provisions of the indenture, the Collateral Documents and the intercreditor arrangements described below, will determine the time and method by which the security interests in the Collateral will be enforced and, if applicable, will distribute all cash proceeds (after payment of the costs of enforcement and collateral administration) of the Collateral received by it under the Collateral Documents for the ratable benefit of the holders of Parity Lien Obligations.

First Lien-Second Lien Intercreditor Arrangements. On February 5, 2021, the collateral agent, the Senior Credit Facility Agent and the Grantors party thereto entered into the Senior Lien Intercreditor Agreement. The rights of the holders of the notes and the collateral agent with respect to the Collateral securing the notes and the notes guarantees are materially limited pursuant to the terms of the Senior Lien Intercreditor Agreement.

Relative Priorities. Irrespective of (i) how a Lien was acquired (whether by grant, possession, statute, operation of law, subrogation, or otherwise), (ii) the time, manner, or order of the grant, attachment or perfection of a Lien, (iii) any conflicting provision of applicable law, (iv) any defect in, or non-perfection, setting aside, or avoidance of, a Lien or a Priority Lien Document or a Parity Lien Document, (v) the modification of a Priority Lien Obligation permitted under the Senior Lien Intercreditor Agreement and the Priority Credit Agreement or a Parity Lien Obligation permitted under the Senior Lien Intercreditor Agreement and the indenture, or (vi) the subordination of a Lien on Collateral securing a Priority Lien Obligation to a Lien securing another obligation of the Company or other Person that is permitted under the Priority Lien Documents as in effect on February 5, 2021 or securing a DIP Financing, or the subordination of a Lien on Collateral securing a Parity Lien Obligation to a Lien securing another obligation of the Company or other Person (other than a Priority Lien Obligation) that is permitted under the Parity Lien Documents as in effect on February 5, 2021, the Parity Lien Secured Parties have agreed that (x) any Priority Lien on any Collateral now or hereafter held by or for the benefit of any Priority Lien Secured Party shall be senior in right, priority, operation, effect and all other respects to any and all Parity Liens on any Collateral and (y) any Parity Lien on any Collateral now or hereafter held by or for the benefit of any Parity Lien Secured Party shall be junior and subordinate in right, priority, operation, effect and all other respects to any and all Priority Liens on any Collateral.

The Senior Lien Intercreditor Agreement provides that (i) the aggregate amount of the Priority Lien Obligations may be increased from time to time pursuant to the terms of the Priority Lien Documents (but not in excess of the Priority Lien Cap), (ii) a portion of the Priority Lien Obligations consists or may consist of indebtedness that is revolving in nature, and the amount thereof that may be outstanding at any time or from time to time may be increased (but not in excess of the Priority Lien Cap) or reduced and subsequently reborrowed, and (iii) (A) the Priority Lien Documents may be replaced, restated, supplemented, restructured or otherwise amended or modified from time to time and (B) the Priority Lien Obligations may be increased (but not in excess of the Priority Lien Cap), extended, renewed, Refinanced or otherwise amended, restated or modified from time to time, all without affecting the subordination of the Parity Liens to the Priority Liens securing the Priority Lien Obligations that are not in excess of the Priority Lien Cap.

No New Liens. The Senior Lien Intercreditor Agreement provides that so long as the Discharge of Priority Lien Obligations has not occurred, none of the Grantors shall, nor shall any Grantor permit any of its Subsidiaries to, (a) grant or permit any additional Liens on any asset of such Grantor or Subsidiary to secure any Parity Lien Obligation, or take any action to perfect any additional Liens securing any Parity Lien Obligation, unless it has granted, or substantially concurrently therewith grants (or offers to grant) or grants within ten Business Days thereafter, a Lien on such asset of such Grantor or Subsidiary to secure the Priority Lien Obligations and has taken all actions required to perfect such Liens securing the Priority Lien Obligations; provided, however, that the refusal or inability of the Priority Lien Agent to accept such Lien will not prevent the collateral agent from

 

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taking the Lien or (b) grant or permit any additional Liens on any asset of such Grantor or Subsidiary to secure any Priority Lien Obligation, or take any action to perfect any additional Liens securing any Priority Lien Obligation, unless it has granted, or substantially concurrently therewith grants (or offers to grant) or grants within ten Business Days thereafter, a Lien on such asset of such Grantor or Subsidiary to secure the Parity Lien Obligations and has taken all actions (or takes all actions) required to perfect such Liens securing the Parity Lien Obligations (except Liens on any Collateral that can be perfected by the possession or control of such Collateral, which possession or control is given in favor of any Priority Lien Secured Party); provided, however, the refusal or inability of the collateral agent to accept such Lien will not prevent the Priority Lien Agent from taking the Lien.

Similar Collateral and Agreements. The parties to the Senior Lien Intercreditor Agreement acknowledge and agree (a) that it is their intention that the Priority Lien Collateral and the Second Lien Collateral be identical, (b) to cooperate in good faith in order to determine the specific assets included in the Collateral, the steps taken to perfect the Liens thereon and the identity of the respective parties obligated under the Priority Lien Documents and the Parity Lien Documents in respect of the Priority Lien Obligations and the Parity Lien Obligations, respectively, (c) that the Parity Lien Security Documents creating Liens on the Collateral shall be in all material respects the same forms of documents as the respective Priority Lien Security Documents creating Liens on the Collateral other than (i) with respect to the priority nature of the Liens created thereunder in such Collateral, (ii) such other modifications to such Parity Lien Security Documents which are less restrictive than the corresponding Priority Lien Security Documents, and (iii) provisions in the Parity Lien Security Documents which are solely applicable to the rights and duties of the collateral agent and/or the security trustee and (d) that at no time shall there be any Grantor that is either (i) an obligor in respect of the Parity Lien Obligations that is not also an obligor in respect of the Priority Lien Obligations, or (ii) an obligor in respect of the Priority Lien Obligations that is not also an obligor in respect of the Parity Lien Obligations.

