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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                _________________

                                    FORM 10-K
  (Mark  One)
     [X]    ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE SECURITIES
            EXCHANGE  ACT  OF  1934

            For the fiscal year ended December 31, 2001
OR

     [ ]    TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
            SECURITIES  EXCHANGE  ACT  OF  1934

            For the transition period from _____ to ______.

                        Commission file number 333-75899
                                _________________
                           TRANSOCEAN SEDCO FOREX INC.
             (Exact name of registrant as specified in its charter)
                                _________________
           Cayman  Islands                                      66-0582307
     (State  or  other  jurisdiction                         (I.R.S.  Employer
     of incorporation or organization)                       Identification No.)

          4  Greenway  Plaza                                       77046
            Houston,  Texas                                     (Zip  Code)
   (Address of principal executive offices)

       Registrant's telephone number, including area code: (713) 232-7500

           Securities registered pursuant to Section 12(b) of the Act:

             Title  of class                        Exchange on which registered
             ---------------                        ----------------------------
Ordinary  Shares, par value $0.01 per share        New York Stock Exchange, Inc.

        Securities registered pursuant to Section 12(g) of the Act: None

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
registrant  was required to file such reports), and (2) has been subject to such
filing  requirements  for  the  past  90  days.  Yes  [x]  No  [_]

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.   [_]

     As  of  February 28, 2002, 319,131,115 ordinary shares were outstanding and
the  aggregate  market  value  of  such  shares  held  by  non-affiliates  was
approximately  $8.9  billion  (based on the reported closing market price of the
ordinary  shares  on  such  date  of  $28.01 and assuming that all directors and
executive  officers  of  the Company are "affiliates," although the Company does
not  acknowledge  that  any  such  person  is actually an "affiliate" within the
meaning  of  the  federal  securities  laws).

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the  registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days of December 31, 2001, for
its  2002  annual general meeting of shareholders, are incorporated by reference
into  Part  III  of  this  Form  10-K.


TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 Item Page - ------ ------ For the fisacal year ended December 31,2001 . . . . . . . . . . . . . . . . . 1 PART I ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . . 3 Merger of Transocean Sedco Forex Inc. and R&B Falcon Corporation. . . 3 Merger of Transocean Offshore Inc. and Sedco Forex . . . . . . 3 Background of Transocean Offshore Inc.. . . . . . . . . . . . . . 4 Background of Sedco Forex. . . . . . . . . . . . . . . . . . . . . 4 Background of R&B Falcon Corporation. . . . . . . . . . . . . . . 4 Drilling Rig Types. . . . . . . . . . . . . . . . . . . . . . . . . 4 Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Management Services. . . . . . . . . . . . . . . . . . . . . . . . . 11 Drilling Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 11 Significant Clients. . . . . . . . . . . . . . . . . . . . . . . . . 11 Industry Conditions and Competition. . . . . . . . . . . . . . . . 12 Operating Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 International Operations . . . . . . . . . . . . . . . . . . . . . . 13 Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 15 ITEM 4 Submission of Matters to a Vote of Security Holders . . . . . 18 Executive Officers of the Registrant. . . . . . . . . . . . . . . 18 PART II ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ITEM 6. Selected Consolidated Financial Data. . . . . . . . . . . . . . . 20 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . 21 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . 42 ITEM 8. Financial Statements and Supplementary Data. . . . . . . . . . . 44 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . 83 PART III ITEM 10. Directors and Executive Officers of the Registrant. . . . . . 83 ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 83 ITEM 12. Security Ownership of Certain Beneficial Owners and Management. . . 83 ITEM 13. Certain Relationships and Related Transactions. . . . . . . . . 83 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 83

PART I ITEM 1. Business Transocean Sedco Forex Inc. (together with its subsidiaries and predecessors, unless the context requires otherwise, the "Company," "we," "us" or "our") is a leading international provider of offshore and inland marine contract drilling services for oil and gas wells. As of March 1, 2002, we owned, had partial ownership interests in or operated more than 160 mobile offshore and barge drilling units. As of this date, our active fleet consisted of 31 high-specification floaters, 30 other floaters, 54 jackup rigs, 35 drilling barges, four tenders and three submersible drilling rigs. In addition, the fleet includes a platform drilling rig, as well as 10 land drilling rigs in Venezuela. We contract our drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. Our mobile offshore drilling fleet is considered one of the most modern and versatile fleets in the world. Our core business is to contract these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. We specialize in technically demanding segments of the offshore drilling business with a particular focus on deepwater and harsh environment drilling services. We also provide additional services, including management of third-party well service activities. Our ordinary shares are listed on the New York Stock Exchange under the symbol "RIG". Transocean Sedco Forex Inc. is a Cayman Islands exempted company with principal executive offices in the U.S. located at 4 Greenway Plaza, Houston, Texas 77046. Our telephone number at that address is (713) 232-7500. Recent Developments In March 2002, we completed an exchange offer pursuant to which the 6.50% Notes due April 15, 2003, 6.75% Notes due April 15, 2005, 6.95% Notes due April 15, 2008, 7.375% Notes due April 15, 2018, 9.125% Notes due December 15, 2003 and 9.50% Notes due December 15, 2008 of R&B Falcon Corporation (together with its subsidiaries, unless the context requires otherwise, "R&B Falcon") whose holders accepted the offer were exchanged for newly issued notes of the Company. The new notes were issued in six series corresponding to the six series of R&B Falcon notes and have the same principal amount, interest rate, redemption terms and payment and maturity dates as the corresponding series of R&B Falcon notes. The aggregate principal amount of the new notes issued was approximately $1.4 billion. On February 14, 2002, the Board of Directors approved a proposal to adopt a special resolution of ordinary shareholders to change our name to "Transocean Inc." The proposal will be voted upon at our upcoming Annual General Meeting of Shareholders on May 9, 2002. On December 14, 2001, we announced that our Board of Directors had appointed Robert L. Long as President, effective immediately. In June 2002, Mr. Long will also assume the role of Chief Operating Officer upon the retirement of W. Dennis Heagney, the current Executive Vice President and Chief Operating Officer. The Board of Directors has also appointed Gregory L. Cauthen as the Company's new Vice President, Chief Financial Officer and Treasurer. Merger of Transocean Sedco Forex Inc. and R&B Falcon Corporation On January 31, 2001, we completed a merger transaction with R&B Falcon in which an indirect wholly owned subsidiary of the Company, TSF Delaware Inc., merged with and into R&B Falcon. As a result of the merger, R&B Falcon common shareholders received 0.5 newly issued ordinary shares of the Company for each R&B Falcon share. We issued 106,061,595 ordinary shares in exchange for the issued and outstanding shares of R&B Falcon and assumed warrants and options exercisable for approximately 13.2 million ordinary shares. The ordinary shares issued in exchange for the issued and outstanding shares of R&B Falcon constituted approximately 33 percent of the outstanding ordinary shares of the Company after the merger. We accounted for the merger using the purchase method of accounting with the Company treated as the acquiror. Merger of Transocean Offshore Inc. and Sedco Forex On December 31, 1999, we completed our merger with Sedco Forex Holdings Limited ("Sedco Forex"), the former offshore contract drilling business of Schlumberger Limited ("Schlumberger"). Effective upon the merger, we changed our name from "Transocean Offshore Inc." to "Transocean Sedco Forex Inc." The merger followed the spin-off of Sedco Forex to Schlumberger shareholders on December 30, 1999. As a result of the merger, Schlumberger shareholders exchanged all of the Sedco Forex shares distributed to them by Schlumberger in the Sedco Forex spin-off for ordinary shares of the Company, and Sedco Forex became a wholly owned subsidiary of the Company. 3

In the merger, Schlumberger shareholders received 0.1936 ordinary shares of the Company for each share of capital stock of Sedco Forex distributed in the spin-off of Sedco Forex. We issued 109,419,166 ordinary shares to Schlumberger shareholders in the merger, and issued an additional 145,102 ordinary shares that were sold on the market for cash paid in lieu of fractional shares. These aggregate issuances of 109,564,268 shares constituted approximately 52 percent of outstanding Company shares immediately following the merger. We accounted for the merger using the purchase method of accounting with Sedco Forex treated as the accounting acquiror. Background of Transocean Offshore Inc. The Company was founded in 1953 by predecessors of Sonat Inc. and J. Ray McDermott & Co., Inc. to design and construct the first jackup rig in the U.S. Gulf of Mexico. The Company, then known as "The Offshore Company," began international drilling operations in the late 1950s and was one of the first contractors to offer drilling services in the North Sea. The Company was publicly traded from 1967 until 1978, when it became a wholly owned subsidiary of Sonat Inc. In June 1993, the Company, then known as "Sonat Offshore Drilling Inc.," completed an initial public offering of approximately 60 percent of the outstanding shares of its common stock. In July 1995, Sonat Inc. sold its remaining 40 percent interest in the Company through a secondary public offering. In September 1996, the Company acquired substantially all of the outstanding capital shares of Transocean ASA, a Norwegian offshore drilling company, for an aggregate purchase price of approximately $1.5 billion in common stock and cash, including direct transaction costs and costs of purchasing minority shares completed in 1997, and changed its name to "Transocean Offshore Inc." On May 14, 1999, the Company completed a corporate reorganization by which it changed its place of incorporation from Delaware to the Cayman Islands. Background of Sedco Forex The offshore contract drilling business of Sedco Forex resulted from the integration over time by Schlumberger of several drilling companies, principally Forex (Forages et Exploitations Petrolieres) and Sedco Inc., and other asset acquisitions. Forex was founded in France in 1942 and began as a land drilling company in France, North Africa and the Middle East. Forex later moved into the offshore drilling market largely through its Neptune joint venture formed in the early 1960s with Languedocienne-Forenco. By the early 1970s, Schlumberger had acquired all of the shares of Forex and Neptune and had integrated their activities. Schlumberger acquired Sedco Inc. in 1984. Founded in 1947 and originally known as Southeastern Drilling Company, Sedco Inc. began drilling in shallow water marsh environments in the U.S. in the early 1950s and then expanded into international operations and deeper water market segments. Background of R&B Falcon Corporation R&B Falcon was the result of the 1997 combination of Reading & Bates Corporation and Falcon Drilling Company, Inc. and the subsequent acquisition of Cliffs Drilling Company ("Cliffs Drilling") in late 1998. Reading & Bates Corporation was founded in 1955 as an offshore drilling company to construct and operate an offshore drilling tender in the U.S. Gulf of Mexico. Falcon Drilling Company, Inc. was formed in 1991 initially to operate in the shallow water and transition zone areas of the U.S. Gulf of Mexico and moved into deepwater operations in 1996. Cliffs Drilling was spun-off from Cleveland-Cliffs Inc. in 1988 and continues to operate land and offshore rigs in various countries, including the U.S. and Venezuela. At the time of the merger with the Company, R&B Falcon owned, had partial ownership interests in, operated or had under construction more than 100 mobile offshore drilling units, inland barges and other assets utilized in support of offshore drilling activities, including 10 semisubmersible drilling rigs, 10 drillships and 42 jackup drilling rigs. Drilling Rig Types We principally use 4 types of drilling rigs: - drillships - semisubmersibles - jackups - barge drilling rigs Also included in our fleet are tenders, submersible rigs, platform drilling rigs and land drilling rigs. 4

Most of our drilling equipment is suitable for both exploration and development drilling, and we are normally engaged in both types of drilling activity. Likewise, most of our drilling rigs are mobile and can be moved to new locations in response to client demand, particularly the drillships, semisubmersibles, jackups and tenders. All of our mobile offshore drilling units are designed for operations away from port for extended periods of time and most have living quarters for the crews, a helicopter landing deck and storage space for pipe and drilling supplies. As of March 1, 2002, our marine fleet was located in the U.S. Gulf of Mexico (77 units), Canada (1 unit), Brazil (12 units), Trinidad (3 units), the North Sea (20 units), the Mediterranean and Middle East (5 units), the Caspian Sea (1 unit), Africa (21 units), India (6 units) and Asia and Australia (15 units). Additionally, the drillship Joides Resolution is contracted for a worldwide research program and as of such date was in Peru. Drillships (13) Drillships are generally self-propelled and designed to drill in the deepest water in which offshore drilling rigs currently operate. Shaped like conventional ships, they are the most mobile of the major rig types. Our drillships are either dynamically positioned, which allows them to maintain position without anchors through the use of their onboard propulsion and station-keeping systems, or are operated in a moored configuration. Drillships typically have greater load capacity than semisubmersible rigs. This enables them to carry more supplies on board, which often makes them better suited for drilling in remote locations where resupply is more difficult. However, drillships are typically limited to calmer water conditions than those in which semisubmersibles can operate. High-specification drillships are those that are dynamically positioned and rated for drilling in water depths of at least 7,000 feet and are designed for ultra-deepwater exploration and development drilling programs. Our three Discoverer Enterprise-class drillships are equipped for dual-activity drilling, which is a well-construction technology we developed that allows for drilling tasks associated with a single well to be accomplished in a parallel rather than sequential manner by utilizing two complete drilling systems under a single derrick. The dual-activity well-construction process is designed to reduce critical path activity and improve efficiency in both exploration and development drilling. Our Deepwater-class drillships are also high-specification drillships and are designed with a high-pressure mud system. The following table provides certain information regarding our drillship fleet as of March 1, 2002: YEAR WATER DRILLING ENTERED DEPTH DEPTH SERVICE/ CAPACITY CAPACITY ESTIMATED TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CUSTOMER EXPIRATION (E) - ---------------------------------- ----------- --------- --------- ---------------- ------------- --------------- HIGH-SPECIFICATION DRILLSHIPS (12) Deepwater Discovery (b) . . . . . . 2000 10,000 30,000 Angola ChevronTexaco December 2003 Deepwater Expedition (b). . . . . . 1999 10,000 30,000 Brazil Petrobras September 2005 Deepwater Frontier (b)(d) . . . . . 1999 10,000 30,000 Brazil Petrobras November 2003 Deepwater Millennium (b). . . . . . 1999 10,000 30,000 U.S. Gulf Marathon October 2002 Deepwater Pathfinder (b)(c) . . . . 1998 10,000 30,000 U.S. Gulf Conoco January 2004 Discoverer Deep Seas (b). . . . . . 2001 10,000 35,000 U.S. Gulf ChevronTexaco January 2006 Discoverer Enterprise (b) . . . . . 1999 10,000 35,000 U.S. Gulf BP December 2004 Discoverer Spirit (b) . . . . . . . 2000 10,000 35,000 U.S. Gulf Unocal September 2005 Deepwater Navigator (b) . . . . . . 2000 7,800 25,000 Brazil Petrobras July 2003 Peregrine I (b) . . . . . . . . . . 1982/1996 7,200 25,000 Brazil Petrobras June 2003 Discoverer 534 (b). . . . . . . . . 1975/1991 7,000 25,000 Enroute to India Reliance June 2002 Discoverer Seven Seas (b) . . . . . 1976/1997 7,000 25,000 Brazil Petrobras September 2004 OTHER DRILLSHIPS (1) Joides Resolution (b)(f). . . . . . 1978 27,000 30,000 Peru Texas A&M September 2003 - ------------------------- (a) Dates shown are the original service date and the date of the most recent upgrade, if any. (b) Dynamically positioned. 5

(c) The Deepwater Pathfinder is leased and operated by a limited liability company in which we own a 50 percent interest. See Note 16 to our consolidated financial statements. (d) The Deepwater Frontier is leased and operated by a limited liability company in which we own a 60 percent interest. See Note 16 to our consolidated financial statements. (e) Expiration dates represent our current estimate of the earliest date the contract for each rig is likely to expire. Some contracts may permit the client to extend the contract. (f) The Joides Resolution is currently engaged in scientific geological coring activities and is owned by a joint venture in which we have a 50 percent interest. See Note 16 to our consolidated financial statements. Semisubmersibles (48) Semisubmersibles are floating vessels that can be submerged by means of a water ballast system such that a substantial portion of the lower hull is below the water surface during drilling operations. These rigs maintain their position over the well through the use of an anchoring system or computer controlled dynamic positioning thruster system. Some semisubmersible rigs are self-propelled and move between locations under their own power when afloat on the pontoons although most are relocated with the assistance of tugs. Typically, semisubmersibles are better suited for operations in rough water conditions than drillships. High-specification semisubmersibles are those that were built or extensively upgraded since 1984 and have one or more of the following characteristics: larger physical size than other semisubmersibles; rated for drilling in water depths of over 4,000 feet; year-round harsh environment capability; variable deck load capability of greater than 4,000 metric tons; dynamic positioning; and superior motion characteristics. The following table provides certain information regarding our semisubmersible fleet as of March 1, 2002: YEAR WATER DRILLING ENTERED DEPTH DEPTH SERVICE/ CAPACITY CAPACITY ESTIMATED TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CUSTOMER EXPIRATION (C) - ------------------------- ----------- --------- --------- ----------------- ------------- -------------- HIGH-SPECIFICATION SEMISUBMERSIBLES (19) Deepwater Horizon . . . . 2001 10,000 30,000 U.S. Gulf BP September 2004 Cajun Express (b) . . . . 2001 8,500 35,000 U.S. Gulf - Idle Deepwater Nautilus (d). . 2000 8,000 30,000 U.S. Gulf Shell June 2005 Sedco Energy (b). . . . . 2001 7,500 25,000 Ivory Coast ChevronTexaco October 2004 Sedco Express (b) . . . . 2001 7,500 25,000 Egypt BP May 2002 Transocean Marianas . . . 1979/1998 7,000 25,000 U.S. Gulf Shell August 2003 Sedco 707 (b) . . . . . . 1976/1997 6,500 25,000 Brazil Petrobras January 2004 Jack Bates. . . . . . . . 1986/1997 6,000 30,000 U.K. North Sea BP April 2002 Sedco 709 (b) . . . . . . 1977/1999 5,000 25,000 Nigeria Shell May 2002 M. G. Hulme, Jr. (e). . . 1983/1996 5,000 25,000 Nigeria ExxonMobil June 2002 Transocean Richardson . . 1988 5,000 25,000 U.S. Gulf Anadarko September 2002 Jim Cunningham . . . . . 1982/1995 5,000 25,000 Angola ExxonMobil August 2002 Transocean Leader . . . . 1987/1997 4,500 25,000 U.K. North Sea BP March 2003 Transocean Rather . . . . 1988 4,500 25,000 U.S. Gulf BP January 2003 Sovereign Explorer. . . . 1984 4,000 25,000 Enroute to Amerada Hess March 2003 Equatorial Guinea Henry Goodrich. . . . . . 1985 2,000 30,000 Canada Terra Nova February 2003 Paul B. Loyd, Jr. . . . . 1990 2,000 25,000 U.K. North Sea BP March 2003 Transocean Arctic . . . . 1986 1,650 25,000 Norwegian N. Sea - Idle Polar Pioneer. . . . . . 1985 1,500 25,000 Norwegian N. Sea Norsk Hydro February 2003 6

YEAR WATER DRILLING ENTERED DEPTH DEPTH SERVICE/ CAPACITY CAPACITY ESTIMATED TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CUSTOMER EXPIRATION (C) - --------------------------- ----------- --------- --------- ----------------- ------------- -------------- OTHER SEMISUBMERSIBLES (29) Sedco 710 (b) . . . . . . . 1983 4,000 25,000 Brazil Petrobras October 2006 Sedco 700 . . . . . . . . . 1973/1997 3,600 25,000 Equatorial Guinea Amerada Hess October 2002 Transocean Amirante . . . . 1978/1997 3,500 25,000 U.S. Gulf - Idle Transocean Legend . . . . . 1983 3,500 25,000 Brazil Petrobras March 2002 C. Kirk Rhein, Jr. . . . . 1976/1997 3,300 25,000 Trinidad - Idle Transocean Driller. . . . . 1991 3,000 25,000 Brazil Petrobras January 2003 Falcon 100. . . . . . . . . 1974/1999 2,400 25,000 U.S. Gulf Agip May 2002 Transocean 96 . . . . . . . 1975/1997 2,300 25,000 U.S. Gulf Anadarko March 2002 Sedco 711 . . . . . . . . . 1982 1,800 25,000 U.K. North Sea ExxonMobil May 2002 U.K. North Sea Conoco November 2002 Transocean John Shaw . . . 1982 1,800 25,000 U.K. North Sea TotalFinaElf December 2002 Sedco 714 . . . . . . . . . 1983/1997 1,600 25,000 U.K. North Sea BP October 2002 Sedco 712 . . . . . . . . . 1983 1,600 25,000 U.K. North Sea Shell December 2002 Actinia . . . . . . . . . . 1982 1,500 25,000 Spain Repsol March 2002 Mediterranean I.E.O.C. September 2002 J. W. McLean. . . . . . . . 1974/1996 1,500 25,000 U.K. North Sea Phillips April 2002 Sedco 600 . . . . . . . . . 1983/1994 1,500 25,000 Indonesia Conoco April 2002 Sedco 601 . . . . . . . . . 1983 1,500 25,000 Indonesia Unocal December 2002 Sedco 602 . . . . . . . . . 1983 1,500 25,000 Indonesia - Idle Sedco 702 . . . . . . . . . 1973/1992 1,500 25,000 Australia Apache March 2002 Australia Santos April 2002 Australia Agip July 2002 Sedco 703 . . . . . . . . . 1973/1995 1,500 25,000 Australia Woodside May 2002 Australia El Paso June 2002 Sedco 708 . . . . . . . . . 1976 1,500 25,000 Congo - Idle Sedneth 701 . . . . . . . . 1972/1993 1,500 25,000 Angola ChevronTexaco March 2002 Gabon Vaalco June 2002 Transocean Prospect . . . . 1983/1992 1,500 25,000 Norwegian N. Sea Statoil August 2002 Transocean Searcher . . . . 1983/1988 1,500 25,000 Norwegian N. Sea Statoil August 2002 Norwegian N. Sea Statoil February 2003 Transocean Winner . . . . . 1983 1,500 25,000 Norwegian N. Sea Shell July 2002 Transocean Wildcat. . . . . 1977/1985 1,300 25,000 U.K. North Sea - Idle Transocean Explorer . . . . 1976 1,250 25,000 U.K. North Sea - Idle Sedco 704 . . . . . . . . . 1974/1993 1,000 25,000 U.K. North Sea ChevronTexaco October 2002 Sedco 706 . . . . . . . . . 1976/1994 1,000 25,000 U.K. North Sea TotalFinaElf June 2002 Sedco I - Orca (f). . . . . 1970/1987 900 25,000 South Africa Schlumberger March 2003 - --------------------------- (a) Dates shown are the original service date and the date of the most recent upgrade, if any. (b) Dynamically positioned. (c) Expiration dates represent our current estimate of the earliest date the contract for each rig is likely to expire. Some rigs have two contracts in continuation, so the second line shows the estimated earliest availability. Some contracts may permit the client to extend the contract. (d) The Deepwater Nautilus is leased from its owner, an unrelated third party, pursuant to a fully defeased lease arrangement. (e) The M. G. Hulme, Jr. is accounted for as an operating lease as a result of a sale/leaseback transaction in November 1995. (f) Operated under a management contract with the rig's owner. 7

Jackup Rigs (54) Jackup rigs are mobile self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is then jacked further up the legs so that the platform is above the highest expected waves. These rigs are generally suited for water depths of 300 feet or less. The following table provides certain information regarding our jackup rig fleet as of March 1, 2002: YEAR ENTERED WATER DEPTH DRILLING DEPTH SERVICE/ CAPACITY CAPACITY TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION STATUS - ------------------- ------------- ------------ --------------- ----------------- --------- Trident IX (b). . . 1982 400 21,000 Vietnam Operating Trident 17. . . . . 1983 355 25,000 Indonesia Operating Harvey H. Ward. . . 1981 300 25,000 Singapore Idle J. T. Angel . . . . 1982 300 25,000 India Operating Roger W. Mowell . . 1982 300 25,000 Malaysia Operating Ron Tappmeyer . . . 1978 300 25,000 Indonesia Operating D. R. Stewart . . . 1980 300 25,000 Italy Operating Randolph Yost . . . 1979 300 25,000 Equatorial Guinea Operating C. E. Thornton. . . 1974 300 25,000 India Operating F. G. McClintock. . 1975 300 25,000 India Operating Shelf Explorer. . . 1982 300 25,000 Denmark Operating Transocean III. . . 1978/1993 300 20,000 United Arab Operating Emirates Transocean Nordic . 1984 300 25,000 U.K. North Sea Idle Trident II. . . . . 1977/1985 300 25,000 India Operating Trident IV. . . . . 1980/1999 300 25,000 Angola Operating Trident VI. . . . . 1981 300 21,000 Nigeria Operating Trident VIII. . . . 1981 300 21,000 Nigeria Operating Trident XII . . . . 1982/1992 300 25,000 India Operating Trident XIV . . . . 1982/1994 300 20,000 Angola Operating Trident 15. . . . . 1982 300 25,000 Thailand Operating Trident 16. . . . . 1982 300 25,000 Malaysia Operating Trident 20 (c). . . 2000 300 25,000 Caspian Sea Operating George H. Galloway. 1985 300 25,000 U.S. Gulf Idle Transocean Comet. . 1980 250 20,000 Egypt Operating Transocean Mercury. 1969/1998 250 20,000 Egypt Operating RBF 208 . . . . . . 1980 200 20,000 Brazil Idle RBF 209 . . . . . . 1980 200 25,000 Brazil Operating RBF 192 . . . . . . 1981 250 25,000 U.S. Gulf Idle RBF 250 . . . . . . 1974 250 25,000 U.S. Gulf Idle RBF 251 . . . . . . 1978 250 25,000 U.S. Gulf Idle RBF 252 . . . . . . 1978 250 25,000 U.S. Gulf Idle RBF 253 . . . . . . 1982 250 25,000 U.S. Gulf Idle RBF 254 . . . . . . 1976 250 25,000 U.S. Gulf Idle RBF 255 . . . . . . 1976 250 25,000 U.S. Gulf Idle RBF 256 . . . . . . 1975 250 25,000 U.S. Gulf Idle RBF 190 . . . . . . 1978 200 25,000 U.S. Gulf Idle RBF 200 . . . . . . 1979 200 25,000 U.S. Gulf Operating RBF 201 . . . . . . 1981 200 25,000 U.S. Gulf Idle RBF 202 . . . . . . 1982 200 25,000 U.S. Gulf Operating RBF 203 . . . . . . 1981 200 25,000 U.S. Gulf Idle RBF 204 . . . . . . 1981 200 25,000 U.S. Gulf Operating RBF 205 . . . . . . 1979 200 25,000 U.S. Gulf Operating RBF 206 . . . . . . 1980 200 25,000 U.S. Gulf Idle RBF 207 . . . . . . 1981 200 25,000 U.S. Gulf Idle RBF 185 . . . . . . 1982 190 25,000 U.S. Gulf Idle 8

YEAR ENTERED WATER DEPTH DRILLING DEPTH SERVICE/ CAPACITY CAPACITY TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION STATUS - ------------------- ------------- ------------ --------------- ----------------- --------- RBF 191 . . . . . . 1978 184 25,000 U.S. Gulf Idle RBF 150 . . . . . . 1979 150 20,000 U.S. Gulf Operating RBF 151 . . . . . . 1981 150 25,000 U.S. Gulf Idle RBF 152 . . . . . . 1980 150 25,000 U.S. Gulf Idle RBF 153 . . . . . . 1980 150 25,000 U.S. Gulf Idle RBF 154 . . . . . . 1979 150 20,000 U.S. Gulf Idle RBF 155 . . . . . . 1980 150 20,000 U.S. Gulf Idle RBF 156 . . . . . . 1983 150 25,000 U.S. Gulf Idle RBF 110 . . . . . . 1982 110 25,000 Trinidad Operating - ---------------------------- (a) Dates shown are the original service date and the date of the most recent upgrade, if any. (b) As of March 1, 2002, the Trident IX was owned by an unrelated third party and leased by us as part of a secured rig financing. See Note 23 to our consolidated financial statements. (c) Owned by a joint venture in which we have a 75 percent interest. Barge Drilling Rigs (35) Our barge drilling fleet consists of conventional and posted barge rigs and swamp barges. Our conventional and posted barge drilling rigs are mobile drilling platforms that are submersible and are built to work in eight to 20 feet of water. A posted barge is identical to a conventional barge except that the hull and superstructure are separated by 10 to 14 foot columns, which increases the water depth capabilities of the rig. Swamp barges are usually not self-propelled, but can be moored alongside a platform, and contain crew quarters, mud pits, mud pumps, power generation and other equipment. Swamp barges are generally suited for water depths of 25 feet or less. The following table provides certain information regarding our barge drilling rig fleet as of March 1, 2002: YEAR ENTERED SERVICE/ DRILLING CAPACITY RIG UPGRADED(A) (IN FEET) LOCATION STATUS - ------------------------ ------------- ------------------ --------- --------- CONVENTIONAL BARGES (14) 1. . . . . . . . . . . . 1980 20,000 U.S. Gulf Operating 11 . . . . . . . . . . . 1982 30,000 U.S. Gulf Operating 15 . . . . . . . . . . . 1981 25,000 U.S. Gulf Idle 19 . . . . . . . . . . . 1996 14,000 U.S. Gulf Operating 20 . . . . . . . . . . . 1998 14,000 U.S. Gulf Idle 21 . . . . . . . . . . . 1982 15,000 U.S. Gulf Idle 23 . . . . . . . . . . . 1995 14,000 U.S. Gulf Idle 28 . . . . . . . . . . . 1979 30,000 U.S. Gulf Operating 29 . . . . . . . . . . . 1980 30,000 U.S. Gulf Idle 30 . . . . . . . . . . . 1981 30,000 U.S. Gulf Idle 31 . . . . . . . . . . . 1981 30,000 U.S. Gulf Operating 32 . . . . . . . . . . . 1982 30,000 U.S. Gulf Operating 74 (b) . . . . . . . . . 1981 25,000 U.S. Gulf Idle 75 (b) . . . . . . . . . 1979 30,000 U.S. Gulf Idle 9

YEAR ENTERED SERVICE/ DRILLING CAPACITY UPGRADED(A) (IN FEET) LOCATION STATUS ------------- ------------------ --------- --------- POSTED BARGES (17) 7 . . . . . . . . 1978 25,000 U.S. Gulf Idle 9 . . . . . . . . 1981 25,000 U.S. Gulf Idle 10 . . . . . . . . 1981 25,000 U.S. Gulf Idle 17 . . . . . . . . 1981 30,000 U.S. Gulf Idle 27 . . . . . . . . 1978 30,000 U.S. Gulf Idle 41 . . . . . . . . 1981 30,000 U.S. Gulf Operating 46 . . . . . . . . 1981 30,000 U.S. Gulf Idle 47 . . . . . . . . 1982 30,000 U.S. Gulf Idle 48 . . . . . . . . 1982 30,000 U.S. Gulf Idle 49 . . . . . . . . 1980 30,000 U.S. Gulf Idle 52 . . . . . . . . 1981 25,000 U.S. Gulf Operating 55 . . . . . . . . 1981 30,000 U.S. Gulf Idle 56 . . . . . . . . 1973 25,000 U.S. Gulf Idle 57 . . . . . . . . 1975 25,000 U.S. Gulf Idle 61 . . . . . . . . 1978 30,000 U.S. Gulf Idle 62 . . . . . . . . 1978 30,000 U.S. Gulf Operating 64 . . . . . . . . 1979 30,000 U.S. Gulf Idle YEAR ENTERED SERVICE/ DRILLING CAPACITY UPGRADED(A) (IN FEET) LOCATION STATUS ------------- ------------------ --------- --------- SWAMP BARGES (4) Searex 4 . . . . 1981/1989 25,000 Nigeria Idle Searex 6 . . . . 1981/1991 25,000 Nigeria Operating Searex 12. . . . 1982/1992 25,000 Nigeria Operating Hibiscus (c) . . 1979/1993 16,000 Indonesia Operating - -------------------- (a) Dates shown are the original service date and the date of the most recent upgrade, if any. (b) These rigs are leased to us. (c) The Hibiscus is owned by a joint venture in which we own more than 50 percent. Other Rigs In addition to the drillships, semisubmersibles, jackups and barge drilling rigs, we also own or operate several other types of rigs. These rigs include four tenders, three submersible rigs and a platform drilling rig. We also have 10 land drilling rigs in Venezuela. Markets Rigs can be moved from one region to another, but the cost of moving a rig and the availability of rig-moving vessels may cause the supply and demand balance to vary somewhat between regions. However, significant variations between regions do not tend to exist long-term because of rig mobility. In recent years, there has been increased emphasis by oil companies on exploring for hydrocarbons in deeper waters. This is, in part, because of technological developments that have made such exploration more feasible and cost-effective. The deepwater and mid-depth market segments are serviced by our semisubmersibles and drillships. The deepwater market segment begins in water depths of about 2,000 feet and extends to the maximum water depths in which rigs are currently capable of drilling, being approximately 10,000 feet. The mid-depth market segment begins in water depths of about 300 feet and extends to water depths of about 2,000 feet. 10

The shallow water market segment is serviced by our jackups, submersibles and drilling tenders. This market segment begins at the outer limit of the transition zone and extends to water depths of about 300 feet. It has been developed to a significantly greater degree than the deepwater market segment, as technology required to explore for and produce hydrocarbons in these water depths is not as demanding as in the deepwater market segment, and accordingly the costs are lower. Our barge rig fleet operates in marshes, rivers, lakes and shallow bay and coastal water areas that are referred to as the "transition zone." Our principal barge market segment is the shallow water areas of the U.S. Gulf of Mexico. This area historically has been the world's largest market segment for barge rigs. International market segments for our barge rigs include West Africa and Southeast Asia. We conduct land rig operations in Venezuela. Although in early 2001 we announced our intent to sell this business, weakened market conditions led us to decide to continue to operate the Venezuelan business and reassess our plan at some point in the future. Management Services We use our engineering and operating expertise to provide management of third party drilling service activities. These services are provided through service teams generally consisting of Company personnel and third-party subcontractors, with the Company frequently serving as lead contractor. The work generally consists of individual contractual agreements to meet specific client needs and may be provided on either a dayrate or fixed price basis. As of March 1, 2002, we performed such services only in the North Sea. Drilling Contracts Our contracts to provide offshore drilling services are individually negotiated and vary in their terms and provisions. We obtain most of our contracts through competitive bidding against other contractors. Drilling contracts generally provide for payment on a dayrate basis, with higher rates while the drilling unit is operating and lower rates for periods of mobilization or when drilling operations are interrupted or restricted by equipment breakdowns, adverse environmental conditions or other conditions beyond our control. A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering a stated term. These contracts typically can be terminated by the client under various circumstances such as the loss or destruction of the drilling unit or the suspension of drilling operations for a specified period of time as a result of a breakdown of major equipment. The contract term in some instances may be extended by the client exercising options for the drilling of additional wells or for an additional term, or by exercising a right of first refusal. In reaction to depressed market conditions, our clients may seek renegotiation of firm drilling contracts to reduce their obligations or may seek to suspend or terminate their contracts. Some drilling contracts permit the customer to terminate the contract at the customer's option without paying a termination fee. Suspension of drilling contracts results in loss of the dayrate for the period of the suspension. If our customers cancel some of our significant contracts and we are unable to secure new contracts on substantially similar terms, or if contracts are suspended for an extended period of time, it could adversely affect our results of operations. The Company and Statoil are parties to a cooperation agreement extending through 2005. However, only two semisubmersibles, the Transocean Prospect and Transocean Searcher, remain subject to the agreement. Significant Clients During the past five years, we have engaged in offshore drilling for most of the leading international oil companies (or their affiliates) in the world, as well as for many government-controlled and independent oil companies. Principal clients included BP, Petrobras, the Royal Dutch Shell Group, Statoil, ChevronTexaco, TotalFinaElf, Woodside, Unocal and Norsk Hydro. Our largest unaffiliated clients in 2001 were BP and Petrobras accounting for 12.3 percent and 10.9 percent, respectively, of our 2001 operating revenues. No other unaffiliated client accounted for 10 percent or more of our 2001 operating revenues (see Note 17 to our consolidated financial statements). The loss of any of these significant clients could, at least in the short term, have a material adverse effect on our results of operations. 11

Industry Conditions and Competition Our business depends on the level of activity in oil and gas exploration, development and production in market segments worldwide, with the U.S. and international offshore and U.S. inland marine areas being our primary market segments. Oil and gas prices and market expectations of potential changes in these prices significantly affect this level of activity. Worldwide military, political and economic events have contributed to oil and gas price volatility and are likely to do so in the future. Oil and gas prices are extremely volatile and are affected by numerous factors, including worldwide demand for oil and gas, the ability of the Organization of Petroleum Exporting Countries (commonly called "OPEC") to set and maintain production levels and pricing, the level of production in non-OPEC countries, the policies of the various governments regarding exploration and development of their oil and gas reserves, advances in exploration and development technology and the worldwide military and political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crisis in the Middle East or other geographic areas in which we operate or further acts of terrorism in the United States, or elsewhere. The offshore and inland marine contract drilling industry is highly competitive with numerous industry participants, none of which has a dominant market share. Drilling contracts are traditionally awarded on a competitive bid basis. Intense price competition is often the primary factor in determining which qualified contractor is awarded a job, although rig availability and the quality and technical capability of service and equipment may also be considered. Recent mergers among oil and natural gas exploration and production companies have reduced the number of available customers. Our industry has historically been cyclical and may be impacted by oil and gas price levels and volatility. There have been periods of high demand, short rig supply and high dayrates, followed by periods of low demand, excess rig supply and low dayrates. Changes in commodity prices can have a dramatic effect on rig demand, and periods of excess rig supply intensify the competition in the industry and often result in rigs being idle for long periods of time. We may be required to idle rigs or enter into lower rate contracts in response to market conditions in the future. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Outlook." We require highly skilled personnel to operate and provide technical services and support for our drilling units. To the extent that demand for drilling services and the size of the worldwide industry fleet increase, shortages of qualified personnel could arise, creating upward pressure on wages. Operating Risks Our operations are subject to the usual hazards inherent in the drilling of offshore oil and gas wells, such as blowouts, reservoir damage, loss of production, loss of well control, punchthroughs, cratering or fires. The occurrence of these events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury to or death of rig personnel. We are also subject to personal injury and other claims of rig personnel as a result of its drilling operations. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. In addition, offshore drilling operations are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires. We are also subject to property, environmental and other damage claims. We maintain broad insurance coverage, including insurance against general and marine third-party liabilities. Our offshore drilling equipment is covered by physical damage insurance policies, which cover against marine and other perils, including losses due to capsizing, grounding, collision, fire, lightning, hurricanes, wind, storms, action of waves, punchthroughs, cratering, blowouts, explosions and war risks. We also carry employer's liability and other insurance customary in the offshore contract drilling business. We do not normally carry loss of hire or business interruption insurance. Consistent with standard industry practice, our clients generally assume, and indemnify us against, well control and subsurface risks under dayrate contracts. These risks are those associated with the loss of control of a well, such as blowout or cratering, the cost to regain control or redrill the well and associated pollution. However, there can be no assurance that these clients will necessarily be financially able to indemnify us against all these risks. We believe we are adequately insured in accordance with industry standards against normal risks in our operations; however, such insurance coverage may not in all situations provide sufficient funds to protect us from all liabilities that could result from our drilling operations. Although our current practice is to insure the majority of our drilling units for their approximate net book value, our insurance would not completely cover the costs that would be required to replace certain of our 12

units, including certain high-specification semisubmersibles and drillships. Moreover, our insurance coverage in most cases does not protect against loss of revenues. Accordingly, the occurrence of a casualty or loss against which we are not fully insured could have a material adverse effect on our consolidated financial position or results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Other Factors Affecting Operating Results" regarding the effects of the September 11th attacks. We are subject to liability under various environmental laws and regulations. See "-Regulation." We have generally been able to obtain some degree of contractual indemnification pursuant to which our clients agree to protect and indemnify us against liability for pollution, well and environmental damages; however, there is no assurance that we can obtain such indemnities in all of our contracts or that, in the event of extensive pollution and environmental damages, the clients will have the financial capability to fulfill their contractual obligations to us. Also, these indemnities may not be enforceable in all instances. For some contracts where the risk allocation or counterparty risk exposure is considered high, we can purchase additional insurance such as "operators extra expense insurance" against well control risks. We completed our newbuild program in 2001 with the delivery of one high-specification drillship and four high-specification semisubmersibles. We have experienced some start-up difficulties with most of our newbuild rigs, which can affect downtime and operating revenues. While we expect our newbuild rig fleet to operate with average downtime comparable to industry norms, there can be no assurance that future operational problems will not arise. Should problems occur which cause significant downtime or significantly affect a newbuild rig's performance or safety, our clients may attempt to terminate or suspend the drilling contract, particularly any of the long-term contracts associated with most of the newbuild rigs. In the event of termination of a drilling contract for one of these rigs, it is unlikely that we would be able to secure a replacement contract on as favorable terms. International Operations Our operations are geographically dispersed in oil and gas exploration and development areas throughout the world. Because our drilling rigs are mobile assets and are able to be moved according to prevailing market conditions, we cannot predict the percentage of our revenues that will be derived from particular geographic or political areas in future periods. Our operations are subject to certain political and other uncertainties, including risks of war and civil disturbances or other events that disrupt markets, expropriation of equipment, inability to repatriate income or capital, changing taxation policies and the general hazards associated with governmental sovereignty over certain areas in which operations are conducted. We are protected to a substantial extent against capital loss, but generally not loss of revenue, from most of such risks through insurance, indemnity provisions in our drilling contracts, or both. The necessity of insurance coverage for risks associated with political unrest, expropriation and environmental remediation for operating areas not covered under our existing insurance policies is evaluated on an individual contract basis. As of March 1, 2002, all areas in which we were operating were covered by existing insurance policies. Although we maintain insurance in the areas in which we operate, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance or a recoverable indemnity from a client, it could adversely affect our consolidated results of operations. Our operations are also subject to significant government regulation. Some governments favor or effectively require the awarding of drilling contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete in these jurisdictions. We expect to continue to structure our operations in order to remain competitive in the international markets. Another risk inherent in our operations is the possibility of currency exchange losses where revenues are received and expenses are paid in nonconvertible currencies. We may also incur losses as a result of an inability to collect revenues because of a shortage of convertible currency available to the country of operations. We seek to limit these risks by structuring contracts such that compensation is made in freely convertible currencies and, to the extent possible, by limiting acceptance of blocked currencies to amounts that match its expense requirements in local currency. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk-Foreign Exchange Risk." 13

Regulation Our operations are affected from time to time in varying degrees by governmental laws and regulations. The drilling industry is dependent on demand for services from the oil and gas exploration industry and, accordingly, is affected by changing tax and other laws relating to the energy business generally. International contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipping and operation of drilling units, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel and use of local employees and suppliers by foreign contractors. Governments in some foreign countries have become increasingly active in regulating and controlling 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 action, including initiatives by OPEC, 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 and may continue to do so. In the U.S., regulations applicable to our operations include certain regulations controlling the discharge of materials into the environment, requiring removal and cleanup of materials that may harm the environment or otherwise relating to the protection of the environment. For example, we, as an operator of mobile offshore drilling units in navigable United States waters and certain offshore areas, may be liable for damages and costs incurred in connection with oil spills for which we are held responsible, subject to certain limitations. Laws and regulations protecting the environment have become more stringent, and may in certain circumstances impose "strict liability," rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Some of these laws and regulations may expose us to liability for the conduct of or conditions caused by others, or for our acts which were in compliance with all applicable laws at the time such acts were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on our consolidated financial position and results of operations. The U.S. Oil Pollution Act of 1990 ("OPA") and related regulations impose a variety of requirements on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills. Few defenses exist to the liability imposed by OPA, and such liability could be substantial. Failure to comply with ongoing requirements or inadequate cooperation in a spill event could subject a responsible party to civil or criminal enforcement action. The U.S. Outer Continental Shelf Lands Act authorizes regulations relating to safety and environmental protection applicable to lessees and permittees operating on the Outer Continental Shelf. Specific design and operational standards may apply to Outer Continental Shelf vessels, rigs, platforms, vehicles and structures. Violations of environmental related lease conditions or regulations issued pursuant to the Outer Continental Shelf Lands Act can result in substantial civil and criminal penalties, as well as potential court injunctions curtailing operations and canceling leases. Such enforcement liabilities can result from either governmental or citizen prosecution. The Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability without regard to fault or the legality of the original conduct on some classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of a facility where a release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at a particular site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. It is not uncommon for third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. We could be subject to liability under CERCLA principally in connection with our onshore activities. Certain of the other countries in whose waters we are presently operating or may operate in the future have regulations covering the discharge of oil and other contaminants in connection with drilling operations. Although significant capital expenditures may be required to comply with these governmental laws and regulations, such compliance has not materially adversely affected the earnings or competitive position. 14

