EXHIBIT 3
R&B CORPORATION STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 10, 1997
(the "Agreement"), between READING & XXXXX CORPORATION, a
Delaware corporation ("Issuer"), and FALCON DRILLING
COMPANY, INC., a Delaware Corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an
Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"; defined terms used but not
defined herein have the meanings set forth in the Merger
Agreement), providing for, among other things, each of
FDC and R&B to become subsidiaries of Parent pursuant to
the Mergers ;
B. As a condition and inducement to Grantee's
willingness to enter into the Merger Agreement and the
FDC Option Agreement (as defined below), Grantee has
requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below); and
C. As a condition and inducement to Issuer's
willingness to enter into the Merger Agreement and this
Agreement, Issuer has requested that Grantee agree, and
Grantee has agreed to, grant Issuer an option to purchase
shares of Grantee's common stock on substantially the
same terms as the Option (the "FDC Option Agreement");
NOW, THEREFORE, in consideration of the foregoing
and the respective representations, warranties, covenants
and agreements set forth herein, Issuer and Grantee agree
as follows:
1. Grant of Option. Subject to the terms and
conditions set forth herein, Issuer hereby grants to
Grantee an irrevocable option (the "Option") to purchase
up to 14,340,154 (as adjusted as set forth herein) shares
(the "Option Shares") of Common Stock, par value $0.05
per share ("Issuer Common Stock"), of Issuer at a
purchase price of $34.00 (as adjusted as set forth
herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise
the Option, with respect to any or all of the Option
Shares at any one time, subject to the provisions of
Section 2(c), after an R&B Takeover Proposal shall have
been made known to R&B or any of its subsidiaries or has
been made directly to its stockholders generally or any
person shall have publicly announced an intention
(whether or not conditional) to make an R&B Takeover
Proposal; provided, however, that (i) except as provided
in the last sentence of this Section 2(a), the Option
will terminate and be of no further force and effect upon
the earliest to occur of (A) the Effective Time, (B) six
months after the date on which the Purchase Event (as
defined herein) occurs, and (C) termination of the Merger
Agreement in accordance with its terms prior to the
occurrence of a Purchase Event, unless, in the case of
clause (C), the Grantee has the right to receive a
Termination Fee following such termination upon the
occurrence of certain events, in which case the Option
will not terminate until the later of (x) six months
following the time such Termination Fee becomes payable
and (y) the expiration of the period in which the Grantee
has such right to receive a Termination Fee, and (ii) any
purchase of Option Shares upon exercise of the Option
will be subject to compliance with HSR and the obtaining
or making of any consents, approvals, orders,
notifications or authorizations, the failure of which to
have obtained or made would have the effect of making the
issuance of Option Shares illegal (the "Regulatory
Approvals"). Notwithstanding the termination of the
Option, Grantee will be entitled to purchase the Option
Shares if it has exercised the Option in accordance with
the terms hereof prior to the termination of the Option,
and the termination of the Option will not affect any
rights hereunder which by their terms do not terminate or
expire prior to or as of such termination.
(b) In the event that Grantee wishes to
exercise the Option, it will send to Issuer a written
notice (an "Exercise Notice"; the date of which being
herein referred to as the "Notice Date") to that effect
which Exercise Notice also specifies the number of Option
Shares, if any, Grantee wishes to purchase pursuant to
this Section 2(b), the number of Option Shares, if any,
with respect to which Grantee wishes to exercise its
Cash-Out Right (as defined herein) pursuant to Section
6(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee
wishes to purchase pursuant to this Section 2(b) and a
date not earlier than three business days nor later than
20 business days from the Notice Date for the closing of
such purchase (an "Option Closing Date"). Any Option
Closing will be at an agreed location and time in New
York, New York on the applicable Option Closing Date or
at such later date as may be necessary so as to comply
with clause (ii) of Section 2(a).