Limitation on Enforcement Action. Prior to the Discharge of Priority Lien Obligations but subject to the provisions described in “—Collateral—First Lien-Second Lien Intercreditor Arrangements—Standstill Period; Permitted Enforcement Action,” no Parity Lien Secured Party shall commence any judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, or take any other action available to it in respect of, any Collateral under any Parity Lien Security Document, applicable law or otherwise (including but not limited to any right of setoff); the Priority Lien Agent, acting in accordance with the applicable Priority Lien Documents, shall have the exclusive right (and whether or not any Insolvency or Liquidation Proceeding has been commenced), to take any such actions or exercise any such remedies, in each case, without any consultation with or the consent of any Parity Lien Secured Party. Such exercise and enforcement shall include the rights of an agent appointed by them to Dispose of Collateral upon foreclosure, to incur expenses in connection with any such Disposition and to exercise all the rights and remedies of a secured creditor under the New York Uniform Commercial Code, the Bankruptcy Code or any other Bankruptcy Law. The collateral agent, on behalf of the Parity Lien Secured Parties, may, but will have no obligation to, take all such actions (not adverse to the Priority Liens or the rights of the Priority Lien Agent and the Priority Lien Secured Parties) it deems necessary to perfect or continue the perfection of the Parity Liens in the Collateral or to create, preserve or protect (but not enforce) the Parity Liens in the Collateral. Nothing in the Senior Lien Intercreditor Agreement limits the right or ability of the Parity Lien Secured Parties to (a) purchase (by credit bid or otherwise) all or any portion of the Collateral in connection with any enforcement of remedies by the Priority Lien Agent to the extent that, and so long as, the Priority Lien Secured Parties receive payment in full in cash of all Priority Lien Obligations (other than Excess Priority Lien Obligations) after giving effect thereto or (b) file a proof of claim with respect to the Parity Lien Obligations. Following the Discharge of Priority Lien Obligations, the collateral agent or any other Parity Lien Secured Party shall have the sole and exclusive right to enforce against or realize upon, or take any other action available to it in respect of, any Collateral.

 

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Standstill Period; Permitted Enforcement Action. Prior to the Discharge of Priority Lien Obligations, both before and during an Insolvency or Liquidation Proceeding, after a period of 180 days has elapsed (which period will be tolled during any period in which the Priority Lien Agent is not entitled, on behalf of the Priority Lien Secured Parties, to enforce or exercise any rights or remedies with respect to a material portion of the Collateral as a result of (a) any injunction issued by a court of competent jurisdiction or (b) the automatic stay or any other stay or prohibition in any Insolvency or Liquidation Proceeding) since the date on which the collateral agent has delivered to the Priority Lien Agent written notice of the acceleration of any Parity Lien Debt (the “Standstill Period”), the collateral agent and the other Parity Lien Secured Parties may enforce or exercise any rights or remedies with respect to any Collateral; provided, however, that notwithstanding the expiration of the Standstill Period or anything in the Parity Lien Documents to the contrary, in no event may any Parity Lien Secured Party enforce or exercise any rights or remedies with respect to any Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding, if any Priority Lien Secured Party shall have commenced prior to the expiration of the Standstill Period, and shall be diligently pursuing (or shall have sought or requested relief from, or modification of, the automatic stay or any other stay or other prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof), the enforcement or exercise of any rights or remedies with respect to the Collateral or any such action or proceeding; provided, further, that, at any time after the expiration of the Standstill Period, if no Priority Lien Secured Party shall have commenced and be diligently pursuing the enforcement or exercise of any rights or remedies with respect to any material portion of the Collateral or any such action or proceeding, then no Priority Lien Secured Party or the Priority Lien Agent shall take any action of a similar nature with respect to such Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding.

Insurance. Unless and until the Discharge of Priority Lien Obligations has occurred (subject to the rights of the Parity Lien Secured Parties following expiration of the Standstill Period), the Priority Lien Agent shall have the sole and exclusive right, subject to the rights of the Grantors under the Priority Lien Documents, to (i) to be named as loss payee under any insurance policies maintained from time to time by any Grantor (provided that, in such case, it shall also be named as an additional loss payee, as applicable, for the benefit of the collateral agent and the other Parity Lien Secured Parties; provided further that in the event the Priority Lien Agent is not so named, then the collateral agent shall be entitled to be named as additional loss payee (with the priorities, and subject to the terms, as set forth in the Senior Lien Intercreditor Agreement)), (ii) adjust and settle claims in respect of Collateral under any insurance policy in the event of any loss thereunder and (iii) to approve any award granted in any condemnation or similar proceeding (or any deed in lieu of condemnation) affecting the Collateral. Unless and until the Discharge of Priority Lien Obligations has occurred, and subject to the rights of the Grantors under the Priority Lien Documents, all proceeds of any such policy and any such award (or any payments with respect to a deed in lieu of condemnation) in respect to the Collateral shall be paid to the Priority Lien Agent pursuant to the terms of the Priority Lien Documents (including for purposes of cash collateralization of commitments, letters of credit and Hedging Obligations). If the collateral agent or any Parity Lien Secured Party shall, at any time, receive any proceeds of any such insurance policy or any such award or payment in contravention of the foregoing, it shall pay such proceeds over to the Priority Lien Agent. In addition, if by virtue of being named as an additional insured or loss payee of any insurance policy of any Grantor covering any of the Collateral, the collateral agent or any other Parity Lien Secured Party shall have the right to adjust or settle any claim under any such insurance policy, then unless and until the Discharge of Priority Lien Obligations has occurred, the collateral agent and any such Parity Lien Secured Party shall follow the instructions of the Priority Lien Agent, or of the Grantors under the Priority Lien Documents to the extent the Priority Lien Documents grant such Grantors the right to adjust or settle such claims, with respect to such adjustment or settlement (subject to the rights of the Parity Lien Secured Parties following expiration of the Standstill Period). Following the Discharge of Priority Lien Obligations, the collateral agent or any other Parity Lien Secured Parties shall have the sole and exclusive right to adjust and settle claims in respect of Collateral under any insurance policy in the event of any loss thereunder and to approve any award granted in any condemnation or similar proceeding (or any deed in lieu of condemnation) affecting the Collateral.