Employees As of March 1, 2002, we had approximately 14,260 employees, including approximately 2,160 persons contracted through contract labor providers. We require highly skilled personnel to operate our drilling units. As a result, we conduct extensive personnel recruiting, training and safety programs. On March 1, 2002, we had approximately 13 percent of our employees worldwide working under collective bargaining agreements, most of whom were working in Norway, Nigeria, Brazil and Venezuela. Of these represented employees, a majority are working under agreements that are subject to salary negotiation in 2002. In addition, we have signed a recognition agreement requiring negotiation with a labor union representing employees in the U.K. These negotiations, which are expected to commence in the second quarter of 2002, could lead to collective bargaining agreements covering these employees, which could result in higher personnel expenses, other increased costs or increased operating restrictions. ITEM 2. Properties The description of our property included under "Item 1. Business" is incorporated by reference herein. We maintain offices, land bases and other facilities worldwide, including our principal executive offices in Houston, Texas and regional operational offices in the U.S., Brazil, U.K., Norway, France, Dubai and Indonesia. Our remaining offices and bases are located in various countries in North America, South America, Europe, Africa, the Middle East and Asia. We lease most of these facilities. The Company acquired R&B Falcon's oil and gas business in the merger described under "Item 1. Business." The business is operated primarily through R&B Falcon's majority-owned subsidiary Reading & Bates Development Co. ("Devco"). Devco owns an 11 percent working interest in production sharing contracts covering approximately 3.1 million acres in deepwater offshore Gabon, West Africa. A subsidiary of TotalFinaElf is the operator. A 4,400 square kilometer 3-D seismic program was shot in 1999. Processing of the seismic data commenced in late 1999, and interpretation continued through 2000. A four well exploration drilling program, in which the Company was fully carried, was completed in December 2001. To date, the operator has not released substantive drilling results. In January 2001, R&B Falcon purchased for $34.7 million the approximately 13.6 percent minority interest in Devco which was owned by former directors and employees of R&B Falcon and directors and employees of Devco (including current director of the Company Paul B. Loyd, Jr. and former director Charles A. Donabedian). In connection with the purchase, a $0.3 million bonus was paid to Richard A. Pattarozzi, a current director of the Company. The purchase price was based on a valuation by a third-party advisor. ITEM 3. Legal Proceedings In 1990 and 1991, two of the Company's subsidiaries were served with various assessments collectively valued at approximately $7 million from the municipality of Rio de Janeiro, Brazil to collect a municipal tax on services. The Company believes that neither subsidiary is liable for the taxes and has contested the assessments in the Brazilian administrative and court systems. In October 2001, the Brazil Supreme Court rejected the Company's appeal of an adverse lower court's ruling with respect to a June 1991 assessment, which was valued at approximately $6 million. The Company is challenging the assessment in a separate proceeding, which is currently at the trial court level. We have received adverse rulings at various levels in connection with a disputed August 1990 assessment which is still pending before the Brazil Superior Court of Justice. The Company also received an adverse ruling from the Taxpayer's Council in connection with an October 1990 assessment and is appealing the ruling. If the Company's defenses are ultimately unsuccessful, the Company believes that the Brazilian government-controlled oil company, Petrobras, has a contractual obligation to reimburse the Company for municipal tax payments required to be paid by them. The Company does not expect the liability, if any, resulting from these assessments to have a material adverse effect on its business or consolidated financial position. The Indian Customs Department, Mumbai, filed a "show cause notice" against a subsidiary of the Company and various third parties in July 1999. The show cause notice alleged that the initial entry into India in 1988 and other subsequent movements of the Trident II jackup rig operated by the subsidiary constituted imports and exports for which proper customs procedures were not followed and sought payment of customs duties of approximately $31 million based on an alleged 1998 rig value of $49 million, with interest and penalties, and confiscation of the rig. In January 2000, the Customs Department issued its order, which found that the Company had imported the rig improperly and intentionally concealed the import from the authorities, and directed the Company to pay a redemption fee of approximately $3 million for the rig in lieu of confiscation and to pay penalties of approximately $1 million in addition to the amount of customs duties owed. In February 2000, the Company filed an appeal with the Customs, Excise and Gold (Control) Appellate Tribunal ("CEGAT") together with an application to 15

have the confiscation of the rig stayed pending the outcome of the appeal. In March 2000, the CEGAT ruled on the stay application, directing that the confiscation be stayed pending the appeal. The CEGAT issued its opinion on the Company's appeal on February 2, 2001, and while it found that the rig was imported in 1988 without proper documentation or payment of duties, the redemption fee and penalties were reduced to less than $0.1 million in view of the ambiguity surrounding the import practice at the time and the lack of intentional concealment by the Company. The CEGAT further sustained the Company's position regarding the value of the rig at the time of import as $13 million and ruled that subsequent movements of the rig were not liable to import documentation or duties in view of the prevailing practice of the Customs Department, thus limiting the Company's exposure as to custom duties to approximately $6 million. Following the CEGAT order, the Company tendered payment of redemption, penalty and duty in the amount specified by the order by offset against a $0.6 million deposit and $10.7 million guarantee previously made by the Company. The Customs Department attempted to draw the entire guarantee, alleging the actual duty payable is approximately $22 million based on an interpretation of the CEGAT order that the Company believes is incorrect. This action was stopped by an interim ruling of the High Court, Mumbai on writ petition filed by the Company. Both the Customs Department and the Company filed appeals with the Supreme Court of India against the order of the CEGAT, and both appeals have been admitted. The Company applied for an expedited hearing, which was denied. The Company and its customer agreed to pursue and obtained the issuance of documentation from the Ministry of Petroleum that, if accepted by the Customs Department, would reduce the duty to nil. The agreement with the customer further provides that if this reduction was not obtained by December 31, 2001, the customer would pay the duty up to a limit of $7.7 million. The Customs Department has not accepted the documentation or agreed to refund the duties already paid. The Company has requested the refund from the customer and also intends to pursue the action with the Customs Department. The Company does not expect, in any event, that the ultimate liability, if any, resulting from the matter will have a material adverse effect on its business or consolidated financial position. In January 2000, a pipeline in the U.S. Gulf of Mexico was damaged by an anchor from one of the Company's drilling rigs while the rig was under tow. The incident resulted in damage to offshore facilities, including a crude oil pipeline, the release of hydrocarbons from the damaged section of the pipeline and the shutdown of the pipeline and allegedly affected production platforms. All appropriate governmental authorities were notified, and the Company cooperated fully with the operator and relevant authorities in support of the remediation efforts. Certain owners and operators of the pipeline (Poseidon Oil Pipeline Company LLC, Equilon Enterprises LLC, Poseidon Pipeline Company, LLC and Marathon Oil Company) filed suit in March 2000 in federal court, Eastern District of Louisiana, alleging various damages in excess of $30 million. A second suit was filed by Walter Oil & Gas Corporation and certain other plaintiffs in Harris County, Texas alleging various damages in excess of $1.8 million, and the Company obtained a summary judgement against Walter Oil & Gas Corporation and Amerada Hess. The Company has filed a limitation of liability proceeding in federal court, Eastern District of Louisiana, claiming benefit of various statutes providing limitation of liability for vessel owners, the result of which has been to stay the first two suits and to cause potential claimants (including the plaintiffs in the existing suits) to file claims in this proceeding. El Paso Energy Corporation, the owner/operator of the platform from which a riser was allegedly damaged, and Texaco Exploration and Production Inc. have filed claims in the limitation of liability proceeding as well. The Company expects that existing insurance will substantially cover any potential liability associated with this matter and that the outcome of this matter will not have a material adverse effect on its business or consolidated financial position. The Company is a defendant in Bryant, et al. v. R&B Falcon Drilling USA, Inc., et al. in the United States District Court for the Southern District of Texas, Houston Division. R&B Falcon Drilling USA is a wholly owned indirect subsidiary of R&B Falcon. In this suit, the plaintiffs allege that R&B Falcon Drilling USA, the Company and a number of other offshore drilling contractors with operations in the U.S. Gulf of Mexico have engaged in a conspiracy to depress wages and benefits paid to certain of their offshore employees. The plaintiffs contend that this alleged conduct violates federal antitrust law and constitutes unfair trade practices and wrongful employment acts under state law. The plaintiffs sought treble damages, attorneys' fees and costs on behalf of themselves and an alleged class of offshore workers, along with an injunction against exchanging certain wage and benefit information with other offshore drilling contractors named as defendants. In May 2001, the Company reached an agreement in principle with the plaintiffs' counsel to settle all claims, pending Court approval of the settlement. In July 2001, before the Court had considered the proposed settlement, the case, along with a number of unrelated cases also pending in the federal court in Galveston, was transferred to a federal judge sitting in Houston as a docket equalization measure. The judge has granted preliminary approval of the proposed settlement, and the parties are in the process of notifying class members. The terms of the settlement have been reflected in the Company's results of operations for the first quarter of 2001. The settlement did not have a material adverse effect on its business or consolidated financial position. In November 1988, a lawsuit was filed in the U.S. District Court for the Southern District of West Virginia against Reading & Bates Coal Co., a wholly owned subsidiary of R&B Falcon, by SCW Associates, Inc. claiming breach of an alleged agreement to purchase the stock of Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia. When those coal properties were sold in July 1989 as part of the disposition of R&B Falcon's coal 16

operations, the purchasing joint venture indemnified Reading & Bates Coal Co. and R&B Falcon against any liability Reading & Bates Coal Co. might incur as a result of this litigation. A judgment for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the plaintiff in the above-referenced action, filed a separate ancillary action in the Circuit Court, Kanawha County, West Virginia against R&B Falcon, Caymen Coal, Inc. (the former owner of R&B Falcon's West Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill (the former President of Reading & Bates Coal Co.) personally, three other companies in which the Company believes Mr. Sturgill holds an equity interest, two employees of the joint venture, First National Bank of Chicago and First Capital Corporation. The lawsuit seeks to recover compensatory damages of $50 million and punitive damages of $50 million for alleged tortuous interference with the contractual rights of the plaintiff and to impose a constructive trust on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. Currently, the case is pending review by the West Virginia Supreme Court of Appeals on a certification of a question of law as to whether denial of the Company's motion for summary judgement was appropriate, and discovery is proceeding. The Company intends to defend its interests vigorously and believes that the damages alleged by the plaintiff in this action are highly exaggerated. In any event, the Company believes that it has valid defenses and does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. In December 1998, Mobil North Sea Limited ("Mobil") purportedly terminated its contract for use of the Jack Bates based on failure of two mooring lines while anchor recovery operations at a Mobil well location had been suspended during heavy weather. The Company did not believe that Mobil had the right to terminate this contract. The Company later recontracted the Jack Bates to Mobil at a lower dayrate. The Company filed a request for arbitration with the London Court of International Arbitration seeking damages for the termination, and Mobil in turn counterclaimed against the Company seeking damages for the Company's alleged breaches of the original contract. The arbitrators ruled that Mobil did have the right to terminate the contract, and the counterclaim against the Company is proceeding. The Company does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. In March 1997, an action was filed by Mobil Exploration and Producing U.S. Inc. and affiliates, St. Mary Land & Exploration Company and affiliates and Samuel Geary and Associates, Inc. against Cliffs Drilling, its underwriters and insurance broker in the 16th Judicial District Court of St. Mary Parish, Louisiana. The plaintiffs alleged damages amounting to in excess of $50 million in connection with the drilling of a turnkey well in 1995 and 1996. The case was tried before a jury in January and February 2000, and the jury returned a verdict of approximately $30 million in favor of the plaintiffs for excess drilling costs, loss of insurance proceeds, loss of hydrocarbons and interest. The Company is in the process of preparing its appeal of such judgment. The Company believes that all but potentially the portion of the verdict representing excess drilling costs of approximately $4.7 million is covered by relevant primary and excess liability insurance policies of Cliffs Drilling; however, the insurers and underwriters have denied coverage. Cliffs Drilling has instituted litigation against those insurers and underwriters to enforce its rights under the relevant policies. The Company does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. In October 2001, the Company was notified by the U.S. Environmental Protection Agency ("EPA") that the EPA had identified a subsidiary of the Company as a potentially responsible party in connection with the Palmer Barge Line superfund site located in Port Arthur, Jefferson County, Texas. Based upon the information provided by the EPA and the Company's review of its internal records to date, the Company disputes its designation as a potentially responsible party and does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. The Company and its subsidiaries are involved in a number of other lawsuits, all of which have arisen in the ordinary course of the Company's business. The Company does not believe that ultimate liability, if any, resulting from any such other pending litigation will have a material adverse effect on its business or consolidated financial position. The Company cannot predict with certainty the outcome or effect of any of the litigation matters specifically described above or of any such other pending litigation. There can be no assurance that the Company's belief or expectations as to the outcome or effect of any lawsuit or other litigation matter will prove correct and the eventual outcome of these matters could materially differ from management's current estimates. 17

ITEM 4. Submission of Matters to a Vote of Security Holders The Company did not submit any matter to a vote of its security holders during the fourth quarter of 2001. Executive Officers of the Registrant AGE AS OF OFFICER OFFICE MARCH 1, 2002 - -------------------------- -------------------------------------------------------------- ------------- J. Michael Talbert . . . . Chief Executive Officer and Director 55 Robert L. Long . . . . . . President 56 W. Dennis Heagney. . . . . Executive Vice President and Chief Operating Officer 54 Jean P. Cahuzac. . . . . . Executive Vice President, Operations 48 Jon C. Cole. . . . . . . . Executive Vice President, Shallow Water and Inland Water Operations 49 Donald R. Ray. . . . . . . Executive Vice President, Technical Services 55 Eric B. Brown. . . . . . . Senior Vice President, General Counsel and Corporate Secretary 50 Gregory L. Cauthen . . . . Vice President, Chief Financial Officer and Treasurer 44 Barbara S. Koucouthakis. . Vice President and Chief Information Officer 43 Ricardo H. Rosa. . . . . . Vice President and Controller 45 Jurgen Sager . . . . . . . Vice President, Human Resources 43 Brian C. Voegele . . . . . Vice President, Tax 42 Michael I. Unsworth. . . . Vice President, Marketing 43 The officers of the Company are elected annually by the Board of Directors. There is no family relationship between any of the above-named executive officers. J. Michael Talbert has served as the Chief Executive Officer and a member of the Board of Directors of the Company since August 1994. Mr. Talbert also served as Chairman of the Board of the Company from August 1994 until the time of the Sedco Forex merger and as President of the Company from the time of such merger until December 2001. Mr. Talbert is also a director of Equitable Resources, Inc. Prior to assuming his duties with the Company, Mr. Talbert was President and Chief Executive Officer of Lone Star Gas Company, a natural gas distribution company and a division of Ensearch Corporation. Robert L. Long is President of the Company. Mr. Long served as Chief Financial Officer of the Company from August 1996 until December 2001. Mr. Long served as Senior Vice President of the Company from May 1990 until the time of the Sedco Forex merger, at which time he assumed the position of Executive Vice President. Mr. Long also served as Treasurer of the Company from September 1997 until March 2001. Mr. Long has been employed by the Company since 1976 and was elected Vice President in 1987. W. Dennis Heagney is Executive Vice President and Chief Operating Officer of the Company. Mr. Heagney served as a director of the Company from June 1997 and President and Chief Operating Officer of the Company from April 1986 until the time of the Sedco Forex merger, at which time he assumed the positions of Executive Vice President and President, Asia and the Americas. He assumed his current position in February 2001. He has been employed by the Company since 1969 and was elected Vice President in 1983 and Senior Vice President in 1984. Jean P. Cahuzac is Executive Vice President, Operations of the Company. Mr. Cahuzac served as President of Sedco Forex from January 1999 until the time of the Sedco Forex merger, at which time he assumed the positions of Executive Vice President and President, Europe, Middle East and Africa with the Company. He assumed his current position in February 2001. Mr. Cahuzac served as Vice President-Operations Manager of Sedco Forex from May 1998 to January 1999, Region Manager-Europe, Africa and CIS of Sedco Forex from September 1994 to May 1998 and Vice President/General Manager-North Sea Region of Sedco Forex from February 1994 to September 1994. He had been employed by Schlumberger since 1979. Jon C. Cole is Executive Vice President, Shallow Water and Inland Water Operations of the Company. Mr. Cole served as Senior Vice President of the Company from April 1993 until the time of the Sedco Forex merger, at which time he assumed the position of Executive Vice President, Marketing. He assumed his current position in February 2001. Mr. Cole joined the Company in 1977 and was elected Vice President in 1990. Donald R. Ray is Executive Vice President, Technical Services of the Company. Mr. Ray served as Senior Vice President of the Company, with responsibility for technical services, from December 1996 until the time of the Sedco Forex merger, at 18

which time he assumed the position of Senior Vice President, Technical Services. He assumed his current position in February 2001. Mr. Ray has been employed by the Company since 1972 and has served as a Vice President of the Company since 1986. Eric B. Brown is Senior Vice President, General Counsel and Corporate Secretary of the Company. He served as Vice President and General Counsel of the Company since February 1995 and Corporate Secretary of the Company since September 1995. He assumed his current position in February 2001. Prior to assuming his duties with the Company, Mr. Brown served as General Counsel of Coastal Gas Marketing Company. Gregory L. Cauthen is Vice President, Chief Financial Officer and Treasurer of the Company. Mr. Cauthen assumed his current position in December 2001. Prior to joining the Company, he served as President and Chief Executive Officer of WebCaskets.com, Inc. from June 2000 until February 2001. Previously he served as Senior Vice President, Financial Services at Service Corporation International where he had been employed in various positions since February 1991. Barbara S. Koucouthakis is Vice President and Chief Information Officer of the Company. Ms. Koucouthakis served as Controller of the Company from January 1990 and Vice President from April 1993 until the time of the Sedco Forex merger, at which time she assumed her current position. She has been employed by the Company since 1982. Ricardo H. Rosa is Vice President and Controller of the Company. Mr. Rosa served as Controller of Sedco Forex from September 1995 until the time of the Sedco Forex merger, at which time he assumed his current position with the Company. Mr. Rosa had been employed in various positions by Schlumberger since 1983. Prior to joining Schlumberger in 1983, he served as an Audit Manager for the accounting firm, Price Waterhouse. Jurgen Sager is Vice President, Human Resources of the Company. Mr. Sager previously served as Director, Corporate Planning for the Company from February 2000 until February 2001, and President of Transocean Petroleum Technology, the Company's coiled tubing business, from February 1998 to February 2000, prior to which he served as Manager, Worldwide Drilling Services. He assumed his current position in May 2001. Mr. Sager has been employed by the Company since 1985. Brian C. Voegele is Vice President, Tax of the Company. Mr. Voegele served as Vice President, Finance from March 1998 until March 2001 at which time he assumed his current position with the Company. Previously, he served as Director of Tax for the Company from June 1993. Prior to joining the Company in 1993, he served as Tax Manager for Sonat Inc. and as a Tax Manager for the accounting firm, Ernst & Young LLP. Michael I. Unsworth is Vice President, Marketing of the Company. Mr. Unsworth served as Region Manager, Asia for the Company from the time of the Sedco Forex merger until February 2001, at which time he assumed his present position with the Company. Previously, he served as Region Manager, Asia for Sedco Forex from 1998 through 1999 and had been employed in various marketing and management positions by Schlumberger since 1981. 19

PART II ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters Our ordinary shares are listed on the New York Stock Exchange (the "NYSE") under the symbol "RIG." The following table sets forth the high and low sales prices of our ordinary shares for the periods indicated as reported on the NYSE Composite Tape. PRICE ---------------- HIGH LOW ------- ------- 2000 First Quarter . . . . . . . . . . . . . . . . . . . . . . $53.125 $29.250 Second Quarter. . . . . . . . . . . . . . . . . . . . . . 56.188 41.250 Third Quarter . . . . . . . . . . . . . . . . . . . . . . 64.625 45.625 Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . 65.500 34.375 2001 First Quarter . . . . . . . . . . . . . . . . . . . . . . $54.500 $40.600 Second Quarter. . . . . . . . . . . . . . . . . . . . . . 57.690 40.350 Third Quarter . . . . . . . . . . . . . . . . . . . . . . 37.680 23.050 Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . 34.220 24.200 2002 First Quarter (through February 28) . . . . . . . . . . . $33.460 $26.510 On February 28, 2002, the last reported sales price of our ordinary shares on the NYSE Composite Tape was $28.01 per share. On such date, there were approximately 25,911 holders of record of the Company's ordinary shares and 319,131,115 ordinary shares outstanding. We have paid quarterly cash dividends of $0.03 per ordinary share since the fourth quarter of 1993. Any future declaration and payment of dividends will be (i) dependent upon our results of operations, financial condition, cash requirements and other relevant factors, (ii) subject to the discretion of the Board of Directors, (iii) subject to restrictions contained in our bank credit agreements and note purchase agreement and (iv) payable only out of our profits or share premium account in accordance with Cayman Islands law. There is currently no reciprocal tax treaty between the Cayman Islands and the United States regarding withholding. ITEM 6. Selected Consolidated Financial Data The selected consolidated financial data as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001 has been derived from the audited consolidated financial statements included elsewhere herein. The selected consolidated financial data as of December 31, 1999, 1998 and 1997, and for the years ended December 31, 1998 and 1997 has been derived from audited consolidated financial statements not included herein. The following data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and the notes thereto included under "Item 8. Financial Statements and Supplementary Data." On January 31, 2001, we completed a merger transaction with R&B Falcon. As a result of the merger, R&B Falcon became an indirect wholly owned subsidiary of us. The merger was accounted for as a purchase and we were treated as the accounting acquiror. The balance sheet data as of December 31, 2001 represents the consolidated financial position of the combined company. The statement of operations and other financial data for the year ended December 31, 2001 include eleven months of operating results and cash flows for R&B Falcon. On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco Forex was completed. Sedco Forex was the offshore contract drilling service business of Schlumberger and was spun-off immediately prior to the merger transaction. As a result of the merger, Sedco Forex became a wholly owned subsidiary of Transocean Offshore Inc., which changed its name to 20

Transocean Sedco Forex Inc. The merger was accounted for as a purchase with Sedco Forex treated as the accounting acquiror. The balance sheet data as of December 31, 2000 and 1999 and the statement of operations and other financial data for the year ended December 31, 2000 represent the consolidated financial position, cash flows and results of operations of the merged company. The balance sheet data, statement of operations and other financial data for the periods prior to the merger, represent the financial position, cash flows and results of operations of Sedco Forex and not those of historical Transocean Offshore Inc. YEARS ENDED DECEMBER 31, ------------------------------------------------------ 2001 2000 1999 1998 1997 ------- ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS Operating revenues. . . . . . . . . . $ 2,820 $1,230 $ 648 $1,091 $ 891 Operating income. . . . . . . . . . . 550 133 49 377 299 Income before extraordinary items . . 272 107 58 342 260 Earnings per share Basic . . . . . . . . . . . . . . $ 0.88 $ 0.51 $ 0.53 (a) $ 3.12 (a) $ 2.38 (a) Diluted . . . . . . . . . . . . . $ 0.86 $ 0.50 $ 0.53 (a) $ 3.12 (a) $ 2.38 (a) OTHER FINANCIAL DATA Cash flows from operating activities. $ 567 $ 196 $ 241 $ 473 $ 318 Capital expenditures. . . . . . . . . 506 575 537 425 187 EBITDA (b). . . . . . . . . . . . . . 1,191 401 186 508 420 BALANCE SHEET DATA (AT END OF PERIOD) Total assets. . . . . . . . . . . . . $17,020 $6,359 $6,140 $1,473 $1,051 Total debt. . . . . . . . . . . . . . 5,024 1,453 1,266 100 160 Total equity. . . . . . . . . . . . . 10,910 4,004 3,910 564 363 Dividends per share . . . . . . . . . $ 0.12 $ 0.12 - - - - -------------------- (a) Unaudited pro forma earnings per share was calculated using the Transocean Sedco Forex Inc. ordinary shares issued pursuant to the Sedco Forex merger agreement and the dilutive effect of Transocean Sedco Forex Inc. stock options granted to former Sedco Forex employees at the time of the Sedco Forex merger, as applicable. (b) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is presented here because it is a widely accepted financial indication of a company's ability to incur and service debt. EBITDA measures presented may not be comparable to similarly titled measures used by other companies. EBITDA is not a measurement presented in accordance with accounting principles generally accepted in the United States ("GAAP") and is not intended to be used in lieu of GAAP presentations of results of consolidated operations and cash provided by operating activities. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the information contained in the audited consolidated financial statements and the notes thereto included under "Item 8. Financial Statements and Supplementary Data" elsewhere in this annual report. Overview Transocean Sedco Forex Inc. (together with its subsidiaries and predecessors, unless the context requires otherwise, the "Company," "we," "us" or "our") is a leading international provider of offshore and inland marine contract drilling services for oil and gas wells. As of March 1, 2002, we owned, had partial ownership interests in or operated more than 160 mobile offshore and barge drilling units. As of this date, our active fleet consisted of 31 high-specification drillships and semisubmersibles ("floaters"), 30 other floaters, 54 jackup rigs, 35 drilling barges, four tenders and three submersible drilling rigs. In addition, the fleet includes a platform drilling rig, as well as 10 land drilling rigs in Venezuela. We contract our drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. We also provide additional services, including management of third-party well service activities. 21

On January 31, 2001, we completed a merger transaction with R&B Falcon Corporation ("R&B Falcon"). At the time of the merger, R&B Falcon owned, had partial ownership interests in, operated or had under construction more than 100 mobile offshore drilling units and other units utilized in the support of offshore drilling activities. As a result of the merger, R&B Falcon became our indirect wholly owned subsidiary. The merger was accounted for as a purchase and we were the accounting acquiror. The consolidated balance sheet as of December 31, 2001 represents the consolidated financial position of the combined company. The consolidated statements of operations and cash flows for the year ended December 31, 2001 include eleven months of operating results and cash flows for R&B Falcon. On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco Forex Holdings Limited ("Sedco Forex") was completed. Sedco Forex was the offshore contract drilling service business of Schlumberger Limited ("Schlumberger") and was spun-off immediately prior to the merger transaction. At the time of the merger, Sedco Forex owned, had partial ownership interests in, operated or had under construction 44 mobile offshore drilling units. As a result of the merger, Sedco Forex became a wholly owned subsidiary of Transocean Offshore Inc., which changed its name to Transocean Sedco Forex Inc. The merger was accounted for as a purchase with Sedco Forex as the accounting acquiror. The consolidated balance sheet as of December 31, 2000 and 1999 and the consolidated statements of cash flows and operations for the year ended December 31, 2000 represent the financial position, cash flows and results of operations of the merged company. The consolidated statements of cash flows and operations for the year ended December 31, 1999 represent the cash flows and results of operations of Sedco Forex and not those of historical Transocean Offshore Inc. Prior to the R&B Falcon merger, we operated in one industry segment. As a result of acquiring shallow and inland water drilling units in the R&B Falcon merger, our operations have been aggregated into two reportable segments: (i) International and U.S. Floater Contract Drilling Services and (ii) Gulf of Mexico Shallow and Inland Water. The International and U.S. Floater Contract Drilling Services segment consists of high-specification floaters, other floaters, non-U.S. jackups, other mobile offshore and land drilling units, other assets used in support of offshore drilling activities and other offshore support services. The Gulf of Mexico Shallow and Inland Water segment consists of the Gulf of Mexico jackups and submersible drilling rigs and the U.S. inland drilling barges. Effective January 1, 2002, our operations in Venezuela became a part of our Gulf of Mexico Shallow and Inland Water segment. Critical Accounting Policies And Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, materials and supplies obsolescence, investments, intangible assets and goodwill, income taxes, financing operations, workers' insurance, pensions and other post-retirement and employment benefits and contingent liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following are our most critical accounting policies. These policies require significant judgments and estimates used in the preparation of our consolidated financial statements. Allowance for doubtful accounts - We establish reserves for doubtful accounts on a case-by-case basis when we believe the required payment of specific amounts owed to us is unlikely to occur. We derive a majority of our revenue from services to international oil companies and government-owned or government-controlled oil companies. Our receivables are concentrated in various countries. We generally do not require collateral or other security to support customer receivables. If the financial condition of our customers was to deteriorate or their access to freely convertible currency was restricted, resulting in impairment of their ability to make the required payments, additional allowances may be required. Valuation allowance for deferred tax assets - We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, should we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the valuation allowance would reduce income in the period such determination was made. 22

Goodwill impairment - We review the carrying value of goodwill when facts and circumstances, such as a decline in quoted market value of our ordinary shares, suggest an other than temporary decline in the recorded value. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangibles. As a result of this statement, we will no longer amortize goodwill but will perform an initial test of impairment and then assess goodwill for impairment at least annually thereafter. Because our business is cyclical in nature, goodwill could be significantly impaired depending on when in the business cycle the assessment is performed. Contingent liabilities - We establish reserves for estimated loss contingencies when we believe a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances change that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. Should the outcome differ from our assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required. Contract preparation and mobilization revenues and expenses - Costs incurred in preparing and mobilizing drilling units for new drilling contracts are deferred from the date we have a firm commitment from the customer and recognized as operating and maintenance expense over the estimated primary term of the drilling contract. Revenues earned during or as a result of the contract preparation and mobilization periods are also deferred and recognized over the estimated primary term of the drilling contract. If a customer was to prematurely terminate the contract, any unamortized deferred costs and revenues would be recognized in the period the contract was terminated. Historical 2001 compared to 2000 YEARS ENDED DECEMBER 31, ------------------ % 2001 2000 CHANGE CHANGE -------- -------- -------- ------- (IN MILLIONS, EXCEPT % CHANGE) OPERATING REVENUES International and U.S. Floater Contract Drilling Services . . . . . . . . . . . . . . . . . . . $2,424.1 $1,229.5 $1,194.6 97% Gulf of Mexico Shallow and Inland Water. . . . . 396.0 - 396.0 100% -------- -------- -------- ------- $2,820.1 $1,229.5 $1,590.6 129% ======== ======== ======== ======= The increase in International and U.S. Floater Contract Drilling Services operating revenues related to R&B Falcon operations of $806.7 million since the R&B Falcon merger, $210.7 million in revenues from four newbuild drilling units placed into service subsequent to September 30, 2000 and one newbuild drilling unit placed into service during September 2000, recognition of $10.7 million related to a recovery from a loss-of-hire claim for an incident that occurred in November 2000 and an increase in activity. Operating revenues relating to historical Transocean Sedco Forex core assets totaled $1,359.7 million for the year ended December 31, 2001, representing a $213.9 million, or 19 percent, increase over the comparable 2000 period. Average dayrates for these core assets increased from $68,300 for the year ended December 31, 2000 to $75,600 for the year ended December 31, 2001 and utilization of these core assets increased from 66 percent for the year ended December 31, 2000 to 79 percent for the year ended December 31, 2001. These increases were partly offset by decreases in comparable revenues attributed to less activity for non-core assets and lower revenue earned from managed rigs no longer operated in 2001. Revenues for the year ended December 31, 2000 included a cash settlement of $25.1 million relating to an agreement with a unit of BP to cancel the remaining 14 months of firm contract time on the semisubmersible Transocean Amirante. The Gulf of Mexico Shallow and Inland Water operating revenues were attributable to operations acquired in the R&B Falcon merger. 23

YEARS ENDED DECEMBER 31, ---------------- % 2001 2000 CHANGE CHANGE -------- ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) OPERATING AND MAINTENANCE International and U.S. Floater Contract Drilling Services . . . . . . . . . . . . . . . . . . . $1,358.6 $812.6 $ 546.0 67% Gulf of Mexico Shallow and Inland Water. . . . . 244.7 - 244.7 100% -------- ------ ------- ------- $1,603.3 $812.6 $ 790.7 97% ======== ====== ======= ======= The increase in International and U.S. Floater Contract Drilling Services operating expenses was primarily a result of the R&B Falcon merger, the activation of five newbuild drilling units since the third quarter of 2000 and one newbuild drilling unit that was placed into service during September 2000, offset by $36.3 million related to accelerated amortization of the deferred gain on the Pride North Atlantic (formerly the Drill Star) during the year ended December 31, 2001. See "-Liquidity and Capital Resources-Acquisitions and Dispositions." The Gulf of Mexico Shallow and Inland Water operating expenses resulted from operations acquired in the R&B Falcon merger. A large portion of our operating and maintenance expense consists of employee-related costs and is fixed or only semi-variable. Accordingly, operating and maintenance expense does not vary in direct proportion to activity or dayrates. YEARS ENDED DECEMBER 31, -------------- % 2001 2000 CHANGE CHANGE ------ ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) DEPRECIATION International and U.S. Floater Contract Drilling Services . . . . . . . . . . . . . . . . . . . $379.2 $232.8 $ 146.4 63% Gulf of Mexico Shallow and Inland Water. . . . . 90.9 - 90.9 100% ------ ------ ------- ------- $470.1 $232.8 $ 237.3 102% ====== ====== ======= ======= International and U.S. Floater Contract Drilling Services depreciation expense increased primarily due to depreciation expense for the rigs acquired in the R&B Falcon merger and depreciation expense in 2001 for six newbuild drilling units placed into service since the second quarter of 2000. This increase was partially offset by a reduction of approximately $23 million (net $0.07 per diluted share) for the year ended December 31, 2001 as a result of conforming our policies for estimated rig lives in conjunction with the R&B Falcon merger. The Gulf of Mexico Shallow and Inland Water depreciation expense resulted from rigs acquired in the R&B Falcon merger. YEARS ENDED DECEMBER 31, ------------- % 2001 2000 CHANGE CHANGE ------ ----- ------- ------- (IN MILLIONS, EXCEPT % CHANGE) GOODWILL AMORTIZATION International and U.S. Floater Contract Drilling Services . . . . . . . . . . . . . . . . . . . $114.2 $26.7 $ 87.5 328% Gulf of Mexico Shallow and Inland Water. . . . . 40.7 - 40.7 100% ------ ----- ------- ------- $154.9 $26.7 $ 128.2 480% ====== ===== ======= ======= The International and U.S. Floater Contract Drilling Services goodwill amortization expense increase and the Gulf of Mexico Shallow and Inland Water goodwill amortization expense resulted from the R&B Falcon merger. See "New Accounting Pronouncements." 24

YEARS ENDED DECEMBER 31, ------------ % 2001 2000 CHANGE CHANGE ----- ----- ------- ------- (IN MILLIONS, EXCEPT % CHANGE) GENERAL AND ADMINISTRATIVE. . . . . $57.9 $42.1 $ 15.8 38% ===== ===== ======= ======= The increase in general and administrative expense was primarily attributable to the R&B Falcon merger and reflects the costs to manage a larger and more complex organization. YEARS ENDED DECEMBER 31, ------------- % 2001 2000 CHANGE CHANGE ------- ---- -------- ------- (IN MILLIONS, EXCEPT % CHANGE) IMPAIRMENT LOSS ON LONG-LIVED ASSETS International and U.S. Floater Contract Drilling Services . . . . . . . . . . . . . . . . . . . $(36.3) - $ (36.3) 100% Gulf of Mexico Shallow and Inland Water. . . . . (4.1) - (4.1) 100% ------- ---- -------- ------- $(40.4) - $ (40.4) 100% ======= ==== ======== ======= Asset impairment charges were recorded in the fourth quarter 2001 and related to certain assets held for sale and certain non-core assets held and used. The impairment resulted from deterioration in current market conditions with the fair value of these assets determined based on projected cash flows, industry knowledge and third-party appraisals. YEARS ENDED DECEMBER 31, ------------ % 2001 2000 CHANGE CHANGE ----- ----- ------- ------- (IN MILLIONS, EXCEPT % CHANGE) GAIN FROM SALE OF ASSETS, NET . . . $56.5 $17.8 $ 38.7 217% ===== ===== ======= ======= During the year ended December 31, 2001, we recognized a pre-tax gain of $26.3 million related to the sale of RBF FPSO L.P., which owned the Seillean, and $18.5 million related to accelerated amortization of the deferred gain on the sale of the Sedco Explorer. In addition, we recognized a pre-tax gain of $11.7 million during the year ended December 31, 2001 related to sales of certain non-strategic assets acquired in the R&B Falcon merger and certain other assets held for sale. See "-Liquidity and Capital Resources-Acquisitions and Dispositions." During the year ended December 31, 2000, we recognized a pre-tax gain of $12.9 million on the sale of three units, the semisubmersible Transocean Discoverer, the multi-purpose service vessel Mr. John and the tender Searex V. YEARS ENDED DECEMBER 31, ---------------- % 2001 2000 CHANGE CHANGE -------- ------ -------- ------- (IN MILLIONS, EXCEPT % CHANGE) OTHER INCOME (EXPENSE), NET Equity in earnings of joint ventures . . . . $ 16.5 $ 9.4 $ 7.1 76% Interest income. . . . . . . . . . . . . . . 18.7 6.2 12.5 202% Interest expense, net of amounts capitalized (223.9) (3.0) (220.9) 7,363% Other, net . . . . . . . . . . . . . . . . . (0.8) (1.3) 0.5 38% -------- ------ -------- ------- $(189.5) $11.3 $(200.8) 1,777% ======== ====== ======== ======= 25

The increase in equity in earnings of joint ventures was due primarily to equity in earnings of joint ventures acquired in the R&B Falcon merger. The increase in interest income was primarily due to interest earned on secured contingent notes from a related party acquired as part of the R&B Falcon merger (see "Related Party Transactions") and higher average cash balances for the year ended December 31, 2001 compared to the same period in 2000. The increase in interest expense during 2001 was due to higher debt levels arising from the additional debt assumed in the R&B Falcon merger and additional borrowings to complete newbuild construction projects. Total interest capitalized relating to construction projects was $34.9 million for the year ended December 31, 2001 compared to $86.6 million for the same period in 2000, a decrease of $51.7 million, or 60 percent, resulting from the completion of six newbuild drilling units since the second quarter of 2000. YEARS ENDED DECEMBER 31, ------------ % 2001 2000 CHANGE CHANGE ----- ----- ------- ------- (IN MILLIONS, EXCEPT % CHANGE) INCOME TAX EXPENSE $85.7 $36.7 $ 49.0 134% ===== ===== ======= ======= We operate internationally and provide for income taxes based on the tax laws and rates in the countries in which we operate and earn income. There is no expected relationship between the provision for income taxes and income before income taxes as more fully described in Note 12 to our consolidated financial statements. YEARS ENDED DECEMBER 31, -------------- % 2001 2000 CHANGE CHANGE ------- ----- -------- ------- (IN MILLIONS, EXCEPT % CHANGE) GAIN (LOSS) ON EXTRAORDINARY ITEMS, NET OF TAX $(19.3) $ 1.4 $ (20.7) 1,479% ======= ===== ======== ======= During the year ended December 31, 2001, we recognized a $19.3 million extraordinary loss, net of tax, related to the early extinguishment of certain debt as more fully described in Note 8 to our consolidated financial statements. During the year ended December 31, 2000, we recognized a $1.4 million extraordinary gain, net of tax, related to the early extinguishment of certain debt. HISTORICAL 2000 COMPARED TO 1999 YEARS ENDED DECEMBER 31, ---------------- % 2000 1999 CHANGE CHANGE -------- ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) OPERATING REVENUES $1,229.5 $648.2 $ 581.3 90% ======== ====== ======= ======= The increase in operating revenues was primarily a result of the Sedco Forex merger. Operating revenues for the year ended December 31, 2000 included a $25.1 million cash settlement relating to an agreement with a unit of BP to cancel the remaining 14 months of firm contract time on the semisubmersible Transocean Amirante, $21.8 million relating to the Discoverer Spirit, which began operations late in the third quarter of 2000, and $9.3 million relating to the Trident 20, which began operations in the fourth quarter of 2000. Operating revenues relating to former Sedco Forex operations totaled $544.5 million for the year ended December 31, 2000, representing a $103.7 million or 16 percent decrease over the comparable 1999 period. Of the decrease in revenues, $58.0 million related to core assets, which experienced lower average dayrates, declining from $65,500 for the year ended December 31, 1999 to $55,500 for the same period in 2000. Operating revenues for the year ended December 31, 1999 also included $16.0 million of cash settlements related to the cancellation of contracts on the Sovereign Explorer and Trident 17. This was partially offset by an increase in activity, as utilization of core assets increased from 68 percent for the year ended December 31, 1999 to 74 percent for the same period in 2000. The remaining decrease in 26

comparable revenues was attributed to less activity for non-core assets and lower revenue earned from managed rigs no longer operated in 2000. YEARS ENDED DECEMBER 31, -------------- % 2000 1999 CHANGE CHANGE ------ ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) OPERATING AND MAINTENANCE $812.6 $448.9 $ 363.7 81% ====== ====== ======= ======= The increase in operating and maintenance expense was primarily a result of the Sedco Forex merger. Operating and maintenance expense for the year ended December 31, 2000 included $6.8 million relating to the Discoverer Spirit, which began operations late in the third quarter of 2000, $41.1 million relating to the settlement of an arbitration proceeding with Global Marine Drilling Company ("Global Marine") and a $6.7 million increase in provisions for legal claims. Operating and maintenance expense for the 1999 period included charges totaling $42.0 million relating to severance liabilities, the write-down of obsolete fixed assets and provisions for potential legal claims, $13.4 million relating to provisions for doubtful accounts receivable in West Africa and dayrate contract penalties in Brazil and $56.2 million relating to the allocation of costs by Schlumberger. A large portion of operating and maintenance expense consisted of employee-related costs and is fixed or only semi-variable. Accordingly, operating and maintenance expense does not vary in direct proportion to activity or dayrates. YEARS ENDED DECEMBER 31, -------------- % 2000 1999 CHANGE CHANGE ------ ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) DEPRECIATION . . . . . . . . . $232.8 $131.9 $ 100.9 76% ====== ====== ======= ======= Depreciation expense increased primarily due to the addition of the former Transocean Offshore Inc. rigs and equipment at fair value. Depreciation expense was reduced by approximately $71.9 million (net $0.34 per diluted share) for the year ended December 31, 2000 as a result of conforming our policies relating to estimated rig lives and salvage values after the Sedco Forex merger. YEARS ENDED DECEMBER 31, ------------ % 2000 1999 CHANGE CHANGE ----- ----- ------- ------- (IN MILLIONS, EXCEPT % CHANGE) GOODWILL AMORTIZATION . . . . . . . . . $26.7 $ - $ 26.7 100% ===== ===== ======= ======= Amortization expense increased due to amortization of goodwill recorded for the year ended December 31, 2000 resulting from the Sedco Forex merger. YEARS ENDED DECEMBER 31, ------------ % 2000 1999 CHANGE CHANGE ----- ----- ------- ------- (IN MILLIONS, EXCEPT % CHANGE) GENERAL AND ADMINISTRATIVE . . . . . . . . . $42.1 $16.8 $ 25.3 151% ===== ===== ======= ======= 27

General and administrative expense increased primarily as a result of the Sedco Forex merger and reflects the costs to manage a larger, more complex and geographically diverse organization. General and administrative expense for the year ended December 31, 1999 included $8.0 million relating to an allocation of corporate overhead by Schlumberger. YEARS ENDED DECEMBER 31, -------------- % 2000 1999 CHANGE CHANGE ----- ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) GAIN (LOSS) FROM SALE OF ASSETS, NET . . . . . . . . . $17.8 $(1.3) $ 19.1 1,469% ===== ====== ======= ======= During the year ended December 31, 2000, we recognized a pre-tax gain of $12.9 million on the sale of three units, the semisubmersible Transocean Discoverer, the multi-purpose service vessel Mr. John and the tender Searex V. There were no such sales in 1999. YEARS ENDED DECEMBER 31, -------------- % 2000 1999 CHANGE CHANGE ------ ------- -------- ------- (IN MILLIONS, EXCEPT % CHANGE) OTHER INCOME (EXPENSE), NET Equity in earnings of joint ventures . . . . $ 9.4 $ 5.6 $ 3.8 68% Interest income. . . . . . . . . . . . . . . 6.2 5.4 0.8 15% Interest expense, net of amounts capitalized (3.0) (10.3) 7.3 71% Other, net . . . . . . . . . . . . . . . . . (1.3) (0.7) (0.6) 86% ------ ------- -------- ------- $11.3 $ - $ 11.3 100% ====== ======= ======== ======= The increase in equity in earnings of joint ventures was primarily related to the addition of joint ventures owned by Transocean Offshore Inc. prior to the Sedco Forex merger. Total interest expense was $89.6 million for the year ended December 31, 2000 compared to $37.5 million for 1999, an increase of $52.1 million or 139 percent. The increase during 2000 was due to higher debt levels primarily associated with our newbuild construction projects. Total interest capitalized relating to construction projects was $86.6 million for the year ended December 31, 2000 compared to $27.2 million for 1999, an increase of $59.4 million or 218 percent. Overall, there was a net decrease in interest expense as a greater proportion was capitalized compared to 1999. YEARS ENDED DECEMBER 31, ------------- % 2000 1999 CHANGE CHANGE ----- ------ ------- ------- (IN MILLIONS, EXCEPT % CHANGE) INCOME TAX EXPENSE (BENEFIT) . . . . . . . . . . .$36.7 $(9.3) $ 46.0 495% ===== ====== ======= ======= The income tax benefit for 1999 included a $9.5 million deferred tax benefit relating to charges for potential legal claims and additional U.K. tax loss carryforwards for which no valuation allowance was provided as well as the adjustment of U.K. tax loss carryforwards for prior years. We operate internationally and provide for income taxes based on the tax laws and rates in the countries in which we operate and earn income. There is no expected relationship between the provision for or benefit from income taxes and income before income taxes, as more fully described in Note 12 to our consolidated financial statements. 28