(c) Notwithstanding anything to the contrary
contained herein, any exercise of the Option and purchase
of Option Shares shall be subject to compliance with
applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the
Exercise Notice without first obtaining or making certain
Regulatory Approvals. In such event, if the Option is
otherwise exercisable and Grantee wishes to exercise the
Option, the Option may be exercised in accordance with
Section 2(b) and Grantee shall acquire the maximum number
of Option Shares specified in the Exercise Notice that
Grantee is then permitted to acquire under the applicable
laws and regulations, and if Grantee thereafter obtains
the Regulatory Approvals to acquire the remaining balance
of the Option Shares specified in the Exercise Notice,
then Grantee shall be entitled to acquire such remaining
balance. Issuer agrees to use its best efforts to assist
Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice
that a Regulatory Approval required for the purchase of
any Option Shares will not be issued or granted or (ii)
such Regulatory Approval has not been issued or granted
within six months of the date of the Exercise Notice,
Grantee shall have the right to exercise its Cash-Out
Right pursuant to Section 6(c) with respect to the Option
Shares for which such Regulatory Approval will not be
issued or granted or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At
any Option Closing, Grantee will pay to Issuer in
immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal
to the Purchase Price multiplied by the number of Option
Shares to be purchased at such Option Closing.
(b) At any Option Closing, simultaneously with
the delivery of immediately available funds as provided
in Section 3(a), Issuer will deliver to Grantee a
certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which
Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever.
If at the time of issuance of Option Shares pursuant to
an exercise of the Option hereunder, Issuer shall not
have issued any securities similar to rights under a
shareholder rights plan, then each Option Share issued
pursuant to such exercise will also represent such a
corresponding right with terms substantially the same as
and at least as favorable to Grantee as are provided
under any Issuer shareholder rights agreement or any
similar agreement then in effect.
(c) Certificates for the Option Shares
delivered at an Option Closing will have typed or printed
thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF ANY EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS
SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF
JULY 10, 1997, A COPY OF WHICH MAY BE OBTAINED FROM
THE SECRETARY OF READING & XXXXX CORPORATION AT ITS
PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to
restrictions arising under the Securities Act in the
above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option
Shares have been registered pursuant to the Securities
Act, such Option Shares have been sold in reliance on and
in accordance with Rule 144 under the Securities Act or
Grantee has delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel in form
and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required
for purposes of the Securities Act and (ii) the reference
to restrictions pursuant to this Agreement in the above
legend will be removed by delivery of substitute
certificate(s) without such reference if the Option
Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance
with the provisions of this Agreement under circumstances
that do not require the retention of such reference.
4. Representations and Warranties of Issuer.
Issuer hereby represents and warrants to Grantee as
follows:
(a) Corporate Authorization. Issuer has the
corporate power and authority to enter into this
Agreement and to carry out its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer, and
no other corporate proceedings on the part of Issuer
are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
Issuer, and assuming this Agreement constitutes a
valid and binding agreement of Grantee, this
Agreement constitutes a valid and binding agreement
of Issuer, enforceable against Issuer in accordance
with its terms (except insofar as enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally, or by principles
governing the availability of equitable remedies).
(b) Authorized Stock. Issuer has taken all
necessary corporate and other action to authorize
and reserve and, subject to the expiration or
termination of any required waiting period under the
HSR Act, to permit it to issue, and, at all times
from the date hereof until the obligation to deliver
Option Shares upon the exercise of the Option
terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common
Stock necessary for Grantee to exercise the Option,
and Issuer will take all necessary corporate action
to authorize and reserve for issuance all additional
shares of Issuer Common Stock or other securities
which may be issued pursuant to Section 6 upon
exercise of the Option. The shares of Issuer Common
Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common
Stock or other securities which may be issuable upon
exercise of the Option or any other securities which
may be issued pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued,
fully paid and nonassessable, and will be delivered
free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever,
including without limitation any preemptive rights
of any stockholder of Issuer.
5. Representations and Warranties of Grantee.
Grantee hereby represents and warrants to Issuer that:
(a) Corporate Authorization. Grantee has the
corporate power and authority to enter into this
Agreement and to carry out its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by the Board of Directors of Grantee, and
no other corporate proceedings on the part of
Grantee are necessary to authorize this Agreement
and the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Grantee, and assuming this Agreement
constitutes a valid and binding agreement of Issuer,
this Agreement constitutes a valid and binding
agreement of Grantee, enforceable against Grantee in
accordance with its terms (except insofar as
enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights
generally, or by principles governing the
availability of equitable remedies).
(b) Purchase Not for Distribution. Any Option
Shares or other securities acquired by Grantee upon
exercise of the Option will not be transferred or
otherwise disposed of except in a transaction
registered, or exempt from registration, under the
Securities Act.