 

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No Interference. Unless and until the Discharge of Priority Lien Obligations has occurred (subject to the rights of the Parity Lien Secured Parties following expiration of the Standstill Period), no Parity Lien Secured Party will (i) take or cause to be taken any action the purpose or effect of which is, or could be, to make any Parity Lien pari passu with, or to give such Parity Lien Secured Party any preference or priority relative to, any Priority Lien with respect to the Collateral or any part thereof, (ii) challenge or question in any proceeding the validity or enforceability of any Priority Lien Obligations or Priority Lien Document, or the validity, attachment, perfection or priority of any Priority Lien, or the validity or enforceability of the priorities, rights or duties established by the provisions of the Senior Lien Intercreditor Agreement, (iii) take or cause to be taken any action the purpose or effect of which is, or could be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other Disposition of the Collateral by any Priority Lien Secured Party or the Priority Lien Agent in any enforcement action, (iv) have any right to (A) direct any Priority Lien Secured Party to exercise any right, remedy or power with respect to any Collateral or (B) consent to the exercise by any Priority Lien Secured Party of any right, remedy or power with respect to any Collateral, (v) institute any suit or assert in any suit or Insolvency or Liquidation Proceeding any claim against the Priority Lien Agent or other Priority Lien Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to, and no Priority Lien Secured Party shall be liable for, any action taken or omitted to be taken by the Priority Lien Agent or other Priority Lien Secured Party with respect to any Priority Lien Collateral, (vi) seek, and each Parity Lien Secured Party has waived, any right, to have any Collateral or any part thereof marshaled upon any foreclosure or other Disposition of such Collateral, (vii) attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of the Senior Lien Intercreditor Agreement, (viii) object to forbearance by the Priority Lien Agent or any Priority Lien Secured Party, or (ix) assert, and each Parity Lien Secured Party has waived, to the fullest extent permitted by law, any right to demand, request, plead or otherwise assert or claim the benefit of any marshalling, appraisal, valuation or other similar right that may be available under applicable law with respect to the Collateral or any similar rights a junior secured creditor may have under applicable law.

Purchase Option. On or at any time after (i) the commencement of an Insolvency or Liquidation Proceeding, or (ii) the Priority Lien Agent has delivered to the collateral agent written notice of the acceleration of the Priority Lien Obligations (each of the foregoing clauses (i) and (ii), a “Purchase Event”), each of the holders of the Parity Lien Debt and each of their respective designated Affiliates (any of such holder(s) or designated Affiliate(s), the “Parity Lien Purchasers”) will have the right, at their sole option and election (but will not be obligated), upon prior written notice to the Priority Lien Agent (with a copy to the collateral agent), to purchase from the Priority Lien Secured Parties (A) all (but not less than all) Priority Lien Obligations (including any Priority Lien Obligations constituting Excess Priority Lien Obligations unless otherwise excluded as provided in the following sentence) and (B) if applicable, Obligations (including principal, unpaid interest, fees, reasonable attorneys’ fees and legal expenses, but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time) provided by any of the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such purchase. Such notice may be given at any time, unless such election excludes the purchase of the Excess Priority Lien Obligations, in which case, such notice must be given within 90 days of the relevant Purchase Event. Promptly following the receipt of such notice from the Parity Lien Purchasers, the Priority Lien Agent will deliver to the collateral agent and the Parity Lien Purchasers a statement of the amount of Priority Lien Debt, other Priority Lien Obligations (other than any Priority Lien Obligations constituting Excess Priority Lien Obligations unless otherwise to be included) and DIP Financing (including unpaid interest, fees, expenses and other obligations in respect of such DIP Financing) provided by any of the Priority Lien Secured Parties, if any, then outstanding and the amount of the cash collateral requested by the Priority Lien Agent to be delivered as described in the following paragraph. The right to purchase will expire unless, within ten Business Days after the receipt by the collateral agent and the Parity Lien Purchasers of such statement of amount from the Priority Lien Agent, the collateral agent (acting at the direction of the Parity Lien Purchasers) delivers to the Priority Lien Agent an irrevocable commitment of the Parity Lien Purchasers to purchase all (but not less than all) (x) of the Priority Lien Obligations, other than any Priority Lien Obligations constituting Excess Priority Lien Obligations unless otherwise to be included and (y) if applicable, Obligations (including principal, unpaid interest, fees, reasonable attorneys’ fees and legal expenses,

 

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but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time) provided by any of the Priority Lien Secured Parties in connection with a DIP Financing and to otherwise complete such purchase on the terms set forth in the Senior Lien Intercreditor Agreement.