Financial Condition December 31, 2001 compared to December 31, 2000 Total assets at December 31, 2001 were $17.0 billion compared to $6.4 billion at December 31, 2000. International and U.S. Floater Contract Drilling Services assets were $14.3 billion at December 31, 2001 compared to $6.4 billion at December 31, 2000, an increase of $7.9 billion, or 123 percent. The increase was primarily due to the addition of R&B Falcon's assets at fair value on January 31, 2001 and goodwill related to the R&B Falcon merger. Gulf of Mexico Shallow and Inland Water assets of $2.7 billion were due to the addition of R&B Falcon's assets at fair value on January 31, 2001 and goodwill related to the R&B Falcon merger. Restructuring Charges In conjunction with the R&B Falcon merger, we established a liability of $16.5 million for the estimated severance-related costs associated with the involuntary termination of 569 R&B Falcon employees pursuant to management's plan to consolidate operations and administrative functions post-merger. Included in the 569 planned involuntary terminations were 387 employees engaged in our land and barge drilling business in Venezuela. We have suspended active marketing efforts to divest this business and, as a result, the estimated liability was reduced by $4.3 million in the third quarter of 2001 with an offset to goodwill. Through December 31, 2001, approximately $11.6 million in severance-related costs have been paid to 173 employees whose positions were eliminated as a result of the consolidation of operations and administrative functions post-merger. We anticipate that substantially all of the remaining amounts will be paid by the end of the first quarter of 2002. 1999 Charges Operating and maintenance expense for the year ended December 31, 1999 included charges totaling $42.0 million. Reduced exploration and development activity by customers, resulting from a period of low oil prices from late 1997 through early 1999 and industry consolidation over the same time period, resulted in a slowdown in the offshore drilling industry during 1999. As a result of this slowdown, approximately 1,000 operating personnel were determined to be redundant, and charges associated with termination and severance benefits of $13.2 million were recognized during 1999. Substantially all of these employees had been terminated and severance and termination costs had been paid as of December 31, 1999. Provisions for potential legal claims of $28.8 million were recognized during 1999. 2001 R&B Falcon Pro Forma Operating Results Our unaudited pro forma consolidated results for the year ended December 31, 2001, giving effect to the R&B Falcon merger, reflected net income of $257.6 million or $0.80 per diluted share on pro forma operating revenues of $2,946.0 million. The pro forma operating results assume the merger was completed as of January 1, 2001 (see Note 4 to our consolidated financial statements). These pro forma results do not reflect the effects of reduced depreciation expense related to conforming the estimated lives of our drilling rigs. The pro forma financial data should not be relied on as an indication of operating results that we would have achieved had the merger taken place earlier or of the future results that we may achieve. 1999 Sedco Forex Pro Forma Operating Results Our unaudited pro forma consolidated results for the year ended December 31, 1999, giving effect to the Sedco Forex merger, reflected net income of $237.9 million or $1.13 per diluted share on pro forma operating revenues of $1,579.1 million. The pro forma operating results assume the spin-off and merger was completed as of January 1, 1999 (see Note 4 to our consolidated financial statements). These pro forma results do not reflect the effects of reduced depreciation expense related to conforming the estimated lives of Sedco Forex rigs and the elimination of certain allocated costs from Schlumberger. The pro forma financial data should not be relied on as an indication of operating results that we would have achieved had the spin-off and merger taken place earlier or of the future results that we may achieve. Outlook Fleet utilization and average dayrates within our International and U.S. Floater Contract Drilling Services business segment improved during the fourth quarter of 2001 compared with the third quarter of 2001. However, both fleet utilization and average dayrates within our Gulf of Mexico Shallow and Inland Water business segment decreased significantly compared to the immediately preceding quarter. Continued weakness in U.S. natural gas prices led to the decline, which was most pronounced in the segment's jackup and submersible fleet. 29

THREE MONTHS ENDED ----------------------------------------------- DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 2001 2001 2000 (A) -------------- --------------- -------------- AVERAGE DAYRATES INTERNATIONAL AND U.S. FLOATER CONTRACT DRILLING SERVICES SEGMENT: High-Specification Floaters. . . . . . . . . . $ 145,000 $ 144,500 $ 124,300 Other Floaters . . . . . . . . . . . . . . . . 71,100 66,600 56,000 Jackups - Non-U.S. . . . . . . . . . . . . . . 52,800 49,200 37,100 Other. . . . . . . . . . . . . . . . . . . . . 41,300 42,500 41,400 -------------- --------------- -------------- Segment Total. . . . . . . . . . . . . . . . . . . 88,200 86,600 72,000 -------------- --------------- -------------- GULF OF MEXICO SHALLOW AND INLAND WATER SEGMENT: Jackups and Submersibles . . . . . . . . . . . 30,600 37,700 32,000 Inland Barges. . . . . . . . . . . . . . . . . 22,800 24,400 20,000 -------------- --------------- -------------- Segment Total. . . . . . . . . . . . . . . . . . . 25,600 30,000 26,300 -------------- --------------- -------------- Total Mobile Offshore Drilling Fleet . . . . . . . $ 74,000 $ 66,900 $ 54,200 ============== =============== ============== UTILIZATION INTERNATIONAL AND U.S. FLOATER CONTRACT DRILLING SERVICES SEGMENT: High-Specification Floaters. . . . . . . . . . 90% 87% 92% Other Floaters . . . . . . . . . . . . . . . . 89% 82% 70% Jackups - Non-U.S. . . . . . . . . . . . . . . 89% 84% 86% Other. . . . . . . . . . . . . . . . . . . . . 54% 48% 47% -------------- --------------- -------------- Segment Total. . . . . . . . . . . . . . . . . . . 86% 81% 78% -------------- --------------- -------------- GULF OF MEXICO SHALLOW AND INLAND WATER SEGMENT: Jackups and Submersibles . . . . . . . . . . . 27% 52% 70% Inland Barges. . . . . . . . . . . . . . . . . 49% 75% 65% -------------- --------------- -------------- Segment Total. . . . . . . . . . . . . . . . . . . 38% 63% 67% -------------- --------------- -------------- Total Mobile Offshore Drilling Fleet . . . . . . . 67% 73% 74% ============== =============== ============== - -------------------- (a) Pro forma based on the combined fleet of Transocean Sedco Forex and R&B Falcon. We believe we will experience continued weakening demand in most drilling market segments during 2002 as our clients reassess their exploration and production spending plans. Demand for our drilling rigs is driven largely by our clients' perception of future commodity prices. Low natural gas prices in the U.S. have had a significant influence on client drilling programs, which have been sharply curtailed. Slack demand for U.S. natural gas has also resulted in a considerable increase in storage supplies. Current lower demand, increased volume in storage and the uncertainty over the U.S. economy all lead us to believe that we will not see a meaningful recovery in the U.S. gas drilling market in the near term. World crude oil prices remain at levels generally lower than those experienced in the past two years due to concern over the global economy. While OPEC has recently been able to maintain production discipline and has cooperated with some of the major non-OPEC producers to further control oil production, it is unclear to us whether either factor will persist. Increased oil production would put further downward pressure on prices. We do not foresee a significant increase in demand within our International and U.S. Floater Drilling Services segment in the near term. In particular, we believe the mid-depth floater market segments in most regions will be weak during at least the first half of 2002 and that the deepwater floater market segments in the Norway and UK North Sea sectors and the U.S. will also face an oversupply of available units in the near term. The international jackup market is relatively stable at present, but we expect continued pressure from jackup rigs which are being mobilized out of the U.S. 30

The contract drilling market historically has been highly competitive and cyclical, and we are unable to predict the extent to which current market conditions will continue. A further decline in oil or gas prices could likewise further reduce demand for our contract drilling services and adversely affect both utilization and dayrates. We continue with our plans to sell a number of assets (see "-Liquidity and Capital Resources-Acquisitions and Dispositions"), although the downturn in the U.S. natural gas market and the broader market uncertainty has adversely affected our efforts. We expect the pace of our divestiture program to slow considerably due to the effect that the drilling market slowdown has had on the prices buyers are willing to pay. These asset sales will be dependent upon obtaining an acceptable sale price, and we do not believe we will conclude all sales in 2002. Our active marketing efforts to divest our land and barge drilling business in Venezuela remain suspended until such time as we believe an acceptable price may be obtained. We currently expect the total proceeds of these sales, including the Venezuela business, to be between $400 million and $500 million (including $202 million of proceeds received through December 31, 2001). Most of these assets identified for sale were marked to fair value on our books in connection with the R&B Falcon merger pursuant to purchase accounting rules and we do not expect sales of those assets to have a material effect on our results of operations. However, the actual proceeds may differ substantially from our expectations, which may have a material effect on our results of operations. We may also decide to discontinue our sales efforts, in whole or in part. As of March 1, 2002, approximately 62 percent of our International and U.S. Floater Contract Drilling Services segment fleet days were committed for the remainder of 2002 and approximately 23 percent for the year 2003. For our Gulf of Mexico Shallow and Inland Water segment, which has traditionally operated under short-term contracts, committed fleet days were approximately four percent for the remainder of 2002 and none are currently committed for the year 2003. Other Factors Affecting Operating Results Our business depends on the level of activity in oil and gas exploration, development and production in market segments worldwide, with the U.S. and international offshore and U.S. inland marine areas being our primary market segments. Oil and gas prices and market expectations of potential changes in these prices significantly affect this level of activity. Worldwide military, political and economic events have contributed to oil and gas price volatility and are likely to do so in the future. Oil and gas prices are extremely volatile and are affected by numerous factors, including the following: - - worldwide demand for oil and gas, - - the ability of the Organization of Petroleum Exporting Countries, commonly called "OPEC," to set and maintain production levels and pricing, - - the level of production in non-OPEC countries, - - the policies of various governments regarding exploration and development of their oil and gas reserves, - - advances in exploration and development technology, and - - the worldwide military and political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in the Middle East or other geographic areas in which we operate or further acts of terrorism in the United States, or elsewhere. The offshore and inland marine contract drilling industry is highly competitive with numerous industry participants, none of which has a dominant market share. Drilling contracts are traditionally awarded on a competitive bid basis. Intense price competition is often the primary factor in determining which qualified contractor is awarded a job, although rig availability and the quality and technical capability of service and equipment may also be considered. Recent mergers among oil and natural gas exploration and production companies have reduced the number of available customers. Our industry has historically been cyclical and may be impacted by oil and gas price levels and volatility. There have been periods of high demand, short rig supply and high dayrates, followed by periods of low demand, excess rig supply and low dayrates. Changes in commodity prices can have a dramatic effect on rig demand, and periods of excess rig supply intensify the competition in the industry and often result in rigs being idle for long periods of time. We may be required to idle rigs or enter into lower rate contracts in response to market conditions in the future. 31

The Company completed its newbuild program in 2001 with the delivery of one high-specification drillship and four high-specification semisubmersibles. The Company has experienced some start-up difficulties with most of its newbuild rigs, which can affect downtime and operating revenues. While the Company expects its newbuild rig fleet to operate with average downtime comparable to industry norms, there can be no assurance that future operational problems will not arise. Should problems occur which cause significant downtime or significantly affect a newbuild rig's performance or safety, the Company's clients may attempt to terminate or suspend the drilling contract, particularly any of the long-term contracts associated with most of the newbuild rigs. In the event of termination of a drilling contract for one of these rigs, it is unlikely that the Company would be able to secure a replacement contract on as favorable terms. Our customers may terminate or suspend some of our term drilling contracts under various circumstances such as the loss or destruction of the drilling unit or as the result of equipment problems. Some drilling contracts permit the customer to terminate the contract at the customer's option without paying a termination fee. Suspension of drilling contracts results in loss of the dayrate for the period of the suspension. If our customers cancel some of our significant contracts and we are unable to secure new contracts on substantially similar terms, it could adversely affect our results of operations. In reaction to depressed market conditions, our customers may also seek renegotiation of firm drilling contracts to reduce their obligations. We have been involved in two merger transactions in the last three years. We may not be able to finalize the integration of the operations of the merged or acquired companies without a loss of employees, customers or suppliers, a loss of revenues, an increase in operating or other costs or other difficulties. In addition, we may not be able to realize the operating efficiencies, synergies, cost savings or other benefits expected from these transactions. Any unexpected costs or delays incurred in connection with the integration could have an adverse effect on our business, results of operations or consolidated financial position. We plan to continue our restructuring of the ownership of a portion of the assets held by R&B Falcon and its subsidiaries at the time of our merger. This restructuring is intended to achieve operational efficiencies, including improved worldwide cash management and increased flexibility for operating rigs in various jurisdictions, and allow for potential tax and other savings. Any transfers of assets by R&B Falcon or one of its subsidiaries to Transocean Sedco Forex or one of its other subsidiaries in this restructuring could, in some cases, result in the imposition of additional taxes. Our operations are subject to the usual hazards inherent in the drilling of oil and gas wells, such as blowouts, reservoir damage, loss of production, loss of well control, punchthroughs, craterings and fires. The occurrence of these events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury or death to rig personnel. We may also be subject to personal injury and other claims of rig personnel as a result of our drilling operations. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, and failure of subcontractors to perform or supply goods or services or personnel shortages. In addition, offshore drilling operators are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by oil and gas companies. Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we may not have insurance coverage or rights to indemnity for all risks. If a significant accident or other event, including terrorist acts, war, civil disturbances, pollution or environmental damage, occurs and is not fully covered by insurance or a recoverable indemnity from a client, it could adversely affect our consolidated financial position or results of operations. Moreover, no assurance can be made that we will be able to maintain adequate insurance in the future at rates we consider reasonable or be able to obtain insurance against certain risks, particularly in light of the instability and developments in the insurance markets following the recent terrorist attacks. We operate in various regions throughout the world that may expose us to political and other uncertainties, including risks of: - - terrorist acts, war and civil disturbances; - - expropriation or nationalization of equipment; and - - the inability to repatriate income or capital. We are protected to a substantial extent against loss of capital assets, but generally not loss of revenue, from most of these risks through insurance, indemnity provisions in our drilling contracts, or both. Although we maintain insurance in the areas in 32

which we operate, pollution and environmental risks generally are not totally insurable. If a significant accident or other event occurs and is not fully covered by insurance or a recoverable indemnity from a client, it could adversely affect our consolidated financial position or results of operations. As of March 1, 2002, all areas in which we were operating were covered by existing insurance policies. Many governments favor or effectively require the awarding of drilling contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete. Our non-U.S. contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipment and operation of drilling units, currency conversions and repatriation, oil and gas exploration and development and taxation of offshore earnings and earnings of expatriate personnel. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government action, including initiatives by OPEC, may continue to cause oil or gas 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 and may continue to do so. Transocean Sedco Forex is a Cayman Islands company as a result of our reorganization from a Delaware corporation in May 1999. We operate worldwide through our various subsidiaries. Consequently, we are subject to changing taxation policies in the jurisdictions in which we operate, which could include policies directed toward companies organized in jurisdictions with low tax rates. A material change in the tax laws of any country in which we have significant operations, including the United States, could result in a higher effective tax rate on our worldwide earnings Another risk inherent in our operations is the possibility of currency exchange losses where revenues are received and expenses are paid in nonconvertible currencies. We may also incur losses as a result of an inability to collect revenues because of a shortage of convertible currency available to the country of operation. We seek to limit these risks by structuring contracts such that compensation is made in freely convertible currencies and, to the extent possible, by limiting acceptance of non-convertible currencies to amounts that match our expense requirements in local currency (see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk -Foreign Exchange Risk"). We require highly skilled personnel to operate and provide technical services and support for our drilling units. To the extent that demand for drilling services and the size of the worldwide industry fleet increase, shortages of qualified personnel could arise, creating upward pressure on wages. We are continuing our recruitment and training programs as required to meet our anticipated personnel needs. On March 1, 2002, we had approximately 13 percent of our employees worldwide working under collective bargaining agreements, most of whom were working in Norway, Nigeria, Brazil and Venezuela. Of these represented employees, a majority are working under agreements that are subject to salary negotiation in 2002. In addition, the Company has signed a recognition agreement requiring negotiation with a labor union representing employees in the U.K. These negotiations are expected to begin in the second quarter of 2002 and could result in collective bargaining agreements covering these employees, which could result in higher personnel expenses, other increased costs or increased operating restrictions. Our operations are subject to regulations controlling the discharge of materials into the environment, requiring removal and cleanup of materials that may harm the environment or otherwise relating to the protection of the environment. For example, as an operator of mobile offshore drilling units in navigable United States waters and some offshore areas, we may be liable for damages and costs incurred in connection with oil spills related to those operations. Laws and regulations protecting the environment have become more stringent in recent years, and may in some cases impose strict liability, rendering a person liable for environmental damage without regard to negligence. These laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on our consolidated financial position and results of our operations. On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope. On October 7, 2001, the United States commenced military action in Afghanistan in response to these attacks. Military action by the United States may continue indefinitely and may escalate and armed hostilities may begin or escalate in other countries. Further acts of terrorism in the United States or elsewhere may occur, and such acts of terrorism could be directed against companies such as ours. These developments have caused instability in the world's financial and insurance markets and will likely significantly 33

increase political and economic instability in the geographic areas in which we currently operate. In addition, these developments could lead to increased volatility in prices for crude oil and natural gas and could affect the markets for drilling services. Following the terrorist attacks on September 11, 2001, insurance underwriters increased insurance premiums charged for many of the coverages historically maintained and issued general notices of cancellations to their customers for war risk, terrorism and political risk insurance in respect of a wide variety of insurance coverages, including but not limited to, liability and aviation coverages. Our insurance underwriters renegotiated substantially higher premium rates for war risk coverage, which can be canceled by the underwriters on short notice. Insurance premiums could be increased further or coverages may be unavailable in the future. United States government regulations effectively preclude us from actively 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. These developments could subject the worldwide operations of our company to increased risks and, depending on their magnitude, could have a material adverse effect on our business. The general rate of inflation in the majority of the countries in which we operate has been moderate over the past several years and has not had a material impact on our results of operations. An increase in the demand for offshore drilling rigs usually leads to higher labor, transportation and other operating expenses as a result of an increased need for qualified personnel and services. Merger Purchase Price Allocation The purchase price allocation for the merger of Transocean Sedco Forex Inc. and R&B Falcon included, at estimated fair value, total assets of $4.8 billion and the assumption of total liabilities of $3.8 billion. The excess of the purchase price over the estimated fair value of net assets acquired of approximately $5.6 billion was accounted for as goodwill. At December 31, 2001, this goodwill represented approximately 32 percent of total assets and 50 percent of total shareholders' equity. The goodwill has been amortized using a 40-year life based on the nature of the offshore drilling industry, long-lived drilling equipment and the long-standing relationships with core customers. Goodwill amortization expense related to the R&B Falcon merger was approximately $128 million for the year ended December 31, 2001 in addition to the $27 million related to the Sedco Forex merger mentioned below. See "New Accounting Pronouncements". The purchase price allocation for the merger of Transocean Offshore Inc. and Sedco Forex included, at estimated fair value, total assets of $3.8 billion and the assumption of total liabilities of $1.9 billion. The excess of the purchase price over the estimated fair value of net assets acquired of approximately $1.1 billion was accounted for as goodwill. At December 31, 2001, this goodwill represented approximately 5.9 percent of total assets and 9.3 percent of total shareholders' equity. The goodwill has been amortized using a 40-year life based on the nature of the offshore drilling industry, long-lived drilling equipment and the long-standing relationships with core customers. Goodwill amortization expense related to the Sedco Forex merger was approximately $27 million per year. See "New Accounting Pronouncements". Liquidity and Capital Resources Sources and Uses of Cash YEARS ENDED DECEMBER 31, ------------------------ 2001 2000 CHANGE -------- -------------- -------- (In millions) NET CASH PROVIDED BY OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 144.1 Depreciation and amortization . . . . . 625.0 259.5 365.5 Non-cash items. . . . . . . . . . . . . (202.6) (90.9) (111.7) Working capital . . . . . . . . . . . . (108.2) (81.2) (27.0) -------- -------------- -------- $ 566.8 $ 195.9 $ 370.9 ======== ============== ======== Cash generated from net income items adjusted for non-cash activity was $397.9 million higher and cash used for working capital items was $27.0 million higher for the year ended December 31, 2001 compared to the same period in 2000, primarily as a result of the R&B Falcon merger. 34

YEARS ENDED DECEMBER 31, ------------------------ 2001 2000 CHANGE -------- -------------- -------- (In millions) NET CASH USED IN INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . $(506.2) $ (574.7) $ 68.5 Proceeds from sale of coiled tubing drilling services business. . . . . . . . . . . . . - 24.9 (24.9) Proceeds from sale of securities . . . . . . 17.2 - 17.2 Proceeds from disposal of assets . . . . . . 201.7 56.3 145.4 Merger costs paid. . . . . . . . . . . . . . (24.4) (4.5) (19.9) R&B Falcon cash at acquisition . . . . . . . 264.7 - 264.7 Other, net . . . . . . . . . . . . . . . . . 20.6 5.1 15.5 -------- -------------- -------- $ (26.4) $ (492.9) $ 466.5 ======== ============== ======== Net cash used in investing activities decreased for the year ended December 31, 2001 as compared to the previous year as a result of cash received in connection with the R&B Falcon merger, higher proceeds from asset sales and lower capital expenditures. YEARS ENDED DECEMBER 31, -------------------------- 2001 2000 CHANGE ---------- -------------- ---------- (In millions) NET CASH PROVIDED BY FINANCING ACTIVITIES Net borrowings under commercial paper program $ 326.4 $ - $ 326.4 Net proceeds from issuance of debt. . . . . . 1,693.5 489.1 1,204.4 Early repayments of debt instruments. . . . . (1,495.0) (233.8) (1,261.2) Net repayments on revolving credit agreements (180.1) (56.3) (123.8) Other, net. . . . . . . . . . . . . . . . . . (66.3) (33.2) (33.1) ---------- -------------- ---------- $ 278.5 $ 165.8 $ 112.7 ========== ============== ========== During 2001, we had net repayments under our revolving credit agreements of $180.1 million, early repayments of debt instruments of $1,495.0 million and net proceeds from borrowings under our commercial paper program of $326.4 million. We also had net proceeds from other debt of $1,693.5 million primarily due to the issuance of the 6.625% Notes, 7.5% Notes and 1.5% Convertible Debentures in the second quarter of 2001. During 2000, we had net proceeds from other debt of $489.1 million from the issuance of the Zero Coupon Convertible Debentures partially offset by the $56.3 million net repayment of our revolving credit agreement and by the $233.8 million early repayment on our secured loan agreement. Capital Expenditures Capital expenditures, including capitalized interest, totaled $506 million during the year ended December 31, 2001. See Note 5 to our consolidated financial statements. During 2002, we expect to spend between $200 million and $220 million on our existing fleet, corporate infrastructure and major upgrades on the Discoverer Seven Seas and Deepwater Expedition. A substantial majority of our capital expenditures relates to the International and U.S. Floater Contract Drilling Services segment. We intend to fund the cash requirements relating to our capital expenditures through available cash balances, cash generated from operations and asset sales. We also have available borrowings under our revolving credit agreements and commercial paper program (see "-Sources of Liquidity") and may engage in other commercial bank or capital market financings. We completed our rig expansion program in 2001. The Sedco Express was placed into service in April 2001. In February 2001, a unit of TotalFinaElf terminated the contract for the Sedco Express due to delayed delivery. The rig began a four-month contract with a unit of BP in Egypt in the first quarter of 2002. The Sedco Energy arrived in Brazil in April 2001 and began a 42-month contract with ChevronTexaco in May 2001. In October 2001, the Sedco Energy moved to West Africa where it is expected to complete the remainder of the contract. The Cajun Express was delivered in April 2001, when it began an 18-month contract with Marathon in the U.S. Gulf of Mexico. In July 2001, Marathon terminated the 18-month contract for the Cajun Express allegedly because of downtime relating to equipment performance. The Cajun Express operated under a six-month contract with Ocean Energy in the U.S. Gulf of Mexico beginning in August 2001. We are currently in discussions with various operators for work for the Cajun Express. The Discoverer Deep Seas was delivered early in the first quarter of 2001, when it 35

began a five-year contract with ChevronTexaco in the U.S. Gulf of Mexico. The Deepwater Horizon was placed into service in September 2001 when it began a three-year contract with a unit of BP in the U.S. Gulf of Mexico. Acquisitions and Dispositions From time to time, we review possible acquisitions of businesses and drilling units and may in the future make significant capital commitments for such purposes. Any such acquisition could involve the payment by us of a substantial amount of cash or the issuance of a substantial number of additional ordinary shares or other securities. We would likely fund the cash portion of any such acquisition through cash balances on hand, the incurrence of additional debt, sales of assets, ordinary shares or other securities or a combination thereof. In addition, from time to time, we review possible dispositions of drilling units. See "- Outlook." On January 31, 2001, we completed a merger transaction with R&B Falcon in which one of our indirect wholly owned subsidiaries merged with and into R&B Falcon. As a result of the merger, R&B Falcon common shareholders received 0.5 of our newly issued ordinary shares for each R&B Falcon share. We issued approximately 106 million ordinary shares in exchange for the issued and outstanding shares of R&B Falcon and assumed warrants and options exercisable for approximately 13 million ordinary shares. The ordinary shares issued in exchange for the issued and outstanding shares of R&B Falcon constituted approximately 33 percent of our outstanding ordinary shares after the merger. In February 2001, Sea Wolf Drilling Limited ("Sea Wolf"), a joint venture in which we hold a 25 percent interest, sold two semisubmersible rigs, the Drill Star and Sedco Explorer, to Pride International, Inc. In the first quarter of 2001, we recognized accelerated amortization of the deferred gain related to the Sedco Explorer of $18.5 million, which is included in gain from sale of assets. Our bareboat charter with Sea Wolf on the Sedco Explorer was terminated effective June 2000. We continued to operate the Drill Star, which has been renamed the Pride North Atlantic, under a bareboat charter agreement until October 2001 at which time the rig was returned to its owner. The amortization of the Drill Star's deferred gain was accelerated and produced incremental gains totaling $36.3 million, which is included as a reduction in operating and maintenance expense. In December 2001, we sold RBF FPSO L.P., which owns the Seillean, a multi-purpose service vessel. We received net proceeds of $85.6 million. The sale resulted in a net after-tax gain of $17.1 million ($0.05 per diluted share) for the year ended December 31, 2001. In addition, during the year ended December 31, 2001, we sold certain other non-strategic assets acquired in the R&B Falcon merger and certain other assets held for sale. We received net proceeds of approximately $116.1 million. These sales resulted in a net after-tax gain of $7.5 million ($0.02 per diluted share) for the year ended December 31, 2001. In March 2002, we entered into definitive agreements to sell two semisubmersible rigs, the Transocean 96 and Transocean 97, for an aggregate sales price of $31 million. We expect the sales, which are subject to closing conditions customary for this type of transaction, to close in the coming weeks. We do not expect the results of the sales to have a material effect on our consolidated results of operations. Sources of Liquidity Our primary sources of liquidity in 2001 were our cash flows from operations and asset sales and issuances of debt securities and commercial paper. Primary uses of cash were capital expenditures and debt repayment. At December 31, 2001, we had $853 million in cash and cash equivalents. We anticipate that we will rely primarily upon existing cash balances and internally generated cash flows to maintain liquidity in 2002, as cash flows from operations are expected to be positive and adequate to fulfill currently planned obligations. From time to time, we may also use bank lines of credit and commercial paper to maintain liquidity for short-term cash needs. We intend to use cash from operations primarily to fund capital expenditures and to pay debt as it comes due. If we seek to reduce our debt other than scheduled maturities, we could do so through repayment of bank or commercial paper borrowings or through repurchases or redemptions of, or tender offers for, debt securities. We expect to significantly reduce capital expenditures going forward due to the completion of our newbuild program. Our internally generated cash flow is directly related to our business and the market segments in which we operate. Should the drilling market deteriorate further, or should we experience poor results in our operations, cash flow from operations may be reduced. While we have continued to generate positive cash flow from operations and expect to do so in the foreseeable future, many of the market segments in which we operate are, at present, weakening and may continue to weaken in the near and medium term. 36

We have access to $800 million in bank lines of credit under two revolving credit agreements. These credit lines are used primarily to back our $800 million commercial paper program and may also be drawn on directly. As of year-end 2001, $326 million of the credit line capacity was used to back issuance of $326 million of commercial paper, leaving $474 million of availability under the bank lines of credit for commercial paper issuance or drawdowns. In January 2002, the entire amount of commercial paper borrowings was repaid utilizing cash investments, leaving $800 million in commercial paper and/or bank line availability. The bank credit lines require compliance with various covenants and provisions customary for agreements of this nature, including an interest coverage ratio of not less than 3 to 1, a leverage ratio of not greater than 40 percent and limitations on mergers and sale of substantially all assets, creating liens, incurring debt, transactions with affiliates and sale/leaseback transactions. Should we fail to comply with these covenants, we would be in default and may lose access to these facilities. A loss of the bank facilities would also cause us to lose access to the commercial paper markets. We are also subject to various covenants under the indentures pursuant to which our public debt was issued, including restrictions on creating liens, engaging in sale/leaseback transactions and engaging in merger, consolidation or reorganization transactions. A default under our public debt could trigger a default under our credit lines and cause us to lose access to these facilities. See Note 8 to our consolidated financial statements for a description of our credit agreements and debt securities. In April 2001, the Securities and Exchange Commission ("SEC") declared effective our shelf registration statement on Form S-3 for the proposed offering from time to time of up to $2.0 billion in gross proceeds of senior or subordinated debt securities, preference shares, ordinary shares and warrants to purchase debt securities, preference shares, ordinary shares or other securities. In May 2001, we issued $400.0 million aggregate principal amount of 1.5% Convertible Debentures due May 15, 2021 under the shelf registration statement. At March 1, 2002, $1.6 billion in gross proceeds of securities remained unissued under the shelf registration statement. Our access to commercial paper, debt and equity markets may be reduced or closed to us due to a variety of events, including, among others, downgrades of ratings of our debt and commercial paper, industry conditions, general economic conditions, market conditions and market perceptions of us and our industry. Our contractual obligations in the table below include our debt obligations at face value. AS OF DECEMBER 31, 2001 ------------------------------------------------ LESS THAN 1 TO 3 4 - 5 AFTER TOTAL 1 YEAR YEARS YEARS 5 YEARS ------ ---------- ---------- ------ -------- (IN MILLIONS) CONTRACTUAL OBLIGATIONS Debt. . . . . . . . . . $4,995 $ 484 $ 1,711 $ 500 $ 2,300 Operating Leases. . . . 127 28 66 12 21 ------ ---------- ---------- ------ -------- Total Obligations . . $5,122 $ 512 $ 1,777 $ 512 $ 2,321 ====== ========== ========== ====== ======== We are required to repurchase the Zero Coupon Convertible Debentures due 2020 and the 1.5% Convertible Debentures due 2021 at the option of the holder on specified dates. We have the option to pay the repurchase price in cash, ordinary shares or any combination of cash and ordinary shares. The chart above assumes that the holders of these debentures exercise this option at the first available date. These debentures are more fully described in Note 8 to our consolidated financial statements. 37

At December 31, 2001, we had other commitments that we are contractually obligated to fulfill with cash should the obligations be called. These obligations consisted primarily of standby letters of credit and surety bonds, which guarantee our performance as it relates to our drilling contracts, insurance, tax and other obligations in various jurisdictions. These obligations are not normally called as we typically comply with the underlying performance requirement. The table below provides a list of these obligations in U.S. dollar equivalents and their time to expiration. It should be noted that these obligations could be called at any time prior to the expiration dates. AS OF DECEMBER 31, 2001 ---------------------------------------------- LESS THAN 1 TO 3 4 - 5 AFTER TOTAL 1 YEAR YEARS YEARS 5 YEARS ------ ---------- -------- ------ -------- (IN MILLIONS) OTHER COMMERCIAL COMMITMENTS Standby Letters of Credit . . $ 38 $ 34 $ 4 $ - $ - Surety Bonds. . . . . . . . . 190 124 66 - - Purchase Option Guarantees - Joint Ventures (a). . . . . 209 - 209 - - Other Commitments . . . . . . 4 4 - - - ------ ---------- -------- ------ -------- Total . . . . . . . . . . . $ 441 $ 162 $ 279 $ - $ - ====== ========== ======== ====== ======== - -------------------- (a) See "-Special Purpose Entities". Letters of credit are issued under a number of facilities provided by several banks. The obligations that are the subject of these surety bonds are geographically concentrated in Brazil and Nigeria, of which 73 percent are concentrated in three bonds. In March 2002, the Company completed an exchange offer pursuant to which the 6.50% Notes due April 15, 2003, 6.75% Notes due April 15, 2005, 6.95% Notes due April 15, 2008, 7.375% Notes due April 15, 2018, 9.125% Notes due December 15, 2003 and 9.50% Notes due December 15, 2008 of R&B Falcon whose holders accepted the offer were exchanged for newly issued notes of the Company. The new notes were issued in six series corresponding to the six series of R&B Falcon notes and have the same principal amount, interest rate, redemption terms and payment and maturity dates as the corresponding series of R&B Falcon notes. The aggregate principal amount of the new notes issued was approximately $1.4 billion. Because the holders of a majority in principal amount of each of these series of notes consented to the proposed amendments to the applicable indenture pursuant to which the notes were issued, some covenants, restrictions and events of default were eliminated from the indentures with respect to these series of notes. In connection with the exchange offers, an aggregate of $8.3 million in consent payments were made by R&B Falcon to holders of R&B Falcon notes whose notes were tendered (and not validly withdrawn) within the required time periods and accepted for exchange. Derivative Instruments We have established policies and procedures for derivative instruments that have been approved by our Board of Directors. These policies and procedures provide for the prior approval of derivative instruments by our Chief Financial Officer. From time to time, we may enter into a variety of derivative financial instruments in connection with the management of our exposure to fluctuations in foreign exchange rates and interest rates. We do not enter into derivative transactions for speculative purposes; however, for accounting purposes, certain transactions may not meet the criteria for hedge accounting. Gains and losses on foreign exchange derivative instruments that qualify as accounting hedges are deferred as accumulated other comprehensive income and recognized when the underlying foreign exchange exposure is realized. Gains and losses on foreign exchange derivative instruments that do not qualify as hedges for accounting purposes are recognized currently based on the change in market value of the derivative instruments. At December 31, 2001, we had no material open foreign exchange derivative instruments. From time to time, we may use interest rate swaps to manage the effect of interest rate changes on future income. Interest rate swaps are designated as a hedge of underlying future interest payments. The interest rate differential to be received or paid under the swaps is recognized over the lives of the swaps as an adjustment to interest expense (see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk"). If an interest rate swap is terminated, the gain or loss is amortized over the life of the underlying debt. At December 31, 2001, we had a $3.9 million gain related to a terminated 38

interest rate swap that is included in accumulated other comprehensive income in our consolidated balance sheet and is being amortized over the life of the underlying debt. One of our unconsolidated joint ventures, Deepwater Drilling LLC ("DD LLC"), has an interest rate swap associated with the operating lease for the Deepwater Pathfinder. The effect of the swap has been to convert the interest portion of the operating lease payments from a floating rate of one-month London Interbank Offered Rate ("LIBOR") plus a margin to a fixed rate of 5.7175 percent per annum. We report our share of the fair value of the interest rate swap in accumulated other comprehensive income in our consolidated balance sheet. At December 31, 2001, this amount was an unrealized loss of $5.6 million. In June 2001, we entered into $700 million aggregate notional amount of interest rate swaps as a fair value hedge against our 6.625% Notes due April 2011. The swaps effectively convert the fixed interest rate on such notes into a floating rate of LIBOR plus 0.50 percent per annum. The market value of the swaps are carried as an asset or a liability in our consolidated balance sheet and the carrying value of the hedged debt is adjusted accordingly. At December 31, 2001, the swaps had a market value of $15.1 million. The swaps mature on the same date as the notes. In February 2002, we entered into $900 million aggregate notional amount of interest rate swaps as a hedge against certain fixed rate debt. The effect of the swaps was to convert the fixed interest rates into a floating rate of LIBOR plus a margin. Special Purpose Entities As a result of the R&B Falcon merger, we have ownership interests in two unconsolidated joint ventures, 50 percent in DD LLC, and 60 percent in Deepwater Drilling II, LLC ("DDII LLC"). Subsidiaries of Conoco Inc. ("Conoco") own the remaining interests in DD LLC and DDII LLC. Conoco and the Company share management of the joint ventures equally. Each of the joint ventures is a lessee in a synthetic lease financing facility entered into in connection with the construction of the Deepwater Pathfinder, in the case of DD LLC, and the Deepwater Frontier, in the case of DDII LLC. Pursuant to the lease financings, the rigs are owned by special purpose entities and leased to the joint ventures. We do not own, manage or control the special purpose entities. The lease payments under both synthetic leases are supported by drilling contracts between the two respective joint ventures and Conoco and, in the case of DDII LLC, one of our subsidiaries. Conoco is responsible for all of the remaining commitment to DD LLC and most of the remaining commitment to DDII LLC under these drilling contracts. Conoco and the Company provide the joint ventures with certain operational support services. For each of the joint ventures, Conoco and the Company guarantee the obligation of the joint venture to pay certain contingent lease obligations in proportion to their respective ownership interests in the joint ventures. DD LLC's annual rent payments of $22 million per annum for the Deepwater Pathfinder are effectively fixed due to the interest rate swap described above. The scheduled termination of the lease for the Deepwater Pathfinder is December 2003 subject to certain extension options of DD LLC. DDII LLC's annual rent payments for the Deepwater Frontier are subject to changes in market interest rates and are estimated to be $24 million per annum based on interest rates at December 31, 2001. The scheduled termination of the lease for the Deepwater Frontier is March 2004 subject to certain extension options of DDII LLC. At the expiration of the leases, each joint venture may purchase the rig for $185 million, in the case of the Deepwater Pathfinder, and $194 million, in the case of the Deepwater Frontier, or return the rig to the special purpose entities. The Company would be obligated to pay only a portion of such price equal to its percentage ownership interest in the applicable joint venture. The Company's proportionate share for such purchase options is $97 million and $112 million, respectively. Under each joint venture agreement, the consent of each venturer is generally required to approve actions of the joint venture, including the exercise of this purchase option. If a joint venture returns the rig at the end of the lease, the special purpose entity may sell the rig. In connection with the return, DD LLC may be required to pay an amount up to $138 million, and DDII LLC may be required to pay an amount up to $145 million, plus certain expenses in each case. These payments may be reduced by a portion of the proceeds of the sale of the applicable rig. If an event of default occurs under the applicable lease documents, each joint venture may be required to pay an amount equal to the amount of debt and equity financing owed by the applicable special purpose entity plus certain expenses. The debt and equity financing outstanding as of December 31, 2001, applicable to the owner of Deepwater Pathfinder and of Deepwater Frontier, was $219 million and $237 million, respectively. The Company and Conoco have guaranteed their respective share of the joint ventures' obligation to pay these amounts. 39

These leases contain ratings triggers that are invoked only if we are involved in a change of control and the acquiror has a credit rating lower than BBB or Baa2. Should these triggers be invoked, the acquiring company would, at the option of the investors, be obligated to pay our share of the outstanding investments under the leases. Sale/Leaseback We lease the M. G. Hulme, Jr. from Deep Sea Investors, L.L.C., a special purpose entity formed by several leasing companies to acquire the rig from a subsidiary of R&B Falcon in November of 1995 in a sale/leaseback transaction. We are obligated to pay rent of approximately $13 million per year through December 2005. At the termination of the lease, we may purchase the rig for $37.5 million. The lease has several ratings triggers. It requires collateral be maintained currently, the Jim Cunningham, whenever R&B Falcon is rated less than BBB+/Baa1 prior to November 2002 and at least BBB/Baa3 after such date. The lease contains another ratings trigger that may be invoked should R&B Falcon be subject to a change of control with an acquiror having a rating of less than B+/B1. Should that occur, the lease payments will become due in full, at the option of the investors. Related Party Transactions Delta Towing - In connection with the R&B Falcon merger, R&B Falcon formed a joint venture to own and operate its U.S. inland marine support vessel business (the "Marine Business"). As part of the joint venture formation in January 2001, the Marine Business was transferred by a subsidiary of R&B Falcon to Delta Towing, LLC ("Delta Towing") in exchange for a 25 percent equity interest in Delta Towing Holdings, LLC, the parent of Delta Towing, and certain secured notes payable from Delta Towing in a principal amount of $144 million. R&B Falcon valued these notes at $80 million immediately prior to the closing of the R&B Falcon merger. In December 2001, the note agreement was amended to provide for a $4 million, three-year revolving credit facility (the "Delta Towing Revolver"). As part of the formation of the joint venture on January 31, 2001, R&B Falcon entered into a charter arrangement with Delta Towing under which the Company committed to charter certain vessels for a period of one year ending January 31, 2002, and committed to charter for a period of 2.5 years from date of delivery 10 crewboats then under construction, four of which have been placed into service as of March 1, 2002. R&B Falcon also entered into an alliance agreement with Delta Towing under which we agreed to treat Delta Towing as a preferred supplier for the provision of marine support services. In 2001, the Company incurred charges totaling $15.6 million from Delta Towing for services rendered, of which $6.5 million was rebilled to the Company's customers and $9.1 million was reflected in operating and maintenance expense. As of March 1, 2002, the carrying value of the notes was $78.7 million and $4.0 million was outstanding under the Delta Towing Revolver. In addition, $1.1 million unpaid interest was outstanding. Delta Towing operates in the Gulf of Mexico in support of the oil and gas industry and faces similar market conditions as we do with our Gulf of Mexico Shallow and Inland Water business segment. Should weakened market conditions persist or should market conditions deteriorate further, Delta Towing's ability to pay its debts to us as they come due may be adversely affected. DD LLC and DDII LLC - We are a party to drilling services agreements with DD LLC and DDII LLC for the operation of the Deepwater Pathfinder and Deepwater Frontier, respectively. For the year ended December 31, 2001, we earned $1.4 million for such drilling services from each of DD LLC and DDII LLC. From time to time, we contract with DDII LLC to provide drilling services to us. For the year ended December 31, 2001, we incurred expense of $54.4 million under this drilling contract. See "-Special Purpose Entities" for further discussion of DD LLC and DDII LLC. ODL - We own a 50 percent interest in an unconsolidated joint venture company, Overseas Drilling Limited ("ODL"). ODL owns the Joides Resolution, for which we provide certain operational and management services. For the year ended December 31, 2001, we earned $1.2 million for those services. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141, Business Combinations. SFAS 141 requires that all business combinations initiated or completed after June 30, 40