6. Adjustment upon Changes in Capitalization, Etc.
(a) In the event of any changes in Issuer Common Stock
by reason of a stock dividend, reverse stock split,
merger, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of
shares or securities subject to the Option, and the
Purchase Price therefor, will be adjusted appropriately,
and proper provision will be made in the agreements
governing such transaction, so that Grantee will receive
upon exercise of the Option the number and class of
shares or other securities or property that Grantee would
have received with respect to Issuer Common Stock if the
Option had been exercised immediately prior to such event
or the record date therefor, as applicable. Subject to
Section 1, and without limiting the parties' relative
rights and obligations under the Merger Agreement, if any
additional shares of Issuer Common Stock are issued after
the date of this Agreement (other than pursuant to an
event described in the first sentence of this Section
6(a)), the number of shares of Issuer Common Stock
subject to the Option will be adjusted so that, after
such issuance, it equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant
to the Option.
(b) Without limiting the parties' relative rights
and obligations under the Merger Agreement, in the event
that the Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than
Grantee or one of its subsidiaries, and Issuer will not
be the continuing or surviving corporation in such
consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into
Issuer and Issuer will be the continuing or surviving
corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will be changed
into or exchanged for stock or other securities of Issuer
or any other person or cash or any other property, or the
shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will, after such
merger represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets
to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement
governing such transaction will make proper provision so
that the Option will, upon the consummation of any such
transaction and upon the terms and condition set forth
herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire
the number and class of shares or other securities or
property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised
immediately prior to such consolidation, merger, sale, or
transfer, or the record date therefor, as applicable and
make any other necessary adjustments.
(c) If, at any time during the period commencing
on the occurrence of an event as a result of which
Grantee is entitled to receive the Termination Fee
pursuant to Section 8.3 of the Merger Agreement (the
"Purchase Event") and ending on the termination of the
Option in accordance with Section 2, Grantee sends to
Issuer an Exercise Notice indicating Grantee's election
to exercise its right (the "Cash-Out-Right") pursuant to
this Section 6(c), then Issuer shall pay to Grantee, on
the Option Closing Date, in exchange for the cancellation
of the Option with respect to such number of Option
Shares as Grantee specifies in the Exercise Notice, an
amount in cash equal to such number of Option Shares
multiplied by the difference between (i) the average
closing price, for the 10 NYSE trading days commencing on
the 12th NYSE trading day immediately preceding the
Notice Date, per share of Issuer Common Stock as reported
on the NYSE Composite Transactions Tape (or, if not
listed on the NYSE, as reported on any other national
securities exchange or national securities quotation
system on which the Issuer Common Stock is listed or
quoted, as reported in The Wall Street Journal (Northeast
edition), or, if not reported thereby, any other
authoritative source) (the "Closing Price") and (ii) the
Purchase Price. Notwithstanding the termination of the
Option, Grantee will be entitled to exercise its rights
under this Section 6(c) if it has exercised such rights
in accordance with the terms hereof prior to the
termination of the Option.
7. Registration Rights. Issuer will, if requested
by Grantee at any time and from time to time within three
years of the exercise of the Option, as expeditiously as
possible prepare and file up to three registration
statements under the Securities Act if such registration
is necessary in order to permit the sale or other
disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise
of the Option in accordance with the intended method of
sale or other disposition stated by Grantee, including a
"shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer
will use its best efforts to qualify such shares or other
securities under any applicable state securities laws.
Grantee agrees to use reasonable efforts to cause, and to
cause any underwriters of any sale or other disposition
to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely
distributed basis so that upon consummation thereof no
purchaser or transferee will own beneficially more than
4.9% of the then outstanding voting power of Issuer.
Issuer will use reasonable efforts to cause each such
registration statement to become effective, to obtain all
consents or waivers of other parties which are required
therefor, and to keep such registration statement
effective for such period not in excess of 180 calendar
days from the day such registration statement first
becomes effective as may be reasonably necessary to
effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and
to maintain its effectiveness may be suspended for up to
60 calendar days in the aggregate if the Board of
Directors of Issuer shall have determined that the filing
of such registration statement or the maintenance of its
effectiveness would require premature disclosure of
material nonpublic information that would materially and
adversely affect Issuer or otherwise interfere with or
adversely affect any pending or proposed offering of
securities of Issuer or any other material transaction
involving Issuer. Any registration statement prepared
and filed under this Section 7, and any sale covered
thereby, will be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related
thereto. Grantee will provide all information reasonably
requested by Issuer for inclusion in any registration
statement to be filed hereunder. If, during the time
periods referred to in the first sentence of this Section
7, Issuer effects a registration under the Securities Act
of Issuer Common Stock for its own account or for any
other stockholders of Issuer (other than on Form S-4 or
Form S-8, or any successor form), it will allow Grantee
the right to participate in such registration, and such
participation will not affect the obligation of Issuer to
effect demand registration statements for Grantee under
this Section 7; provided that, if the managing
underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer
Common Stock requested to be included in such
registration exceeds the number which can be sold in such
offering, Issuer will include the shares requested to be
included therein by Grantee pro rata with the shares
intended to be included therein by Issuer. In connection
with any registration pursuant to this Section 7, Issuer
and Grantee will provide each other and any underwriter
of the offering with customary representations,
warranties, covenants, indemnification, and contribution
in connection with such registration.