On the date specified by the collateral agent (on behalf of the Parity Lien Purchasers) in such irrevocable commitment (which shall not be less than five Business Days nor more than 20 Business Days, after the receipt by the Priority Lien Agent of such irrevocable commitment), the Priority Lien Secured Parties shall sell to the Parity Lien Purchasers all (but not less than all) (x) Priority Lien Obligations, other than any Priority Lien Obligations constituting Excess Priority Lien Obligations unless otherwise to be included and (y) if applicable, Obligations provided by any of the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such sale, subject to any required approval of any Governmental Authority then in effect, if any, and only if on the date of such sale, the Priority Lien Agent receives the following:

 

  

payment in cash, as the purchase price for all Priority Lien Obligations sold in such sale, of an amount equal to the full par value amount of (A) all Priority Lien Obligations (other than outstanding letters of credit as referred to in the following bullet point) other than any Priority Lien Obligations constituting Excess Priority Lien Obligations unless otherwise to be included and (B) if applicable, all Obligations (and related obligations, including unpaid interest, fees and expenses) provided by any of the Priority Lien Secured Parties in connection with a DIP Financing then outstanding (including principal, unpaid interest, fees, reasonable attorneys’ fees and legal expenses, but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time); provided that in the case of Hedging Obligations that constitute Priority Lien Obligations the Parity Lien Purchasers shall cause the applicable agreements governing such Hedging Obligations to be assigned and novated or, if such agreements have been terminated, such purchase price shall include an amount equal to the sum of any unpaid amounts then due in respect of such Hedging Obligations, calculated using the market quotation method and after giving effect to any netting arrangements;

 

  

a cash collateral deposit in such amount as the Priority Lien Agent determines is reasonably necessary to secure the payment of any outstanding letters of credit constituting Priority Lien Obligations that may become due and payable after such sale (but not in any event in an amount greater than 105% of the amount then reasonably estimated by the Priority Lien Agent to be the aggregate outstanding amount of such letters of credit at such time), which cash collateral shall be (A) held by the Priority Lien Agent as security solely to reimburse the issuers of such letters of credit that become due and payable after such sale and any fees and expenses incurred in connection with such letters of credit and (B) returned to the collateral agent (except as may otherwise be required by applicable law or any order of any court or other Governmental Authority) promptly after the expiration or termination from time to time of all payment contingencies affecting such letters of credit; and

 

  

any agreements, documents or instruments which the Priority Lien Agent may reasonably request in writing pursuant to which (A) the representative appointed by the Parity Lien Purchasers to assume the obligations of the Priority Lien Agent (the “Priority Lien Successor Agent”) and the Parity Lien Purchasers expressly assume and adopt all of the obligations of the Priority Lien Agent and the Priority Lien Secured Parties under the Priority Lien Documents and in connection with the Obligations (including principal, unpaid interest, reasonable attorneys’ fees and legal expenses, but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time) provided by any of the Priority Lien Secured Parties in connection with a DIP Financing, as applicable, on and after the date of the purchase and sale and (B) the Priority Lien Successor Agent becomes the successor agent thereunder.

Such purchase of the Priority Lien Obligations and, if applicable, the Obligations provided by any of the Priority Lien Secured Parties in connection with a DIP Financing shall be made on a pro rata basis among the Parity Lien Purchasers giving notice to the Priority Lien Agent of their interest to exercise the purchase option hereunder according to each such Parity Lien Purchaser’s portion of the Parity Lien Debt outstanding on the date

 

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of purchase or such portion as such Parity Lien Purchasers may otherwise agree among themselves. Such sale shall be expressly made without representation or warranty of any kind by the Priority Lien Secured Parties as to the Priority Lien Obligations, the Collateral or otherwise and without recourse to any Priority Lien Secured Party, except that the applicable Priority Lien Secured Party shall represent and warrant severally as to the Priority Lien Obligations, and, if applicable, the Obligations provided by any of the Priority Lien Secured Parties in connection with a DIP Financing then owing to it: (i) that such applicable Priority Lien Secured Party owns such Priority Lien Obligations and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing; and (ii) that such applicable Priority Lien Secured Party has the necessary corporate or other governing authority to assign such interests.

After such sale becomes effective, the outstanding letters of credit will remain enforceable against the issuers thereof and will remain secured by the Priority Liens upon the Collateral in accordance with the applicable provisions of the Priority Lien Documents as in effect at the time of such sale, and the issuers of letters of credit will remain entitled to the benefit of the Priority Liens upon the Collateral and sharing rights in the proceeds thereof in accordance with the provisions of the Priority Lien Documents as in effect at the time of such sale, as fully as if the sale of the Priority Lien Debt had not been made, but, except with respect to cash collateral held by the issuer(s) of such letters of credit, only the Person or successor agent to whom the Priority Liens are transferred in such sale will have the right to foreclose upon or otherwise enforce the Priority Liens and only the Parity Lien Purchasers in the sale will have the right to direct such Person or successor as to matters relating to the foreclosure or other enforcement of the Priority Liens.

Release of Liens; Automatic Release of Parity Liens. (a) Prior to the Discharge of Priority Lien Obligations, in the event the Priority Lien Agent or the requisite Priority Lien Secured Parties under the Priority Lien Documents release the Priority Lien on any Collateral, the Parity Lien on such Collateral shall terminate and be released automatically and without further action if (i) such release is permitted under the Parity Lien Documents, (ii) such release is effected in connection with the Priority Lien Agent’s foreclosure upon, or other exercise of rights or remedies with respect to, such Collateral, or (iii) such release is effected in connection with a sale or other Disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the requisite Priority Lien Secured Parties under the Priority Lien Documents shall have consented to such sale or Disposition of such Collateral; provided that, in the case of each of clauses (i), (ii) and (iii), the Parity Liens on such Collateral shall attach to (and shall remain subject and subordinate to all Priority Liens securing Priority Lien Obligations) any proceeds of a sale, transfer or other Disposition of Collateral not paid to the Priority Lien Secured Parties or that remain after the Discharge of Priority Lien Obligations.

Certain Agreements With Respect to Insolvency or Liquidation Proceedings. The Senior Lien Intercreditor Agreement is a “subordination agreement” under Section 510(a) of the Bankruptcy Code and shall continue in full force and effect, notwithstanding the commencement of any Insolvency or Liquidation Proceeding by or against any Grantor or any of their Subsidiaries. All references to the Company or any Subsidiary of any Grantor will include such Person or Persons as a debtor-in-possession and any receiver or trustee for such Person or Persons in an Insolvency or Liquidation Proceeding. The provisions of the Senior Lien Intercreditor Agreement described under this caption “—Collateral—First Lien-Second Lien Intercreditor Arrangements—Certain Agreements With Respect to Insolvency or Liquidation Proceedings” shall be in full force and effect prior to the Discharge of Priority Lien Obligations.