2001 be accounted for using the purchase method of accounting. The statement provides for recognition and measurement of intangible assets separate from goodwill. We adopted SFAS 141 as of July 1, 2001. The adoption of the new statement had no effect on our consolidated results of operations or financial position. In July 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we are required to and have adopted SFAS 142 effective January 1, 2002. Application of the non-amortization provisions of SFAS 142 for goodwill is expected to result in an increase in operating income of approximately $155 million in 2002. At December 31, 2001, we had goodwill of approximately $6.5 billion. Pursuant to SFAS 142, we will test our goodwill for impairment upon adoption and, if impairment is indicated, record such impairment as a cumulative effect of an accounting change. In accordance with SFAS 142, we will test goodwill for impairment at a reporting unit level. SFAS 142 defines a reporting unit as an operating segment or a component of an operating segment that constitutes a business for which financial information is available and is regularly reviewed by management. Management has determined our reporting units are the same as our operating segments for the purpose of testing goodwill for impairment. While we are currently evaluating the effect the adoption may have on our consolidated results of operations and financial position, we expect a significant impairment of goodwill within our Gulf of Mexico Shallow and Inland Water reporting unit. We do not currently expect a significant impairment of goodwill within our International and U.S. Floater Contract Drilling Services reporting unit. In August 2001, the FASB issued SFAS 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of Accounting Principles Board Opinion ("APB") 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 retains the fundamental provisions of SFAS 121 for recognition and measurement of long-lived asset impairment and for the measurement of long-lived assets to be disposed of by sale and the basic requirements of APB 30. In addition to these fundamental provisions, SFAS 144 provides guidance for determining whether long-lived assets should be tested for impairment and specific criteria for classifying assets to be disposed of as held for sale. The statement is effective for fiscal years beginning after December 15, 2001, and we have adopted the statement as of January 1, 2002. The adoption of this statement will not have a material effect on our consolidated financial position or results of operations. Forward-Looking Information The statements included in this annual report regarding future financial performance and results of operations and other statements that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements to the effect that the Company or management "anticipates," "believes," "budgets," "estimates," "expects," "forecasts," "intends," "plans," "predicts," or "projects" a particular result or course of events, or that such result or course of events "could," "might," "may," "scheduled" or "should" occur, and similar expressions, are also intended to identify forward-looking statements. Forward-looking statements in this annual report include, but are not limited to, statements involving payment of severance costs, contract commencements, potential revenues, increased expenses, customer drilling programs, utilization rates, dayrates, planned shipyard projects, expected downtime, effect of technical difficulties with newbuild rigs, future activity in the deepwater and the shallow and inland water markets, the U.S. gas drilling market, planned asset sales, timing of asset sales, proceeds from asset sales, reactivation of stacked units, timing of and results of negotiations with the labor union representing U.K. employees, future labor costs, the Company's other expectations with regard to market outlook, operations in international markets, expected capital expenditures, results and effects of legal proceedings, adequacy of insurance, receipt of loss of hire insurance proceeds, liabilities for tax issues, liquidity, positive cash flow from operations, the exercise of the option of holders of Zero Coupon Convertible Debentures or the 1.5% Convertible Debentures to require the Company to repurchase the debentures, adequacy of cash flow for 2002 obligations, effects of accounting changes, and the timing and cost of completion of capital projects. Such statements are subject to numerous risks, uncertainties and assumptions, including, but not limited to, worldwide demand for oil and gas, uncertainties relating to the level of activity in offshore oil and gas exploration and development, exploration success by producers, oil and gas prices (including U.S. natural gas prices), demand for offshore and inland water rigs, competition and market conditions in the contract drilling industry, our ability to successfully integrate the operations of acquired businesses, delays or terminations of drilling contracts due to a number of events, delays or cost overruns on construction and shipyard projects and possible cancellation of drilling contracts as a result of delays or performance, our ability to enter into and the terms of future contracts, the availability of qualified personnel, labor relations and the outcome of negotiations with unions representing workers, operating hazards, political and other uncertainties inherent in non-U.S. operations (including exchange and currency fluctuations), risks of war, terrorism and cancellation or unavailability of certain insurance coverage, the impact of 41

governmental laws and regulations, the adequacy of sources of liquidity, the effect of litigation and contingencies and other factors discussed in this annual report and in the Company's other filings with the SEC, which are available free of charge on the SEC's website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our long-term and short-term debt obligations. The table below presents expected cash flows and related weighted-average interest rates for the year ended December 31 for each of the years presented by scheduled maturity dates relating to debt obligations as of December 31, 2001. Weighted-average variable rates are based on estimated LIBOR rates as of December 31, 2001, plus applicable margins. The fair value of fixed rate debt is based on the estimated yield to maturity for each debt issue as of December 31, 2001. As of December 31, 2001 (in millions, except interest rate percentages): SCHEDULED MATURITY DATE FAIR VALUE ----------------------------------------------------------------- ---------- 2002 2003 2004 2005 2006 THEREAFTER TOTAL 12/31/01 ------- ------- ------- ------- ---- ------------ --------- ---------- Total debt Fixed Rate(a) . . . . . . . . . . . . $ 58.0 $382.6 $ 61.4 $419.6 - $ 2,965.0 $3,886.6 $ 3,586.2 Average interest rate. . . . . . . 6.7% 7.1% 6.5% 7.0% - 5.5% 5.8% Variable Rate . . . . . . . . . . . . $100.0 $150.0 $150.0 - - - $ 400.0 $ 400.0 Average interest rate. . . . . . . 2.6% 2.6% 2.6% - - - 2.6% Receive Fixed/Pay Variable Swaps(b) . . . . . . . . . . . . . - - - - - $ 700.0 $ 700.0 $ 689.2 Average interest rate. . . . . . . - - - - - 2.4% 2.4% Commercial Paper. . . . . . . . . . . . $326.4 - - - - - $ 326.4 $ 326.4 Average interest rate. . . . . . . 3.2% - - - - - 3.2% - -------------------- (a) Expected maturity amounts are based on the face value of debt and do not reflect fair market value of debt. (b) The 6.625% Notes are considered variable as a result of the interest rate swaps. See Note 8 to our consolidated financial statements. At December 31, 2001, we had approximately $1.4 billion of variable rate debt (29 percent of total debt). Of that variable rate debt, $700 million resulted from interest rate swaps with the remainder representing term bank debt and commercial paper. Given outstanding amounts as of that date, a one percent rise in interest rates would result in an additional $14 million in interest expense per year. Offsetting this, a large part of our investments would earn commensurate higher rates of return. Using December 31, 2001 investments levels, a one percent increase in interest rates would result in approximately $7 million of additional interest income per year. As a result of the February 2002 interest rate swaps (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources"), our variable rate debt increased to $2.1 billion (44 percent of total debt). Given outstanding amounts as of February 1, 2002, a one percent rise in interest rates would result in an additional $21 million in interest expense per year. Offsetting this, a large part of our investments would earn commensurate higher rates of return. Using February 1, 2002 investment levels, a one percent increase in interest rates would result in approximately $5 million additional interest income per year. 42

Foreign Exchange Risk Our international operations expose us to foreign exchange risk. We use a variety of techniques to minimize the exposure to foreign exchange risk. Our primary foreign exchange risk management strategy involves structuring customer contracts to provide for payment in both U.S. dollars and local currency. The payment portion denominated in local currency is based on anticipated local currency requirements over the contract term. We may also use foreign exchange derivative instruments or spot purchases. We do not enter into derivative transactions for speculative purposes. At December 31, 2001, we had no material open foreign exchange contracts. 43

ITEM 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors Transocean Sedco Forex Inc. We have audited the accompanying consolidated balance sheets of Transocean Sedco Forex Inc. and Subsidiaries as of December 31, 2001 and 2000, the related consolidated statements of operations, equity, and cash flows for the years ended December 31, 2001 and 2000, and the related combined statements of operations, equity, and cash flows for the year ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transocean Sedco Forex Inc. and Subsidiaries at December 31, 2001 and 2000, the consolidated results of their operations and their cash flows for the years ended December 31, 2001 and 2000, and the combined results of their operations and their cash flows for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Houston, Texas January 29, 2002 44

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE) YEARS ENDED DECEMBER 31, ----------------------------- 2001 2000 1999 --------- --------- ------- OPERATING REVENUES . . . . . . . . . . . . . . . . $2,820.1 $1,229.5 $648.2 --------- --------- ------- COSTS AND EXPENSES Operating and maintenance . . . . . . . . . . . 1,603.3 812.6 448.9 Depreciation. . . . . . . . . . . . . . . . . . 470.1 232.8 131.9 Goodwill amortization . . . . . . . . . . . . . 154.9 26.7 - General and administrative. . . . . . . . . . . 57.9 42.1 16.8 --------- --------- ------- 2,286.2 1,114.2 597.6 --------- --------- ------- Impairment Loss on Long-Lived Assets . . . . . . . (40.4) - - Gain (Loss) from Sale of Assets, net . . . . . . . 56.5 17.8 (1.3) --------- --------- ------- OPERATING INCOME . . . . . . . . . . . . . . . . . 550.0 133.1 49.3 --------- --------- ------- OTHER INCOME (EXPENSE), NET Equity in earnings of joint ventures. . . . . . 16.5 9.4 5.6 Interest income . . . . . . . . . . . . . . . . 18.7 6.2 5.4 Interest expense, net of amounts capitalized. . (223.9) (3.0) (10.3) Other, net. . . . . . . . . . . . . . . . . . . (0.8) (1.3) (0.7) --------- --------- ------- (189.5) 11.3 - --------- --------- ------- INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS. . . . . . . . 360.5 144.4 49.3 Income Tax Expense (Benefit) . . . . . . . . . . . 85.7 36.7 (9.3) Minority Interest. . . . . . . . . . . . . . . . . 2.9 0.6 0.5 --------- --------- ------- INCOME BEFORE EXTRAORDINARY ITEMS. . . . . . . . . 271.9 107.1 58.1 Gain (Loss) on Extraordinary Items, net of tax . . (19.3) 1.4 - --------- --------- ------- NET INCOME . . . . . . . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 58.1 ========= ========= ======= BASIC EARNINGS PER SHARE (UNAUDITED PRO FORMA PRIOR TO THE EFFECTIVE DATE OF THE SEDCO FOREX MERGER) Income Before Extraordinary Items . . . . . . . $ 0.88 $ 0.51 $ 0.53 Gain (Loss) on Extraordinary Items, net of tax. (0.06) 0.01 - --------- --------- ------- Net Income . . . . . . . . . . . . . . . . . $ 0.82 $ 0.52 $ 0.53 ========= ========= ======= DILUTED EARNINGS PER SHARE (UNAUDITED PRO FORMA PRIOR TO THE EFFECTIVE DATE OF THE SEDCO FOREX MERGER) Income Before Extraordinary Items . . . . . . . $ 0.86 $ 0.50 $ 0.53 Gain (Loss) on Extraordinary Items, net of tax. (0.06) 0.01 - --------- --------- ------- Net Income . . . . . . . . . . . . . . . . . $ 0.80 $ 0.51 $ 0.53 ========= ========= ======= WEIGHTED AVERAGE SHARES OUTSTANDING (UNAUDITED PRO FORMA PRIOR TO THE EFFECTIVE DATE OF THE SEDCO FOREX MERGER) Basic . . . . . . . . . . . . . . . . . . . . . 309.2 210.4 109.6 --------- --------- ------- Diluted . . . . . . . . . . . . . . . . . . . . 314.8 211.7 109.6 --------- --------- ------- DIVIDENDS PAID PER SHARE . . . . . . . . . . . . . $ 0.12 $ 0.12 $ - See accompanying notes. 45

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except share data) DECEMBER 31, -------------------- 2001 2000 ---------- -------- ASSETS Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 853.4 $ 34.5 Accounts Receivable Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602.9 268.9 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.8 27.1 Materials and Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158.8 89.5 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 18.1 Other Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.9 10.0 ---------- -------- Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,736.8 448.1 ---------- -------- Property and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,081.4 6,003.2 Less Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 1,713.3 1,308.2 ---------- -------- Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 8,368.1 4,695.0 ---------- -------- Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,466.7 1,037.9 Investments in and Advances to Joint Ventures . . . . . . . . . . . . . . . . . . 28.2 105.9 Note Receivable from Related Party. . . . . . . . . . . . . . . . . . . . . . . . 78.9 - Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341.1 71.9 ---------- -------- Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,019.8 $6,358.8 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188.4 $ 135.6 Accrued Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188.2 113.1 Debt Due Within One Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484.4 23.1 Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.4 223.4 ---------- -------- Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,144.4 495.2 ---------- -------- Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,539.4 1,430.3 Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317.1 359.2 Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.6 70.0 ---------- -------- Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 4,965.1 1,859.5 ---------- -------- Commitments and Contingencies Preference Shares, $0.10 par value; 50,000,000 shares authorized, none issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Ordinary Shares, $0.01 par value; 800,000,000 shares authorized, 318,816,035 and 210,710,363 shares issued and outstanding at December 31, 2001 and 2000, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 2.1 Additional Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,611.7 3,918.7 Accumulated Other Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . (2.3) - Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.7 83.3 ---------- -------- Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . 10,910.3 4,004.1 ---------- -------- Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . . . . $17,019.8 $6,358.8 ========== ======== See accompanying notes. 46

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In millions, except per share data) ACCUMULATED ORDINARY SHARES ADDITIONAL OTHER ------------------ PAID-IN COMPREHENSIVE RETAINED PRE-MERGER TOTAL SHARES AMOUNT CAPITAL INCOME EARNINGS EQUITY EQUITY --------- ------- ------------ --------------- ---------- ------------ ---------- Balance at December 31, 1998 $ 564.4 $ 564.4 Net income 58.1 58.1 Advances from related parties and other 299.6 299.6 Merger with Transocean Offshore Inc.. . 210.1 $ 2.1 $ 3,908.0 $ - $ - (922.1) 2,988.0 --------- ------- ------------ --------------- ---------- ------------ ---------- Balance at December 31, 1999. . . . . . . 210.1 2.1 3,908.0 - - - 3,910.1 Net income. . . . . . . . . . . . . . . - - - - 108.5 - 108.5 Issuance of ordinary shares under stock-based compensation plans. . . . 0.6 - 16.6 - - - 16.6 Other . . . . . . . . . . . . . . . . . - - (5.9) - - - (5.9) Cash dividends ($0.12 per share). . . . - - - - (25.2) - (25.2) --------- ------- ------------ --------------- ---------- ------------ ---------- Balance at December 31, 2000. . . . . . . 210.7 2.1 3,918.7 - 83.3 - 4,004.1 Net income. . . . . . . . . . . . . . . - - - - 252.6 - 252.6 Shares issued for R&B Falcon merger. . . . . . . . . . . . . . . . 106.1 1.1 6,654.9 - - - 6,656.0 Issuance of ordinary shares under stock-based compensation plans. . . . 1.6 - 45.2 - - - 45.2 Issuance of ordinary shares upon exercise of warrants. . . . . . . . . 0.6 - 10.6 - - - 10.6 Other . . . . . . . . . . . . . . . . . (0.2) - (17.7) - - - (17.7) Cash dividends ($0.12 per share). . . . - - - - (38.2) - (38.2) Gain on terminated interest rate swaps. - - - 3.9 - - 3.9 Fair value adjustment on marketable securities held for sale. . . . . . . - - - (0.6) - - (0.6) Other comprehensive income related to joint venture. . . . . . . - - - (5.6) - - (5.6) --------- ------- ------------ --------------- ---------- ------------ ---------- Balance at December 31, 2001. . . . . . . 318.8 $ 3.2 $ 10,611.7 $ (2.3) $ 297.7 $ - $10,910.3 ========= ======= ============ =============== ========== ============ ========== See accompanying notes. 47

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) YEARS ENDED DECEMBER 31, ---------------------------- 2001 2000 1999 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 58.1 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 625.0 259.5 131.9 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (98.2) (30.1) (24.3) 1999 charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 29.4 Equity in earnings of joint ventures. . . . . . . . . . . . . . . . . . . . (16.5) (9.4) (5.6) Net (gain) loss from sale of assets . . . . . . . . . . . . . . . . . . . . (52.5) (15.0) 1.3 Impairment loss on long-lived assets. . . . . . . . . . . . . . . . . . . . 40.4 - - Amortization of debt-related discounts/premiums, fair value adjustments and issue costs, net. . . . . . . . . . . . . . . . . . . . . (4.0) 9.4 - Deferred income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (46.5) (20.7) (26.2) Deferred expenses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . (53.8) (18.6) - Extraordinary (gain) loss on debt extinguishment, net of tax. . . . . . . . 19.3 (1.4) - Tax benefit from exercise of stock options. . . . . . . . . . . . . . . . . 9.6 1.9 - Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.4) (7.0) (0.1) Changes in operating assets and liabilities, net of effects from the R&B Falcon merger Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55.2) (5.9) 100.5 Accounts payable and other accrued liabilities. . . . . . . . . . . . . . . (95.9) (58.6) (22.5) Receivable/payable with related parties, net. . . . . . . . . . . . . . . . - - 19.5 Income taxes receivable/payable, net. . . . . . . . . . . . . . . . . . . . 48.2 1.2 (21.5) Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.3) (17.9) 0.1 -------- -------- -------- Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . 566.8 195.9 240.6 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (506.2) (574.7) (537.0) Proceeds from sale of coiled tubing drilling services business. . . . . . . . . - 24.9 - Proceeds from sale of securities. . . . . . . . . . . . . . . . . . . . . . . . 17.2 - - Proceeds from sale of subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 85.6 - - Other proceeds from disposal of assets, net . . . . . . . . . . . . . . . . . . 116.1 56.3 0.7 Merger costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.4) (4.5) - Cash acquired in merger, net of cash paid . . . . . . . . . . . . . . . . . . . 264.7 - 439.8 Joint ventures and other investments, net . . . . . . . . . . . . . . . . . . . 20.6 5.1 6.3 -------- -------- -------- Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . . . . . . . (26.4) (492.9) (90.2) -------- -------- -------- See accompanying notes. 48

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In millions) YEARS ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 ---------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under commercial paper program. . . . . . . . . . . . . . 326.4 - - Net proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . 1,693.5 489.1 - Early repayments of debt instruments . . . . . . . . . . . . . . . . . . (1,495.0) (233.8) - Net repayments on revolving credit agreements. . . . . . . . . . . . . . (180.1) (54.9) - Other repayments of debt instruments . . . . . . . . . . . . . . . . . . (56.0) (21.1) (15.3) Proceeds from issuance of ordinary shares under stock-based compensation plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.6 13.7 - Proceeds from issuance of ordinary shares upon exercise of warrants. . . 10.6 - - Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38.2) (25.3) - Financing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.2) (2.6) - Net repayments of debt to related parties. . . . . . . . . . . . . . . . - - (407.4) Advances and other from related parties, net . . . . . . . . . . . . . . - - 265.5 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 0.7 (2.0) ---------- -------- -------- Net Cash Provided by (Used in) Financing Activities. . . . . . . . . . . . 278.5 165.8 (159.2) ---------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . 818.9 (131.2) (8.8) ---------- -------- -------- Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 34.5 165.7 174.5 ---------- -------- -------- Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . $ 853.4 $ 34.5 $ 165.7 ========== ======== ======== See accompanying notes. 49

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Nature of Business and Principles of Consolidation Transocean Sedco Forex Inc. (together with its subsidiaries and predecessors, unless the context requires otherwise, the "Company," "we" or "our") is a leading international provider of offshore and inland marine contract drilling services for oil and gas wells. The Company's mobile offshore drilling fleet is considered one of the most modern and versatile fleets in the world. The Company specializes in technically demanding segments of the offshore drilling business with a particular focus on deepwater and harsh environment drilling services. At December 31, 2001, the Company owned, had partial ownership interests in or operated more than 160 mobile offshore and barge drilling units. As of this date, the Company's active fleet consisted of 31 high-specification drillships and semisubmersibles ("floaters"), 30 other floaters, 54 jackup rigs, 35 drilling barges, four tenders and three submersible drilling rigs. In addition, the fleet includes mobile offshore production units, platform drilling rigs and 10 land drilling rigs in Venezuela. The Company contracts its drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. Intercompany transactions and accounts have been eliminated. The equity method of accounting is used for investments in joint ventures owned 50 percent or less and for investments in joint ventures owned 50 percent or more where the Company does not have significant influence or control over the day-to-day operations of the joint venture. On January 31, 2001, we completed a merger transaction with R&B Falcon Corporation ("R&B Falcon"). At the time of the merger, R&B Falcon owned, had partial ownership interests in, operated or had under construction more than 100 mobile offshore drilling units and other units utilized in the support of offshore drilling activities. As a result of the merger, R&B Falcon became an indirect wholly owned subsidiary of the Company. The merger was accounted for as a purchase with the Company as the accounting acquiror. The consolidated balance sheet as of December 31, 2001 represents the financial position of the merged company. The consolidated statements of operations and of cash flows for the year ended December 31, 2001 include 11 months of operating results and cash flows for R&B Falcon. On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco Forex Holdings Limited ("Sedco Forex") was completed. Sedco Forex was the offshore contract drilling service business of Schlumberger Limited ("Schlumberger") and was spun off immediately prior to the merger transaction. As a result of the merger, Sedco Forex became a wholly owned subsidiary of Transocean Offshore Inc., which changed its name to Transocean Sedco Forex Inc. The merger was accounted for as a purchase with Sedco Forex as the accounting acquiror. The consolidated balance sheet as of December 31, 2000, the consolidated statements of cash flows and of operations for the year ended December 31, 2000 represent the financial position, cash flows and results of operations of the merged company. The combined statements of cash flows and operations for the year ended December 31, 1999 represent the cash flows and results of operations of Sedco Forex and not those of historical Transocean Offshore Inc. The combined financial statements for the period prior to the Sedco Forex merger represent the offshore contract drilling service business of Schlumberger, which comprised certain businesses, operations, assets and liabilities of Sedco Forex and its subsidiaries and of Schlumberger and its subsidiaries, as defined in the Distribution Agreement (see Note 4). Although Sedco Forex was not a separate public company prior to the merger, the combined financial statements are presented as if Sedco Forex had existed as an entity separate from its parent, Schlumberger. The combined financial statements include the historical revenues and expenses and cash flows that were directly related to the offshore contract drilling service business of Schlumberger for the year ended December 31, 1999 and have been prepared using Schlumberger's historical results of operations of Sedco Forex. Prior to the Sedco Forex merger, certain Schlumberger corporate expenses, including centralized research and engineering, legal, accounting, employee benefits, real estate, insurance, information technology services, treasury and other corporate and infrastructure costs, although not directly attributable to Sedco Forex's operations, were allocated to Sedco Forex on bases that Schlumberger and Sedco Forex considered to be a reasonable reflection of the utilization of services provided or the benefit received by Sedco Forex (see Note 19). The financial information for the period prior to the Sedco Forex merger included herein may not reflect the consolidated results of operations and cash flows of Sedco Forex had it been a separate, stand-alone entity during the periods presented. Because Sedco Forex historically was not operated as a separate, stand-alone entity, and in many cases Sedco Forex's results were included in the consolidated financial statements of Schlumberger on a divisional basis, there are no separate meaningful historical equity accounts for Sedco Forex prior to the merger. 50

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 2 - Summary of Significant Accounting Policies Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. On an on going basis, the Company evaluates its estimates, including those related to bad debts, materials and supplies obsolescence, investments, intangible assets and goodwill, income taxes, financing operations, workers' insurance, pensions and other post-retirement and employment benefits and contingent liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from such estimates. Cash and Cash Equivalents - Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are highly liquid debt instruments with an original maturity of three months or less and consist of time deposits with a number of commercial banks with high credit ratings, Eurodollar time deposits, certificates of deposit and commercial paper. The Company may also invest excess funds in no-load, open-end, management investment trusts ("mutual funds"). The mutual funds invest exclusively in high quality money market instruments. Generally, the maturity date of the Company's investments is the next business day. At December 31, 2001, $39.5 million of cash and cash equivalents related to the Company's wholly owned subsidiary Arcade Drilling as ("Arcade"). Arcade's cash and cash equivalents are available to Arcade for all purposes subject to restrictions under the Standstill Agreement dated as of August 31, 1991 between the Company and Arcade. Such restrictions preclude the Company from borrowing any cash from Arcade. As a result of the Deepwater Nautilus project financing in 1999, the Company is required to maintain in cash an amount to cover certain principal and interest payments. At December 31, 2001, such restricted cash, classified as other assets in the consolidated balance sheet, amounted to $13.2 million. Allowance for Doubtful Accounts Receivable - The Company establishes an allowance for doubtful accounts on a case-by-case basis when it believes the required payment of specific amounts owed is unlikely to occur. This allowance was approximately $24 million at December 31, 2001 and 2000. Materials and Supplies - Materials and supplies are carried at average cost less an allowance for obsolescence. Such allowance was $24.1 million and $23.1 million at December 31, 2001 and 2000, respectively. Property and Equipment - Property and equipment, consisting primarily of offshore drilling rigs and related equipment, are carried at cost. Property and equipment obtained in the Sedco Forex and R&B Falcon mergers (see Note 4) were recorded at fair value. The Company generally provides for depreciation on the straight-line method after allowing for salvage values. Expenditures for renewals, replacements and improvements are capitalized. Maintenance and repairs are charged to operating expense as incurred. Upon sale or other disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income. As a result of the Sedco Forex and R&B Falcon mergers, the Company conformed its policies relating to estimated rig lives and salvage values. Estimated useful lives of its drilling units now range from 18 to 35 years, reflecting maintenance history and market demand for these drilling units, buildings and improvements from 10 to 30 years and machinery and equipment from four to 12 years. Depreciation expense for the years ended December 31, 2001 and 2000 was reduced by approximately $23 million (net $0.07 per diluted share) and $72 million (net $0.34 per diluted share), respectively, as a result of conforming these policies. Goodwill - The excess of the purchase price over the estimated fair value of net assets acquired is accounted for as goodwill and has been amortized on a straight-line basis based on a 40-year life. The amortization period was based on the nature of the offshore drilling industry, long-lived drilling equipment and the long-standing relationships with core customers. Accumulated amortization at December 31, 2001 and 2000 totaled $181.6 million and $26.7 million, respectively. See "New Accounting Pronouncements." 51

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Impairment of Long-Lived Assets - The carrying value of long-lived assets, principally goodwill and property and equipment, is reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For property and equipment held for use, the determination of recoverability is made based upon the estimated undiscounted future net cash flows of the related asset. Property and equipment held for sale are recorded at the lower of net book value or net realizable value. See Note 7. For goodwill, the determination of recoverability has been made based upon a comparison of the Company's net book value to the value indicated by the market price of its equity securities (see "-New Accounting Pronouncements"). Operating Revenues and Expenses - Operating revenues are recognized as earned, based on contractual daily rates or on a fixed price basis. Turnkey profits are recognized upon completion of the well and acceptance by the customer. Provisions for losses are made on contracts in progress when losses are anticipated. In connection with drilling contracts, the Company may receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to rigs. In connection with contracted mobilizations, revenues earned and related costs incurred are deferred and recognized over the primary contract term of the drilling project. Costs of relocating drilling units without contracts to more promising market areas are expensed as incurred. Upon completion of drilling contracts, any demobilization fees received are reflected in income, as are any related expenses. Capital upgrade revenues received are deferred and recognized over the primary contract term of the drilling project. The actual cost incurred for the capital upgrade is depreciated over the estimated useful life of the asset. The Company incurs periodic survey and drydock costs in connection with obtaining regulatory certification to operate its rigs on an ongoing basis. Costs associated with these certifications are deferred and amortized over the period until the next survey. Capitalized Interest - Interest costs for the construction and upgrade of qualifying assets are capitalized. The Company capitalized interest costs on construction work in progress of $34.9 million, $86.6 million and $27.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. Derivative Instruments and Hedging Activities - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging Activities, as amended in June 1999. The Company adopted SFAS 133 as of January 1, 2001. Because of the Company's limited use of derivatives to manage its exposure to fluctuations in foreign currency exchange rates and interest rates, the adoption of the new statement had no effect on the results of operations or the consolidated financial position of the Company. See Note 9. Foreign Currency Translation - The U.S. dollar is the functional currency for the Company's foreign operations. Foreign currency exchange gains and losses are included in other income as incurred. Net foreign currency gains (losses) were $1.1 million, $(1.4) million and $(0.8) million for the years ended December 31, 2001, 2000 and 1999, respectively. Income Taxes - Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned. The income tax rates imposed by these taxing authorities vary substantially. Taxable income may differ from pre-tax income for financial accounting purposes. There is no expected relationship between the provision for income taxes and income before income taxes because the countries have different taxation regimes, which vary not only with respect to nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also arise because income earned and taxed in any particular country or countries may fluctuate from period to period. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the applicable tax rates in effect at year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. Prior to the Sedco Forex merger, the provision for income taxes in the combined financial statements was determined on a separate return basis. See Note 12. Segments - The Company's operations have been aggregated into two reportable segments: (i) International and U.S. Floater Contract Drilling Services and (ii) Gulf of Mexico Shallow and Inland Water. The Company provides services with different types of drilling equipment in several geographic regions. The location of the Company's operating assets and the allocation of resources to build or upgrade drilling units is determined by the activities and needs of customers. See Note 17. Stock-Based Compensation - In accordance with the provisions of the FASB's SFAS 123, Accounting for Stock-based Compensation, the Company has elected to follow the Accounting Principles Board Opinion ("APB") 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock-based compensation plans. Under 52

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued APB 25, if the exercise price of employee stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized. See Note 14. New Accounting Pronouncements - In July 2001, the FASB issued SFAS 141, Business Combinations. SFAS 141 requires that all business combinations initiated or completed after June 30, 2001 be accounted for using the purchase method of accounting. The statement provides for recognition and measurement of intangible assets separate from goodwill. The Company adopted SFAS 141 as of July 1, 2001. The adoption of the new statement had no effect on the consolidated results of operations or financial position of the Company. In July 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to and has adopted SFAS 142, effective January 1, 2002. Application of the non-amortization provisions of SFAS 142 for goodwill is expected to result in an increase in operating income of approximately $155 million in 2002. At December 31, 2001, the Company had goodwill of approximately $6.5 billion. Pursuant to SFAS 142, the Company will test its goodwill for impairment upon adoption and, if impairment is indicated, record such impairment as a cumulative effect of an accounting change. In accordance with SFAS 142, the Company will test goodwill for impairment at a reporting unit level. SFAS 142 defines a reporting unit as an operating segment or a component of an operating segment that constitutes a business for which financial information is available and is regularly reviewed by management. Management has determined that the Company's reporting units are the same as its operating segments for the purposes of testing goodwill for impairment. While the Company is currently evaluating the effect the adoption may have on its consolidated results of operations and financial position, it expects a significant impairment of goodwill within its Gulf of Mexico Shallow and Inland Water reporting unit. The Company does not currently expect a significant impairment of goodwill within its International and U.S. Floater Contract Drilling Services reporting unit. In August 2001, the FASB issued SFAS 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of APB 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 retains the fundamental provisions of SFAS 121 for recognition and measurement of long-lived asset impairment and for the measurement of long-lived assets to be disposed of by sale and the basic requirements of APB 30. In addition to these fundamental provisions, SFAS 144 provides guidance for determining whether long-lived assets should be tested for impairment and specific criteria for classifying assets to be disposed of as held for sale. The statement is effective for fiscal years beginning after December 15, 2001, and the Company has adopted the statement as of January 1, 2002. Management does not expect the adoption of this statement to have a material effect on the Company's consolidated financial position or results of operations. Reclassifications - Certain reclassifications have been made to prior period amounts to conform with the current year presentation. 53

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 3 - Comprehensive Income The components of total comprehensive income for the years ended December 31, 2001, 2000 and 1999, respectively, are as follows (in millions): YEARS ENDED DECEMBER 31, ---------------------- 2001 2000 1999 ------- ------ ----- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $252.6 $108.5 $58.1 Gain on terminated interest rate swaps . . . . . . . . . . . . . . . . . . . . 3.9 - - Unrealized loss on securities available for sale . . . . . . . . . . . . . . . (0.6) - - Share of unrealized loss in unconsolidated joint venture's interest rate hedge (5.6) - - ------- ------ ----- Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . $250.3 $108.5 $58.1 ======= ====== ===== There was no accumulated other comprehensive income at December 31, 2000. The components of accumulated other comprehensive income at December 31, 2001 are as follows (in millions): DECEMBER 31, 2001 -------------- Gain on terminated interest rate swaps . . . . . . . . . . . . . . . . . . . . $ 3.9 Unrealized loss on securities available for sale . . . . . . . . . . . . . . . (0.6) Share of unrealized loss in unconsolidated joint venture's interest rate hedge (5.6) -------------- Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . $ (2.3) ============== Note 4 - Business Combinations Merger with R&B Falcon - On January 31, 2001, the Company completed a merger transaction with R&B Falcon in which an indirect wholly owned subsidiary of the Company merged with and into R&B Falcon. As a result of the merger, R&B Falcon common shareholders received 0.5 newly issued ordinary shares of the Company for each R&B Falcon share. The Company issued approximately 106 million ordinary shares in exchange for the issued and outstanding shares of R&B Falcon and assumed warrants and options exercisable for approximately 13 million ordinary shares. The ordinary shares issued in exchange for the issued and outstanding shares of R&B Falcon constituted approximately 33 percent of the Company's outstanding ordinary shares after the merger. The Company accounted for the merger using the purchase method of accounting with the Company treated as the accounting acquiror. The purchase price of $6.7 billion was comprised of the calculated market capitalization of the Company's ordinary shares issued at the time of merger with R&B Falcon of $6.1 billion and the estimated fair value of R&B Falcon stock options and warrants at the time of the merger of $0.6 billion. The market capitalization of the Company's ordinary shares issued was calculated using the average closing price of the Company's ordinary shares for a period immediately before and after August 21, 2000, the date the merger was announced. The purchase price included, at estimated fair value, current assets of $672 million, drilling and other property and equipment of $4,010 million, other assets of $160 million and the assumption of current liabilities of $338 million, other net long-term liabilities of $242 million and long-term debt of $3,206 million. The excess of the purchase price over the estimated fair value of net assets acquired was $5,630 million, which has been accounted for as goodwill and was amortized on a straight-line basis using a 40-year life. See Note 2. In conjunction with the R&B Falcon merger, the Company established a liability of $16.5 million for the estimated severance-related costs associated with the involuntary termination of 569 R&B Falcon employees pursuant to management's plan to consolidate operations and administrative functions post-merger. Included in the 569 planned involuntary terminations were 387 employees engaged in the Company's land drilling business in Venezuela. The Company has suspended active marketing efforts to divest this business and, as a result, the estimated liability was reduced by $4.3 million in the third quarter of 2001 with an offset to goodwill. Through December 31, 2001, approximately $11.6 million in 54

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued severance-related costs have been paid to 173 employees whose positions were eliminated as a result of the consolidation of operations and administrative functions post-merger. The Company anticipates that substantially all of the remaining amounts will be paid by the end of the first quarter of 2002. Unaudited pro forma combined operating results of the Company and R&B Falcon assuming the merger was completed as of January 1, 2001 and 2000, respectively, are as follows (in millions, except per share data): YEARS ENDED DECEMBER 31, ------------------------ 2001 2002 ----------- ----------- Operating revenues . . . . . . . . . . . $ 2,946.0 $ 2,292.4 Operating income . . . . . . . . . . . . 549.5 129.9 Income (loss) from continuing operations 257.6 (300.6) Earnings (loss) per share: Basic and Diluted. . . . . . . . . . . $ 0.80 $ (0.95) The pro forma information includes adjustments for additional depreciation based on the fair market value of the drilling and other property and equipment acquired, amortization of goodwill arising from the transaction, increased interest expense for debt assumed in the merger and related adjustments for income taxes. The pro forma information is not necessarily indicative of the results of operations had the transaction been effected on the assumed dates or the results of operations for any future periods. Distribution, Spin-off and Merger with Sedco Forex - Pursuant to the distribution agreement dated July 12, 1999 between Schlumberger and Sedco Forex (the "Distribution Agreement"), Schlumberger separated and combined its offshore contract drilling service business under Sedco Forex. In December 1999, Schlumberger made a net capital contribution of $226.7 million to Sedco Forex to adjust Sedco Forex's level of indebtedness and cash balances to those required by the terms of the Distribution Agreement. In accordance with the Distribution Agreement, certain Sedco Forex assets and liabilities primarily associated with employee benefits, income taxes and balances due to or from Schlumberger companies other than Sedco Forex were retained by Schlumberger. The net liabilities retained totaled $30.9 million and were treated as a capital contribution by Schlumberger. On December 30, 1999, Schlumberger completed the spin-off of Sedco Forex to the Schlumberger shareholders by issuing one share of Sedco Forex capital stock for each share of Schlumberger common stock owned. On December 31, 1999, the merger of Transocean Offshore Inc. and Sedco Forex was completed. Under the terms of the Agreement and Plan of Merger dated July 12, 1999 among Schlumberger, Sedco Forex, Transocean Offshore Inc. and Transocean SF Limited, a wholly owned Transocean Offshore Inc. subsidiary, Transocean SF Limited merged with and into Sedco Forex, and Schlumberger shareholders exchanged all of the Sedco Forex shares distributed by Schlumberger for 109,564,268 ordinary shares of the Company, of which 145,102 ordinary shares were sold on the market for cash paid in lieu of fractional shares. The merger was accounted for as a purchase with Sedco Forex as the accounting acquiror. The purchase price of $3.0 billion was comprised of the calculated market capitalization of Transocean Offshore Inc. of $2.9 billion and the estimated fair value of Transocean Offshore Inc. stock options at the time of the merger of $50 million. The market capitalization of Transocean Offshore Inc. was calculated using the average closing price of Transocean Offshore Inc. ordinary shares for the period immediately before and after July 12, 1999, the date the merger was announced. The purchase price included, at estimated fair value, current assets of $638 million, drilling and other property and equipment of $3,029 million, other assets of $136 million and the assumption of current liabilities of $299 million, other net long-term liabilities of $278 million and long-term debt of $1,119 million. In addition, a deferred tax liability of $188 million was recorded primarily for the difference in the basis for tax and financial reporting purposes of the net assets acquired. The excess of the purchase price over the estimated fair value of net assets acquired was $1,068 million, which has been accounted for as goodwill and was amortized on a straight-line basis using a 40-year life. See Note 2. 55

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Unaudited pro forma combined operating results of Sedco Forex and Transocean Offshore Inc. for the year ended December 31, 1999, assuming the acquisition was completed as of January 1, 1999, are summarized as follows (in millions, except per share data): Year ended December 31, 1999 ------------------ Operating revenues . . . . . . . . . . . $ 1,579.1 Operating income . . . . . . . . . . . . 291.1 Net income . . . . . . . . . . . . . . . 237.9 Earnings per share: Basic and Diluted . . . . . . . . . . $ 1.13 The pro forma information includes adjustments for additional depreciation based on the fair market value of the drilling and other property and equipment acquired, amortization of goodwill arising from the transaction, decreased interest expense for related party debt replaced by borrowings under the Term Loan Agreement (see Note 8) and related adjustments for income taxes. The pro forma information is not necessarily indicative of the results of operations had the transaction been effected on the assumed date or the results of operations for any future periods. Note 5 - Upgrade and Expansion of Drilling Fleet Capital expenditures, including capitalized interest, totaled $506 million during the year ended December 31, 2001 and included $175 million, $42 million, $41 million and $24 million spent on the construction of the Deepwater Horizon, Sedco Energy, Sedco Express and Cajun Express, respectively. A substantial majority of the capital expenditures is related to the International and U.S. Floater Contract Drilling Services segment. The Company's construction program was completed as of December 31, 2001. Note 6 - Asset Dispositions In February 2001, Sea Wolf Drilling Limited ("Sea Wolf"), a joint venture in which the Company holds a 25 percent interest, sold two semisubmersible rigs, the Drill Star and Sedco Explorer, to Pride International, Inc. In the first quarter of 2001, the Company recognized accelerated amortization of the deferred gain related to the Sedco Explorer of $18.5 million ($0.06 per diluted share), which is included in gain from sale of assets. The Company's bareboat charter with Sea Wolf on the Sedco Explorer was terminated effective June 2000. The Company continued to operate the Drill Star, which has been renamed the Pride North Atlantic, under a bareboat charter agreement until October 2001, at which time the rig was returned to its owner. The amortization of the Drill Star's deferred gain was accelerated and produced incremental gains in 2001 of $36.3 million ($0.12 per diluted share), which is included as a reduction in operating and maintenance expense. In December 2001, the Company sold RBF FPSO L.P., which owned the Seillean, a multi-purpose service vessel. The Company received net proceeds from the sale of $85.6 million and recorded a net after-tax gain of $17.1 million ($0.05 per diluted share) for the year ended December 31, 2001. In addition, during the year ended December 31, 2001, the Company sold certain other non-strategic assets acquired in the R&B Falcon merger and certain other assets held for sale. The Company received net proceeds of approximately $116.1 million. These sales resulted in a net after-tax gain of $7.5 million ($0.02 per diluted share) for the year ended December 31, 2001. In July 2000, the Company sold a semisubmersible, the Transocean Discoverer. Net proceeds from the sale of the rig, which had been idle in the U.K. sector of the North Sea since February 2000, totaled $42.7 million and resulted in a net after-tax gain of $9.4 million, or $0.04 per diluted share. In February 2000, the Company sold its coiled tubing drilling services business to Schlumberger Limited. The net proceeds from the sale were $24.9 million and no gain or loss was recognized on the sale. The Company's interests in its Transocean-Nabors Drilling Technology LLC and DeepVision LLC joint ventures were excluded from the sale. Note 7 - Impairment Loss on Long-Lived Assets During the fourth quarter 2001, the Company recorded noncash impairment charges in the International and U.S. Floater Contract Drilling Services segment and Gulf of Mexico Shallow and Inland Water segment of $36.3 million and $4.1 million, respectively. In the International and U.S. Floater Contract Drilling Services segment, the impairment related to assets held 56

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued for sale and certain non-core assets held and used of $24.5 million and $11.8 million, respectively. In the Gulf of Mexico Shallow and Inland Water segment, the impairment related to assets held for sale and certain non-core assets held and used of $3.1 million and $1.0 million, respectively. The impairments resulted from deterioration in current market conditions. The methodology used in determining the fair market value included third-party appraisals and industry experience for non-core assets held and used and offers from potential buyers for assets held for sale. Note 8 - Debt Debt, net of unamortized discounts, premiums and fair value adjustments, is comprised of the following (in millions): DECEMBER 31, ------------------ 2001 2000 -------- -------- Commercial Paper. . . . . . . . . . . . . . . . . . . . . . . . . . $ 326.4 $ - 6.5% Senior Notes, due April 2003 . . . . . . . . . . . . . . . . . 240.5 - 9.125% Senior Notes, due December 2003. . . . . . . . . . . . . . . 92.0 - Amortizing Term Loan Agreement - Final Maturity December 2004. . . 400.0 400.0 550 million Revolving Credit Agreement, due December 2005. . . . . - 180.1 7.31% Nautilus Class A1 Amortizing Notes - Final Maturity May 2005. 142.9 - 9.41% Nautilus Class A2 Notes, due May 2005 . . . . . . . . . . . . 52.4 - 6.75% Senior Notes, due April 2005. . . . . . . . . . . . . . . . . 354.6 - Secured Rig Financing . . . . . . . . . . . . . . . . . . . . . . . 50.6 68.6 6.95% Senior Notes, due April 2008. . . . . . . . . . . . . . . . . 252.3 - 9.5% Senior Notes, due December 2008. . . . . . . . . . . . . . . . 348.1 - 6.625% Notes, due April 2011. . . . . . . . . . . . . . . . . . . . 711.7 - 7.375% Senior Notes, due April 2018 . . . . . . . . . . . . . . . . 250.5 - Zero Coupon Convertible Debentures, due May 2020. . . . . . . . . . 512.2 497.7 1.5% Convertible Debentures, due May 2021 . . . . . . . . . . . . . 400.0 - 8% Debentures, due April 2027 . . . . . . . . . . . . . . . . . . . 197.9 197.9 7.45% Notes, due April 2027 . . . . . . . . . . . . . . . . . . . . 94.4 94.1 7.5% Notes, due April 2031. . . . . . . . . . . . . . . . . . . . . 597.3 - 6.9% Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14.9 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 0.1 -------- -------- Total Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,023.8 1,453.4 Less Debt Due Within One Year . . . . . . . . . . . . . . . . . . . 484.4 23.1 -------- -------- Total Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . $4,539.4 $1,430.3 ======== ======== The scheduled maturity of the face value of the Company's debt is as follows (in millions): Years Ended December 31, ------------- 2002 . . . . . . . . . . . . . . $ 484.4 2003 . . . . . . . . . . . . . . 532.3 2004 . . . . . . . . . . . . . . 211.4 2005 . . . . . . . . . . . . . . 423.4 2006 . . . . . . . . . . . . . . - Thereafter . . . . . . . . . . . 3,650.0 ------------- Total. . . . . . . . . . . . $ 5,301.5 ============= Commercial Paper Program - The borrowings as of December 31, 2001 had a maturity of one day to seven days and an average yield of 3.21 percent. The Revolving Credit Agreements (described below) provide liquidity for commercial paper borrowings. 57

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Revolving Credit Agreements - The Company is a party to two revolving credit agreements (together the "Revolving Credit Agreements"), a $550.0 million five-year revolving credit agreement (the "Five-Year Revolver") dated December 29, 2000 and a $250.0 million 364-day revolving credit agreement (the "364-Day Revolver") dated December 27, 2001. The Revolving Credit Agreements bear interest, at the Company's option, at a base rate or London Interbank Offer Rate ("LIBOR") plus a margin that can vary from 0.180 percent to 0.700 percent under the Five-Year Revolver and from 0.190 percent to 0.725 percent under the 364-Day Revolver depending on the Company's senior unsecured public debt rating. At December 31, 2001, the Five-Year Revolver and the 364-Day Revolver margins were 0.45 percent and 0.475 percent, respectively. A utilization fee varying from 0.075 percent to 0.150 percent, depending on the Company's senior unsecured public debt rating, is payable if amounts outstanding under the Five-Year Revolver or the 364-Day Revolver are greater than $181.5 million or $82.5 million, respectively. The Revolving Credit Agreements contain covenants similar to those contained in the Term Loan Agreement described below. There were no amounts outstanding under the Revolving Credit Agreements at December 31, 2001. Term Loan Agreement - The Company is a party to a $400.0 million unsecured five-year term loan agreement dated as of December 16, 1999. Amounts outstanding under the Term Loan Agreement bear interest at the Company's option, at a base rate or LIBOR plus a margin (0.70 percent per annum at December 31, 2001) that varies depending on the Company's senior unsecured public debt rating. The debt begins to amortize in March 2002, at a rate of $25.0 million per quarter in 2002. In 2003 and 2004, the debt amortizes at a rate of $37.5 million per quarter. The Term Loan Agreement and the Revolving Credit Agreements require compliance with various covenants and provisions customary for agreements of this nature, including an interest coverage ratio of not less than 3 to 1, a debt to total capital ratio of not greater than 40 percent, and limitations on mergers and sale of substantially all assets, creating liens, incurring debt, transactions with affiliates and sale/leaseback transactions. Furthermore, the agreements contain a "material adverse effect" representation that may prevent the Company from borrowing under the agreements should an event occur which materially impacts the Company's business or its ability to meet any of its obligations under the agreements. 6.625% Notes and 7.5% Notes - In April 2001, the Company issued $700.0 million aggregate principal amount of 6.625% Notes due April 15, 2011 and $600.0 million aggregate principal amount of 7.5% Notes due April 15, 2031. The fair value of the 6.625% Notes and 7.5% Notes at December 31, 2001 was approximately $689.0 million and $599.0 million, respectively, based on the estimated yield to maturity as of that date. At December 31, 2001, $700.0 million and $600.0 million principal amount of these notes was outstanding, respectively. The Company entered into interest rate swaps relating to the 6.625% Notes and 7.5% Notes. See Note 9. 1.5% Convertible Debentures - In May 2001, the Company issued $400.0 million aggregate principal amount of 1.5% Convertible Debentures due May 2021. The Company has the right to redeem the debentures after five years for a price equal to 100 percent of the principal. Each holder has the right to require the Company to repurchase the debentures after five, 10 and 15 years at 100 percent of the principal amount. The Company may pay this repurchase price with either cash or ordinary shares or a combination of cash and ordinary shares. The debentures are convertible into ordinary shares of the Company at the option of the holder at any time at a ratio of 13.8627 shares per $1,000 principal amount debenture, subject to adjustments if certain events take place, if the closing sale price per ordinary share exceeds 110 percent of the conversion price for at least 20 trading days in a period of 30 consecutive trading days ending on the trading day immediately prior to the conversion date or if other specified conditions are met. At December 31, 2001, $400.0 million principal amount of these notes was outstanding. The fair value of the 1.5% Convertible Debentures at December 31, 2001 was approximately $354.0 million based on the estimated yield to maturity as of that date. Zero Coupon Convertible Debentures - In May 2000, the Company issued Zero Coupon Convertible Debentures due May 2020 with a face value at maturity of $865.0 million. The debentures were issued at a price to the public of $579.12 per debenture and accrue original issue discount at a rate of 2.75 percent per annum compounded semiannually to reach a face value at maturity of $1,000 per debenture. The Company will pay no interest on the debentures prior to maturity and has the right to redeem the debentures after three years for a price equal to the issuance price plus accrued original issue discount to the date of redemption. Each holder has the right to require the Company to repurchase the debentures on the third, eighth and thirteenth anniversary of issuance at the issuance price plus accrued original issue discount to the date of repurchase. The Company may pay this repurchase price with either cash or ordinary shares or a combination of cash and ordinary shares. The debentures are convertible into ordinary shares of the Company at the option of the holder at any time at a ratio of 8.1566 shares per debenture subject to adjustments if certain events take place. At December 31, 2001, $865.0 million principal 58