8. Transfers. The Option Shares may not be sold,
assigned, transferred, or otherwise disposed of except
(i) in an underwritten public offering as provided in
Section 7 or (ii) to any purchaser or transferee who
would not, to the knowledge of the Grantee after
reasonable inquiry, immediately following such sale,
assignment, transfer or disposal beneficially own more
than 4.9% of the then-outstanding voting power of the
Issuer; provided, however, that Grantee shall be
permitted to sell any Option Shares if such sale is made
pursuant to a tender or exchange offer that has been
approved or recommended by a majority of the members of
the Board of Directors of Issuer (which majority shall
include a majority of directors who were directors as of
the date hereof).
9. Listing. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are
then listed on the NYSE (or any other national securities
exchange or national securities quotation system), Issuer,
upon the request of Grantee, will promptly file an
application to list the shares of Issuer Common Stock or
other securities to be acquired upon exercise of the Option
on the NYSE (and any such other national securities exchange
or national securities quotation system) and will use
reasonable efforts to obtain approval of such listing as
promptly as practicable.
10. Miscellaneous. (a) Expenses. Except as
otherwise provided in the Merger Agreement, each of the
parties hereto will pay all costs and expenses incurred by
it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its
own financial consultants, investment bankers, accountants
and counsel.
(b) Amendment. This Agreement may not be amended,
except by an instrument in writing signed on behalf of each
of the parties.
(c) Extension; Waiver. Any agreement on the part of
a party to waive any provision of this Agreement, or to
extend the time for performance, will be valid only if set
forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise will not
constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries.
This Agreement, the Merger Agreement (including the
documents and instruments attached thereto as exhibits or
schedules or delivered in connection therewith) and the
Confidentiality Agreement (i) constitute the entire
agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement, and
(ii) except as provided in Section 9.9 of the Merger
Agreement, are not intended to confer upon any person other
than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed
by, and construed in accordance with, the laws of the State
of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws
thereof.
(f) Notices. All notices, requests, claims,
demands, and other communications under this Agreement must
be in writing and will be deemed given if delivered
personally, telecopied (which is confirmed), or sent by
overnight courier (providing
proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified
by like notice):
If to Issuer to:
Reading & Xxxxx Corporation
000 Xxxxxxxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Chairman and Chief Executive Officer
Fax: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx
Fax: (000) 000-0000
If to Grantee to:
Falcon Drilling Company, Inc.
0000 Xxxx Xxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Chairman and Chief Executive Officer
Fax: (000) 000-0000
with copies to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: J. Xxxxxxx Xxxxxx
Fax: (000) 000-0000
(g) Assignment. Neither this Agreement, the
Option nor any of the rights, interests, or obligations
under this Agreement may be assigned, transferred or
delegated, in whole or in part, by operation of law or
otherwise, by Issuer or Grantee without the prior written
consent of the other. Any assignment, transfer or
delegation in violation of the preceding sentence will be
void. Subject to the first and second sentences of this
Section 10(g), this Agreement will be binding upon, inure
to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
(h) Further Assurances. In the event of any
exercise of the Option by Grantee, Issuer and Grantee
will execute and deliver all other documents and
instruments and take all other action that may be
reasonably necessary in order to consummate the
transactions provided for by such exercise.
(i) Enforcement. The parties agree that
irreparable damage would occur and that the parties would
not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will
be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other
remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (i) consents to
submit itself to the personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware
state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this
Agreement, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (iii) agrees
that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
IN WITNESS WHEREOF, Issuer and Grantee have caused
this Agreement to be signed by their respective officers
thereunto duly authorized as of the day and year first
written above.
READING & XXXXX CORPORATION
By: /s/ Xxxx X. Xxxx, Xx.
---------------------------------
Name: Xxxx X. Xxxx, Xx.
Title: Chief Executive Officer
FALCON DRILLING COMPANY, INC.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