If any Grantor or any of their Subsidiaries shall become subject to any Insolvency or Liquidation Proceeding and shall, as debtor(s)-in-possession, or if any receiver or trustee for such Person or Persons shall, move for approval of financing (“DIP Financing”) to be provided by one or more lenders under Section 364 of the Bankruptcy Code or the use of cash collateral under Section 363 of the Bankruptcy Code, no Parity Lien Secured Party will raise any objection, contest or oppose, and each Parity Lien Secured Party will waive any claim such Person may now or hereafter have, to any such financing or to the Liens on the Collateral securing the same (“DIP Financing Liens”), or to any use, sale or lease of cash collateral that constitutes Collateral or to any grant

 

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of administrative expense priority under Section 364 of the Bankruptcy Code, unless (i) the Priority Lien Agent (acting at the direction of the requisite Priority Lien Secured Parties under the Priority Lien Documents) opposes or objects to such DIP Financing or such DIP Financing Liens or such use of cash collateral, (ii) the maximum principal amount of indebtedness incurred in respect of such DIP Financing (the “DIP Cap”) exceeds the sum of (A) the Priority Lien Obligations outstanding under the Priority Credit Agreement immediately prior to the commencement of any such Insolvency or Liquidation Proceeding to the extent refinanced with proceeds of such DIP Financing and (B) the lesser of (x) $101,000,000 and (y) 15% of loans and unused commitments outstanding under the Priority Credit Agreement immediately prior to the commencement of any such Insolvency or Liquidation Proceeding, (iii) the terms of such DIP Financing provide for the sale of a substantial part of the Collateral (other than as contemplated by the second following paragraph) or require the confirmation of a plan of reorganization or liquidation, as applicable, containing specific terms or provisions (other than repayment in cash of such DIP Financing on the effective date thereof), and/or (iv) any such DIP Financing is secured by Liens that rank junior to the Priority Liens; provided that the Parity Lien Secured Parties are not deemed to have waived any right to object to a DIP Financing to the extent such DIP Financing contains or affects (w) any rights to credit bid on the Collateral in any such sale or disposition in accordance with Section 363(k) of the Bankruptcy Code (or any similar provision under any other applicable Bankruptcy Law) but only to the extent such credit bid would provide for the Discharge of Priority Lien Obligations, (x) any right to object solely to any provisions in any DIP Financing relating to, describing or requiring any specific and material terms of a plan of reorganization or the sale of a substantial part of the Collateral (other than as contemplated by the second following paragraph), (y) any rights to assert any objection with respect to any proposed orders to set bidding or related sales procedures in connection with such disposition (other than as contemplated by the second following paragraph) or (z) any right to object to or contest any DIP Financing solely as to the aggregate principal amount of such DIP Financing, plus the aggregate outstanding principal amount of Priority Lien Obligations exceeding the DIP Cap. To the extent such DIP Financing Liens are senior to, or rank pari passu with, the Priority Liens, the collateral agent will, for itself and on behalf of the other Parity Lien Secured Parties, subordinate the Parity Liens on the Collateral to the Priority Liens, to such DIP Financing Liens and to any carve-out in connection with such Insolvency or Liquidation Proceeding, so long as the collateral agent retains Liens on all the Collateral, including proceeds thereof arising after the commencement of any Insolvency or Liquidation Proceeding, with the same priority relative to the Priority Liens as existed prior to the commencement of the case under the Bankruptcy Code.

Each Parity Lien Secured Party has agreed not to propose, support or enter into any DIP Financing prior to the Discharge of Priority Lien Obligations without the consent of the Priority Lien Agent, in its sole discretion, unless (x) the Liens securing such DIP Financing shall be secured by Liens that rank junior to the Priority Liens and (y) such DIP Financing does not refinance any Parity Lien Obligations which, in connection with the relevant Insolvency or Liquidation Proceeding, are repaid in cash prior to the Discharge of Priority Lien Obligations.

Each Parity Lien Secured Party has agreed that, until the Discharge of Priority Lien Obligations has occurred, it shall be deemed to have consented to and will not object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) a sale or other Disposition, a motion to sell or Dispose or the bidding procedure for such sale or Disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the requisite Priority Lien Secured Parties under the Priority Lien Documents shall have consented to the same and all Priority Liens and Parity Liens will attach to the proceeds of the sale in the same respective priorities as set forth in the Senior Lien Intercreditor Agreement and the net cash proceeds of any such sale or Disposition under Section 363(b) of the Bankruptcy Code are concurrently and permanently applied to the Priority Lien Obligations (other than any Excess Priority Lien Obligations) and any DIP Financing (not to exceed the DIP Cap) provided by the Priority Lien Secured Parties, together with a concurrent permanent reduction of the applicable commitments of the Priority Lien Secured Parties under the applicable Priority Lien Documents.

 

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Each Parity Lien Secured Party, has waived, until the Discharge of Priority Lien Obligations has occurred, any claim that may be had against any Priority Lien Secured Party arising out of any DIP Financing Liens (that is granted in a manner that is consistent with the Senior Lien Intercreditor Agreement), or request for adequate protection or administrative expense priority under Section 364 of the Bankruptcy Code to the extent the Liens securing any Priority Lien Obligations are subordinated to or have the same priority as the Liens securing such DIP Financing.