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued amount of these notes was outstanding. The fair value of the Zero Coupon Convertible Debentures at December 31, 2001 was approximately $513.0 million based on the estimated yield to maturity as of that date. 6.5%, 6.75%, 6.95% and 7.375% Senior Notes - In April 1998, R&B Falcon issued 6.5% Senior Notes, 6.75% Senior Notes, 6.95% Senior Notes and 7.375% Senior Notes with an aggregate principal amount of $1.1 billion. These notes were recorded at fair value on January 31, 2001 as part of the R&B Falcon merger. At December 31, 2001, approximately $239.5 million, $350.0 million, $250.0 million and $250.0 million principal amount of these notes was outstanding, respectively. The fair value of the 6.5%, 6.75%, 6.95% and 7.375% Senior Notes at December 31, 2001 was approximately $247.0 million, $363.0 million, $254.0 million and $246.0 million, respectively, based on the estimated yield to maturity as of that date. The 6.75% Senior Notes, 6.95% Senior Notes and 7.375% Senior Notes are redeemable at the option of the Company at a make-whole premium. The 6.5% Senior Notes are not redeemable at the option of the Company . 9.125% and 9.5% Senior Notes - In December 1998, R&B Falcon issued 9.125% Senior Notes and 9.5% Senior Notes with an aggregate principal amount of $400.0 million. These notes were recorded at fair value on January 31, 2001 as part of the R&B Falcon merger. These notes are redeemable at the option of the Company at a make-whole premium. At December 31, 2001, approximately $87.2 million and $300.0 million principal amount of these notes was outstanding, respectively. The fair value of the 9.125% and 9.5% Senior Notes at December 31, 2001 was approximately $94.0 million and $345.0 million, respectively, based on the estimated yield to maturity as of that date. 7.45% Notes and 8% Debentures - In April 1997, the Company issued $100.0 million aggregate principal amount of 7.45% Notes due April 15, 2027 and $200.0 million aggregate principal amount of 8% Debentures due April 15, 2027. Holders of the 7.45% Notes may elect to have all or any portion of the 7.45% Notes repaid on April 15, 2007 at 100 percent of the principal amount. The 7.45% Notes, at any time after April 15, 2007, and the 8% Debentures, at any time, are redeemable at the Company's option at a make-whole premium. At December 31, 2001, $100.0 million and $200.0 million principal amount of these notes was outstanding, respectively. The fair value of the 7.45% Notes and 8% Debentures at December 31, 2001 was approximately $98.0 million and $209.0 million, respectively, based on the estimated yield to maturity as of that date. All of the notes, debentures and bank agreements described above are senior and unsecured. Nautilus Class A1 and A2 Notes - In August 1999, a subsidiary of R&B Falcon completed a $250.0 million project financing for the construction of the Deepwater Nautilus that consisted of two five-year notes. The first note with an original principal amount of $200.0 million and bearing interest at 7.31 percent calls for monthly interest and principal payments and matures in May 2005. The second note with a principal amount of $50.0 million and bearing interest at 9.41 percent calls for monthly interest payments and a balloon principal payment due at maturity in May 2005. Both notes are collateralized by the Deepwater Nautilus and drilling contract revenues from such rig. At December 31, 2001, approximately $144.0 million and $50.0 million principal amount of these notes was outstanding, respectively. These notes were recorded at fair value on January 31, 2001 as part of the R&B Falcon merger. The fair value of the Nautilus Class A1 and A2 Notes at December 31, 2001 was approximately $154.0 million and $55.0 million, respectively, based on the estimated yield to maturity as of that date. Secured Rig Financing - At December 31, 2001, the Company had outstanding $50.6 million of debt secured by the Trident IX and Trident 16. Payments under these financing agreements include an interest component of 7.95 percent for the Trident IX and 7.20 percent for the Trident 16. The Trident IX facility expires in April 2003 while the Trident 16 facility expires in September 2004. The financing arrangements provide for a call right on the part of the Company to repay the financing prior to expiration of their scheduled terms and in some circumstances a put right on the part of the banks to require the Company to repay the financing. Under either circumstance, the Company would retain ownership of the rigs. See Note 23. The fair value of the Secured Rig Financing at December 31, 2001 was approximately $53.0 million based on the estimated yield to maturity as of that date. Redeemed and Repurchased Debt - On May 18, 2001, Cliffs Drilling, an indirect wholly owned subsidiary of the Company, redeemed all of the approximately $200.0 million principal amount outstanding 10.25% Senior Notes due 2003, at 102.5 percent, or $1,025 per $1,000 principal amount, plus interest accrued to the redemption date. The Company recognized an extraordinary gain, net of tax, of approximately $1.6 million ($0.01 per diluted share) in the second quarter of 2001 relating to the early extinguishment of this debt. 59

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued On April 10, 2001, R&B Falcon acquired, pursuant to a tender offer, all of the approximately $400.0 million principal amount outstanding 11.375% Senior Secured Notes due 2009 of its affiliate, RBF Finance Co., at 122.51 percent of principal amount, or $1,225.10 per $1,000 principal amount, plus accrued and unpaid interest. On April 6, 2001, RBF Finance Co., an indirect wholly owned subsidiary of the Company, redeemed all of the approximately $400.0 million principal amount outstanding 11% Senior Secured Notes due 2006 at 125.282 percent, or $1,252.82 per $1,000 principal amount, plus accrued and unpaid interest, and R&B Falcon redeemed all of the approximately $200.0 million principal amount outstanding 12.25% Senior Notes due 2006 at 130.675 percent or $1,306.75 per $1,000 principal amount, plus accrued and unpaid interest. The Company funded the redemption from the issuance of the 6.625% Notes and 7.5% Notes in April 2001. In the second quarter of 2001, the Company recognized an extraordinary loss, net of tax, of approximately $18.9 million ($0.06 per diluted share) on the early retirement of these three debt instruments. On November 30, 2001, the Company repaid all amounts outstanding related to the 6.9% Notes using cash on hand. As a result, the Company recognized an extraordinary loss, net of tax, of approximately $1.4 million in the fourth quarter of 2001 relating to the early extinguishment of this debt. In November and December of 2001, the Company repurchased and retired approximately $11.3 million face value of the 9.125% Senior Notes due 2003 and $10.5 million face value of the 6.5% Senior Notes due 2003. The Company funded the repurchases from cash on hand. As a result, the Company recognized an extraordinary loss, net of tax, of approximately $0.6 million in the fourth quarter of 2001 relating to the early extinguishment of this debt. Note 9 - Financial Instruments and Risk Concentration Foreign Exchange Risk - The Company's international operations expose the Company to foreign exchange risk. This risk is primarily associated with compensation costs denominated in currencies other than the U.S. dollar and with purchases from foreign suppliers. The Company uses a variety of techniques to minimize exposure to foreign exchange risk, including customer contract payment terms and foreign exchange derivative instruments. The Company's primary foreign exchange risk management strategy involves structuring customer contracts to provide for payment in both U.S. dollars and local currency. The payment portion denominated in local currency is based on anticipated local currency requirements over the contract term. Foreign exchange derivative instruments, specifically foreign exchange forward contracts, may be used to minimize foreign exchange risk in instances where the primary strategy is not attainable. A foreign exchange forward contract obligates the Company to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates or to make an equivalent U.S. dollar payment equal to the value of such exchange. Gains and losses on foreign exchange derivative instruments, which qualify as accounting hedges, are deferred as other comprehensive income and recognized when the underlying foreign exchange exposure is realized. Gains and losses on foreign exchange derivative instruments, which do not qualify as hedges for accounting purposes, are recognized currently based on the change in market value of the derivative instruments. At December 31, 2001 and 2000, the Company did not have any foreign exchange derivative instruments not qualifying as accounting hedges. Interest Rate Risk -The Company's use of debt directly exposes the Company to interest rate risk. Floating rate debt, where the interest rate can be changed every year or less over the life of the instrument, exposes the Company to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument and the instrument's maturity is greater than one year, exposes the Company to changes in market interest rates should the Company refinance maturing debt with new debt. In addition, the Company is exposed to interest rate risk in its cash investments, as the interest rates on these investments change with market interest rates. The Company, from time to time, may use interest rate swap agreements to manage the effect of interest rate changes on future income. These derivatives are used as hedges and are not used for speculative or trading purposes. Interest rate swaps are designated as a hedge of underlying future interest payments. These agreements involve the exchange of amounts based 60

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued on variable interest rates and amounts based on a fixed interest rate over the life of the agreement without an exchange of the notional amount upon which the payments are based. The interest rate differential to be received or paid on the swaps is recognized over the lives of the swaps as an adjustment to interest expense. Gains and losses on terminations of interest rate swap agreements are deferred as other comprehensive income and recognized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income. The major risks in using interest rate derivatives include changes in interest rates affecting the value of such instruments, potential increases in the interest expense of the Company due to market increases in floating interest rates in the case of derivatives which exchange fixed interest rates for floating interest rates and the credit worthiness of the counterparties in such transactions. The Company has entered into interest rate swap transactions hedging debt. The Company has not hedged any of its other assets or liabilities against interest rate movements. The swaps are traded in liquid, over-the-counter, bank markets. None of the swaps are traded on an exchange. All but one of the swaps have industry standard "mutual puts" that allow either party, the Company or the counterparty, to end the transaction on the fifth anniversary of the inception of the swap. One swap, instead of a mutual put, requires the Company or its counterparty to provide cash as collateral on the fifth anniversary, depending upon the value of the swap and the debt rating of the party with the net liability. This swap is to be revalued and re-collateralized monthly after the fifth anniversary. The market value of the Company's swaps is carried on its consolidated balance sheet as an asset or liability depending on the movement of interest rates after the transaction is entered into and depending on the security being hedged. Because the Company's swaps are considered to be perfectly effective, the carrying value of the debt being hedged is adjusted for the market value of the swaps. Should a counterparty default, and the market value of the swap with that counterparty is classified as an asset in the Company's consolidated balance sheet at the time of the default, the Company may be unable to collect on that asset. To mitigate such risk of failure, the Company enters into swap transactions with a diverse group of high-quality institutions. On March 13, 2001, the Company entered into interest rate swap agreements relating to the anticipated private placement of $700.0 million aggregate principal amount of 6.625% Notes due April 15, 2011 and $600.0 million aggregate principal amount of 7.5% Notes due April 15, 2031 in the notional amounts of $200.0 million and $400.0 million, respectively. The objective of each transaction was to hedge a portion of the forecasted payments of interest resulting from the anticipated issuance of fixed rate debt. Under each forward interest rate swap, the Company paid a LIBOR swap rate and received the floating rate of three-month LIBOR. Hedge effectiveness was assessed by the dollar-offset method by comparing the changes in expected cash flows from the hedges with the change in the LIBOR swap rates and the forward interest rate swaps were determined to be highly effective. The hedge transactions were closed out on March 30, 2001. The gain on these hedge transactions ($3.9 million as of December 31, 2001) is a component of accumulated other comprehensive income in the consolidated balance sheet at December 31, 2001 and had no material effect on the results of operations for the year ended December 31, 2001. This gain is being recognized as a reduction of interest expense over the life of the 7.5% Notes beginning in April 2001. Over the 12-month period commencing January 1, 2002, the amount of gain to be recognized will be approximately $0.3 million. In June 2001, the Company entered into interest rate swap agreements in the aggregate notional amount of $700.0 million with a group of banks relating to the Company's $700.0 million aggregate principal amount of 6.625% Notes due April 15, 2011. The objective of such transactions is to protect the debt against changes in fair value due to changes in the benchmark interest rate, which has been designated as LIBOR plus a weighted average spread of 49.6 basis points per annum. Under each interest rate swap, on October 15 and April 15 of each year until the maturity on April 15, 2011, the Company receives the fixed rate equal to 6.625 percent per annum and pays the benchmark interest rate. The hedge is considered perfectly effective against changes in the fair value of the debt due to changes in the benchmark interest rate over its term. As a result, the shortcut method applies and there is no need to periodically reassess the effectiveness of the hedge during the term of the swaps. At December 31, 2001, the fair value of the interest rate swap was approximately $15.1 million and has been reflected in the consolidated balance sheet as an increase in other assets with a corresponding increase in long-term debt. 61

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Credit Risk - Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, trade receivables, swap receivables and notes receivable from Delta Towing LLC (see Note 19). It is the Company's practice to place its cash and cash equivalents in time deposits at commercial banks with high credit ratings or mutual funds, which invest exclusively in high quality money market instruments. In foreign locations, local financial institutions are generally utilized for local currency needs. The Company limits the amount of exposure to any one institution and does not believe it is exposed to any significant credit risk. The Company derives the majority of its revenue from services to international oil companies and government-owned and government-controlled oil companies. Receivables are concentrated in various countries. See Note 17. The Company maintains an allowance for uncollectible accounts receivable based upon expected collectibility. The Company is not aware of any significant credit risks relating to its customer base and does not generally require collateral or other security to support customer receivables. Labor Agreements - On a worldwide basis, the Company had approximately 11 percent of its employees working under collective bargaining agreements at December 31, 2001, most of whom were working in Norway, Nigeria, Brazil and Venezuela. Of these represented employees, a majority are working under agreements that are subject to salary negotiation in 2002. Note 10 - Other Current Liabilities Other current liabilities are comprised of the following (in millions): December 31, -------------- 2001 2000 ------ ------ Accrued Payroll and Employee Benefits . $134.2 $ 81.2 Contract Disputes and Legal Claims. . . 47.5 36.8 Accrued Interest. . . . . . . . . . . . 38.8 7.0 Accrued Taxes, Other than Income. . . . 26.6 13.0 Deferred Revenue. . . . . . . . . . . . 18.2 9.2 Deferred Gain on Sale of Rigs . . . . . - 57.7 Other . . . . . . . . . . . . . . . . . 18.1 18.5 ------ ------ Total Other Current Liabilities . . . $283.4 $223.4 ====== ====== Note 11 - Supplementary Cash Flow Information Non-cash financing activities for the year ended December 31, 2001 included $6.7 billion related to the Company's ordinary shares issued in connection with the R&B Falcon merger. Non-cash investing activities for the year ended December 31, 2001 included $6.4 billion of net assets acquired in the R&B Falcon merger. Concurrent with and subsequent to the R&B Falcon merger, the Company removed certain non-strategic assets from the active rig fleet and categorized them as assets held for sale. These reclassifications were reflected in the December 31, 2001 consolidated balance sheet as a decrease in property and equipment, net of $177.8 million, with a corresponding increase in other assets. In February 2001, the Company received a distribution from a joint venture in the form of marketable securities held for sale valued at $19.9 million. The distribution was reflected in the consolidated balance sheet as an increase in other current assets with a corresponding decrease in investments in and advances to joint ventures. Non-cash investing activities for the year ended December 31, 2000 included $45.0 million related to accruals of capital expenditures, which was primarily due to the settlement with DCN International related to the construction of the Sedco Energy and the Sedco Express. The accruals have been reflected in the consolidated balance sheet as an increase in property and equipment, net and accounts payable. 62

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Non-cash financing activities for the year ended December 31, 1999 included $3.0 billion related to the ordinary shares held by Transocean Offshore Inc. shareholders at the time of the Sedco Forex merger. Also included was $34.1 million of non-cash increases in equity advances from Schlumberger relating to balances retained under the Distribution Agreement (see Note 4). Non-cash investing activities for the year ended December 31, 1999 included $2.6 billion of net assets acquired in the Sedco Forex merger. Cash payments for interest were $190.6 million, $81.3 million and $39.8 million for the years ended December 31, 2001, 2000 and 1999, respectively. Cash payments for income taxes, net, were $122.5 million, $63.3 million and $35.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Note 12 - Income Taxes Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned. There is no expected relationship between the provision for or benefit from income taxes and income or loss before income taxes because the countries have taxation regimes that vary not only with respect to nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also arise because income earned and taxed in any particular country or countries may fluctuate from year to year. Transocean Sedco Forex Inc., a Cayman Islands company, is not subject to income tax in the Cayman Islands. The effective tax rate for the years ended December 31, 2001, 2000 and 1999 was 22.9 percent, 25.1 percent and (19.0) percent, respectively. The components of the provision for income taxes are as follows (in millions): Years ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- Current provision . . . . . . . . . . . . . . . . . . . . $174.2 $ 66.5 $ 15.0 Deferred benefit . . . . . . . . . . . . . . . . . . . . (98.2) (30.1) (24.3) ------- ------- ------- Income tax expense (benefit) after extraordinary items. . 76.0 36.4 (9.3) Tax effect of extraordinary items . . . . . . . . . . . . 9.7 0.3 - ------- ------- ------- Income Tax Expense (Benefit) before Extraordinary Items . $ 85.7 $ 36.7 $ (9.3) ======= ======= ======= 63

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Significant components of deferred tax assets and liabilities are as follows (in millions): DECEMBER 31, ---------------------- 2001 2000 ---------- ---------- DEFERRED TAX ASSETS-CURRENT Accrued personnel taxes. . . . . . . . . . . . . . . . $ 1.4 $ 1.3 Accrued workers' compensation insurance. . . . . . . . 4.4 1.7 Other accruals . . . . . . . . . . . . . . . . . . . . 17.9 11.4 Other. . . . . . . . . . . . . . . . . . . . . . . . . 3.7 5.0 ---------- ---------- Total Current Deferred Tax Assets. . . . . . . . . . 27.4 19.4 ---------- ---------- DEFERRED TAX LIABILITIES-CURRENT Insurance accruals . . . . . . . . . . . . . . . . . . (3.5) - Deferred drydock . . . . . . . . . . . . . . . . . . . (2.7) (1.3) Other accruals . . . . . . . . . . . . . . . . . . . . (0.2) - ---------- ---------- Total Current Deferred Tax Liabilities . . . . . . . (6.4) (1.3) ---------- ---------- Net Current Deferred Tax Assets. . . . . . . . . . . $ 21.0 $ 18.1 ========== ========== DEFERRED TAX ASSETS-NONCURRENT Net operating loss carryforwards . . . . . . . . . . . $ 447.0 $ 78.5 Foreign tax credit carryforwards . . . . . . . . . . . 185.6 12.4 Retirement and benefit plan accruals . . . . . . . . . 0.8 3.1 Other accruals . . . . . . . . . . . . . . . . . . . . 7.9 6.6 Deferred income and other. . . . . . . . . . . . . . . 41.3 3.5 Valuation allowance for noncurrent deferred tax assets (115.4) (24.7) ---------- ---------- Total Noncurrent Deferred Tax Assets . . . . . . . . 567.2 79.4 ---------- ---------- DEFERRED TAX LIABILITIES-NONCURRENT Depreciation and amortization. . . . . . . . . . . . . (680.0) (383.2) Deferred gains . . . . . . . . . . . . . . . . . . . . (123.2) (28.4) Investment in subsidiaries . . . . . . . . . . . . . . (72.1) (22.6) Other. . . . . . . . . . . . . . . . . . . . . . . . . (9.0) (4.4) ---------- ---------- Total Noncurrent Deferred Tax Liabilities. . . . . . (884.3) (438.6) ---------- ---------- Net Noncurrent Deferred Tax Liabilities. . . . . . . $ (317.1) $ (359.2) ========== ========== Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company's assets and liabilities using the applicable tax rates in effect at year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. In 2001 and 2000, the Company provided a valuation allowance to offset deferred tax assets on net operating losses incurred during the year in certain jurisdictions where, in the opinion of management, it is more likely than not that the financial statement benefit of these losses would not be realized. The Company has also provided a valuation allowance for foreign tax credit carryforwards reflecting the possible expiration of their benefits prior to their utilization. The valuation allowance for noncurrent deferred tax assets of $115.4 million increased $90.7 million from $24.7 million at December 31, 2000. The increase is primarily related to R&B Falcon's valuation allowance at the time of the merger. The Company's net operating loss carryforwards include a tax effected U.S. loss of $392.4 million which will expire between 2005 and 2021. The remaining $54.6 million of tax effected U.K. net operating losses do not expire. The Company's fully benefited foreign tax credit carryforwards will expire between 2004 and 2006. 64

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Transocean Sedco Forex Inc., a Cayman Islands company, is not subject to income taxes in the Cayman Islands. For the two years ended December 31, 2001, there was no Cayman Islands income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by a Cayman Islands company or its shareholders. The Company has obtained an assurance from the Cayman Islands government under the Tax Concessions Law (1995 Revision) that, in the event that any legislation is enacted in the Cayman Islands imposing tax computed on profits or income, or computed on any capital assets, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, such tax shall not, until June 1, 2019, be applicable to the Company or to any of its operations or to the shares, debentures or other obligations of the Company. Therefore, under present law there will be no Cayman Islands tax consequences affecting distributions. The Company's income tax returns are subject to review and examination in the various jurisdictions in which the Company operates. The U.S. Internal Revenue Service is currently auditing the years 1998 through 2000. In addition, other tax authorities have questioned the amounts of income and expense subject to tax in their jurisdiction for prior periods. The Company is currently contesting additional assessments which have been asserted and may contest any future assessments. In the opinion of management, the ultimate resolution of these asserted income tax liabilities will not have a material adverse effect on the Company's business, consolidated financial position or results of operations. In connection with the distribution of Sedco Forex to the Schlumberger shareholders, Sedco Forex and Schlumberger entered into a Tax Separation Agreement. In accordance with the terms of the Tax Separation Agreement, Schlumberger agreed to indemnify Sedco Forex for any tax liabilities incurred directly in connection with the preparation of Sedco Forex for this distribution. In addition, Schlumberger agreed to indemnify Sedco Forex for tax liabilities associated with Sedco Forex operations conducted through Schlumberger entities prior to the merger and any tax liabilities associated with Sedco Forex assets retained by Schlumberger. Transocean Offshore Inc. was included in the consolidated federal income tax returns filed by a former parent, Sonat Inc. ("Sonat") during all periods in which Sonat's ownership was greater than or equal to 80 percent ("Affiliation Years"). Transocean Offshore Inc. and Sonat entered into a Tax Sharing Agreement providing for the manner of determining payments with respect to federal income tax liabilities and benefits arising in the Affiliation Years. Under the Tax Sharing Agreement, the Company will pay to Sonat an amount equal to the Company's share of the Sonat consolidated federal income tax liability, generally determined on a separate return basis. In addition, Sonat will pay the Company for Sonat's utilization of deductions, losses and credits which are attributable to the Company and in excess of that which would be utilized on a separate return basis. Note 13 - Commitments and Contingencies Operating Leases - The Company has operating lease commitments expiring at various dates, principally for real estate, office space, office equipment and rig bareboat charters. In addition to rental payments, some leases provide that the Company pay a pro rata share of operating costs applicable to the leased property. As of December 31, 2001, future minimum rental payments related to noncancellable operating leases are as follows (in millions): Years ended December 31, ------------- 2002. . . . . . . . . . . . . . . . $ 27.9 2003. . . . . . . . . . . . . . . . 24.8 2004. . . . . . . . . . . . . . . . 22.2 2005. . . . . . . . . . . . . . . . 18.9 2006. . . . . . . . . . . . . . . . 6.7 Thereafter. . . . . . . . . . . . . 26.6 ------------- Total . . . . . . . . . . . . . . $ 127.1 ============= The Company is a party to an operating lease on the M. G. Hulme, Jr. Under this lease, the Company may purchase the rig for $35.7 million at the end of the lease term of November 29, 2005. At December 31, 2001, the future minimum lease payments, excluding the purchase option, was $50.8 million. Rental expense for all operating leases, including leases with terms of less than one year, was $96 million, $50 million and $37 million for the years ended December 31, 2001, 2000 and 1999, respectively. 65

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Legal Proceedings - In 1990 and 1991, two of the Company's subsidiaries were served with various assessments collectively valued at approximately $7 million from the municipality of Rio de Janeiro, Brazil to collect a municipal tax on services. The Company believes that neither subsidiary is liable for the taxes and has contested the assessments in the Brazilian administrative and court systems. In October 2001, the Brazil Supreme Court rejected the Company's appeal of an adverse lower court's ruling with respect to a June 1991 assessment, which was valued at approximately $6 million. The Company is challenging the assessment in a separate proceeding, which is currently at the trial court level. The Company has received adverse rulings at various levels in connection with a disputed August 1990 assessment which is still pending before the Brazil Superior Court of Justice. The Company also received an adverse ruling from the Taxpayer's Council in connection with an October 1990 assessment and is appealing the ruling. If the Company's defenses are ultimately unsuccessful, the Company believes that the Brazilian government-controlled oil company, Petrobras, has a contractual obligation to reimburse the Company for municipal tax payments required to be paid by them. The Company does not expect the liability, if any, resulting from these assessments to have a material adverse effect on its business or consolidated financial position. The Indian Customs Department, Mumbai, filed a "show cause notice" against a subsidiary of the Company and various third parties in July 1999. The show cause notice alleged that the initial entry into India in 1988 and other subsequent movements of the Trident II jackup rig operated by the subsidiary constituted imports and exports for which proper customs procedures were not followed and sought payment of customs duties of approximately $31 million based on an alleged 1998 rig value of $49 million, with interest and penalties, and confiscation of the rig. In January 2000, the Customs Department issued its order, which found that the Company had imported the rig improperly and intentionally concealed the import from the authorities, and directed the Company to pay a redemption fee of approximately $3 million for the rig in lieu of confiscation and to pay penalties of approximately $1 million in addition to the amount of customs duties owed. In February 2000, the Company filed an appeal with the Customs, Excise and Gold (Control) Appellate Tribunal ("CEGAT") together with an application to have the confiscation of the rig stayed pending the outcome of the appeal. In March 2000, the CEGAT ruled on the stay application, directing that the confiscation be stayed pending the appeal. The CEGAT issued its opinion on the Company's appeal on February 2, 2001, and while it found that the rig was imported in 1988 without proper documentation or payment of duties, the redemption fee and penalties were reduced to less than $0.1 million in view of the ambiguity surrounding the import practice at the time and the lack of intentional concealment by the Company. The CEGAT further sustained the Company's position regarding the value of the rig at the time of import as $13 million and ruled that subsequent movements of the rig were not liable to import documentation or duties in view of the prevailing practice of the Customs Department, thus limiting the Company's exposure as to custom duties to approximately $6 million. Following the CEGAT order, the Company tendered payment of redemption, penalty and duty in the amount specified by the order by offset against a $0.6 million deposit and $10.7 million guarantee previously made by the Company. The Customs Department attempted to draw the entire guarantee, alleging the actual duty payable is approximately $22 million based on an interpretation of the CEGAT order that the Company believes is incorrect. This action was stopped by an interim ruling of the High Court, Mumbai on writ petition filed by the Company. Both the Customs Department and the Company filed appeals with the Supreme Court of India against the order of the CEGAT, and both appeals have been admitted. The Company applied for an expedited hearing, which was denied. The Company and its customer agreed to pursue and obtained the issuance of documentation from the Ministry of Petroleum that, if accepted by the Customs Department, would reduce the duty to nil. The agreement with the customer further provides that if this reduction was not obtained by December 31, 2001, the customer would pay the duty up to a limit of $7.7 million. The Customs Department has not accepted the documentation or agreed to refund the duties already paid. The Company has requested the refund from the customer and also intends to pursue the action with the Customs Department. The Company does not expect, in any event, that the ultimate liability, if any, resulting from the matter will have a material adverse effect on its business or consolidated financial position. In January 2000, a pipeline in the U.S. Gulf of Mexico was damaged by an anchor from one of the Company's drilling rigs while the rig was under tow. The incident resulted in damage to offshore facilities, including a crude oil pipeline, the release of hydrocarbons from the damaged section of the pipeline and the shutdown of the pipeline and allegedly affected production platforms. All appropriate governmental authorities were notified, and the Company cooperated fully with the operator and relevant authorities in support of the remediation efforts. Certain owners and operators of the pipeline (Poseidon Oil Pipeline Company LLC, Equilon Enterprises LLC, Poseidon Pipeline Company, LLC and Marathon Oil Company) filed suit in March 2000 in federal court, Eastern District of Louisiana, alleging various damages in excess of $30 million. A second suit was filed by Walter Oil & Gas Corporation and certain other plaintiffs in Harris County, Texas alleging various damages in excess of $1.8 million, and the Company obtained a summary judgement against Walter Oil & Gas Corporation and Amerada Hess. The Company has filed a limitation of liability proceeding in federal court, Eastern District of Louisiana, claiming benefit of various statutes providing limitation of liability for vessel owners, the result of 66

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED which has been to stay the first two suits and to cause potential claimants (including the plaintiffs in the existing suits) to file claims in this proceeding. El Paso Energy Corporation, the owner/operator of the platform from which a riser was allegedly damaged, and Texaco Exploration and Production Inc. have filed claims in the limitation of liability proceeding as well. The Company expects that existing insurance will substantially cover any potential liability associated with this matter and that the outcome of this matter will not have a material adverse effect on its business or consolidated financial position. The Company is a defendant in Bryant, et al. v. R&B Falcon Drilling USA, Inc., et al. in the United States District Court for the Southern District of Texas, Houston Division. R&B Falcon Drilling USA is a wholly owned indirect subsidiary of R&B Falcon. In this suit, the plaintiffs allege that R&B Falcon Drilling USA, the Company and a number of other offshore drilling contractors with operations in the U.S. Gulf of Mexico have engaged in a conspiracy to depress wages and benefits paid to certain of their offshore employees. The plaintiffs contend that this alleged conduct violates federal antitrust law and constitutes unfair trade practices and wrongful employment acts under state law. The plaintiffs sought treble damages, attorneys' fees and costs on behalf of themselves and an alleged class of offshore workers, along with an injunction against exchanging certain wage and benefit information with other offshore drilling contractors named as defendants. In May 2001, the Company reached an agreement in principle with the plaintiffs' counsel to settle all claims, pending Court approval of the settlement. In July 2001, before the Court had considered the proposed settlement, the case, along with a number of unrelated cases also pending in the federal court in Galveston, was transferred to a federal judge sitting in Houston as a docket equalization measure. The judge has granted preliminary approval of the proposed settlement, and the parties are in the process of notifying class members. The terms of the settlement have been reflected in the Company's results of operations for the first quarter of 2001. The settlement did not have a material adverse effect on its business or consolidated financial position. In November 1988, a lawsuit was filed in the U.S. District Court for the Southern District of West Virginia against Reading & Bates Coal Co., a wholly owned subsidiary of R&B Falcon, by SCW Associates, Inc. claiming breach of an alleged agreement to purchase the stock of Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia. When those coal properties were sold in July 1989 as part of the disposition of R&B Falcon's coal operations, the purchasing joint venture indemnified Reading & Bates Coal Co. and R&B Falcon against any liability Reading & Bates Coal Co. might incur as a result of this litigation. A judgment for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the plaintiff in the above-referenced action, filed a separate ancillary action in the Circuit Court, Kanawha County, West Virginia against R&B Falcon, Caymen Coal, Inc. (the former owner of R&B Falcon's West Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill (the former President of Reading & Bates Coal Co.) personally, three other companies in which the Company believes Mr. Sturgill holds an equity interest, two employees of the joint venture, First National Bank of Chicago and First Capital Corporation. The lawsuit seeks to recover compensatory damages of $50 million and punitive damages of $50 million for alleged tortuous interference with the contractual rights of the plaintiff and to impose a constructive trust on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. Currently, the case is pending review by the West Virginia Supreme Court of Appeals on a certification of a question of law as to whether denial of the Company's motion for summary judgement was appropriate, and discovery is proceeding. The Company intends to defend its interests vigorously and believes that the damages alleged by the plaintiff in this action are highly exaggerated. In any event, the Company believes that it has valid defenses and does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. In December 1998, Mobil North Sea Limited ("Mobil") purportedly terminated its contract for use of the Jack Bates based on failure of two mooring lines while anchor recovery operations at a Mobil well location had been suspended during heavy weather. The Company did not believe that Mobil had the right to terminate this contract. The Company later recontracted the Jack Bates to Mobil at a lower dayrate. The Company filed a request for arbitration with the London Court of International Arbitration seeking damages for the termination, and Mobil in turn counterclaimed against the Company seeking damages for the Company's alleged breaches of the original contract. The arbitrators ruled that Mobil did have the right to terminate the contract, and the counterclaim against the Company is proceeding. The Company does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. In March 1997, an action was filed by Mobil Exploration and Producing U.S. Inc. and affiliates, St. Mary Land & Exploration Company and affiliates and Samuel Geary and Associates, Inc. against Cliffs Drilling, its underwriters and insurance broker in the 16th Judicial District Court of St. Mary Parish, Louisiana. The plaintiffs alleged damages amounting to in excess of $50 million in connection with the drilling of a turnkey well in 1995 and 1996. The case was tried before a jury in January and February 2000, and the jury returned a verdict of approximately $30 million in favor of the plaintiffs for 67

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED excess drilling costs, loss of insurance proceeds, loss of hydrocarbons and interest. The Company is in the process of preparing its appeal of such judgment. The Company believes that all but potentially the portion of the verdict representing excess drilling costs of approximately $4.7 million is covered by relevant primary and excess liability insurance policies of Cliffs Drilling; however, the insurers and underwriters have denied coverage. Cliffs Drilling has instituted litigation against those insurers and underwriters to enforce its rights under the relevant policies. The Company does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. In October 2001, the Company was notified by the U.S. Environmental Protection Agency ("EPA") that the EPA had identified a subsidiary of the Company as a potentially responsible party in connection with the Palmer Barge Line superfund site located in Port Arthur, Jefferson County, Texas. Based upon the information provided by the EPA and the Company's review of its internal records to date, the Company disputes its designation as a potentially responsible party and does not expect that the ultimate outcome of this case will have a material adverse effect on its business or consolidated financial position. The Company and its subsidiaries are involved in a number of other lawsuits, all of which have arisen in the ordinary course of the Company's business. The Company does not believe that ultimate liability, if any, resulting from any such other pending litigation will have a material adverse effect on its business or consolidated financial position. Self Insurance - The Company is self-insured for the deductible portion of its insurance coverage. In the opinion of management, adequate accruals have been made based on known and estimated exposures up to the deductible portion of the Company's insurance coverages. Management believes that claims and liabilities in excess of the amounts accrued are adequately insured. Letters of Credit and Surety Bonds - The Company had letters of credit outstanding at December 31, 2001 totaling $38.1 million. The total includes outstanding letters of credit of $1.1 million under a $70.0 million letter of credit facility entered into with three banks. Under this facility, the Company pays letter of credit fees of 1.5 percent per annum and commitment fees of 0.375 percent per annum, respectively. This facility, which matures in April 2004, requires a collateral value ratio of 1.75 times the commitment and is secured by mortgages on five drilling units, the J.W. McLean, J.T. Angel, Randolph Yost, D.R. Stewart and George H. Galloway. See Note 23. The remaining letter of credit amount outstanding guarantees various contract bidding and insurance activities. As is customary in the contract drilling business, we also have various surety bonds totaling $190.0 million in place that secure customs obligations relating to the importation of our rigs and certain performance and other obligations. Note 14 - Stock-Based Compensation Plans Long-Term Incentive Plan - The Company has an incentive plan for key employees and outside directors (the "Incentive Plan"). Under the Incentive Plan, awards can be granted in the form of stock options, restricted stock, stock appreciation rights ("SARs") and cash performance awards. As of December 31, 2001, the Company was authorized to grant up to (i) 18.9 million ordinary shares to employees; (ii) 600,000 ordinary shares to outside directors; and (iii) 300,000 freestanding SARs to employees or directors under the Incentive Plan. Options issued under the Incentive Plan have a 10-year term and become exercisable in three equal annual installments after the date of grant. On December 31, 1999, all unvested stock options and SARs and all unvested restricted shares granted after April 1996 became fully vested as a result of the Sedco Forex merger. At December 31, 2001, there were approximately 10.5 million total shares available for future grants under the Incentive Plan. Prior to the spin-off (see Note 4), key employees of Sedco Forex were granted stock options at various dates under the Schlumberger stock option plans. For all of the stock options granted under such plans, the exercise price of each option equaled the market price of Schlumberger stock on the date of grant, each option's maximum term was 10 years and the options generally vested in 20 percent increments over five years. Fully vested options held by Sedco Forex employees at the date of the spin-off will lapse in accordance with their provisions. Non-vested options were terminated and fully vested stock options to purchase ordinary shares of Transocean Sedco Forex Inc. were granted under a new plan (the "SF Plan"). Certain Sedco Forex employees did not join the Company; therefore, their options remained unchanged under the Schlumberger stock option plans. 68

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Prior to the R&B Falcon merger (see Note 4), certain employees and outside directors of R&B Falcon and its subsidiaries were granted stock options under various plans. As a result of the R&B Falcon merger, the Company assumed all outstanding R&B Falcon stock options and converted them into options to purchase ordinary shares of the Company. The following table summarizes option activities: NUMBER OF SHARES WEIGHTED-AVERAGE UNDER OPTION EXERCISE PRICE ----------------- ----------------- SCHLUMBERGER OPTIONS Outstanding at December 31, 1998. . . . . . . . . 762,920 $ 45.13 Granted . . . . . . . . . . . . . . . . . . . . . 121,250 56.83 Exercised . . . . . . . . . . . . . . . . . . . . (216,616) 33.38 Unvested options terminated . . . . . . . . . . . (282,000) 61.23 Options retained by Schlumberger. . . . . . . . . (385,554) 48.56 ----------------- ----------------- Outstanding at December 31, 1999. . . . . . . . . - - ================= ================= TRANSOCEAN SEDCO FOREX INC. OPTIONS Options outstanding at time of Sedco Forex merger 2,747,773 $ 25.04 Options issued under the SF Plan. . . . . . . . . 491,645 34.09 Options issued under the Incentive Plan . . . . . 20,000 33.69 ----------------- ----------------- Outstanding at December 31, 1999. . . . . . . . . 3,259,418 26.46 Granted . . . . . . . . . . . . . . . . . . . . . 1,636,918 37.30 Exercised . . . . . . . . . . . . . . . . . . . . (499,428) 23.99 Forfeited . . . . . . . . . . . . . . . . . . . . (22,500) 37.00 ----------------- ----------------- Outstanding at December 31, 2000. . . . . . . . . 4,374,408 30.74 Granted . . . . . . . . . . . . . . . . . . . . . 2,370,840 38.53 Options assumed in the R&B Falcon merger. . . . . 8,094,010 22.25 Exercised . . . . . . . . . . . . . . . . . . . . (1,286,554) 20.91 Forfeited . . . . . . . . . . . . . . . . . . . . (92,025) 42.15 ----------------- ----------------- Outstanding at December 31, 2001. . . . . . . . . 13,460,679 $ 27.99 ================= ================= Exercisable at December 31, 1999. . . . . . . . . 3,239,418 $ 26.41 Exercisable at December 31, 2000. . . . . . . . . 2,754,073 $ 26.91 Exercisable at December 31, 2001. . . . . . . . . 9,977,963 $ 24.29 The following table summarizes information about stock options outstanding at December 31, 2001: Options Outstanding Options Exercisable Weighted-Average ----------------------------- ----------------------------- Remaining Number Weighted-Average Number Weighted-Average Range of Exercise Prices Contractual Life Outstanding Exercise Price Outstanding Exercise Price - ------------------------ ----------------- ----------- ---------------- ----------- ---------------- $ 7.58 - $19.50 6.50 years 4,072,452 $14.88 4,072,452 $14.88 $20.12 - $34.63 6.53 years 4,156,062 $25.10 4,147,241 $25.08 $37.00 - $81.78 8.45 years 5,232,165 $40.48 1,758,270 $44.19 At December 31, 2001, there were 61,667 restricted ordinary shares and 118,785 SARs outstanding under the Incentive Plan. Employee Stock Purchase Plan - The Company provides a stock purchase plan (the "Stock Purchase Plan") for certain full-time employees. Under the terms of the Stock Purchase Plan, employees can choose each year to have between two and 20 percent of their annual base earnings withheld to purchase up to $25,000 of the Company's ordinary shares. The purchase price of the stock is 85 percent of the lower of its beginning-of-year or end-of-year market price. At December 31, 2001, up to 1,070,159 ordinary shares were available for issuance pursuant to the Stock Purchase Plan. 69

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED As discussed in Note 2, APB 25 and related interpretations are applied in accounting for stock-based compensation plans. If compensation expense for stock options granted under the Schlumberger stock option plans for the year ended December 31, 1999 and the Incentive Plan and the Stock Purchase Plan for the years ended December 31, 2001 and 2000, were recognized using the alternative fair value method of accounting under SFAS 123, net income and earnings per share would have been reduced to the pro forma amounts indicated below: YEARS ENDED DECEMBER 31, ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net Income As Reported . . . . . . . . . . . . . . . . . $ 252.6 $ 108.5 $ 58.1 Pro Forma . . . . . . . . . . . . . . . . . . 239.8 101.5 56.3 Basic Earnings Per Share (Unaudited pro forma prior to the effective date of the Sedco Forex merger) As Reported . . . . . . . . . . . . . . . . . $ 0.82 $ 0.52 $ 0.53 Pro Forma . . . . . . . . . . . . . . . . . . 0.78 0.48 0.51 Diluted Earnings Per Share (Unaudited pro forma prior to the effective date of the Sedco Forex merger) As Reported . . . . . . . . . . . . . . . . . $ 0.80 $ 0.51 $ 0.53 Pro Forma . . . . . . . . . . . . . . . . . . 0.76 0.48 0.51 The above pro forma amounts are not indicative of future pro forma results. The fair value of each option grant under the Schlumberger stock option plans for the year ended December 31, 1999 and the Incentive Plan for the years ended December 31, 2001 and 2000, was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999: 2001 2000 1999 ----------- ----------- ----------- Dividend yield. . . . . . . . . . . . . . . . . . 0.30% 0.25% 0.75% Expected price volatility range . . . . . . . . . 50-51% 46-47% 26-27% Risk-free interest rate range . . . . . . . . . . 4.13-5.25% 6.13-6.56% 4.86-5.22% Expected life of options (in years) . . . . . . . 4.00 4.00 5.60 Weighted-average fair value of options granted. . $16.26 $15.21 $18.31 The fair value of each option grant under the Stock Purchase Plan for the years ended December 31, 2001 and 2000, was estimated using the following weighted-average assumptions for grants in 2001: 2001 2000 -------------------- ------------------- Dividend yield . . . . . . . . . . . . . . . . . 0.30% 0.25% Expected price volatility. . . . . . . . . . . . 51% 50% Risk-free interest rate. . . . . . . . . . . . . 1.71% 5.64% Expected life of options . . . . . . . . . . . . Less than one year Less than one year Weighted-average fair value of options granted . $7.22 $7.67 70