Each Parity Lien Secured Party has agreed that, until the Discharge of Priority Lien Obligations has occurred, it will not file or prosecute in any Insolvency or Liquidation Proceeding any motion for adequate protection (or any comparable request for relief) based upon their interest in the Collateral, nor object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) (i) any request by any Priority Lien Secured Party for adequate protection or (ii) any objection by any Priority Lien Secured Party to any motion, relief, action or proceeding based on any Priority Lien Secured Party claiming a lack of adequate protection, except that the Parity Lien Secured Parties may:

 

  

freely seek and obtain relief granting adequate protection in the form of a replacement lien co-extensive in all respects with, but subordinated (as described in “—Collateral—First Lien-Second Lien Intercreditor Arrangements—Relative Priorities”) to, and with the same relative priority to the Priority Liens as existed prior to the commencement of the Insolvency or Liquidation Proceeding, all Liens granted in the Insolvency or Liquidation Proceeding to, or for the benefit of, the Priority Lien Secured Parties and without limiting the generality of the foregoing, to the extent that the Priority Lien Secured Parties (or any subset thereof) are granted adequate protection in the form of payments in the amount of current post-petition fees and expenses, and/or other cash payments, then no Parity Lien Secured Party shall be prohibited from seeking adequate protection in the form of payments in the amount of current post-petition incurred fees and expenses, and/or other cash payments (as applicable);

 

  

freely seek and obtain any relief upon a motion for adequate protection (or any comparable relief), without any condition or restriction whatsoever, at any time after the Discharge of Priority Lien Obligations; and

 

  

freely file (i) proof of claims or statements of interest in respect of the Parity Lien Obligations and (ii) file any necessary or appropriate responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any person objecting to or otherwise seeking the disallowance of the claims or Liens of the Parity Lien Secured Parties, including without limitation any claims secured by the Collateral.

Each Parity Lien Secured Party has waived, until the Discharge of Priority Lien Obligations has occurred, any claim it or any other Parity Lien Secured Party may now or hereafter have against any Priority Lien Secured Party (or its representatives) arising out of any election by any Priority Lien Secured Party, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code.

Each Parity Lien Secured Party has agreed that in any Insolvency or Liquidation Proceeding, it shall not support or vote to accept any plan of reorganization or liquidation that is inconsistent with the priorities or other provisions of the Senior Lien Intercreditor Agreement unless such plan is accepted by the Class of Priority Lien Secured Parties in accordance with Section 1126(c) of the Bankruptcy Code or otherwise provides for the Discharge of Priority Lien Obligations on the effective date of such plan of reorganization or liquidation, as applicable; otherwise, each Parity Lien Secured Party shall remain entitled to vote its claims in any such Insolvency or Liquidation Proceeding.

Each Parity Lien Secured Party has agreed that, until the Discharge of Priority Lien Obligations has occurred and as otherwise described in “—Collateral—First Lien-Second Lien Intercreditor Arrangements—Standstill Period; Permitted Enforcement Actions,” no Parity Lien Secured Party shall seek relief, pursuant to Section 362(d) of the Bankruptcy Code or otherwise, from the automatic stay of Section 362(a) of the

 

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Bankruptcy Code or from any other stay or other prohibition in any Insolvency or Liquidation Proceeding in respect of the Collateral without the prior written consent of the Priority Lien Agent.

Each Parity Lien Secured Party has agrees that, until the Discharge of Priority Lien Obligations has occurred, no Parity Lien Secured Party shall oppose or seek to challenge (or join or support any third party in opposing or seeking to challenge) any claim by any Priority Lien Secured Party for allowance or payment in any Insolvency or Liquidation Proceeding of Priority Lien Obligations consisting of post-petition interest, fees or expenses or cash collateralization of all letters of credit to the extent of the value of the Priority Liens subject to the Priority Lien Cap. No Priority Lien Secured Party shall oppose or seek to challenge any claim by any Parity Lien Secured Party for allowance or payment in any Insolvency or Liquidation Proceeding of Parity Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the Parity Liens on the Collateral to the extent set forth in the first bullet point of the fourth preceding paragraph.

Without the express written consent of the Priority Lien Agent, no Parity Lien Secured Party shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be), in any Insolvency or Liquidation Proceeding involving any Grantor, (i) oppose, object to or contest the determination of the extent of any Liens held by any of Priority Lien Secured Party or the value of any claims of any such holder under Section 506(a) of the Bankruptcy Code or (ii) oppose, object to or contest the payment to the Priority Lien Secured Party of interest, fees or expenses, or to the cash collateralization of letters of credit, under Section 506(b) of the Bankruptcy Code.

Until the Discharge of Priority Lien Obligations has occurred, notwithstanding anything to the contrary contained herein, if in any Insolvency or Liquidation Proceeding a determination is made that any Lien encumbering any Collateral is not enforceable for any reason, then each Parity Lien Secured Party agrees that any distribution or recovery it may receive in respect of any Collateral shall be segregated and held in trust and forthwith paid over to the Priority Lien Agent for the benefit of the Priority Lien Secured Parties in the same form as received without recourse, representation or warranty (other than a representation of the collateral agent that it has not otherwise sold, assigned, transferred or pledged any right, title or interest in and to such distribution or recovery) but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. Each Parity Lien Secured Party has appointed the Priority Lien Agent, and any officer or agent of the Priority Lien Agent, with full power of substitution, as the attorney-in-fact of such Parity Lien Secured Party for the limited purpose of carrying out the provisions of this paragraph and taking any action and executing any instrument that the Priority Lien Agent may deem necessary or advisable to accomplish the purposes thereof.

No Parity Lien Secured Party shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be) oppose, object to or contest any credit bid by the Priority Lien Agent, so long as it is in compliance with the Senior Lien Intercreditor Agreement.

Without the consent of the Priority Lien Agent in its sole discretion, no Parity Lien Secured Party will file or join an involuntary bankruptcy petition or claim or seek the appointment of an examiner or a trustee for any Grantor or any of their Subsidiaries, in each case solely in its capacity as a Parity Lien Secured Party (but not in any other capacity).

Each Parity Lien Secured Party waives, until the Discharge of Priority Lien Obligations has occurred, any right to assert or enforce any claim under Section 506(c) or 552 of the Bankruptcy Code or any similar provision of any other Bankruptcy Law as against any Priority Lien Secured Party or any of the Collateral, except as expressly permitted by the Senior Lien Intercreditor Agreement.