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Note 15 - Retirement Plans and Other Postemployment Benefits Defined Benefit Pension Plans - The change in benefit obligation, change in plan assets and funded status for the years ended December 31, 2001 and 2000 is shown in the table below (in millions). DECEMBER 31, ---------------------- 2001 2000 ---------- ---------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year . . . . $ 133.6 $ 133.2 Merger with R&B Falcon. . . . . . . . . . . . . 85.7 - Service cost. . . . . . . . . . . . . . . . . . 12.0 9.5 Interest cost . . . . . . . . . . . . . . . . . 15.9 9.1 Actuarial losses. . . . . . . . . . . . . . . . 4.8 4.1 Plan settlements. . . . . . . . . . . . . . . . - (17.4) Plan amendments . . . . . . . . . . . . . . . . 0.8 - Benefits paid . . . . . . . . . . . . . . . . . (10.1) (4.9) ---------- ---------- Benefit obligation at end of year . . . . . . 242.7 133.6 ---------- ---------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 117.7 134.4 Merger with R&B Falcon. . . . . . . . . . . . . 99.3 - Actual return on plan assets. . . . . . . . . . (1.3) (0.5) Company contributions . . . . . . . . . . . . . 4.8 8.8 Benefits paid . . . . . . . . . . . . . . . . . (10.1) (25.0) ---------- ---------- Fair value of plan assets at end of year. . . 210.4 117.7 ---------- ---------- FUNDED STATUS . . . . . . . . . . . . . . . . . (32.3) (15.9) Unrecognized transition obligation. . . . . . . 3.5 4.2 Unrecognized net actuarial loss . . . . . . . . 32.4 6.1 Unrecognized prior service cost . . . . . . . . 0.1 0.2 ---------- ---------- Accrued pension asset (liability) . . . . . . $ 3.7 $ (5.4) ========== ========== Comprised of: Prepaid benefit cost. . . . . . . . . . . . . . $ 34.2 $ 18.9 Accrued benefit liability . . . . . . . . . . . (30.5) (24.3) ---------- ---------- Accrued pension asset (liability) . . . . . . $ 3.7 $ (5.4) ========== ========== AS OF DECEMBER 31, ---------------------- 2001 2000 ---------- ---------- WEIGHTED-AVERAGE ASSUMPTIONS Discount rate . . . . . . . . . . . . . . . . . 7.45% 7.36% Expected return on plan assets. . . . . . . . . 9.24% 8.69% Rate of compensation increase . . . . . . . . . 5.71% 5.83% The aggregate projected benefit obligation and fair value of plan assets for plans with projected benefit obligations in excess of plan assets were $153.2 million and $112.5 million, respectively, at December 31, 2001. The aggregate projected benefit obligation and fair value of plan assets for plans with projected benefit obligations in excess of plan assets were $48.8 million and $15.0 million, respectively, at December 31, 2000. The aggregate accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were $23.9 million and $7.0 million, respectively, at December 31, 2001. The aggregate accumulated 71

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were $16.2 million and $4.0 million, respectively, at December 31, 2000. Net periodic benefit cost included the following components (in millions): Years ended December 31, ------------------------ 2001 2000 1999 ------- ------ ------ Components of Net Periodic Benefit Cost Service cost. . . . . . . . . . . . . . $ 12.0 $ 9.5 $ 0.8 Interest cost . . . . . . . . . . . . . 15.9 9.1 0.5 Expected return on plan assets. . . . . (7.5) (8.9) (0.6) Amortization of transition obligation . 0.3 0.4 - Amortization of prior service cost. . . 0.4 - - Recognized net actuarial gains. . . . . (11.3) (1.4) - Early retirement charge . . . . . . . . - - 0.1 ------- ------ ------ Benefit cost . . . . . . . . . . . . $ 9.8 $ 8.7 $ 0.8 ======= ====== ====== 72

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Postretirement Benefits Other Than Pensions - The change in benefit obligation, change in plan assets and funded status for the years ended December 31, 2001 and 2000 is shown in the table below (in millions). DECEMBER 31, ---------------------- 2001 2000 ---------- ---------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year . . . . $ 12.0 $ 8.8 Merger with R&B Falcon. . . . . . . . . . . . . 16.1 - Service cost. . . . . . . . . . . . . . . . . . 0.4 0.2 Interest cost . . . . . . . . . . . . . . . . . 1.9 0.8 Actuarial losses (gains). . . . . . . . . . . . (0.2) 2.4 Participant's contributions . . . . . . . . . . 0.2 - Plan amendments . . . . . . . . . . . . . . . . - 0.4 Benefits paid . . . . . . . . . . . . . . . . . (1.2) (0.6) ---------- ---------- Benefit obligation at end of year . . . . . . 29.2 12.0 ---------- ---------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year. 0.6 0.6 Actual return on plan assets. . . . . . . . . . 0.1 0.2 Company contributions . . . . . . . . . . . . . 0.8 0.4 Participant's contributions . . . . . . . . . . 0.2 - Benefits paid . . . . . . . . . . . . . . . . . (1.2) (0.6) ---------- ---------- Fair value of plan assets at end of year. . . 0.5 0.6 ---------- ---------- FUNDED STATUS . . . . . . . . . . . . . . . . . (28.7) (11.4) Unrecognized net actuarial gain . . . . . . . . 0.9 1.0 Unrecognized prior service cost . . . . . . . . 0.3 0.4 ---------- ---------- Postretirement benefit liability. . . . . . . $ (27.5) $ (10.0) ========== ========== AS OF DECEMBER 31, ---------------------- 2001 2000 ---------- ---------- WEIGHTED-AVERAGE ASSUMPTIONS Discount rate 7.00% 7.25% Expected return on plan assets 7.00% 7.00% Rate of compensation increase 5.50% 5.50% 73

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Net periodic benefit cost included the following components (in millions): YEARS ENDED DECEMBER 31, ----------------------------- 2001 2000 1999 --------- -------- -------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost. . . . . . . . . . . . . . $ 0.4 $ 0.2 $ 0.2 Interest cost . . . . . . . . . . . . . 1.9 0.8 0.3 Amortization of prior service cost. . . - 0.1 - Recognized net actuarial gain . . . . . (0.1) - - --------- -------- -------- Benefit Cost. . . . . . . . . . . . . $ 2.2 $ 1.1 $ 0.5 ========= ======== ======== For measurement purposes, the rate of increase in the per capita costs of covered health care benefits was assumed to be 8.5 percent in 2001, decreasing gradually to 5.0 percent by the year 2021. The assumed health care cost trend rate has significant impact on the amounts reported for postretirement benefits other than pensions. A one-percentage point change in the assumed health care trend rate would have the following effects (in millions): One- One- Percentage Percentage Point Point Increase Decrease --------- ---------- Effect on total service and interest cost components in 2001 . . . . . . $ 0.2 $ (0.2) Effect on postretirement benefit obligations as of December 31, 2001 . . $ 2.9 $ (2.7) Defined Contribution Plans - The Company provides a defined contribution pension and savings plan covering senior non-U.S. field employees working outside the United States. Contributions and costs are determined as 4.5 percent to 6.5 percent of each covered employee's salary, based on years of service. In addition, the Company sponsors a U.S. defined contribution savings plan. It covers certain employees and limits Company contributions to no more than 4.5 percent of each covered employee's salary, based on the employee's contribution. The Company also sponsors various other defined contribution plans worldwide. The Company recorded approximately $21.6 million and $11.5 million of expense related to its defined contribution plans for the years ended December 31, 2001 and 2000, respectively. Pursuant to an employee matters agreement with Schlumberger, Schlumberger will continue to maintain various non-U.S. defined benefit and defined contribution plans. Expenses for these funds were immaterial for the year ended December 31, 1999. Deferred Compensation Plan - The Company provides a Deferred Compensation Plan (the "Plan"). The Plan's primary purpose is to provide tax-advantageous asset accumulation for a select group of management, highly compensated employees and non-employee members of the Board of Directors of the Company. Eligible employees who enroll in the Plan may elect to defer up to a maximum of 90 percent of base salary, 100 percent of any future performance awards, 100 percent of any special payments and 100 percent of directors' meeting fees and annual retainers; however, the Administrative Committee (9 individuals appointed by the Finance and Benefits Committee of the Board of Directors) may, at its discretion, establish minimum amounts that must be deferred by anyone electing to participate in the Plan. In addition, the Executive Compensation Committee of the Board of Directors may authorize employer contributions to participants and the Chief Executive Officer of the Company (with Executive Compensation Committee approval) is authorized to cause the Company to enter into "Deferred Compensation Award Agreements" with such participants. There were no employer contributions to the Plan during the years ending December 31, 2001 or 2000. Note 16 - Investments in and Advances to Joint Ventures The Company has a 25 percent interest in Sea Wolf. In September 1997, Sedco Forex sold two semisubmersible rigs, the Drill Star and Sedco Explorer, to Sea Wolf. The Company operated the rigs under bareboat charters. The sale resulted in a deferred gain of $157 million which was being amortized to operating and maintenance expense over the six year life of 74

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED the bareboat charters. See Note 6. As of December 31, 2001, Sea Wolf has distributed substantially all of its assets to its shareholders. The Company has a 50 percent interest in Overseas Drilling Limited ("ODL"), which owns the drillship, Joides Resolution. The drillship is contracted to perform drilling and coring operations in deep waters worldwide for the purpose of scientific research. The Company manages and operates the vessel on behalf of ODL. See Note 19. At December 31, 2000, the Company had a 24.9 percent interest in Arcade, a Norwegian offshore drilling company. Arcade owns two high-specification semisubmersible rigs, the Henry Goodrich and Paul B. Loyd, Jr. The investment in Arcade was recorded at fair value as part of the Sedco Forex merger. Because R&B Falcon owns 74.4 percent of Arcade, Arcade is now consolidated in the Company's financial statements effective with the R&B Falcon merger. In October 2001, the Company purchased the remaining minority interest in Arcade for approximately $2.0 million. As a result of the R&B Falcon merger, the Company has a 50 percent interest in Deepwater Drilling L.L.C. ("DD LLC"). DD LLC leases and operates the Deepwater Pathfinder, which commenced operations in the first quarter of 1999. The investment in DD LLC was recorded at fair value as part of the R&B Falcon merger. See Note 19. As a result of the R&B Falcon merger, the Company has a 60 percent interest in Deepwater Drilling II L.L.C. ("DDII LLC"). DDII LLC leases and operates the Deepwater Frontier, which commenced operations in the second quarter of 1999. The investment in DDII LLC was recorded at fair value as part of the R&B Falcon merger. See Note 19. As a result of the R&B Falcon merger, the Company has a 25 percent interest in Delta Towing Holdings LLC. See Note 19. Note 17 - Segments, Geographical Analysis and Major Customers Prior to the R&B Falcon merger, the Company operated in one industry segment. As a result of acquiring shallow and inland water drilling units in the R&B Falcon merger, the Company's operations have been aggregated into two reportable segments: (i) International and U.S. Floater Contract Drilling Services and (ii) Gulf of Mexico Shallow and Inland Water. The International and U.S. Floater Contract Drilling Services segment consists of high-specification floaters, other floaters, non-U.S. jackups, other mobile offshore and land drilling units, other assets used in support of offshore drilling activities and other offshore support services. The Gulf of Mexico Shallow and Inland Water segment consists of the Gulf of Mexico jackups and submersible drilling rigs and the U.S. inland drilling barges. The Company provides services with different types of drilling equipment in several geographic regions. The location of the Company's rigs and the allocation of resources to build or upgrade rigs is determined by the activities and needs of customers. 75

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Operating revenues and income before income taxes, minority interest and extraordinary items by segment are as follows (in millions): Years ended December 31, ---------------------------- 2001 2000 1999 --------- --------- ------ Operating Revenues International and U.S. Floater Contract Drilling Services . $2,430.3 $1,229.5 $648.2 Gulf of Mexico Shallow and Inland Water . . . . . . . . . . 396.0 - - Elimination of intersegment revenues. . . . . . . . . . . . (6.2) - - --------- --------- ------ Total Operating Revenues. . . . . . . . . . . . . . . . . $2,820.1 $1,229.5 $648.2 ========= ========= ====== Income Before Income Taxes, Minority Interest and Extraordinary Items International and U.S. Floater Contract Drilling Services . $ 625.2 $ 144.4 $ 49.3 Gulf of Mexico Shallow and Inland Water . . . . . . . . . . (17.3) - - --------- --------- ------ 607.9 144.4 49.3 Unallocated general and administrative expense . . . . . . . (57.9) - - Unallocated other expense, net . . . . . . . . . . . . . . . (189.5) - - --------- --------- ------ Total Income Before Income Taxes, Minority Interest and Extraordinary Items . . . . . . . . . . . . . . . . $ 360.5 $ 144.4 $ 49.3 ========= ========= ====== Total assets by segment are as follows (in millions): December 31, ------------------- 2001 2000 --------- -------- International and U.S. Floater Contract Drilling Services . . $14,290.0 $6,358.8 Gulf of Mexico Shallow and Inland Water . . . . . . . . . . . 2,671.6 - Unallocated Corporate . . . . . . . . . . . . . . . . . . . . 58.2 - --------- -------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . $17,019.8 $6,358.8 ========= ======== Prior to the R&B Falcon merger on January 31, 2001, the Company operated in one industry segment and, as such, there were no unallocated assets or income items for periods prior to the merger. 76

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Operating revenues and long-lived assets by country are as follows (in millions): Years ended December 31, --------------------------- 2001 2000 1999 --------- -------- ------ Operating Revenues United States. . . . . . . $ 979.5 $ 265.0 $ 2.0 Brazil . . . . . . . . . . 355.8 153.6 60.6 United Kingdom . . . . . . 354.6 158.9 124.9 Norway . . . . . . . . . . 227.8 248.5 - Nigeria. . . . . . . . . . 166.2 76.2 69.3 Indonesia. . . . . . . . . 70.2 54.7 88.2 Rest of the World. . . . . 666.0 272.6 303.2 --------- -------- ------ Total Operating Revenues. $ 2,820.1 $1,229.5 $648.2 ========= ======== ====== As of December 31, ------------------- 2001 2002 --------- -------- Long-Lived Assets United States. . . . . . . $ 3,853.5 $2,038.9 Brazil . . . . . . . . . . 1,036.2 383.8 United Kingdom . . . . . . 851.7 504.8 Norway . . . . . . . . . . 626.7 657.3 Spain. . . . . . . . . . . - 777.6 Goodwill (a) . . . . . . . 6,466.7 1,037.9 Rest of the World. . . . . 2,448.2 510.4 --------- -------- Total Long-Lived Assets . $15,283.0 $5,910.7 ========= ======== - -------------------- (a) Goodwill resulting from the Sedco Forex and R&B Falcon mergers has not been allocated to individual countries. A substantial portion of the Company's assets are mobile. Asset locations at the end of the period are not necessarily indicative of the geographic distribution of the earnings generated by such assets during the periods. The Company's international operations are subject to certain political and other uncertainties, including risks of war and civil disturbances (or other events that disrupt markets), expropriation of equipment, repatriation of income or capital, taxation policies, and the general hazards associated with certain areas in which operations are conducted. For the year ended December 31, 2001, BP and Petrobras accounted for approximately 12.3 percent and 10.9 percent, respectively, of the Company's operating revenues, the majority of which was reported in the International and U.S. Floater Contract Drilling Services segment. For the year ended December 31, 2000, Statoil, BP and Petrobras accounted for approximately 16.8 percent, 14.4 percent and 12.5 percent, respectively, of the Company's operating revenues. For the year ended December 31, 1999, the Royal Dutch Shell Group accounted for approximately 16.2 percent of the Company's operating revenues. The loss of these or other significant customers could have a material adverse effect on the Company's results of operations. Note 18 - 1999 Charges Operating and maintenance expense for the year ended December 31, 1999 included charges totaling $42.0 million. Reduced exploration and development activity by customers, resulting from a period of low oil prices from late 1997 through early 1999 and industry consolidation over the same time period, resulted in a slowdown in the offshore drilling industry during 1999. As a result of this slowdown, approximately 1,000 operating personnel were determined to be redundant, and charges associated with termination and severance benefits of $13.2 million were recognized during 1999. Substantially all of these employees had been terminated and severance and termination costs had been paid as of December 31, 1999. Provisions for potential legal claims of $28.8 million were recognized during 1999. 77

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Note 19 - Related Party Transactions Schlumberger - The financial statements for the year ended December 31, 1999 included allocations from Schlumberger of certain corporate expenses, including centralized research and engineering, legal, accounting, employee benefits, real estate, insurance, information technology services, treasury and other corporate and infrastructure costs. Although not directly attributable to Sedco Forex's operations, these expenses were allocated to Sedco Forex on bases that Schlumberger and Sedco Forex considered to be a reasonable reflection of the utilization of services provided or the benefit received by Sedco Forex. The allocation methods included relative revenues, headcount, square footage, transaction processing costs, adjusted operating expenses and others. These allocations resulted in charges being recorded in the consolidated statement of operations for the year ended December 31, 1999, as follows (in millions): Year ended December 31, ------------ 1999 ------------ Operating and maintenance . . . . . . $ 56.2 General and administrative. . . . . . 8.0 ------------ $ 64.2 ============ The Company incurred expenses amounting to approximately $3.5 million and $9.0 million for the years ended December 31, 2001 and 2000, respectively, for transitional services provided by Schlumberger. During 1999, Sedco Forex had long-term debt due to Schlumberger. These loans bore interest at rates based on 50 basis points over LIBOR and were used to finance both Sedco Forex's existing fleet of rigs and ongoing major construction projects. Interest expense on related party indebtedness totaled $26 million for 1999. On December 31, 1999, the Company repaid these loans in connection with the Sedco Forex merger. DD LLC and DDII LLC - The Company is party to drilling services agreements with DD LLC and DDII LLC for the operations of the Deepwater Pathfinder and Deepwater Frontier, respectively. For the year ended December 31, 2001, the Company earned $1.4 million each for such services to DD LLC and DDII LLC. Such revenue amounts are included in operating revenues in the consolidated statement of operations. At December 31, 2001, the Company had receivables from DD LLC and DDII LLC of $2.6 million and $2.3 million, respectively, which are included in accounts receivable - other. From time to time, the Company contracts the Deepwater Frontier from DDII LLC. During this time, DDII LLC bills the Company for the full operating dayrate and issues a non-cash credit for downtime hours in excess of 24 hours in any calendar month. The Company records a dayrate rebate receivable for all such non-cash credits and is responsible for payment of 100 percent of all drilling contract invoices received. At the end of the drilling contract, the Company will receive in cash or services, at its election, the credits issued for downtime hours plus an escalation factor. At December 31, 2001, the cumulative dayrate rebate receivable from DDII LLC totaled $13.7 million and is recorded as investment and advances to joint ventures on the consolidated balance sheet. For the year ended December 31, 2001, the Company incurred $54.4 million net expense from DDII LLC under the drilling contract. This amount is included in operating and maintenance expense in the Company's consolidated statement of operations. At December 31, 2001, the Company had amounts payable to DDII LLC of $2.1 million which is recorded in accounts payable in the consolidated balance sheet. At the expiration of the leases, each joint venture may purchase the rig for $185 million, in the case of the Deepwater Pathfinder, and $194 million, in the case of the Deepwater Frontier, or return the rig to the special purpose entities. The Company would be obligated to pay only a portion of such price equal to its percentage ownership interest in the applicable joint venture. The Company's proportionate share for such purchase options is $97 million and $112 million, respectively. Under each joint venture agreement, the consent of each venturer is generally required to approve actions of the joint venture, including the exercise of this purchase option. If a joint venture returns the rig at the end of the lease, the special purpose entity may sell the rig. In connection with the return, DD LLC may be required to pay an amount up to $138 million, and DDII LLC may be required to pay an amount up to $145 million, plus certain expenses in each case. These payments may be reduced by a portion of the proceeds of the sale of the applicable rig. If an event of default occurs under the applicable lease documents, each joint venture may be required to pay an amount equal to the amount of debt and equity financing owed by the applicable special purpose entity plus certain 78

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED expenses. The debt and equity financing outstanding as of December 31, 2001, applicable to the owner of Deepwater Pathfinder and of Deepwater Frontier, was $219 million and $237 million, respectively. The Company and Conoco have guaranteed their respective share of the joint ventures' obligation to pay these amounts. Delta Towing - Immediately prior to the closing of the R&B Falcon merger, R&B Falcon formed a joint venture to own and operate its U.S. inland marine support vessel business (the "Marine Business"). In connection with the formation of the joint venture, the Marine Business was transferred by a subsidiary of R&B Falcon to Delta Towing, LLC ("Delta Towing") in exchange for a 25 percent equity interest in Delta Towing Holdings, LLC, the parent of Delta Towing, and certain secured notes payable from Delta Towing. The secured notes consisted of (i) an $80 million principal amount note bearing interest at eight percent per annum due January 30, 2024 (the "Tier 1 Note"), (ii) a contingent $20 million principal amount note bearing interest at eight percent per annum with an expiration date of January 30, 2011 (the "Tier 2 Note"), and (iii) a contingent $44 million principal amount note bearing interest at eight percent per annum with an expiration date of January 30, 2011 (the "Tier 3 Note"). The 75% equity interest holder in the joint venture also loaned Delta Towing $3 million in the form of a Tier 1 Note. Until January 2011, Delta Towing must use 100% of its excess cash flow towards the payment of principal and interest on the Tier 1 Notes. After January 2011, 50 percent of its excess cash flows are to be applied towards the payment of principal and unpaid interest on the Tier 1 Notes. Interest is due and payable quarterly without regard to excess cash flow. Delta Towing must repay at least (i) 10 percent of the aggregate principal amount of the Tier 1 Note ($8.3 million) no later than January 2004, (ii) 30 percent of the aggregate principal amount ($24.9 million) no later than January 2006, and (iii) 75 percent of the aggregate principal amount ($62.3 million) no later than January 2008. After the Tier 1 Note has been repaid, Delta Towing must apply 75 percent of its excess cash flow towards payment of the Tier 2 Note. Upon the repayment of the Tier 2 Note, Delta Towing must apply 50 percent of its excess cash to repay principal and interest on the Tier 3 Note. Any amounts not yet due under the Tier 2 and Tier 3 Notes at the time of their expiration will be waived. The Tier 1, 2 and 3 Notes are secured by mortgages and liens on the vessels and other assets of Delta Towing. R&B Falcon valued its Tier 1, 2 and 3 Notes at $80 million immediately prior to the closing of the R&B Falcon merger the effect of which was to fully reserve the Tier 2 and 3 Notes. At December 31, 2001, $78.9 million was outstanding under the Company's Tier 1 Note. During 2001, the Company earned $5.8 million of interest income on the Tier 1 Notes. At December 31, 2001, the Company had interest receivable from Delta Towing of $1.6 million. In December 2001, the note agreement was amended to provide for a $4 million, three-year revolving credit facility (the "Delta Towing Revolver") from the Company. Amounts drawn under the Delta Towing Revolver accrue interest at eight percent per annum, with interest payable quarterly. At December 31, 2001, no amounts were outstanding under the Delta Towing Revolver. See Note 23. As part of the formation of the joint venture on January 31, 2001, the Company entered into an agreement with Delta Towing under which the Company committed to charter certain vessels for a period of one year ending January 31, 2002, and committed to charter for a period of 2.5 years from the date of delivery 10 crewboats then under construction, four of which had been placed into service as of December 31, 2001. In 2001, the Company incurred charges totaling $15.6 million from Delta Towing for services rendered, of which $6.5 million was rebilled to the Company's customers and $9.1 million was reflected in operating and maintenance expense. ODL - In conjunction with the management and operation of the Joides Resolution on behalf of ODL, the Company earned $1.2 million, $1.1 million and $1.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. Such amounts are included in operating revenues in the Company's consolidated statements of operations. At December 31, 2001 and 2000, the Company had receivables from ODL of $2.6 million and $2.5 million, respectively, which were recorded as accounts receivable - trade in the consolidated balance sheets. 79

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Note 20 - Earnings Per Share The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per share is as follows (in millions, except per share data): Years ended December 31, ------------------------- 2001 2000 1999 ------- ------ ------- Income Before Extraordinary Items . . . . . . . . . . . . . . . . . . . . . $271.9 $107.1 $ 58.1 Gain (Loss) on Extraordinary Items, net of tax. . . . . . . . . . . . . . . (19.3) 1.4 - ------- ------ ------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $252.6 $108.5 $ 58.1 ======= ====== ======= Weighted Average Shares Outstanding (Unaudited pro forma prior to the effective date of the Sedco Forex merger) Shares for basic earnings per share . . . . . . . . . . . . . . . . . . . . 309.2 210.4 109.6 Effect of dilutive securities: Employee stock options and unvested stock grants . . . . . . . . . . . . 3.4 1.3 - Warrants to purchase ordinary shares . . . . . . . . . . . . . . . . . . 2.2 - - ------- ------ ------ Adjusted weighted-average shares and assumed conversions for diluted earnings per share . . . . . . . . . . . . . . . 314.8 211.7 109.6 ======= ====== ====== Basic Earnings Per Share (Unaudited pro forma prior to the effective date of the Sedco Forex merger) Income Before Extraordinary Items. . . . . . . . . . . . . . . . . . . . $ 0.88 $ 0.51 $ 0.53 Gain (Loss) on Extraordinary Items, net of tax . . . . . . . . . . . . . (0.06) 0.01 - ------- ------ ------ Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.82 $ 0.52 $ 0.53 ======= ====== ====== Diluted Earnings Per Share (Unaudited pro forma prior to the effective date of the Sedco Forex merger) Income Before Extraordinary Items. . . . . . . . . . . . . . . . . . . . $ 0.86 $ 0.50 $ 0.53 Gain (Loss) on Extraordinary Items, net of tax . . . . . . . . . . . . . (0.06) 0.01 - ------- ------ ------ Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.80 $ 0.51 $ 0.53 ======= ====== ====== Ordinary shares subject to issuance pursuant to the conversion features of the convertible debentures (see Note 8) are not included in the calculation of adjusted weighted-average shares and assumed conversions for diluted earnings per share because the effect of including those shares is anti-dilutive. Sedco Forex did not have a separate capital structure prior to the spin-off from Schlumberger and merger with Transocean Offshore Inc. Accordingly, historical earnings per share has not been presented for the periods prior to the merger (see Note 1). Unaudited pro forma earnings per share for the year ended December 31, 1999 was calculated using the Transocean Sedco Forex Inc. ordinary shares issued pursuant to the merger agreement and the dilutive effect of Transocean Sedco Forex Inc. stock options granted to former Sedco Forex employees at the time of the merger, as applicable. Note 21 - Stock Warrants In connection with the R&B Falcon merger, the Company assumed the outstanding R&B Falcon stock warrants. Each warrant enables the holder to purchase 17.5 ordinary shares at an exercise price of $19.00 per share. The warrants expire on May 1, 2009. In 2001, the Company received $10.6 million and issued 560,000 ordinary shares as a result of 32,000 warrants being exercised. At December 31, 2001 there were 261,000 warrants outstanding to purchase 4,567,500 ordinary shares. 80

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Note 22 - Quarterly Results (Unaudited) Shown below are selected unaudited quarterly data (in millions, except per share data): Quarter First Second Third Fourth ------------------- -------- -------- ------- ------- 2001 (a) Operating Revenues $550.1 $752.2 $770.2 $747.6 Operating Income. . . . . . . . . . . . . . 74.5 178.2 179.8 117.5 Income Before Extraordinary Items . . . . 30.5 85.8 97.6 58.0 Net Income (b). . . . . . . . . . . . . . . 30.5 68.5 97.6 56.0 Basic Earnings Per Share Income Before Extraordinary Items . . . . $ 0.11 $ 0.27 $0.31 $ 0.19 Diluted Earnings Per Share Income Before Extraordinary Items . . . . $ 0.11 $ 0.26 $0.30 $ 0.19 Weighted Average Shares Outstanding (c) Shares for basic earnings per share . . . 280.6 318.2 318.7 318.7 Shares for diluted earnings per share . . 285.5 325.0 322.7 322.7 2000 (e) Operating Revenues. . . . . . . . . . . . . $300.8 $299.2 $314.5 $314.9 Operating Income (Loss) (d) . . . . . . . . 37.6 43.2 60.0 (7.7) Income (Loss) Before Extraordinary Items. 32.5 35.9 47.9 (9.2) Net Income (Loss) . . . . . . . . . . . . . 32.5 35.9 49.3 (9.2) Basic Earnings (Loss) Per Share Income (Loss) Before Extraordinary Items. $ 0.15 $ 0.17 $ 0.22 $(0.04) Diluted Earnings (Loss) Per Share Income (Loss) Before Extraordinary Items. $ 0.15 $ 0.17 $ 0.22 $(0.04) Weighted Average Shares Outstanding Shares for basic earnings per share . . . 210.2 210.4 210.5 210.6 Shares for diluted earnings per share . . 211.0 211.7 212.0 210.6 - -------------------- (a) First quarter 2001 included two months of operating results for R&B Falcon and the second, third and fourth quarters of 2001 included three months of operating results of R&B Falcon, respectively. Fourth quarter 2001 included impairment charges (see Note 7) and gain on sale of RBF FPSO L.P. (see Note 6). (b) Second and fourth quarter 2001 included extraordinary losses of $17.3 million and $2.0 million, net of income taxes, respectively, relating to the early extinguishment of debt. (c) First quarter 2001 included approximately 106 million ordinary shares issued on January 31, 2001 in exchange for each R&B Falcon share. (d) First and second quarter 2000 included certain reclassifications for minority interest and gain (loss) from sale of assets to conform with the current presentation. (e) Third quarter 2000 included an extraordinary gain of $1.4 million, net of income taxes, relating to the early termination of debt. Fourth quarter 2000 included charges totaling $37.2 million related to the settlement of an arbitration proceeding with Global Marine and a $6.7 million ($4.8 million after taxes) increase in provisions for legal claims. 81

TRANSOCEAN SEDCO FOREX INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Note 23 - Subsequent Events (Unaudited) Exchange Offer - In March 2002, the Company completed exchange offers and consent solicitations for the 6.5%, 6.75%, 6.95%, 7.375%, 9.125% and 9.5% notes of R&B Falcon. As a result of these exchange offers and consent solicitations, approximately $231.1 million, $342.9 million, $247.8 million, $246.5 million, $76.7 million, and $289.1 million principal amount of the outstanding 6.5%, 6.75%, 6.95%, 7.375%, 9.125% and 9.5% notes, respectively, of R&B Falcon were exchanged for newly issued 6.5%, 6.75%, 6.95%, 7.375%, 9.125% and 9.5% notes of the Company having the same principal amount, interest rate, redemption terms and payment and maturity dates (and accruing interest from the last date for which interest had been paid on the R&B Falcon notes). Because the holders of a majority in principal amount of each of these series of notes consented to the proposed amendments to the applicable indenture pursuant to which the notes were issued, some covenants, restrictions and events of default were eliminated from the indentures with respect to these series of notes. In connection with the exchange offers, an aggregate of $8.3 million in consent payments were made by R&B Falcon to holders of R&B Falcon notes whose notes were tendered (and not validly withdrawn) within the required time periods and accepted for exchange. The consent payments will be amortized as an increase to interest expense over the remaining term of the respective notes using the interest method. As a result of the exchange offers, interest expense for 2002 is expected to increase by approximately $1.3 million. Secured Rig Financing - In January 2002, the Company exercised its call option under the financing arrangement to repay the financing on the Trident 16 prior to the expiration of the scheduled term. The aggregate principal amount outstanding was $32.2 million. The premium paid as a result of the call option of approximately $2 million was recorded as an increase in the net book value of the Trident 16. In March 2002, the Company also exercised its call option to repay the financing on the Trident IX prior to the expiration of the scheduled term. The aggregate principal amount outstanding was $14.9 million. The premium paid as a result of the call option of approximately $0.5 million was recorded as an increase in the net book value of the Trident IX. Letter of Credit Facility - In January 2002, the Company terminated its $70.0 million letter of credit facility. This facility was secured by mortgages on five drilling units, the J. W. McLean, J. T. Angel, Randolph Yost, D. R. Stewart and George H. Galloway. Delta Towing - In January 2002, Delta Towing drew $4 million on the Delta Towing Revolver. Interest Rate Swaps - In February 2002, the Company entered into interest rate swap agreements with a group of banks in the aggregate notional amount of $900.0 million relating to the Company's $350.0 million aggregate principal amount of 6.75% Senior Notes due April 2005, $250 million aggregate principal amount of 6.95% Senior Notes due April 2008 and $300.0 million aggregate principal amount of 9.50% Senior Notes due December 2008. The objective of each transaction is to protect the debt against changes in fair value due to changes in the benchmark interest rate. Under each interest rate swap, the Company receives the fixed rate equal to the coupon of the hedged item and pays the floating rate (LIBOR) plus a margin of 171 basis points, 246 basis points and 413 basis points, respectively, which are designated as the respective benchmark interest rates, on each of the interest payment dates until maturity of the respective notes. The hedges are considered perfectly effective against changes in the fair value of the debt due to changes in the benchmark interest rates over their term. As a result, the shortcut method applies and there is no need to periodically reassess the effectiveness of the hedges during the term of the swaps. 82

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company has not had a change in or disagreement with its accountants within 24 months prior to the date of its most recent financial statements or in any period subsequent to such date. PART III ITEM 10. Directors and Executive Officers of the Registrant ITEM 11. Executive Compensation ITEM 12. Security Ownership of Certain Beneficial Owners and Management ITEM 13. Certain Relationships and Related Transactions The information required by Items 10, 11, 12 and 13 is incorporated herein by reference to the Company's definitive proxy statement for its 2002 annual general meeting of shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2001. Certain information with respect to the executive officers of the Company is set forth in Item 4 of this annual report under the caption "Executive Officers of the Registrant." PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Index to Financial Statements, Financial Statement Schedules and Exhibits (1) Financial Statements Page ------ Included in Part II of this report: Report of Independent Auditors . . . . . . . . . . . . . . . 44 Consolidated Statements of Operations. . . . . . . . . . . . 45 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 46 Consolidated Statements of Equity. . . . . . . . . . . . . . 47 Consolidated Statements of Cash Flows . . . . . . . . . . . 48 Notes to Consolidated Financial Statements. . . . . . . . . 50 Financial statements of unconsolidated joint ventures are not presented herein because such joint ventures do not meet the significance test. (2) Financial Statement Schedules 83

Transocean Sedco Forex Inc. and Subsidiaries Schedule II - Valuation and Qualifying Accounts (In millions) Additions -------------------- Charged Charged Balance at to Costs to Other Balance at Beginning and Accounts- Deductions- End of of Period Expenses Describe Describe Period ---------- --------- ---------- ------------ -------- Year Ended December 31, 1999 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts receivable . . . . . . . . . . . . . . $ 0.8 $13.8 $12.6 (1) $ 0.1 (3) $27.1 Allowance for obsolete materials and supplies . . . . . . . . . . . . . . . 10.2 1.8 12.5 (2) 1.4 (4) 23.1 Year Ended December 31, 2000 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts receivable . . . . . . . . . . . . . . 27.1 20.0 0.2 (3) 23.0 (3) 24.3 Allowance for obsolete materials and supplies . . . . . . . . . . . . . . . 23.1 0.3 (0.2)(5) (0.1)(4) 23.3 (6) Year Ended December 31, 2001 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts receivable . . . . . . . . . . . . . . 24.3 12.0 14.9 (7) 27.0 (3) 24.2 (9) Allowance for obsolete materials and supplies . . . . . . . . . . . . . . . $23.3 $ - $ 9.2 (8) $ 8.4 (4) $24.1 (10) _____________________________ (1) Amount includes $10.5 relating to the allowance for doubtful accounts receivable assumed in the Sedco Forex merger and $2.1 in receivable reserves reclassifications. (2) Amount includes $12.5 relating to the allowance for obsolete materials and supplies assumed in the Sedco Forex merger. (3) Uncollectible accounts receivable written off, net of recoveries. (4) Obsolete materials and supplies written off, net of scrap. (5) Amount includes $0.4 related to a write-off to assets held for sale. (6) Amount includes $0.7 related to reversals of prior year write-offs. (7) Amount includes $15.0 relating to the allowance for doubtful accounts receivable assumed in the RBF merger. (8) Amount includes $8.7 relating to the obsolete materials and supplies inventory assumed in the RBF merger. (9) Amount includes $4.9 related to adjustments to the provision. (10) Amount includes $2.7 related to sale of rigs. Other schedules are omitted either because they are not required or are not applicable, or because the required information is included in the financial statements or notes thereto. 84

(3) Exhibits The following exhibits are filed in connection with this Report: Number Description - ------------------- 2.1 Agreement and Plan of Merger dated as of August 19, 2000 by and among Transocean Sedco Forex Inc., Transocean Holdings Inc., TSF Delaware Inc. and R&B Falcon Corporation (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus dated October 30, 2000 included in a 424(b)(3) prospectus filed by the Company on November 1, 2000) 2.2 Agreement and Plan of Merger dated as of July 12, 1999 among Schlumberger Limited, Sedco Forex Holdings Limited, Transocean Offshore Inc. and Transocean SF Limited (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus dated October 27, included in a 424(b)(3) prospectus filed by the Company on November 1, 2000) 2.3 Distribution Agreement dated as of July 12, 1999 between Schlumberger Limited and Sedco Forex Holdings Limited (incorporated by reference to Annex B to the Joint Proxy Statement/Prospectus dated October 27, included in a 424(b)(3) prospectus filed by the Company on November 1, 2000) 2.4 Agreement and Plan of Merger and Conversion dated as of March 12, 1999 between Transocean Offshore Inc. and Transocean Offshore (Texas) Inc. (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-4 of Transocean Offshore (Texas) Inc. filed on April 8, 1999 (Registration No. 333-75899)) 2.5 Agreement and Plan of Merger dated as of July 10, 1997 among R&B Falcon, FDC Acquisition Corp., Reading & Bates Acquisition Corp., Falcon Drilling Company, Inc. and Reading & Bates Corporation (incorporated by reference to Exhibit 2.1 to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997) 2.6 Agreement and Plan of Merger dated as of August 21, 1998 by and among Cliffs Drilling Company, R&B Falcon Corporation and RBF Cliffs Drilling Acquisition Corp. (incorporated by reference to Exhibit 2 to R&B Falcon's Registration Statement No. 333-63471 on Form S-4 dated September 15, 1998) 3.1 Memorandum of Association of Transocean Sedco Forex Inc., as amended (incorporated by reference to Annex E to the Joint Proxy Statement/Prospectus dated October 30, 2000 included in a 424(b)(3) prospectus filed by the Company on November 1, 2000) 3.2 Articles of Association of Transocean Sedco Forex Inc., as amended (incorporated by reference to Annex F to the Joint Proxy Statement/Prospectus dated October 30, 2000 included in a 424(b)(3) prospectus filed by the Company on November 1, 2000) 4.1 Credit Agreement dated as of December 16, 1999 among Transocean Offshore Inc., the Lenders party thereto, and SunTrust Bank, Atlanta, as Agent (incorporated by reference to Exhibit 4.6 to the Company's Form 10-K for the year ended December 31, 1997) 4.2 Indenture dated as of April 15, 1997 between the Company and Texas Commerce Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K dated April 29, 1997) 4.3 First Supplemental Indenture dated as of April 15, 1997 between the Company and Texas Commerce Bank National Association, as trustee, supplementing the Indenture dated as of April 15, 1997 (incorporated by reference to Exhibit 4.2 to the Company's Form 8-K dated April 29, 1997) 4.4 Second Supplemental Indenture dated as of May 14, 1999 between the Company and Chase Bank of Texas, National Association, as trustee (incorporated by reference to Exhibit 4.5 to the Company's Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 333-59001-99)) 85

4.5 Third Supplemental Indenture dated as of May 24, 2000 between the Company and Chase Bank of Texas, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 24, 2000) 4.6 Fourth Supplemental Indenture dated as of May 11, 2001 between the Company and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001) 4.7 Form of 7.45% Notes due April 15, 2027 (incorporated by reference to Exhibit 4.3 to the Company's Form 8-K dated April 29, 1997) 4.8 Form of 8.00% Debentures due April 15, 2027 (incorporated by reference to Exhibit 4.4 to the Company's Form 8-K dated April 19, 1997) 4.9 Form of Zero Coupon Convertible Debenture due May 24, 2020 between the Company and Chase Bank of Texas, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 24, 2000) 4.10 Form of 1.5% Convertible Debenture due May 15, 2021 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated May 8, 2001) 4.11 Form of 6.625% Note due April 15, 2011 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated March 30, 2001) 4.12 Form of 7.5% Note due April 15, 2031 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated March 30, 2001) +4.13 Officers' Certificate establishing the terms of the 6.50% Notes due 2003, 6.75% Notes due 2005, 6.95% Notes due 2008, 9.125% Notes due 2003 and 9.50% Notes due 2008 +4.14 Officers' Certificate establishing the terms of the 7.375% Notes due 2018 4.15 Indenture dated as of April 14, 1998, between R&B Falcon Corporation, as issuer, and Chase Bank of Texas, National Association, as trustee, with respect to Series A and Series B of each of $250,000,000 6 1/2% Senior Notes due 2003, $350,000,000 6 3/4% Senior Notes due 2005, $250,000,000 6.95% Senior Notes due 2008, and $250,000,000 7 3/8% Senior Notes due 2018 (incorporated by reference to Exhibit 4.1 to R&B Falcon's Registration Statement No. 333-56821 on Form S-4 dated June 15, 1998) +4.16 First Supplemental Indenture dated as of February 14, 2002 between R&B Falcon Corporation and The Bank of New York +4.17 Second Supplemental Indenture dated as of March 13, 2002 between R&B Falcon Corporation and The Bank of New York 4.18 Indenture dated as of December 22, 1998, between R&B Falcon Corporation, as issuer and Chase Bank of Texas, National Association, as trustee, with respect to $400,000,000 Series A and Series B 9 1/8% Senior Notes due 2003, and 9 1/2% Senior Notes due 2008 (incorporated by reference to Exhibit 4.21 to R&B Falcon's Annual Report on Form 10-K for 1998) +4.19 First Supplemental Indenture dated as of February 14, 2002 between R&B Falcon Corporation and The Bank of New York 4.20 Warrant Agreement, including form of Warrant, dated April 22, 1999 between R&B Falcon and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to R&B Falcon's Registration Statement No. 333-81181 on Form S-3 dated June 21, 1999) 86

4.21 Supplement to Warrant Agreement dated January 31, 2001 among Transocean Sedco Forex Inc., R&B Falcon Corporation and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) 4.22 Registration Rights Agreement dated April 22, 1999 between R&B Falcon and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 to R&B Falcon's Registration Statement No. 333-81181 on Form S-3 dated June 21, 1999) 4.23 Supplement to Registration Rights Agreement dated January 31, 2001 between Transocean Sedco Forex Inc. and R&B Falcon Corporation (incorporated by reference to Exhibit 4.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) 4.24 Exchange and Registration Rights Agreement dated April 5, 2001 by and between the Company and Goldman, Sachs & Co., as representatives of the initial purchasers (incorporated by reference to the Company's Current Report on Form 8-K dated March 30, 2001) 4.25 Credit Agreement dated as of December 29, 2000 among the Company, the Lenders party thereto, Suntrust Bank, as Administrative Agent, ABN AMRO Bank, N.V., as Syndication Agent, Bank of America, N.A., as Documentation Agent, and Wells Fargo Bank Texas, National Association, as Senior Managing Agent (incorporated by reference to Exhibit 4.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) +4.26 364-Day Credit Agreement dated as of December 27, 2001 among the Company, the Lenders party thereto, Suntrust Bank, as Administrative Agent, ABN AMRO Bank, N.V., as Syndication Agent, Bank of America, N.A., as Documentation Agent, and Wells Fargo Bank Texas, National Association, as Senior Managing Agent 4.27 Note Agreement dated as of January 30, 2001 among Delta Towing, LLC, as Borrower, R&B Falcon Drilling USA, Inc., as RBF Noteholder and Beta Marine Services, L.L.C., as Beta Noteholder (incorporated by reference to Exhibit 4.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) 4.28 Trust Indenture and Security Agreement dated as of August 12, 1999 between RBF Exploration Co., a Nevada corporation, and Chase Bank of Texas, National Association, as trustee (incorporated by reference to Exhibit 10.6 to R&B Falcon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999) 4.29 Supplemental Indenture and Amendment dated as of February 1, 2000 to the Trust Indenture and Security Agreement dated as of August 12, 1999 among RBF Exploration Co., BTM Capital Corporation and Chase Bank of Texas, National Association, as trustee (incorporated by reference to Exhibit 10.251 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1999) +4.30 Second Supplemental Indenture and Amendment dated as of June 2, 2000 among RBF Exploration Co., BTM Capital Corporation, Nautilus Exploration Limited, R&B Falcon Deepwater (UK) Limited and Chase Bank of Texas, National Association, as trustee +4.31 Third Supplemental Indenture and Amendment dated as of February 20, 2001 among RBF Exploration Co., BTM Capital Corporation, RBF Nautilus Corporation, Nautilus Exploration Limited, R&B Falcon Deepwater (UK) Limited and The Chase Manhattan Bank, as trustee 10.1 Tax Sharing Agreement between Sonat Inc. and Sonat Offshore Drilling Inc. dated June 3, 1993 (incorporated by reference to Exhibit 10-(3) to the Company's Form 10-Q for the quarter ended June 30, 1993) *10.2 Performance Award and Cash Bonus Plan of Sonat Offshore Drilling Inc. (incorporated by reference to Exhibit 10-(5) to the Company's Form 10-Q for the quarter ended June 30, 1993) *10.3 Form of Sonat Offshore Drilling Inc. Executive Life Insurance Program Split Dollar Agreement and Collateral Assignment Agreement (incorporated by reference to Exhibit 10-(9) to the Company's Form 10-K for the year ended December 31, 1993) 87