Reinstatement. If any Secured Party is required in any Insolvency or Liquidation Proceeding or otherwise to disgorge, turn over or otherwise pay to the estate of any Grantor any amount paid in respect of the Secured Obligations of such Secured Party (a “Recovery”) for any reason whatsoever, then the Secured Obligations shall

 

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be reinstated to the extent of such Recovery and such Secured Parties shall be entitled to a reinstatement of the applicable Secured Obligations with respect to all such recovered amounts. Each Parity Lien Secured Party agrees that if, at any time, a Parity Lien Secured Party receives notice from the Priority Lien Agent of any Recovery in respect of the Priority Lien Obligations, such Parity Lien Secured Party shall promptly pay over to the Priority Lien Agent any payment received by it and then in its possession or under its control in respect of any Collateral subject to any Priority Lien securing such Priority Lien Obligations and shall promptly turn any Collateral subject to any such Priority Lien then held by it over to the Priority Lien Agent, and the provisions set forth in the Senior Lien Intercreditor Agreement shall be reinstated as if such payment had not been made, until the Discharge of Priority Lien Obligations.

Postponement of Subrogation. Each Parity Lien Secured Party agrees that no payment or distribution to any Priority Lien Secured Party pursuant to the provisions of the Senior Lien Intercreditor Agreement shall entitle any Parity Lien Secured Party to exercise any rights of subrogation in respect thereof, and waives any rights of subrogation it may acquire as a result of any payment thereunder, until the Discharge of Priority Lien Obligations shall have occurred. Following the Discharge of Priority Lien Obligations, each Priority Lien Secured Party will execute such documents, agreements, and instruments as any Parity Lien Secured Party may reasonably request to evidence the transfer by subrogation to any such Person of an interest in the Priority Lien Obligations resulting from payments or distributions to such Priority Lien Secured Party by such Person, so long as all costs and expenses (including all reasonable legal fees and disbursements) incurred in connection therewith by such Priority Lien Secured Party are paid by such Person upon request for payment thereof.

Application of Proceeds. Prior to the Discharge of Priority Lien Obligations, and regardless of whether an Insolvency or Liquidation Proceeding has been commenced, Collateral or proceeds received in connection with the enforcement or exercise of any rights or remedies with respect to any portion of the Collateral will be applied:

 

  

first, to the payment in full in cash of all Priority Lien Obligations that are not Excess Priority Lien Obligations (together with a concurrent permanent reduction of the applicable commitments of the Priority Lien Secured Parties under the applicable Priority Lien Documents pursuant to the terms thereof),

 

  

second, to the payment in full in cash of all Parity Lien Obligations,

 

  

third, to the payment in full in cash of all Excess Priority Lien Obligations, and

 

  

fourth, to the Company or as otherwise required by applicable law.

Second Lien Pari Passu Intercreditor Arrangements. If the Company or any subsidiary guarantor incurs any additional Parity Lien Obligations that are permitted to be secured by the Collateral on a pari passu basis with the notes (unless such debt is issued under an existing Parity Lien Document for any Series of Parity Lien Debt whose Parity Lien Representative is already a party to the Collateral Agency Agreement), the collateral agent and the representative of the holders of such additional Parity Lien Obligations will enter into a Collateral Agency Joinder substantially in the form attached as an exhibit to the Collateral Agency Agreement. Under the Collateral Agency Agreement, the holders of the notes and the PIK notes will be represented by the trustee and the holders of each other class of Parity Lien Obligations will be represented by their designated agent. The Collateral Agency Agreement provides for the priorities and other relative rights among the holders of the notes and the PIK notes and the holders of the other Parity Lien Obligations, including, among other things, that all of the Parity Lien Obligations will be secured equally and ratably by the Parity Liens established in favor of the collateral agent (and/or the security trustee) for the benefit of the Parity Lien Secured Parties, notwithstanding the time of incurrence of any Parity Lien Obligations or time or method of creation or perfection of any Parity Liens securing such Parity Lien Obligations. Any Parity Lien Security Document entered into from time to time after the February 5, 2021 shall be in all material respects the same form of document as a comparable Parity Lien Security Document entered into on February 5, 2021 creating Liens on the Collateral.

 

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The Parity Liens on the Collateral will automatically be released:

 

  

in whole, upon (A) payment in full in cash and discharge of all outstanding Parity Lien Debt and all other Parity Lien Obligations that are outstanding due and payable at the time all of the Parity Lien Debt is paid in full in cash and discharged (other than contingent indemnity obligations for which no claim has been made), (B) termination or expiration of all commitments to extend credit under all Parity Lien Documents and (C) the cancellation or termination or cash collateralization (at the lower of (1) 100% of the aggregate undrawn amount and (2) the percentage of the aggregate undrawn amount required for release of Liens under the terms of the applicable Parity Lien Documents) of all outstanding letters of credit issued pursuant to any Parity Lien Documents;

 

  

as to any Collateral of a Grantor that is (x) released from its guarantee under each Parity Lien Document and (y) is not obligated (as primary obligor or guarantor) with respect to any other Parity Lien Obligations and so long as the respective release does not violate the terms of any Parity Lien Document which then remains in effect;

 

  

as to a release of less than all or substantially all of the Collateral, if consent to the release of all Parity Liens on such Collateral has been given by, or the collateral agent otherwise receives written direction to release such Collateral in, an Act of Parity Lien Debtholders;

 

  

in whole or in part, if the Liens on such Collateral have been released in accordance with the terms of each Series of Parity Lien Debt;

 

  

as to a release of all or substantially all of the Collateral, if (A) consent to the release of that Collateral has been given by the requisite percentage or number of holders of each Series of Parity Lien Debt at the time outstanding as provided for in the applicable Parity Lien Documents, and (B) the Company has delivered an officers’ certificate to the collateral agent certifying that all such necessary consents have been obtained; or

 

  

if and to the extent, and in the manner, required by the Senior Lien Intercreditor Agreement, as described in “—Collateral—First Lien-Second Lien Intercreditor Arrangements—Release of Liens; Automatic Release of Parity Liens.”