*10.4 Employee Stock Purchase Plan, as amended and restated effective January 1, 2000 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Registration No. 333-94551) filed January 12, 2000) *10.5 First Amendment to the Amended and Restated Employee Stock Purchase Plan of Transocean Sedco Forex Inc., effective as of January 31, 2001 (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) *10.6 Long-Term Incentive Plan of Transocean Sedco Forex Inc., as amended and restated effective January 1, 2000 (incorporated by reference to Annex B to the Company's Proxy Statement dated April 3, 2001) *10.7 First Amendment to the Amended and Restated Long-Term Incentive Plan of Transocean Sedco Forex Inc., effective as of January 31, 2001 (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) *10.8 Second Amendment to the Amended and Restated Long-Term Incentive Plan of Transocean Sedco Forex Inc., effective May 11, 2001 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001) *10.9 Form of Employment Agreement dated May 14, 1999 between J. Michael Talbert, W. Dennis Heagney, Robert L. Long, Jon C. Cole, Donald R. Ray, Eric B. Brown, Barbara S. Koucouthakis and Alan A. Broussard, individually, and the Company (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1999) *10.10 Deferred Compensation Plan of Transocean Offshore Inc., as amended and restated effective January 1, 2000 (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. *10.11 Employment Matters Agreement dated as of December 13, 1999 among Schlumberger Limited, Sedco Forex Holdings Limited and Transocean Offshore Inc. (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Registration No. 333-94551) filed January 12, 2000) *10.12 Sedco Forex Employees Option Plan of Transocean Sedco Forex Inc. effective December 31, 1999 (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 (Registration No. 333-94569) filed January 12, 2000) *10.13 Employment Agreement dated September 22, 2000 between J. Michael Talbert and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 2000) *10.14 Employment Agreement dated October 3, 2000 between Jon C. Cole and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 30, 2000) *10.15 Employment Agreement dated September 17, 2000 between Robert L. Long and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended September 30, 2000) *10.16 Employment Agreement dated September 26, 2000 between Donald R. Ray and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September 30, 2000) *10.17 Agreement dated October 8, 2000 between W. Dennis Heagney and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended September 30, 2000) 88

*10.18 Agreement dated September 20, 2000 between Eric B. Brown and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q for the quarter ended September 30, 2000) *10.19 Agreement dated October 4, 2000 between Barbara S. Koucouthakis and Transocean Offshore Deepwater Drilling Inc. (incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q for the quarter ended September 30, 2000) *10.20 Consulting Agreement dated January 31, 2001 between Paul B. Loyd, Jr. and R&B Falcon Corporation (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) +*10.21 Consulting Agreement dated December 13, 1999 between Victor E. Grijalva and Transocean Offshore Inc. *10.22 1992 Long-Term Incentive Plan of Reading & Bates Corporation (incorporated by reference to Exhibit B to Reading & Bates' Proxy Statement dated April 27, 1992) *10.23 1995 Long-Term Incentive Plan of Reading & Bates Corporation (incorporated by reference to Exhibit 99.A to Reading & Bates' Proxy Statement dated March 29, 1995) *10.24 1995 Director Stock Option Plan of Reading & Bates Corporation (incorporated by reference to Exhibit 99.B to Reading & Bates' Proxy Statement dated March 29, 1995) *10.25 1997 Long-Term Incentive Plan of Reading & Bates Corporation (incorporated by reference to Exhibit 99.A to Reading & Bates' Proxy Statement dated March 18, 1997) *10.26 1998 Employee Long-Term Incentive Plan of R&B Falcon Corporation (incorporated by reference to Exhibit 99.A to R&B Falcon's Proxy Statement dated April 23, 1998) *10.27 1998 Director Long-Term Incentive Plan of R&B Falcon Corporation (incorporated by reference to Exhibit 99.B to R&B Falcon's Proxy Statement dated April 23, 1998) *10.28 1999 Employee Long-Term Incentive Plan of R&B Falcon Corporation (incorporated by reference to Exhibit 99.A to R&B Falcon's Proxy Statement dated April 13, 1999) *10.29 1999 Director Long-Term Incentive Plan of R&B Falcon Corporation (incorporated by reference to Exhibit 99.B to R&B Falcon's Proxy Statement dated April 13, 1999) 10.30 Memorandum of Agreement dated November 28, 1995 between Reading and Bates, Inc., a subsidiary of Reading & Bates Corporation, and Deep Sea Investors, L.L.C. (incorporated by reference to Exhibit 10.110 to Reading & Bates' Annual Report on Form 10-K for 1995) 10.31 Amended and Restated Bareboat Charter dated July 1, 1998 to Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of Reading & Bates Corporation (incorporated by reference to Exhibit 10.177 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1998) 10.32 Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.162 to Reading & Bates' Annual Report on Form 10-K for the year ended December 31, 1996) 10.33 Amendment No. 1 dated February 7, 1997 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.183 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1998) 89

10.34 Amendment No. 2 dated April 30, 1997 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.184 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1998) 10.35 Amendment No. 3 dated April 24, 1998 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.185 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1998) 10.36 Amendment No. 4 dated August 7, 1998 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (incorporated by reference to Exhibit 10.186 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1998) +10.37 Participation Agreement dated as of July 30, 1998 among Deepwater Drilling L.L.C., Deepwater Investment Trust 1998-A, Wilmington Trust FSB and other Financial Institutions, as Certificate Purchasers, and RBF Deepwater Exploration Inc. and Conoco Development Company solely with respect to Sections 5.2 and 6.4 10.38 Limited Liability Company Agreement dated April 30, 1997 between Conoco Development II Inc. and RB Deepwater Exploration II Inc. (incorporated by reference to Exhibit 10.159 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1997) 10.39 Amendment No. 1 dated April 24, 1998 to Limited Liability Company Agreement dated April 30, 1997 between Conoco Development II Inc. and RB Deepwater Exploration II Inc. (incorporated by reference to Exhibit 10.188 to R&B Falcon's Annual Report on Form 10-K for the year ended December 31, 1998) 10.40 Guaranty, dated as of July 30, 1998, made by R&B Falcon in favor of the Deepwater Investment Trust 1998-A, Wilmington Trust FSB, not in its individual capacity, but solely as Investment Trustee, Wilmington Trust Company, not in its individual capacity, except as specified herein, but solely as Charter Trustee, BA Leasing & Capital Corporation, as Documentation Agent, ABN Amro Bank N.V., as Administrative Agent, The Bank of Nova Scotia, as Syndication Agent, BA Leasing & Capital Corporation, ABN Amro Bank N.V., Bank Austria Aktiengesellschaft New York Branch, The Bank of Nova Scotia, Bayerische Vereinsbank AG New York Branch, Commerzbank Aktiengesellschaft, Atlanta Agency, Credit Lyonnais New York Branch, Great-West Life and Annuity Insurance Company, Mees Pierson Capital Corporation, Westdeutsche Landesbank Girozentrale, New York Branch, as Certificate Purchasers, and ABN Amro Bank, N.V., Bank of America National Trust and Savings Association and The Bank of Nova Scotia, New York Branch, as Swap Counterparties, and the other parties named therein (incorporated by reference to Exhibit 10.1 to R&B Falcon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998) 10.41 Letter agreement dated as of August 7, 1998 between RBF Deepwater Exploration Inc., an indirect subsidiary of R&B Falcon, and Conoco Development Company and Acknowledgment by Conoco Inc. and R&B Falcon (incorporated by reference to Exhibit 10.2 to R&B Falcon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998) 10.42 Letter agreement dated as of August 7, 1998 between RBF Deepwater Exploration Inc., an indirect subsidiary of R&B Falcon, and Conoco Development Company and Acknowledgment by Conoco Inc. and R&B Falcon (incorporated by reference to Exhibit 10.3 to R&B Falcon's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998) +10.43 Amended and Restated Participation Agreement dated as of December 18, 2001 among Deepwater Drilling II L.L.C., Deepwater Investment Trust 1999-A, Wilmington Trust FSB, Wilmington Trust Company and other Financial Institutions, as Certificate Purchasers, solely with respect to Sections 2.15, 9.4, 12.13(b) and 12.13(d) Transocean Sedco Forex Inc. and Conoco Inc., and solely with respect to Sections 5.2 and 6.4, RBF Deepwater Exploration II Inc. and Conoco Development II Inc. +10.44 Appendix 1 to Amended and Restated Participation Agreement dated as of December 18, 2001 90

10.45 Agreement dated as of August 31, 1991 among Reading & Bates, Arcade Shipping AS and Sonat Offshore Drilling, Inc. (incorporated by reference to Exhibit 10.40 to Reading & Bates' Annual Report on Form 10-K for the year ended December 30, 1991) +*10.46 Separation Agreement dated as of December 21, 2001 by and between Transocean Offshore Deepwater Drilling Inc. and W. Dennis Heagney +21 Subsidiaries of the Company +23.1 Consent of Ernst & Young LLP +24 Powers of Attorney - ------------------------------------- *Compensatory plan or arrangement. +Filed herewith. Exhibits listed above as previously having been filed with the Securities and Exchange Commission are incorporated herein by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934 and made a part hereof with the same effect as if filed herewith. Certain instruments relating to long-term debt of the Company and its subsidiaries have not been filed as exhibits since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of each such instrument to the Commission upon request. Reports on Form 8-K The Company filed a Current Report on Form 8-K on October 29, 2001 to report the availability of drilling rig status and contract information as of October 29, 2001 and a Current Form on Form 8-K on November 30, 2001 to report the availability of drilling rig status and contract information as of November 30, 2001. 91

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 25, 2002. TRANSOCEAN SEDCO FOREX INC. By: /s/ Gregory L. Cauthen ----------------------------------------------------- Gregory L. Cauthen Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 25, 2002. Signature Title ----------- --------- * Chairman of the Board of Directors - -------------------------------- Victor E. Grijalva /s/ J. Michael Talbert Chief Executive Officer and Director - -------------------------------- (Principal Executive Officer) J. Michael Talbert /s/ Gregory L. Cauthen Vice President, Chief Financial Officer - -------------------------------- and Treasurer (Principal Financial Gregory L. Cauthen Officer) /s/ Ricardo H. Rosa Vice President and Controller - -------------------------------- (Principal Accounting Officer) Ricardo H. Rosa * Director - -------------------------------- Richard D. Kinder * Director - -------------------------------- Ronald L. Kuehn, Jr. * Director - -------------------------------- Arthur Lindenauer * Director - -------------------------------- Paul B. Loyd, Jr * Director - -------------------------------- Martin B. McNamara 92

* Director - -------------------------------- Roberto Monti * Director - -------------------------------- Richard A. Pattarozzi * Director - -------------------------------- Alain Roger * Director - -------------------------------- Kristian Siem * Director - -------------------------------- Ian C. Strachan By: /s/ William E. Turcotte - -------------------------------- William E. Turcotte (Attorney-in-Fact) 93

                           TRANSOCEAN SEDCO FOREX INC.

                              OFFICERS' CERTIFICATE
                              ---------------------

     The  undersigned,  Eric B. Brown and William E. Turcotte, do hereby certify
that  they  are  the  duly  appointed  and acting Senior Vice President, General
Counsel  and  Corporate  Secretary  and  Associate General Counsel and Assistant
Secretary,  respectively,  of  Transocean  Sedco  Forex  Inc.,  a Cayman Islands
exempted  company  (the  "Company").  Each  of  the  undersigned  also  hereby
certifies,  pursuant  to Sections 103 and 301 of the Indenture dated as of April
15,  1997,  between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware
corporation  and  a predecessor of the Company, and The Bank of New York, as the
successor  trustee to The Chase Manhattan Bank (formerly known as Texas Commerce
Bank  National  Association)  (the  "Trustee"),  as  supplemented  by  the First
Supplemental  Indenture between Transocean-Delaware and the Trustee, dated as of
April  15,  1997,  the  Second  Supplemental Indenture among Transocean Offshore
(Texas)  Inc., a Texas corporation and a predecessor of the Company, the Company
and  the  Trustee,  dated  as  of May 14, 1999, the Third Supplemental Indenture
between  the  Company  and  the Trustee, dated as of May 24, 2000 and the Fourth
Supplemental  Indenture between the Company and the Trustee, dated as of May 11,
2001  (such  Indenture,  as  supplemented  by  the First Supplemental Indenture,
Second  Supplemental  Indenture,  Third  Supplemental  Indenture,  and  Fourth
Supplemental  Indenture,  the  "Indenture"),  that:

     A.   There  is  hereby  established pursuant to resolutions duly adopted by
the  Board  of  Directors  of  the  Company on December 13, 2001 (a copy of such
resolutions  being attached hereto as Exhibit A) a series of Securities (as that
term  is  defined  in the Indenture) to be issued under the Indenture designated
6.50%  Notes  due  April  15,  2003  ("6.50%  Notes").

     B.   There  is  hereby  established pursuant to resolutions duly adopted by
the  Board  of  Directors  of  the  Company on December 13, 2001 (a copy of such
resolutions  being attached hereto as Exhibit A) a series of Securities (as that
term  is  defined  in the Indenture) to be issued under the Indenture designated
6.75%  Notes  due  April  15,  2005  ("6.75%  Notes").

     C.   There  is  hereby  established pursuant to resolutions duly adopted by
the  Board  of  Directors  of  the  Company on December 13, 2001 (a copy of such
resolutions  being attached hereto as Exhibit A) a series of Securities (as that
term  is  defined  in the Indenture) to be issued under the Indenture designated
6.95%  Notes  due  April  15,  2008  ("6.95%  Notes").

     D.   There  is  hereby  established pursuant to resolutions duly adopted by
the  Board  of  Directors  of  the  Company on December 13, 2001 (a copy of such
resolutions  being attached hereto as Exhibit A) a series of Securities (as that
term  is  defined  in the Indenture) to be issued under the Indenture designated
9.125%  Notes  due  December  15,  2003  ("9.125%  Notes").

                                        1

E. There is hereby established pursuant to resolutions duly adopted by the Board of Directors of the Company on December 13, 2001 (a copy of such resolutions being attached hereto as Exhibit A) a series of Securities (as that term is defined in the Indenture) to be issued under the Indenture designated 9.50% Notes due December 15, 2008 ("9.50% Notes"). F. The terms and form of the 6.50% Notes shall be as set forth in Exhibit B and Exhibit C, respectively. G. The terms and form of the 6.75% Notes shall be as set forth in Exhibit D and Exhibit E, respectively. H. The terms and form of the 6.95% Notes shall be as set forth in Exhibit F and Exhibit G, respectively. I. The terms and form of the 9.125% Notes shall be as set forth in Exhibit H and Exhibit I, respectively. J. The terms and form of the 9.50% Notes shall be as set forth in Exhibit J and Exhibit K, respectively. K. Each of the undersigned has read the provisions of Section 301 and 303 of the Indenture and the definitions relating thereto and the resolutions adopted by the Board of Directors of the Company referred to above. In the opinion of each of the undersigned, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not all conditions precedent provided in the Indenture relating to the establishment, authentication and delivery of the 6.50% Notes, the 6.75% Notes, the 6.95% Notes, the 9.125% Notes and the 9.50% Notes have been complied with. L. In the opinion of each of the undersigned, all such conditions precedent have been complied with. 2

IN WITNESS WHEREOF, the undersigned have hereunto executed this Certificate as of March 7, 2002. /s/ ERIC B. BROWN -------------------------------------- Eric B. Brown Senior Vice President, General Counsel Corporate Secretary /s/ WILLIAM E. TURCOTTE -------------------------------------- William E. Turcotte Associate General Counsel and Assistant Secretary 3

EXHIBIT B TRANSOCEAN SEDCO FOREX INC. 6.50% NOTES DUE APRIL 15, 2003 1. The title of the Securities of the series shall be "6.50% Notes due April 15, 2003" (the "Notes"). 2. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 304, 305, 306, 906 or 1107 of the Indenture) is $239,500,000. 3. Interest on the Notes shall be payable to the persons in whose name the Notes are registered at the close of business on the Regular Record Date (as defined in the Indenture) for such interest payment. 4. The date on which the principal of the Notes is payable, unless accelerated pursuant to the Indenture, shall be April 15, 2003. 5. The rate at which each of the Notes shall bear interest shall be 6.50% per annum. The date from which interest shall accrue for each of the Notes shall be October 15, 2001. The Interest Payment Dates on which interest on the Notes shall be payable are April 15 and October 15, commencing on April 15, 2002. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. 6. The place or places where the principal of and interest on the Notes shall be payable, the Notes may be surrendered for registration of transfer, the Notes may be surrendered for exchange and notices may be given to the Company in respect of the Notes is at the office of the Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the office of the Trustee; provided that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register (as defined in the Indenture) or by wire transfer of immediately available funds to the accounts specified by the Holder (as defined in the Indenture) of such Notes. 7. The Notes are not redeemable. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. 8. Additional Amounts (as defined in the Indenture) with respect to the Notes shall be payable in accordance with the Indenture and the provisions of this paragraph 8. The Company agrees that any amounts to be paid by the Company hereunder with respect to any Note shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by B-1

the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Note with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any) and interest (if any), in accordance with the terms of the Notes and the Indenture, as the case may be, in order that the amounts received by the Holder of the Note, after such deduction or withholding, shall equal the respective amounts of principal amount, premium (if any) and interest (if any), in accordance with the terms of the Notes and the Indenture, as specified in such Notes to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Note (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Note or the collection of principal amount, premium (if any) and interest (if any), in accordance with the terms of the Note and the Indenture, or the enforcement of such Note or (B) where presentation is required, such Note was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of principal amount, premium (if any) and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Note, if such compliance is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4). nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Note to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Note. 9. The Notes shall be in fully registered form without coupons in denominations of $1,000 of principal amount thereof or any integral multiple thereof. 10. Section 403 of the Indenture shall be applicable to the Notes. B-2

11. The Notes will initially be issued in permanent global form, substantially in the form set forth in Exhibit C to the Officers' Certificate to which this Exhibit is attached (the "Global Securities"), as a Book-Entry Security. Each Global Security shall represent such of the Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of Notes from time to time endorsed thereon and that the aggregate amount of Notes represented thereby may from time to time be reduced to reflect exchanges and redemptions. Any endorsement of a Note to reflect the amount, or any increase or decrease in the amount, of Notes represented thereby shall be made by the Trustee in accordance with written instructions or such other written form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having the beneficial interest in the Global Security. 12. The Company initially appoints the Trustee to act as Paying Agent with respect to the Notes. B-3

EXHIBIT C [FORM OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. 6.50% NOTE DUE APRIL 15, 2003 TRANSOCEAN SEDCO FOREX INC. Issue Date: , 2002 Maturity: April 15, 2003 --------- --- Principal Amount: $ CUSIP: ----------- Registered: No. R- Transocean Sedco Forex Inc., a Cayman Islands exempted company limited by shares (herein called the "Company", which term includes any successor corporation under the indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ($ ) on April 15, 2003 and to pay interest thereon and Tax Additional Amounts, if any, in immediately available funds as specified on the other side of this Security. Payment of the principal of and interest on and Tax Additional Amounts, if any, with respect to this Global Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest and Tax Additional C-1

Amounts, if any, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer of immediately available funds to the accounts designated to the Holder of this Security. Reference is hereby made to the further provisions of this Global Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Global Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: TRANSOCEAN SEDCO FOREX INC. By: ----------------------------- Name: Title: Attest: - ---------------------------- Assistant Secretary C-2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee ------------------------------ Authorized Signature C-3

[FORM OF REVERSE SIDE OF SECURITY] TRANSOCEAN SEDCO FOREX INC. 6.50% NOTE DUE APRIL 15, 2003 This Global Security is one of a duly authorized issue of senior securities of the Company (herein called the "Global Securities"), issued and to be issued in one or more series under the Indenture dated as of April 15, 1997, between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware corporation and a predecessor of the Company, and The Bank of New York, as the successor trustee to The Chase Manhattan Bank (formerly known as Texas Commerce Bank National Association) (the "Trustee"), as supplemented by the First Supplemental Indenture between Transocean-Delaware and the Trustee, dated as of April 15, 1997, the Second Supplemental Indenture among Transocean Offshore (Texas) Inc., a Texas corporation and a predecessor of the Company, the Company and the Trustee, dated as of May 14, 1999, the Third Supplemental Indenture between the Company and the Trustee, dated as of May 24, 2000 and the Fourth Supplemental Indenture between the Company and the Trustee, dated as of May 11, 2001 (such Indenture, as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, and Fourth Supplemental Indenture, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Global Security is one of the series designated on the face hereof, limited in aggregate principal amount to $239,500,000. INTEREST The rate at which this Global Security shall bear interest shall be 6.50% per annum. The date from which interest shall accrue for this Global Security shall be October 15, 2001. The Interest Payment Dates on which interest on this Global Security shall be payable are April 15 and October 15 of each year, commencing on April 15, 2002. The Regular Record Date for the interest payable on this Global Security on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. TAX ADDITIONAL AMOUNTS The Company agrees that any amounts to be paid by the Company hereunder with respect to any Security shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Security with any relevant administrative C-4

requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any) and interest (if any), in accordance with the terms of the Securities and the Indenture, as the case may be, in order that the amounts received by the Holder of the Security, after such deduction or withholding, shall equal the respective amounts of principal, premium (if any) and interest (if any), in accordance with the terms of the Securities and the Indenture, as specified in such Securities to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Security (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Security or the collection of the respective amounts of principal, premium (if any) and interest (if any), in accordance with the terms of the Security and the Indenture, or the enforcement of such Security or (B) where presentation is required, such Security was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of the respective amounts of principal, premium (if any) and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Security, if such compliance is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4); nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Security. TRANSFER As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Global Security is registrable in the Security Register, upon surrender of this Global Security for registration or transfer at the office or agency in a Place of Payment for Securities of this series, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof C-5

or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of any authorized denominations and for the same aggregate principal amount, executed by the Company and authenticated and delivered by the Trustee, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations set forth therein and on the face of this Global Security, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Global Security for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may treat the Person in whose name this Global Security is registered as the owner hereof for all purposes, whether or not this Global Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. AMENDMENT, SUPPLEMENT AND WAIVER; LIMITATION ON SUITS The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Global Security shall be conclusive and binding upon such Holder and upon all future Holders of this Global Security and of any Global Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Security. Subject to the right of the Holder of any Securities of this series to receive payment of the principal thereof (and premium, if any) and interest thereon and any Tax Additional Amounts with respect thereto, no Holder of the Securities of this series shall have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless (1) an Event of Default with respect to the Securities of this series shall have occurred and be continuing and such Holder has previously given written notice to the Trustee of such continuing Event of Default; C-6

(2) the Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of this series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under the Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, all unpaid principal plus accrued interest through the acceleration date of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. DEFEASANCE The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Global Security or certain restrictive covenants and Events of Default with respect to this Global Security, in each case upon compliance with certain conditions set forth in the Indenture. NO RECOURSE AGAINST OTHERS No recourse shall be had for the payment of the principal of or the interest, if any, on this Global Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or directory, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the C-7

enforcement of any assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. INDENTURE TO CONTROL; GOVERNING LAW In the case of any conflict between the provisions of this Global Security and the Indenture, the provisions of the Indenture shall control. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. DEFINITIONS All terms defined in the Indenture and used in this Global Security but not specifically defined herein are used herein as so defined. C-8

EXHIBIT D TRANSOCEAN SEDCO FOREX INC. 6.75% NOTES DUE APRIL 15, 2005 1. The title of the Securities of the series shall be "6.75% Notes due April 15, 2005" (the "Notes"). 2. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 304, 305, 306, 906 or 1107 of the Indenture) is $350,000,000. 3. Interest on the Notes shall be payable to the persons in whose name the Notes are registered at the close of business on the Regular Record Date (as defined in the Indenture) for such interest payment. 4. The date on which the principal of the Notes is payable, unless accelerated pursuant to the Indenture, shall be April 15, 2005. 5. The rate at which each of the Notes shall bear interest shall be 6.75% per annum. The date from which interest shall accrue for each of the Notes shall be October 15, 2001. The Interest Payment Dates on which interest on the Notes shall be payable are April 15 and October 15, commencing on April 15, 2002. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. 6. The place or places where the principal of and interest on the Notes shall be payable, the Notes may be surrendered for registration of transfer, the Notes may be surrendered for exchange and notices may be given to the Company in respect of the Notes is at the office of the Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the office of the Trustee; provided that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register (as defined in the Indenture) or by wire transfer of immediately available funds to the accounts specified by the Holder (as defined in the Indenture) of such Notes. 7. The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). D-1

The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 20 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. D-2

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. 8. Additional Amounts (as defined in the Indenture) with respect to the Notes shall be payable in accordance with the Indenture and the provisions of this paragraph 8. The Company agrees that any amounts to be paid by the Company hereunder with respect to any Note shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Note with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as the case may be, in order that the amounts received by the Holder of the Note, after such deduction or withholding, shall equal the respective amounts of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as specified in such Notes to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Note (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Note or the collection of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Note and the Indenture, or the enforcement of such Note or (B) where presentation is required, such Note was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of principal amount, premium (if any), Redemption Price, and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Note, if such compliance is D-3

required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4). nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Note to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Note. 9. The Notes shall be in fully registered form without coupons in denominations of $1,000 of principal amount thereof or any integral multiple thereof. 10. Section 403 of the Indenture shall be applicable to the Notes. 11. The Notes will initially be issued in permanent global form, substantially in the form set forth in Exhibit E to the Officers' Certificate to which this Exhibit is attached (the "Global Securities"), as a Book-Entry Security. Each Global Security shall represent such of the Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of Notes from time to time endorsed thereon and that the aggregate amount of Notes represented thereby may from time to time be reduced to reflect exchanges and redemptions. Any endorsement of a Note to reflect the amount, or any increase or decrease in the amount, of Notes represented thereby shall be made by the Trustee in accordance with written instructions or such other written form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having the beneficial interest in the Global Security. 12. The Company initially appoints the Trustee to act as Paying Agent with respect to the Notes. D-4

EXHIBIT E [FORM OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. 6.75% NOTE DUE APRIL 15, 2005 TRANSOCEAN SEDCO FOREX INC. Issue Date: , 2002 Maturity: April 15, 2005 --------- --- Principal Amount: $ CUSIP: ----------- Registered: No. R- Transocean Sedco Forex Inc., a Cayman Islands exempted company limited by shares (herein called the "Company", which term includes any successor corporation under the indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ($ ) on April 15, 2005 and to pay interest thereon and Tax Additional Amounts, if any, in immediately available funds as specified on the other side of this Security. Payment of the principal of and interest on and Tax Additional Amounts, if any, with respect to this Global Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest and Tax Additional E-1

Amounts, if any, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer of immediately available funds to the accounts designated to the Holder of this Security. Reference is hereby made to the further provisions of this Global Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Global Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: TRANSOCEAN SEDCO FOREX INC. -------------------------------- By: Name: Title: Attest: - --------------------------- Assistant Secretary E-2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee ----------------------------- Authorized Signature E-3

[FORM OF REVERSE SIDE OF SECURITY] TRANSOCEAN SEDCO FOREX INC. 6.75% NOTE DUE APRIL 15, 2005 This Global Security is one of a duly authorized issue of senior securities of the Company (herein called the "Global Securities"), issued and to be issued in one or more series under the Indenture dated as of April 15, 1997, between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware corporation and a predecessor of the Company, and The Bank of New York, as the successor trustee to The Chase Manhattan Bank (formerly known as Texas Commerce Bank National Association) (the "Trustee"), as supplemented by the First Supplemental Indenture between Transocean-Delaware and the Trustee, dated as of April 15, 1997, the Second Supplemental Indenture among Transocean Offshore (Texas) Inc., a Texas corporation and a predecessor of the Company, the Company and the Trustee, dated as of May 14, 1999, the Third Supplemental Indenture between the Company and the Trustee, dated as of May 24, 2000 and the Fourth Supplemental Indenture between the Company and the Trustee, dated as of May 11, 2001 (such Indenture, as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, and Fourth Supplemental Indenture, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Global Security is one of the series designated on the face hereof, limited in aggregate principal amount to $350,000,000. INTEREST The rate at which this Global Security shall bear interest shall be 6.75% per annum. The date from which interest shall accrue for this Global Security shall be October 15, 2001. The Interest Payment Dates on which interest on this Global Security shall be payable are April 15 and October 15 of each year, commencing on April 15, 2002. The Regular Record Date for the interest payable on this Global Security on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. OPTIONAL REDEMPTION The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date E-4

that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 20 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. E-5

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. TAX ADDITIONAL AMOUNTS The Company agrees that any amounts to be paid by the Company hereunder with respect to any Security shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Security with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as the case may be, in order that the amounts received by the Holder of the Security, after such deduction or withholding, shall equal the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as specified in such Securities to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Security (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Security or the collection of the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Security and the Indenture, or the enforcement of such Security or (B) where presentation is required, such Security was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of the respective amounts of principal, premium (if any), Redemption Price and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Security, if such compliance E-6

is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4); nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Security. TRANSFER As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Global Security is registrable in the Security Register, upon surrender of this Global Security for registration or transfer at the office or agency in a Place of Payment for Securities of this series, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of any authorized denominations and for the same aggregate principal amount, executed by the Company and authenticated and delivered by the Trustee, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations set forth therein and on the face of this Global Security, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Global Security for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may treat the Person in whose name this Global Security is registered as the owner hereof for all purposes, whether or not this Global Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. AMENDMENT, SUPPLEMENT AND WAIVER; LIMITATION ON SUITS The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to E-7

waive compliance by the Company with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Global Security shall be conclusive and binding upon such Holder and upon all future Holders of this Global Security and of any Global Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Security. Subject to the right of the Holder of any Securities of this series to receive payment of the principal thereof (and premium, if any) and interest thereon and any Tax Additional Amounts with respect thereto, no Holder of the Securities of this series shall have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless (1) an Event of Default with respect to the Securities of this series shall have occurred and be continuing and such Holder has previously given written notice to the Trustee of such continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of this series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under the Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, all unpaid principal plus accrued interest through the acceleration date of the E-8

Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. DEFEASANCE The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Global Security or certain restrictive covenants and Events of Default with respect to this Global Security, in each case upon compliance with certain conditions set forth in the Indenture. NO RECOURSE AGAINST OTHERS No recourse shall be had for the payment of the principal of or the interest, if any, on this Global Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or directory, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. INDENTURE TO CONTROL; GOVERNING LAW In the case of any conflict between the provisions of this Global Security and the Indenture, the provisions of the Indenture shall control. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. DEFINITIONS All terms defined in the Indenture and used in this Global Security but not specifically defined herein are used herein as so defined. E-9

EXHIBIT F TRANSOCEAN SEDCO FOREX INC. 6.95% NOTES DUE APRIL 15, 2008 1. The title of the Securities of the series shall be "6.95% Notes due April 15, 2008" (the "Notes"). 2. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 304, 305, 306, 906 or 1107 of the Indenture) is $250,000,000. 3. Interest on the Notes shall be payable to the persons in whose name the Notes are registered at the close of business on the Regular Record Date (as defined in the Indenture) for such interest payment. 4. The date on which the principal of the Notes is payable, unless accelerated pursuant to the Indenture, shall be April 15, 2008. 5. The rate at which each of the Notes shall bear interest shall be 6.95% per annum. The date from which interest shall accrue for each of the Notes shall be October 15, 2001. The Interest Payment Dates on which interest on the Notes shall be payable are April 15 and October 15, commencing on April 15, 2002. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. 6. The place or places where the principal of and interest on the Notes shall be payable, the Notes may be surrendered for registration of transfer, the Notes may be surrendered for exchange and notices may be given to the Company in respect of the Notes is at the office of the Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the office of the Trustee; provided that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register (as defined in the Indenture) or by wire transfer of immediately available funds to the accounts specified by the Holder (as defined in the Indenture) of such Notes. 7. The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). F-1

The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 20 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. F-2

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. 8. Additional Amounts (as defined in the Indenture) with respect to the Notes shall be payable in accordance with the Indenture and the provisions of this paragraph 8. The Company agrees that any amounts to be paid by the Company hereunder with respect to any Note shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Note with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as the case may be, in order that the amounts received by the Holder of the Note, after such deduction or withholding, shall equal the respective amounts of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as specified in such Notes to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Note (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Note or the collection of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Note and the Indenture, or the enforcement of such Note or (B) where presentation is required, such Note was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of principal amount, premium (if any), Redemption Price, and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Note, if such compliance is F-3

required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4). nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Note to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Note. 9. The Notes shall be in fully registered form without coupons in denominations of $1,000 of principal amount thereof or any integral multiple thereof. 10. Section 403 of the Indenture shall be applicable to the Notes. 11. The Notes will initially be issued in permanent global form, substantially in the form set forth in Exhibit G to the Officers' Certificate to which this Exhibit is attached (the "Global Securities"), as a Book-Entry Security. Each Global Security shall represent such of the Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of Notes from time to time endorsed thereon and that the aggregate amount of Notes represented thereby may from time to time be reduced to reflect exchanges and redemptions. Any endorsement of a Note to reflect the amount, or any increase or decrease in the amount, of Notes represented thereby shall be made by the Trustee in accordance with written instructions or such other written form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having the beneficial interest in the Global Security. 12. The Company initially appoints the Trustee to act as Paying Agent with respect to the Notes. F-4

EXHIBIT G [FORM OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. 6.95% NOTE DUE APRIL 15, 2008 TRANSOCEAN SEDCO FOREX INC. Issue Date: , 2002 Maturity: April 15, 2008 -------- -- Principal Amount: $ CUSIP: ----------- Registered: No. R- Transocean Sedco Forex Inc., a Cayman Islands exempted company limited by shares (herein called the "Company", which term includes any successor corporation under the indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ($ ) on April 15, 2008 and to pay interest thereon and Tax Additional Amounts, if any, in immediately available funds as specified on the other side of this Security. Payment of the principal of and interest on and Tax Additional Amounts, if any, with respect to this Global Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest and Tax Additional G-1

Amounts, if any, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer of immediately available funds to the accounts designated to the Holder of this Security. Reference is hereby made to the further provisions of this Global Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Global Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: TRANSOCEAN SEDCO FOREX INC. -------------------------------------- By: Name: Title: Attest: - ------------------------------- Assistant Secretary G-2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee ---------------------------------- Authorized Signature G-3

[FORM OF REVERSE SIDE OF SECURITY] TRANSOCEAN SEDCO FOREX INC. 6.95% NOTE DUE APRIL 15, 2008 This Global Security is one of a duly authorized issue of senior securities of the Company (herein called the "Global Securities"), issued and to be issued in one or more series under the Indenture dated as of April 15, 1997, between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware corporation and a predecessor of the Company, and The Bank of New York, as the successor trustee to The Chase Manhattan Bank (formerly known as Texas Commerce Bank National Association) (the "Trustee"), as supplemented by the First Supplemental Indenture between Transocean-Delaware and the Trustee, dated as of April 15, 1997, the Second Supplemental Indenture among Transocean Offshore (Texas) Inc., a Texas corporation and a predecessor of the Company, the Company and the Trustee, dated as of May 14, 1999, the Third Supplemental Indenture between the Company and the Trustee, dated as of May 24, 2000 and the Fourth Supplemental Indenture between the Company and the Trustee, dated as of May 11, 2001 (such Indenture, as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, and Fourth Supplemental Indenture, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Global Security is one of the series designated on the face hereof, limited in aggregate principal amount to $250,000,000. INTEREST The rate at which this Global Security shall bear interest shall be 6.95% per annum. The date from which interest shall accrue for this Global Security shall be October 15, 2001. The Interest Payment Dates on which interest on this Global Security shall be payable are April 15 and October 15 of each year, commencing on April 15, 2002. The Regular Record Date for the interest payable on this Global Security on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. OPTIONAL REDEMPTION The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date G-4

that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 20 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. G-5

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. TAX ADDITIONAL AMOUNTS The Company agrees that any amounts to be paid by the Company hereunder with respect to any Security shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Security with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as the case may be, in order that the amounts received by the Holder of the Security, after such deduction or withholding, shall equal the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as specified in such Securities to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Security (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Security or the collection of the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Security and the Indenture, or the enforcement of such Security or (B) where presentation is required, such Security was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of the respective amounts of principal, premium (if any), Redemption Price and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Security, if such compliance G-6

is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4); nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Security. TRANSFER As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Global Security is registrable in the Security Register, upon surrender of this Global Security for registration or transfer at the office or agency in a Place of Payment for Securities of this series, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of any authorized denominations and for the same aggregate principal amount, executed by the Company and authenticated and delivered by the Trustee, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations set forth therein and on the face of this Global Security, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Global Security for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may treat the Person in whose name this Global Security is registered as the owner hereof for all purposes, whether or not this Global Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. AMENDMENT, SUPPLEMENT AND WAIVER; LIMITATION ON SUITS The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to G-7

waive compliance by the Company with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Global Security shall be conclusive and binding upon such Holder and upon all future Holders of this Global Security and of any Global Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Security. Subject to the right of the Holder of any Securities of this series to receive payment of the principal thereof (and premium, if any) and interest thereon and any Tax Additional Amounts with respect thereto, no Holder of the Securities of this series shall have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless (1) an Event of Default with respect to the Securities of this series shall have occurred and be continuing and such Holder has previously given written notice to the Trustee of such continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of this series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under the Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, all unpaid principal plus accrued interest through the acceleration date of the G-8

Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. DEFEASANCE The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Global Security or certain restrictive covenants and Events of Default with respect to this Global Security, in each case upon compliance with certain conditions set forth in the Indenture. NO RECOURSE AGAINST OTHERS No recourse shall be had for the payment of the principal of or the interest, if any, on this Global Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or directory, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. INDENTURE TO CONTROL; GOVERNING LAW In the case of any conflict between the provisions of this Global Security and the Indenture, the provisions of the Indenture shall control. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. DEFINITIONS All terms defined in the Indenture and used in this Global Security but not specifically defined herein are used herein as so defined. G-9

EXHIBIT H TRANSOCEAN SEDCO FOREX INC. 9.125% NOTES DUE DECEMBER 15, 2003 1. The title of the Securities of the series shall be "9.125% Notes due December 15, 2003" (the "Notes"). 2. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 304, 305, 306, 906 or 1107 of the Indenture) is $87,112,000. 3. Interest on the Notes shall be payable to the persons in whose name the Notes are registered at the close of business on the Regular Record Date (as defined in the Indenture) for such interest payment. 4. The date on which the principal of the Notes is payable, unless accelerated pursuant to the Indenture, shall be December 15, 2003. 5. The rate at which each of the Notes shall bear interest shall be 9.125% per annum. The date from which interest shall accrue for each of the Notes shall be December 15, 2001. The Interest Payment Dates on which interest on the Notes shall be payable are June 15 and December 15, commencing on June 15, 2002. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the June 1 or December 1, as the case may be, immediately preceding such interest payment date. 6. The place or places where the principal of and interest on the Notes shall be payable, the Notes may be surrendered for registration of transfer, the Notes may be surrendered for exchange and notices may be given to the Company in respect of the Notes is at the office of the Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the office of the Trustee; provided that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register (as defined in the Indenture) or by wire transfer of immediately available funds to the accounts specified by the Holder (as defined in the Indenture) of such Notes. 7. The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). H-1

The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 50 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. H-2

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. 8. Additional Amounts (as defined in the Indenture) with respect to the Notes shall be payable in accordance with the Indenture and the provisions of this paragraph 8. The Company agrees that any amounts to be paid by the Company hereunder with respect to any Note shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Note with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as the case may be, in order that the amounts received by the Holder of the Note, after such deduction or withholding, shall equal the respective amounts of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as specified in such Notes to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Note (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Note or the collection of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Note and the Indenture, or the enforcement of such Note or (B) where presentation is required, such Note was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of principal amount, premium (if any), Redemption Price, and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Note, if such compliance is H-3

required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4). nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Note to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Note. 9. The Notes shall be in fully registered form without coupons in denominations of $1,000 of principal amount thereof or any integral multiple thereof. 10. Section 403 of the Indenture shall be applicable to the Notes. 11. The Notes will initially be issued in permanent global form, substantially in the form set forth in Exhibit I to the Officers' Certificate to which this Exhibit is attached (the "Global Securities"), as a Book-Entry Security. Each Global Security shall represent such of the Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of Notes from time to time endorsed thereon and that the aggregate amount of Notes represented thereby may from time to time be reduced to reflect exchanges and redemptions. Any endorsement of a Note to reflect the amount, or any increase or decrease in the amount, of Notes represented thereby shall be made by the Trustee in accordance with written instructions or such other written form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having the beneficial interest in the Global Security. 12. The Company initially appoints the Trustee to act as Paying Agent with respect to the Notes. H-4

EXHIBIT I [FORM OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. 9.125% NOTE DUE DECEMBER 15, 2003 TRANSOCEAN SEDCO FOREX INC. Issue Date: , 2002 Maturity: December 15, 2003 -------- -- Principal Amount: $ CUSIP: ----------- Registered: No. R- Transocean Sedco Forex Inc., a Cayman Islands exempted company limited by shares (herein called the "Company", which term includes any successor corporation under the indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ($ ) on December 15, 2003 and to pay interest thereon and Tax Additional Amounts, if any, in immediately available funds as specified on the other side of this Security. Payment of the principal of and interest on and Tax Additional Amounts, if any, with respect to this Global Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest and Tax Additional I-1

Amounts, if any, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer of immediately available funds to the accounts designated to the Holder of this Security. Reference is hereby made to the further provisions of this Global Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Global Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: TRANSOCEAN SEDCO FOREX INC. ---------------------------------- By: Name: Title: Attest: - -------------------------- Assistant Secretary I-2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee --------------------------------- Authorized Signature I-3

[FORM OF REVERSE SIDE OF SECURITY] TRANSOCEAN SEDCO FOREX INC. 9.125% NOTE DUE DECEMBER 15, 2003 This Global Security is one of a duly authorized issue of senior securities of the Company (herein called the "Global Securities"), issued and to be issued in one or more series under the Indenture dated as of April 15, 1997, between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware corporation and a predecessor of the Company, and The Bank of New York, as the successor trustee to The Chase Manhattan Bank (formerly known as Texas Commerce Bank National Association) (the "Trustee"), as supplemented by the First Supplemental Indenture between Transocean-Delaware and the Trustee, dated as of April 15, 1997, the Second Supplemental Indenture among Transocean Offshore (Texas) Inc., a Texas corporation and a predecessor of the Company, the Company and the Trustee, dated as of May 14, 1999, the Third Supplemental Indenture between the Company and the Trustee, dated as of May 24, 2000 and the Fourth Supplemental Indenture between the Company and the Trustee, dated as of May 11, 2001 (such Indenture, as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, and Fourth Supplemental Indenture, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Global Security is one of the series designated on the face hereof, limited in aggregate principal amount to $87,112,000. INTEREST The rate at which this Global Security shall bear interest shall be 9.125% per annum. The date from which interest shall accrue for this Global Security shall be December 15, 2001. The Interest Payment Dates on which interest on this Global Security shall be payable are June 15 and December 15 of each year, commencing on June 15, 2002. The Regular Record Date for the interest payable on this Global Security on any Interest Payment Date shall be the June 1 or December 1, as the case may be, immediately preceding such interest payment date. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. OPTIONAL REDEMPTION The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date I-4

that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 50 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. I-5

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. TAX ADDITIONAL AMOUNTS The Company agrees that any amounts to be paid by the Company hereunder with respect to any Security shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Security with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as the case may be, in order that the amounts received by the Holder of the Security, after such deduction or withholding, shall equal the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as specified in such Securities to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Security (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Security or the collection of the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Security and the Indenture, or the enforcement of such Security or (B) where presentation is required, such Security was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of the respective amounts of principal, premium (if any), Redemption Price and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Security, if such compliance I-6

is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4); nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Security. TRANSFER As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Global Security is registrable in the Security Register, upon surrender of this Global Security for registration or transfer at the office or agency in a Place of Payment for Securities of this series, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of any authorized denominations and for the same aggregate principal amount, executed by the Company and authenticated and delivered by the Trustee, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations set forth therein and on the face of this Global Security, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Global Security for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may treat the Person in whose name this Global Security is registered as the owner hereof for all purposes, whether or not this Global Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. AMENDMENT, SUPPLEMENT AND WAIVER; LIMITATION ON SUITS The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to I-7

waive compliance by the Company with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Global Security shall be conclusive and binding upon such Holder and upon all future Holders of this Global Security and of any Global Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Security. Subject to the right of the Holder of any Securities of this series to receive payment of the principal thereof (and premium, if any) and interest thereon and any Tax Additional Amounts with respect thereto, no Holder of the Securities of this series shall have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless (1) an Event of Default with respect to the Securities of this series shall have occurred and be continuing and such Holder has previously given written notice to the Trustee of such continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of this series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under the Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, all unpaid principal plus accrued interest through the acceleration date of the I-8

Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. DEFEASANCE The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Global Security or certain restrictive covenants and Events of Default with respect to this Global Security, in each case upon compliance with certain conditions set forth in the Indenture. NO RECOURSE AGAINST OTHERS No recourse shall be had for the payment of the principal of or the interest, if any, on this Global Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or directory, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. INDENTURE TO CONTROL; GOVERNING LAW In the case of any conflict between the provisions of this Global Security and the Indenture, the provisions of the Indenture shall control. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. DEFINITIONS All terms defined in the Indenture and used in this Global Security but not specifically defined herein are used herein as so defined. I-9

EXHIBIT J TRANSOCEAN SEDCO FOREX INC. 9.50% NOTES DUE DECEMBER 15, 2008 1. The title of the Securities of the series shall be "9.50% Notes due December 15, 2008" (the "Notes"). 2. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 304, 305, 306, 906 or 1107 of the Indenture) is $300,000,000. 3. Interest on the Notes shall be payable to the persons in whose name the Notes are registered at the close of business on the Regular Record Date (as defined in the Indenture) for such interest payment. 4. The date on which the principal of the Notes is payable, unless accelerated pursuant to the Indenture, shall be December 15, 2008. 5. The rate at which each of the Notes shall bear interest shall be 9.50% per annum. The date from which interest shall accrue for each of the Notes shall be December 15, 2001. The Interest Payment Dates on which interest on the Notes shall be payable are June 15 and December 15, commencing on June 15, 2002. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the June 1 or December 1, as the case may be, immediately preceding such interest payment date. 6. The place or places where the principal of and interest on the Notes shall be payable, the Notes may be surrendered for registration of transfer, the Notes may be surrendered for exchange and notices may be given to the Company in respect of the Notes is at the office of the Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the office of the Trustee; provided that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register (as defined in the Indenture) or by wire transfer of immediately available funds to the accounts specified by the Holder (as defined in the Indenture) of such Notes. 7. The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). J-1

The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 50 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. J-2

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. 8. Additional Amounts (as defined in the Indenture) with respect to the Notes shall be payable in accordance with the Indenture and the provisions of this paragraph 8. The Company agrees that any amounts to be paid by the Company hereunder with respect to any Note shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Note with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as the case may be, in order that the amounts received by the Holder of the Note, after such deduction or withholding, shall equal the respective amounts of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as specified in such Notes to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Note (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Note or the collection of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Note and the Indenture, or the enforcement of such Note or (B) where presentation is required, such Note was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of principal amount, premium (if any), Redemption Price, and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Note, if such compliance is J-3

required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4). nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Note to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Note. 9. The Notes shall be in fully registered form without coupons in denominations of $1,000 of principal amount thereof or any integral multiple thereof. 10. Section 403 of the Indenture shall be applicable to the Notes. 11. The Notes will initially be issued in permanent global form, substantially in the form set forth in Exhibit K to the Officers' Certificate to which this Exhibit is attached (the "Global Securities"), as a Book-Entry Security. Each Global Security shall represent such of the Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of Notes from time to time endorsed thereon and that the aggregate amount of Notes represented thereby may from time to time be reduced to reflect exchanges and redemptions. Any endorsement of a Note to reflect the amount, or any increase or decrease in the amount, of Notes represented thereby shall be made by the Trustee in accordance with written instructions or such other written form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having the beneficial interest in the Global Security. 12. The Company initially appoints the Trustee to act as Paying Agent with respect to the Notes. J-4

EXHIBIT K [FORM OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. 9.50% NOTE DUE DECEMBER 15, 2008 TRANSOCEAN SEDCO FOREX INC. Issue Date: , 2002 Maturity: December 15, 2008 --------- --- Principal Amount: $ CUSIP: ----------- Registered: No. R- Transocean Sedco Forex Inc., a Cayman Islands exempted company limited by shares (herein called the "Company", which term includes any successor corporation under the indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ($ ) on December 15, 2008 and to pay interest thereon and Tax Additional Amounts, if any, in immediately available funds as specified on the other side of this Security. Payment of the principal of and interest on and Tax Additional Amounts, if any, with respect to this Global Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest and Tax Additional K-1

Amounts, if any, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer of immediately available funds to the accounts designated to the Holder of this Security. Reference is hereby made to the further provisions of this Global Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Global Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: TRANSOCEAN SEDCO FOREX INC. ------------------------------------- By: Name: Title: Attest: - ----------------------------- Assistant Secretary K-2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee ---------------------------------- Authorized Signature

[FORM OF REVERSE SIDE OF SECURITY] TRANSOCEAN SEDCO FOREX INC. 9.50% NOTE DUE DECEMBER 15, 2008 This Global Security is one of a duly authorized issue of senior securities of the Company (herein called the "Global Securities"), issued and to be issued in one or more series under the Indenture dated as of April 15, 1997, between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware corporation and a predecessor of the Company, and The Bank of New York, as the successor trustee to The Chase Manhattan Bank (formerly known as Texas Commerce Bank National Association) (the "Trustee"), as supplemented by the First Supplemental Indenture between Transocean-Delaware and the Trustee, dated as of April 15, 1997, the Second Supplemental Indenture among Transocean Offshore (Texas) Inc., a Texas corporation and a predecessor of the Company, the Company and the Trustee, dated as of May 14, 1999, the Third Supplemental Indenture between the Company and the Trustee, dated as of May 24, 2000 and the Fourth Supplemental Indenture between the Company and the Trustee, dated as of May 11, 2001 (such Indenture, as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, and Fourth Supplemental Indenture, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Global Security is one of the series designated on the face hereof, limited in aggregate principal amount to $300,000,000. INTEREST The rate at which this Global Security shall bear interest shall be 9.50% per annum. The date from which interest shall accrue for this Global Security shall be December 15, 2001. The Interest Payment Dates on which interest on this Global Security shall be payable are June 15 and December 15 of each year, commencing on June 15, 2002. The Regular Record Date for the interest payable on this Global Security on any Interest Payment Date shall be the June 1 or December 1, as the case may be, immediately preceding such interest payment date. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. OPTIONAL REDEMPTION The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date K-4

that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 50 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. K-5

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. TAX ADDITIONAL AMOUNTS The Company agrees that any amounts to be paid by the Company hereunder with respect to any Security shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Security with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as the case may be, in order that the amounts received by the Holder of the Security, after such deduction or withholding, shall equal the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as specified in such Securities to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Security (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Security or the collection of the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Security and the Indenture, or the enforcement of such Security or (B) where presentation is required, such Security was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of the respective amounts of principal, premium (if any), Redemption Price and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Security, if such compliance K-6

is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4); nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Security. TRANSFER As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Global Security is registrable in the Security Register, upon surrender of this Global Security for registration or transfer at the office or agency in a Place of Payment for Securities of this series, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of any authorized denominations and for the same aggregate principal amount, executed by the Company and authenticated and delivered by the Trustee, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations set forth therein and on the face of this Global Security, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Global Security for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may treat the Person in whose name this Global Security is registered as the owner hereof for all purposes, whether or not this Global Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. AMENDMENT, SUPPLEMENT AND WAIVER; LIMITATION ON SUITS The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to K-7

waive compliance by the Company with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Global Security shall be conclusive and binding upon such Holder and upon all future Holders of this Global Security and of any Global Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Security. Subject to the right of the Holder of any Securities of this series to receive payment of the principal thereof (and premium, if any) and interest thereon and any Tax Additional Amounts with respect thereto, no Holder of the Securities of this series shall have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless (1) an Event of Default with respect to the Securities of this series shall have occurred and be continuing and such Holder has previously given written notice to the Trustee of such continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of this series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under the Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, all unpaid principal plus accrued interest through the acceleration date of the K-8

Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. DEFEASANCE The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Global Security or certain restrictive covenants and Events of Default with respect to this Global Security, in each case upon compliance with certain conditions set forth in the Indenture. NO RECOURSE AGAINST OTHERS No recourse shall be had for the payment of the principal of or the interest, if any, on this Global Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or directory, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. INDENTURE TO CONTROL; GOVERNING LAW In the case of any conflict between the provisions of this Global Security and the Indenture, the provisions of the Indenture shall control. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. DEFINITIONS All terms defined in the Indenture and used in this Global Security but not specifically defined herein are used herein as so defined. K-9

                           TRANSOCEAN SEDCO FOREX INC.