Except as described in the preceding paragraph, the collateral agent will not release or subordinate any Parity Lien of the collateral agent or consent to the release or subordination of any Parity Lien of the collateral agent, except:

 

  

as directed by an Act of Parity Lien Debtholders accompanied by an officers’ certificate to the effect that the release or subordination was permitted by each applicable Parity Lien Document;

 

  

to release or subordinate Liens on Collateral to the extent permitted by each applicable Parity Lien Document; provided that the collateral agent receives an officers’ certificate and an opinion of counsel stating that all conditions precedent and covenants under the Parity Lien Documents and the other Parity Lien Security Documents have been met for any release or subordination, and stating under which circumstance of the applicable Parity Lien Documents the Collateral is being released or the Lien on the Collateral is being subordinated, as applicable;

 

  

as ordered pursuant to applicable law under a final and nonappealable order or judgment of a court of competent jurisdiction; or

 

  

for the subordination of the Collateral and the Parity Liens to the extent required by the Senior Lien Intercreditor Agreement; provided that the collateral agent receives an officers’ certificate confirming the foregoing.

If the collateral agent (and/or the security trustee) at any time receives written notice from a Parity Lien Representative stating that a Parity Lien Debt Default has occurred, the collateral agent will promptly deliver

 

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written notice thereof to each other Parity Lien Representative. Thereafter, the collateral agent shall await direction by an Act of Parity Lien Debtholders and, subject to the terms of the Senior Lien Intercreditor Agreement, will act, or decline to act, as directed by an Act of Parity Lien Debtholders, in the exercise and enforcement of the collateral agent’s (and/or the security trustee’s) interests, rights, powers and remedies in respect of the Collateral or under the Parity Lien Security Documents or applicable law and, following the initiation of such exercise of remedies, the collateral agent will act, or decline to act, with respect to the manner of such exercise of remedies as directed by an Act of Parity Lien Debtholders. Unless it has been directed to the contrary by an Act of Parity Lien Debtholders, the collateral agent (and/or the security trustee) in any event may (but will not be obligated to) take or refrain from taking such action with respect to any default under any Parity Lien Document as it may deem advisable and in the interest of the holders of Parity Lien Obligations, subject to the Senior Lien Intercreditor Agreement. The collateral agent (and the security trustee) shall have no obligation to commence and will not commence any Enforcement Action or otherwise take any action or proceeding against any of the Collateral (other than actions as necessary to prove, protect or preserve the Liens securing the Parity Lien Obligations to the extent permitted pursuant to the Intercreditor Agreement) unless and until it shall have been directed by written notice of an Act of Parity Lien Debtholders and received indemnity satisfactory to it and then only in accordance with the provisions of the Collateral Agency Agreement and the Senior Lien Intercreditor Agreement.

Subject to the terms of the Senior Lien Intercreditor Agreement, the collateral agent will apply the proceeds of any foreclosure, collection, sale or other realization upon, or any other Enforcement Action with respect to, any Collateral and the proceeds thereof, any condemnation proceeds with respect to the Collateral, and any other amounts required to be delivered to the collateral agent by any Parity Lien Secured Party or Parity Lien Representative pursuant to the Collateral Agency Agreement for such purpose, in the following order of application:

FIRST, to the payment of all amounts payable under the Collateral Agency Agreement on account of the collateral agent’s and the trustee’s fees and expenses and any documented out-of-pocket legal fees, costs and expenses or other liabilities of any kind actually incurred by the collateral agent and/or the trustee in connection with any Parity Lien Document, including but not limited to amounts necessary to provide for the expenses of the collateral agent in maintaining and disposing of the Collateral (including, but not limited to, indemnification obligations and reimbursements);

SECOND, to the repayment of Indebtedness and other obligations in respect thereof (but excluding Excess Priority Lien Obligations secured by a Permitted Prior Lien on the Collateral sold or realized upon) to the extent that such other Indebtedness or obligation is to be discharged (in whole or in part) in connection with such sale;

THIRD, equally and ratably to the respective Parity Lien Representatives for application to the payment of all outstanding Parity Lien Debt and any other Parity Lien Obligations that are then due and payable in such order as may be provided in the applicable Parity Lien Documents in an amount sufficient to pay in full in cash all outstanding Parity Lien Debt and all other Parity Lien Obligations that are then due and payable (including, to the extent legally permitted, all interest accrued thereon after the commencement of any Insolvency or Liquidation Proceeding at the rate, including any applicable post-default rate, specified in the applicable Parity Lien Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding but excluding contingent indemnity obligations for which no claim has been made), and including the discharge or cash collateralization (at the lower of (1) 100% of the aggregate undrawn amount and (2) the percentage of the aggregate undrawn amount required for release of Liens under the terms of the applicable Parity Lien Document) of all other outstanding letters of credit and bankers’ acceptances or the backstop thereof pursuant to arrangements reasonably satisfactory to the relevant issuing bank, if any, constituting Parity Lien Debt;

FOURTH, to the repayment of Excess Priority Lien Obligations secured by a Permitted Prior Lien on the Collateral sold or realized upon to the extent that such other Indebtedness or obligation is to be discharged (in whole or in part) in connection with such sale; and

 

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FIFTH, subject to the Senior Lien Intercreditor Agreement, any surplus remaining after the payment in full in cash of the amounts described in the preceding clauses will be paid to the applicable Grantor, its successors or assigns, or to such other Persons as may be entitled to such amounts under applicable law or as a court of competent jurisdiction may direct.

If any portion of the proceeds of the Collateral is in the form of cash, then such cash shall be applied p