                              OFFICERS' CERTIFICATE
                              ---------------------

     The  undersigned,  Eric B. Brown and William E. Turcotte, do hereby certify
that  they  are  the  duly  appointed  and acting Senior Vice President, General
Counsel  and  Corporate  Secretary  and  Associate General Counsel and Assistant
Secretary,  respectively,  of  Transocean  Sedco  Forex  Inc.,  a Cayman Islands
exempted  company  (the  "Company").  Each  of  the  undersigned  also  hereby
certifies,  pursuant  to Sections 103 and 301 of the Indenture dated as of April
15,  1997,  between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware
corporation  and  a predecessor of the Company, and The Bank of New York, as the
successor  trustee to The Chase Manhattan Bank (formerly known as Texas Commerce
Bank  National  Association)  (the  "Trustee"),  as  supplemented  by  the First
Supplemental  Indenture between Transocean-Delaware and the Trustee, dated as of
April  15,  1997,  the  Second  Supplemental Indenture among Transocean Offshore
(Texas)  Inc., a Texas corporation and a predecessor of the Company, the Company
and  the  Trustee,  dated  as  of May 14, 1999, the Third Supplemental Indenture
between  the  Company  and  the Trustee, dated as of May 24, 2000 and the Fourth
Supplemental  Indenture between the Company and the Trustee, dated as of May 11,
2001  (such  Indenture,  as  supplemented  by  the First Supplemental Indenture,
Second  Supplemental  Indenture,  Third  Supplemental  Indenture,  and  Fourth
Supplemental  Indenture,  the  "Indenture"),  that:

     A.   There is hereby established pursuant to resolutions duly adopted by
the  Board  of  Directors  of  the  Company on December 13, 2001 (a copy of such
resolutions  being attached hereto as Exhibit A) a series of Securities (as that
term  is  defined  in the Indenture) to be issued under the Indenture designated
7.375%  Notes  due  April  15,  2018  (the  "Notes").

     B.   The terms and form of the Notes shall be as set forth in Exhibit
B and Exhibit  C,  respectively.

     C.   Each of the undersigned has read the provisions of Section 301 and 303
of  the  Indenture  and  the  definitions  relating  thereto and the resolutions
adopted  by  the  Board  of  Directors  of the Company referred to above. In the
opinion  of  each  of  the  undersigned,  he  has  made  such  examination  or
investigation as is necessary to enable him to express an informed opinion as to
whether  or  not  all conditions precedent provided in the Indenture relating to
the  establishment,  authentication and delivery of the Notes have been complied
with.

     D.   In the opinion of each of the undersigned, all such conditions
precedent  have  been  complied  with.


                                        1

IN WITNESS WHEREOF, the undersigned have hereunto executed this Certificate as of March 19, 2002. /s/ ERIC B. BROWN -------------------------------------- Eric B. Brown Senior Vice President, General Counsel Corporate Secretary /s/ WILLIAM E. TURCOTTE -------------------------------------- William E. Turcotte Associate General Counsel and Assistant Secretary 2

EXHIBIT B TRANSOCEAN SEDCO FOREX INC. 7.375% NOTES DUE APRIL 15, 2018 The title of the Securities of the series shall be "7.375% Notes due April 15, 2018" (the "Notes"). 1. The limit upon the aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 304, 305, 306, 906 or 1107 of the Indenture) is $250,000,000. 2. Interest on the Notes shall be payable to the persons in whose name the Notes are registered at the close of business on the Regular Record Date (as defined in the Indenture) for such interest payment. 3. The date on which the principal of the Notes is payable, unless accelerated pursuant to the Indenture, shall be April 15, 2018. 4. The rate at which each of the Notes shall bear interest shall be 7.375% per annum. The date from which interest shall accrue for each of the Notes shall be October 15, 2001. The Interest Payment Dates on which interest on the Notes shall be payable are April 15 and October 15, commencing on April 15, 2002. The Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. 5. The place or places where the principal of and interest on the Notes shall be payable, the Notes may be surrendered for registration of transfer, the Notes may be surrendered for exchange and notices may be given to the Company in respect of the Notes is at the office of the Trustee in New York, New York and at the agency of the Trustee maintained for that purpose at the office of the Trustee; provided that payment of interest may be made at the option of the Company by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register (as defined in the Indenture) or by wire transfer of immediately available funds to the accounts specified by the Holder (as defined in the Indenture) of such Notes. 6. The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). B-1

The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 25 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. B-2

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. 7. Additional Amounts (as defined in the Indenture) with respect to the Notes shall be payable in accordance with the Indenture and the provisions of this paragraph 8. The Company agrees that any amounts to be paid by the Company hereunder with respect to any Note shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Note with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as the case may be, in order that the amounts received by the Holder of the Note, after such deduction or withholding, shall equal the respective amounts of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Notes and the Indenture, as specified in such Notes to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Note (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Note or the collection of principal amount, premium (if any), Redemption Price, and interest (if any), in accordance with the terms of the Note and the Indenture, or the enforcement of such Note or (B) where presentation is required, such Note was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of principal amount, premium (if any), Redemption Price, and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Note, if such compliance is B-3

required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4). nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Note to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Note. 8. The Notes shall be in fully registered form without coupons in denominations of $1,000 of principal amount thereof or any integral multiple thereof. 9. Section 403 of the Indenture shall be applicable to the Notes. 10. The Notes will initially be issued in permanent global form, substantially in the form set forth in Exhibit C to the Officers' Certificate to which this Exhibit is attached (the "Global Securities"), as a Book-Entry Security. Each Global Security shall represent such of the Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of Notes from time to time endorsed thereon and that the aggregate amount of Notes represented thereby may from time to time be reduced to reflect exchanges and redemptions. Any endorsement of a Note to reflect the amount, or any increase or decrease in the amount, of Notes represented thereby shall be made by the Trustee in accordance with written instructions or such other written form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having the beneficial interest in the Global Security. 11. The Company initially appoints the Trustee to act as Paying Agent with respect to the Notes. B-4

EXHIBIT C [FORM OF GLOBAL SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. 7.375% NOTE DUE APRIL 15, 2018 TRANSOCEAN SEDCO FOREX INC. Issue Date: _______ ___, 2002 Maturity: April 15, 2018 Principal Amount: $___________ CUSIP: Registered: No. R- Transocean Sedco Forex Inc., a Cayman Islands exempted company limited by shares (herein called the "Company", which term includes any successor corporation under the indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ($ ) on April 15, 2018 and to pay interest thereon and Tax Additional Amounts, if any, in immediately available funds as specified on the other side of this Security. Payment of the principal of and interest on and Tax Additional Amounts, if any, with respect to this Global Security will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest and Tax Additional C-1

Amounts, if any, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer of immediately available funds to the accounts designated to the Holder of this Security. Reference is hereby made to the further provisions of this Global Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Global Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: TRANSOCEAN SEDCO FOREX INC. --------------------------------- By: Name: Title: Attest: - ---------------------------- Assistant Secretary C-2

TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee --------------------------------- Authorized Signature C-3

[FORM OF REVERSE SIDE OF SECURITY] TRANSOCEAN SEDCO FOREX INC. 7.375% NOTE DUE APRIL 15, 2018 This Global Security is one of a duly authorized issue of senior securities of the Company (herein called the "Global Securities"), issued and to be issued in one or more series under the Indenture dated as of April 15, 1997, between Transocean Offshore Inc. ("Transocean-Delaware"), a Delaware corporation and a predecessor of the Company, and The Bank of New York, as the successor trustee to The Chase Manhattan Bank (formerly known as Texas Commerce Bank National Association) (the "Trustee"), as supplemented by the First Supplemental Indenture between Transocean-Delaware and the Trustee, dated as of April 15, 1997, the Second Supplemental Indenture among Transocean Offshore (Texas) Inc., a Texas corporation and a predecessor of the Company, the Company and the Trustee, dated as of May 14, 1999, the Third Supplemental Indenture between the Company and the Trustee, dated as of May 24, 2000 and the Fourth Supplemental Indenture between the Company and the Trustee, dated as of May 11, 2001 (such Indenture, as supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture, and Fourth Supplemental Indenture, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Global Security is one of the series designated on the face hereof, limited in aggregate principal amount to $250,000,000. INTEREST The rate at which this Global Security shall bear interest shall be 7.375% per annum. The date from which interest shall accrue for this Global Security shall be October 15, 2001. The Interest Payment Dates on which interest on this Global Security shall be payable are April 15 and October 15 of each year, commencing on April 15, 2002. The Regular Record Date for the interest payable on this Global Security on any Interest Payment Date shall be the April 1 or October 1, as the case may be, immediately preceding such interest payment date. Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. OPTIONAL REDEMPTION The Notes are redeemable, at the option of the Company, at any time in whole or from time to time in part upon not less than 30 and not more than 60 days' notice mailed to each Holder of Notes at the Holder's address appearing in the Security Register, on any date fixed by the Company prior to maturity (the "Redemption Date") at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date C-4

that is on or prior to the Redemption Date) plus the make-whole premium applicable to the Notes (the "Redemption Price"). The amount of the make-whole premium with respect to a Note (or portion thereof) will be equal to the excess, if any, of (1) the sum of the present values, calculated as of the Redemption Date, of each interest payment that, but for such redemption, would have been payable on the Note (or portion thereof) on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date), and the principal amount that, but for such redemption, would have been payable at the final maturity of the Note (or portion thereof), over (2) the principal amount of such Note (or portion thereof). The present values of interest and principal payments referred to in clause (1) of the paragraph above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the U.S. Treasury Yield (as defined below) plus 25 basis points. The make-whole premium will be calculated by an independent investment banking institution of national standing appointed by the Company. If the Company fails to appoint such an institution at least 45 business days prior to the Redemption Date, or if the institution appointed is unwilling or unable to make such calculation, such calculation will be made by an independent investment banking institution of national standing appointed by the Trustee (in any such case, an "Independent Investment Banker"). "U.S. Treasury Yield" means an annual rate of interest equal to the weekly average yield to maturity of U.S. Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Notes, calculated to the nearest 1/12th of a year (the "Remaining Term"). The U.S. Treasury Yield will be determined as of the third business day immediately preceding the Redemption Date. The weekly average yields of U.S. Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for U.S. Treasury Notes having a constant maturity that is the same as the Remaining Term, then the U.S. Treasury Yield will be equal to such weekly average yield. In all other cases, the U.S. Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the U.S. Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the U.S. Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100th of 1%, with any figure of 1/200 of 1% or above being rounded upward. If weekly average yields for U.S. Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the U.S. Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. C-5

If less than all of the Notes are to be redeemed, the Trustee will select the Notes to be redeemed by such method as the Trustee deems fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $1,000 or integral multiples thereof. The Notes are not entitled to the benefit of any sinking fund or other mandatory redemption provisions. TAX ADDITIONAL AMOUNTS The Company agrees that any amounts to be paid by the Company hereunder with respect to any Security shall be paid without deduction or withholding for any and all present and future withholding taxes, levies, imposts and charges whatsoever imposed by or for the account of the Cayman Islands or any political subdivision or taxing authority thereof or therein, or if deduction or withholding of any such taxes, levies, imposts or charges shall at any time be required by the Cayman Islands or any such subdivision or authority thereof or therein, the Company will (subject to compliance by the Holder of such Security with any relevant administrative requirements) pay such additional amounts ("Tax Additional Amounts") in respect of principal amount, premiums (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as the case may be, in order that the amounts received by the Holder of the Security, after such deduction or withholding, shall equal the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Securities and the Indenture, as specified in such Securities to which such Holder is entitled; provided, however, that the foregoing shall not apply to: (1) any such tax, levy, impost or charge which would not be payable or due but for the fact that (A) the Holder of a Security (or a fiduciary, settlor, beneficiary of, member or shareholder of, such Holder, if such Holder is an estate, trust, partnership or corporation) is a domiciliary, national or resident of, or engaging in business or maintaining a permanent establishment or being physically present in, the Cayman Islands or such political subdivision or otherwise having some present or former connection with the Cayman Islands other than the holding or ownership of such Security or the collection of the respective amounts of principal, premium (if any), Redemption Price and interest (if any), in accordance with the terms of the Security and the Indenture, or the enforcement of such Security or (B) where presentation is required, such Security was presented more than 30 days after the date such payment became due or was provided for, whichever is later; (2) any estate, inheritance, gift, sales, transfer, excise, personal property or similar tax, levy, impost or charge; (3) any tax, levy, impost or charge which is payable otherwise than by withholding from payment of the respective amounts of principal, premium (if any), Redemption Price and interest (if any); (4) any tax, levy, impost or charge which would not have been imposed but for the failure to comply upon the Company's request with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the relevant tax authority of the Holder or beneficial owner of such Security, if such compliance C-6

is required by statute or by regulation as a precondition to relief or exemption from such tax, levy, impost or charge; or (5) any combination of (1) through (4); nor shall any Tax Additional Amounts be paid to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent that a beneficiary or settlor with respect to such fiduciary, or a member of such partnership or a beneficial owner thereof, would not have been entitled to the payment of such Tax Additional Amounts had such beneficiary, settlor, member or beneficial owner been the Holder of the Security. TRANSFER As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Global Security is registrable in the Security Register, upon surrender of this Global Security for registration or transfer at the office or agency in a Place of Payment for Securities of this series, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of any authorized denominations and for the same aggregate principal amount, executed by the Company and authenticated and delivered by the Trustee, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations set forth therein and on the face of this Global Security, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Global Security for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may treat the Person in whose name this Global Security is registered as the owner hereof for all purposes, whether or not this Global Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. AMENDMENT, SUPPLEMENT AND WAIVER; LIMITATION ON SUITS The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to C-7

waive compliance by the Company with certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Global Security shall be conclusive and binding upon such Holder and upon all future Holders of this Global Security and of any Global Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Security. Subject to the right of the Holder of any Securities of this series to receive payment of the principal thereof (and premium, if any) and interest thereon and any Tax Additional Amounts with respect thereto, no Holder of the Securities of this series shall have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless (1) an Event of Default with respect to the Securities of this series shall have occurred and be continuing and such Holder has previously given written notice to the Trustee of such continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of this series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under the Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SUCCESSOR CORPORATION When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, all unpaid principal plus accrued interest through the acceleration date of the C-8

Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. DEFEASANCE The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Global Security or certain restrictive covenants and Events of Default with respect to this Global Security, in each case upon compliance with certain conditions set forth in the Indenture. NO RECOURSE AGAINST OTHERS No recourse shall be had for the payment of the principal of or the interest, if any, on this Global Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or directory, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment of penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. INDENTURE TO CONTROL; GOVERNING LAW In the case of any conflict between the provisions of this Global Security and the Indenture, the provisions of the Indenture shall control. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. DEFINITIONS All terms defined in the Indenture and used in this Global Security but not specifically defined herein are used herein as so defined. C-9


                             R&B Falcon Corporation


                                    as Issuer


                                  $239,500,000

                           6.50% Senior Notes due 2003

                                  $350,000,000

                           6.75% Senior Notes due 2005

                                  $250,000,000

                           6.95% Senior Notes due 2008


                          First Supplemental Indenture


                          Dated as of February 14, 2002

                     To Indenture dated as of April 14, 1998


                              The Bank of New York

                                   as Trustee


FIRST SUPPLEMENTAL INDENTURE, dated as of February 14, 2002 (this "Supplemental Indenture"), between R&B Falcon Corporation, a Delaware corporation (the "Issuer"), and The Bank of New York, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and The Chase Manhattan Bank, as a predecessor to the Trustee, executed and delivered an Indenture, dated as of April 14, 1998 (the "Indenture"), providing for the issuance of $250,000,000 principal amount of 6.50% Notes due 2003, $350,000,000 principal amount of 6.75% Notes due 2005, $250,000,000 principal amount of 6.95% Notes due 2008 and $250,000,000 principal amount of 7.375% Notes due 2018; all capitalized terms used herein and not defined are used herein as defined in the Indenture; WHEREAS, pursuant to Section 8.02 of the Indenture, the Issuer and the Trustee may amend or supplement the Indenture with respect to the Securities of any series with the written consent of the Holders of a majority in aggregate principal amount of the outstanding Securities of such series; WHEREAS, Transocean Sedco Forex Inc., a Cayman Islands company ("Transocean Sedco Forex"), has offered to exchange all of the outstanding Securities of each series, upon the terms and subject to the conditions set forth in its Prospectus and Consent Solicitation Statement, dated January 31, 2002, and in the related Letter of Transmittal and Consent (each such offer, an "Exchange Offer"); in connection therewith Transocean Sedco Forex has been soliciting written consents of the Holders to the amendments to the Indenture set forth herein (and to the execution of this Supplemental Indenture), and Transocean Sedco Forex has now obtained such written consents from the Holders of a majority in aggregate principal amount of the outstanding Securities of the following series: 6.50% Notes due 2003, 6.75% Notes due 2005 and 6.95% Notes due 2008 (the "Applicable Series"); accordingly, this Supplemental Indenture and the amendments set forth herein are authorized with respect to such Applicable Series pursuant to Section 8.02 of the Indenture referred to above; WHEREAS, the execution and delivery of this Supplemental Indenture has been duly authorized by the parties hereto, and all other acts necessary to make this Supplemental Indenture a valid and binding supplement to the Indenture effectively amending the Indenture as set forth herein have been duly taken; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration of the above premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities of the Applicable Series, as follows: Section 1. Amendments to the Indenture. ------------------------------ Upon consummation of the exchange by Transocean Sedco Forex of all Securities of any Applicable Series validly tendered pursuant to the applicable Exchange Offer and not withdrawn prior to the expiration date for such Exchange Offer (as notified to the Trustee by Transocean Sedco Forex upon which notification the Trustee may rely), then automatically (without further act by any person) with respect to the Securities of such Applicable Series: (a) Sections 3.03, 3.05, 3.06, 3.07, 3.09, 3.10, 4.01 and 4.02 of the Indenture shall be deleted and the Issuer shall be released from its obligations thereunder, (b) any failure by the Issuer to comply with the terms of any of the foregoing Sections of the Indenture (whether before or after the execution of this Supplemental Indenture) shall no longer constitute a default or an Event of Default under the Indenture and shall no longer have any other consequence under the Indenture and (c) Clauses (4), (5), (6) and (7) of Section 5.01 of the Indenture shall be deleted and the events described therein no longer constitute Events of Default under the Indenture. In conjunction with the amendments identified in the immediately preceding sentence, the following defined terms used in the Indenture shall be deleted with respect to the Securities of such Applicable Series: "Attributable Indebtedness"; "Consolidated Net Worth"; "Indebtedness"; and "Sale/Leaseback Transactions". Section 2. Ratification. ------------ Except as hereby expressly amended, the Indenture is in all respects ratified and confirmed and all the terms, provisions and conditions thereof shall be and remain in full force and effect.

Section 3. Governing Law. -------------- THIS SUPPLEMENTAL INDENTURE, THE INDENTURE AS SUPPLEMENTED AND AMENDED HEREBY AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 4. Counterpart Originals. ---------------------- The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Supplemental Indenture. Section 5. The Trustee. ------------ The recitals in this Supplemental Indenture shall be taken as the statements of the Issuer and the Trustee assumes no responsibility for their correctness. The Trustee shall be responsible or accountable in any manner whatsoever for or with respect to the validly or sufficiency of this Supplemental Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first written above. R&B Falcon Corporation By: /s/ GREGORY L. CAUTHEN ------------------------------------ Name: Gregory L. Cauthen Title: Vice President and Treasurer The Bank of New York, as Trustee By: /s/ REMO J. REALE ------------------------------------ Name: Remo J. Reale Title: Vice President

                             R&B Falcon Corporation


                                    as Issuer


                                  $250,000,000

                          7.375% Senior Notes due 2018


                          Second Supplemental Indenture


                           Dated as of March 13, 2002

                     To Indenture dated as of April 14, 1998


                              The Bank of New York

                                   as Trustee


SECOND SUPPLEMENTAL INDENTURE, dated as of March 13, 2002 (this "Supplemental Indenture"), between R&B Falcon Corporation, a Delaware corporation (the "Issuer"), and The Bank of New York, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and The Chase Manhattan Bank, as a predecessor to the Trustee, executed and delivered an Indenture, dated as of April 14, 1998 (the "Indenture"), providing for the issuance of $250,000,000 principal amount of 6.50% Notes due 2003, $350,000,000 principal amount of 6.75% Notes due 2005, $250,000,000 principal amount of 6.95% Notes due 2008 and $250,000,000 principal amount of 7.375% Notes due 2018, as supplemented by the First Supplemental Indenture thereto dated as of February 14, 2002; all capitalized terms used herein and not defined are used herein as defined in the Indenture; WHEREAS, pursuant to Section 8.02 of the Indenture, the Issuer and the Trustee may amend or supplement the Indenture with respect to the Securities of any series with the written consent of the Holders of a majority in aggregate principal amount of the outstanding Securities of such series; WHEREAS, Transocean Sedco Forex Inc., a Cayman Islands company ("Transocean Sedco Forex"), has offered to exchange all of the outstanding 7.375% Notes due 2018 (the "7.375% Notes"), upon the terms and subject to the conditions set forth in its Prospectus and Consent Solicitation Statement, dated January 31, 2002, as amended by a Supplement dated March 4, 2002, and in the related Letter of Transmittal and Consent (the "Exchange Offer"); in connection therewith Transocean Sedco Forex has been soliciting written consents of the Holders to the amendments to the Indenture set forth herein (and to the execution of this Supplemental Indenture), and Transocean Sedco Forex has now obtained such written consents from the Holders of a majority in aggregate principal amount of the outstanding 7.375% Notes; accordingly, this Supplemental Indenture and the amendments set forth herein are authorized with respect to the 7.375% Notes pursuant to Section 8.02 of the Indenture referred to above; WHEREAS, the execution and delivery of this Supplemental Indenture has been duly authorized by the parties hereto, and all other acts necessary to make this Supplemental Indenture a valid and binding supplement to the Indenture effectively amending the Indenture as set forth herein have been duly taken; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration of the above premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the 7.375% Notes, as follows: Section 1. Amendments to the Indenture. ------------------------------ Upon consummation of the exchange by Transocean Sedco Forex of all 7.375% Notes validly tendered pursuant to the Exchange Offer and not withdrawn prior to the expiration date for the Exchange Offer (as notified to the Trustee by Transocean Sedco Forex upon which notification the Trustee may rely), then automatically (without further act by any person) with respect to the 7.375% Notes: (a) Sections 3.03, 3.05, 3.06, 3.07, 3.09, 3.10, 4.01 and 4.02 of the Indenture shall be deleted and the Issuer shall be released from its obligations thereunder, (b) any failure by the Issuer to comply with the terms of any of the foregoing Sections of the Indenture (whether before or after the execution of this Supplemental Indenture) shall no longer constitute a default or an Event of Default under the Indenture and shall no longer have any other consequence under the Indenture and (c) Clauses (4), (5), (6) and (7) of Section 5.01 of the Indenture shall be deleted and the events described therein no longer constitute Events of Default under the Indenture. In conjunction with the amendments identified in the immediately preceding sentence, the following defined terms used in the Indenture shall be deleted with respect to the 7.375% Notes: "Attributable Indebtedness"; "Consolidated Net Worth"; "Indebtedness"; and "Sale/Leaseback Transactions". Section 2. Ratification. ------------ Except as hereby expressly amended, the Indenture is in all respects ratified and confirmed and all the terms, provisions and conditions thereof shall be and remain in full force and effect. Section 3. Governing Law. -------------- THIS SUPPLEMENTAL INDENTURE, THE INDENTURE AS SUPPLEMENTED AND AMENDED HEREBY AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 4. Counterpart Originals. ---------------------- The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Supplemental Indenture. Section 5. The Trustee. ------------ The recitals in this Supplemental Indenture shall be taken as the statements of the Issuer and the Trustee assumes no responsibility for their correctness. The Trustee shall be responsible or accountable in any manner whatsoever for or with respect to the validly or sufficiency of this Supplemental Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first written above. R&B Falcon Corporation By: /s/ GREGORY L. CAUTHEN ------------------------------------ Name: Gregory L. Cauthen Title: Vice President and Treasurer The Bank of New York, as Trustee By: /s/ REMO J. REALE ------------------------------------ Name: Remo J. Reale Title: Vice President


                             R&B Falcon Corporation


                                    as Issuer


                                   $87,112,000

                          9.125% Senior Notes due 2003

                                  $300,000,000

                           9.50% Senior Notes due 2008


                          First Supplemental Indenture


                          Dated as of February 14, 2002

                   To Indenture dated as of December 22, 1998


                              The Bank of New York

                                   as Trustee


FIRST SUPPLEMENTAL INDENTURE, dated as of February 14, 2002 (this "Supplemental Indenture"), between R&B Falcon Corporation, a Delaware corporation (the "Issuer"), and The Bank of New York, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and The Chase Manhattan Bank, National Association, as a predecessor to the Trustee, executed and delivered an Indenture, dated as of December 22, 1998 (the "Indenture"), providing for the issuance of $100,000,000 principal amount of 9.125% Notes due 2003 and $300,000,000 principal amount of 9.50% Notes due 2008; all capitalized terms used herein and not defined are used herein as defined in the Indenture; WHEREAS, pursuant to Section 8.02 of the Indenture, the Issuer and the Trustee may amend or supplement the Indenture with respect to the Securities of any series with the written consent of the Holders of a majority in aggregate principal amount of the outstanding Securities of such series; WHEREAS, Transocean Sedco Forex Inc., a Cayman Islands company ("Transocean Sedco Forex"), has offered to exchange all of the outstanding Securities of each series, upon the terms and subject to the conditions set forth in its Prospectus and Consent Solicitation Statement, dated January 31, 2002, and in the related Letter of Transmittal and Consent (each such offer, an "Exchange Offer"); in connection therewith Transocean Sedco Forex has been soliciting written consents of the Holders to the amendments to the Indenture set forth herein (and to the execution of this Supplemental Indenture), and Transocean Sedco Forex has now obtained such written consents from the Holders of a majority in aggregate principal amount of the outstanding Securities of each series; accordingly, this Supplemental Indenture and the amendments set forth herein are authorized pursuant to Section 8.02 of the Indenture referred to above; WHEREAS, the execution and delivery of this Supplemental Indenture has been duly authorized by the parties hereto, and all other acts necessary to make this Supplemental Indenture a valid and binding supplement to the Indenture effectively amending the Indenture as set forth herein have been duly taken; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration of the above premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: Section 1. Amendments to the Indenture. ------------------------------ Upon consummation of the exchange by Transocean Sedco Forex of all Securities of a series validly tendered pursuant to the applicable Exchange Offer and not withdrawn prior to the expiration date for such Exchange Offer (as notified to the Trustee by Transocean Sedco Forex, upon which notification the Trustee may rely), then automatically (without further act by any person) with respect to the Securities of such series: (a) Sections 3.03, 3.05, 3.06, 3.07, 3.09, 3.10, 3.11, 3.12, 3.13, 4.01 and 4.02 of the Indenture shall be deleted and the Issuer shall be released from its obligations thereunder, (b) any failure by the Issuer to comply with the terms of any of the foregoing Sections of the Indenture (whether before or after the execution of this Supplemental Indenture) shall no longer constitute a default or an Event of Default under the Indenture and shall no longer have any other consequence under the Indenture and (c) Clauses (4), (5), (6) and (7) of Section 5.01 of the Indenture shall be deleted and the events described therein no longer constitute Events of Default under the Indenture. In conjunction with the amendments identified in the immediately preceding sentence, the following defined terms used in the Indenture shall be deleted: "Attributable Indebtedness"; "Consolidated EBITDA Coverage Ratio"; "Consolidated Net Income"; "Consolidated Net Worth"; "Hedging Obligations"; "Incurrence"; "Indebtedness"; "Restricted Subsidiary"; "Sale/Leaseback Transactions"; and "Suspended Covenants". Section 2. Ratification. ------------ Except as hereby expressly amended, the Indenture is in all respects ratified and confirmed and all the terms, provisions and conditions thereof shall be and remain in full force and effect.

Section 3. Governing Law. -------------- THIS SUPPLEMENTAL INDENTURE, THE INDENTURE AS SUPPLEMENTED AND AMENDED HEREBY AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 4. Counterpart Originals. ---------------------- The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Supplemental Indenture. Section 5. The Trustee. ------------ The recitals in this Supplemental Indenture shall be taken as the statements of the Issuer and the Trustee assumes no responsibility for their correctness. The Trustee shall be responsible or accountable in any manner whatsoever for or with respect to the validly or sufficiency of this Supplemental Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first written above. R&B Falcon Corporation By: /s/ GREGORY L. CAUTHEN ------------------------------------ Name: Gregory L. Cauthen Title: Vice President and Treasurer The Bank of New York, as Trustee By: /s/ REMO J. REALE ------------------------------------ Name: Remo J. Reale Title: Vice President

================================================================================

                            364-DAY CREDIT AGREEMENT

                                   DATED AS OF

                                DECEMBER 27, 2001

                                      AMONG

                          TRANSOCEAN SEDCO FOREX INC.,

                           THE LENDERS PARTIES HERETO,

                                 SUNTRUST BANK,
                            AS ADMINISTRATIVE AGENT,

             ABN AMRO BANK, N.V. AND THE ROYAL BANK OF SCOTLAND PLC,
                            AS CO-SYNDICATION AGENTS,

                            BANK OF AMERICA, N.A. AND
                  WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION,
                           AS CO-DOCUMENTATION AGENTS,

                                       AND

            THE BANK OF NOVA SCOTIA, CREDIT LYONNAIS NEW YORK BRANCH,
            HSBC BANK USA, AND WESTDEUTSCHE LANDESBANK GIROZENTRALE,
                                NEW YORK BRANCH,
                               AS MANAGING AGENTS

                   SUNTRUST ROBINSON HUMPHREY CAPITAL MARKETS,
                  A DIVISION OF SUNTRUST CAPITAL MARKETS, INC.,
                        AS LEAD ARRANGER AND BOOK RUNNER


================================================================================


364-DAY CREDIT AGREEMENT ------------------------ THIS 364-DAY CREDIT AGREEMENT (the "Agreement"), dated as of December 27, 2001, among TRANSOCEAN SEDCO FOREX INC. (the "Borrower"), a Cayman Islands company, the lenders from time to time parties hereto (each a "Lender" and collectively, the "Lenders"), SUNTRUST BANK, a Georgia banking corporation ("STB"), as administrative agent for the Lenders (in such capacities, the "Administrative Agent"), ABN AMRO BANK, N.V. and THE ROYAL BANK OF SCOTLAND plc, as co-syndication agents for the Lenders (in such capacities, the "Co-Syndication Agents"), BANK OF AMERICA, N.A. and WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, as co-documentation agents for the Lenders (in such capacities, the "Co-Documentation Agents"), THE BANK OF NOVA SCOTIA, CREDIT LYONNAIS NEW YORK BRANCH, HSBC BANK USA, and WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as managing agents for the Lenders (in such capacities, the "Managing Agents"), and STB, as issuing bank of the Letters of Credit hereunder (STB and any other Lender that issues a Letter of Credit hereunder, in such capacity, an "Issuing Bank"). WITNESSETH: WHEREAS, the Borrower has requested that the Lenders establish in its favor a 364-day revolving credit facility in the aggregate principal amount of U.S. $250,000,000, pursuant to which facility revolving loans would be made to, and letters of credit would be issued for the account of, the Borrower; WHEREAS, the Borrower has further requested that, at its option, revolving loans outstanding at the end of the initial revolving credit facility period up to an aggregate principal amount of $125,000,000 be converted to term loans maturing one year after the date of such conversion; WHEREAS, the Lenders are willing to make such credit facilities available to the Borrower on the terms and subject to the conditions and requirements hereinafter set forth; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS; INTERPRETATION. Section 1.1. Definitions. Unless otherwise defined herein, the ----------- following terms shall have the following meanings, which meanings shall be equally applicable to both the singular and plural forms of such terms: "Adjusted LIBOR" means, for any Borrowing of Eurocurrency Revolving Loans or Eurocurrency Term Loans for any Interest Period, a rate per annum determined in accordance with the following formula: Adjusted LIBOR = LIBOR Rate for such Interest Period ---------------------------------------- 1.00 - Statutory Reserve Rate

"Adjusted LIBOR Loan" means a Eurocurrency Revolving Loan or Eurocurrency Term Loan bearing interest at a rate based on Adjusted LIBOR as provided in Section 2.8(b). "Administrative Agent" means SunTrust Bank, acting in its capacity as administrative agent for the Lenders, and any successor Administrative Agent appointed hereunder pursuant to Section 9.7. "Agreement" means this 364-Day Credit Agreement, as the same may be amended, restated and supplemented from time to time. "Applicable Facility Fee Rate" means for any day, at such times as a debt rating (either express or implied) by S&P or Moody's (or in the event that both cease the issuance of debt ratings generally, such other ratings agency agreed to by the Borrower and the Administrative Agent) is in effect on the Borrower's non-credit enhanced senior unsecured long-term debt, the percentage per annum set forth opposite such debt rating: Debt Rating Percentage ----------- ---------- A+/A1 or above 0.060% A/A2 0.070% A-/A3 0.080% BBB+/Baa1 0.100% BBB/Baa2 0.125% BBB-/Baa3 or below 0.175% If the ratings issued by S&P and Moody's differ (i) by one rating, the higher rating shall apply to determine the Applicable Facility Fee Rate, (ii) by two ratings, the rating which falls between them shall apply to determine the Applicable Facility Fee Rate, or (iii) by more than two ratings, the rating immediately above the lower of the two ratings shall apply to determine the Applicable Facility Fee Rate. The Borrower shall give written notice to the Administrative Agent of any changes to such ratings, within three (3) Business Days thereof, and any change to the Applicable Facility Fee Rate shall be effective on the date of the relevant change. Notwithstanding the foregoing, (i) the Applicable Facility Fee Rate in effect at all times during the first six months after the Initial Availability Date shall in no event be less than a percentage per annum equal to 0.100%, and (ii) if the Borrower shall at any time fail to have in effect such a debt rating on the Borrower's non-credit enhanced senior unsecured long-term debt, the Borrower shall seek and obtain (if not already in effect), within thirty (30) days after such debt rating first ceases to be in effect, a corporate credit rating or a bank loan rating from Moody's or S&P, or both, and the Applicable Facility Fee Rate shall thereafter be based on such ratings in 2

the same manner as provided herein with respect to the Borrower's senior unsecured long-term debt rating (with the Applicable Facility Fee Rate in effect prior to the issuance of such corporate credit rating or bank loan rating being the same as the Applicable Facility Fee Rate in effect at the time the senior unsecured long-term debt rating ceases to be in effect). "Applicable Margin" means, for any day, at such times as a debt rating (either express or implied) by S&P or Moody's (or in the event that both cease the issuance of debt ratings generally, such other ratings agency agreed to by the Borrower and the Administrative Agent) is in effect on the Borrower's non-credit enhanced senior unsecured long-term debt, the percentage per annum set forth opposite such debt rating: Debt Rating Percentage ----------- ---------- A+/A1 or above 0.190% A/A2 0.230% A-/A3 0.320% BBB+/Baa1 0.475% BBB/Baa2 0.600% BBB-/Baa3 or below 0.725% If the ratings issued by S&P and Moody's differ (i) by one rating, the higher rating shall apply to determine the Applicable Margin, (ii) by two ratings, the rating which falls between them shall apply to determine the Applicable Margin, or (iii) by more than two ratings, the rating immediately above the lower of the two ratings shall apply to determine the Applicable Margin. The Borrower shall give written notice to the Administrative Agent of any changes to such ratings, within three (3) Business Days thereof, and any change to the Applicable Margin shall be effective on the date of the relevant change. Notwithstanding the foregoing, (i) the Applicable Margin in effect at all times during the first six months after the Initial Availability Date shall in no event be less than a percentage per annum equal to 0.475%, and (ii) if the Borrower shall at any time fail to have in effect such a debt rating on the Borrower's non-credit enhanced senior unsecured long-term debt, the Borrower shall seek and obtain (if not already in effect), within thirty (30) days after such debt rating first ceases to be in effect, a corporate credit rating or a bank loan rating from Moody's or S&P, or both, and the Applicable Margin shall thereafter be based on such ratings in the same manner as provided herein with respect to the Borrower's senior unsecured long-term debt rating (with the Applicable Margin in effect prior to the issuance of such corporate credit rating or bank loan rating being the same as the Applicable Margin in effect at the time the senior unsecured long-term debt rating ceases to be in effect). "Applicable Utilization Fee Rate" means for any day, at such times as a debt rating (either express or implied) by S&P or Moody's (or in the event that both cease the issuance of debt ratings generally, such other ratings agency agreed to by the Borrower and the 3

Administrative Agent) is in effect on the Borrower's non-credit enhanced senior unsecured long-term debt, the percentage per annum set forth opposite such debt rating: Debt Rating Percentage ----------- ---------- A+/A1 or above 0.075% A/A2 0.100% A-/A3 0.100% BBB+/Baa1 0.125% BBB/Baa2 0.125% BBB-/Baa3 or below 0.150% If the ratings issued by S&P and Moody's differ (i) by one rating, the higher rating shall apply to determine the Applicable Utilization Fee Rate, (ii) by two ratings, the rating which falls between them shall apply to determine the Applicable Utilization Fee Rate, or (iii) by more than two ratings, the rating immediately above the lower of the two ratings shall apply to determine the Applicable Utilization Fee Rate. The Borrower shall give written notice to the Administrative Agent of any changes to such ratings, within three (3) Business Days thereof, and any change to the Applicable Utilization Fee Rate shall be effective on the date of the relevant change. Notwithstanding the foregoing, (i) the Applicable Utilization Fee Rate in effect at all times during the first six months after the Initial Availability Date shall in no event be less than a percentage per annum equal to 0.125%, and (ii) if the Borrower shall at any time fail to have in effect such a debt rating on the Borrower's non-credit enhanced senior unsecured long-term debt, the Borrower shall seek and obtain (if not already in effect), within thirty (30) days after such debt rating first ceases to be in effect, a corporate credit rating or a bank loan rating from Moody's or S&P, or both, and the Applicable Utilization Fee Rate shall thereafter be based on such ratings in the same manner as provided herein with respect to the Borrower's senior unsecured long-term debt rating (with the Applicable Utilization Fee Rate in effect prior to the issuance of such corporate credit rating or bank loan rating being the same as the Applicable Utilization Fee Rate in effect at the time the senior unsecured long-term debt rating ceases to be in effect). "Application" means an application for a Letter of Credit as defined in Section 2.14(b). "Assignment Agreement" means an agreement in substantially the form of Exhibit 10.10 whereby a Lender conveys part or all of its Commitment, Loans and - -------------- participations in Letters of Credit to another Person that is, or thereupon becomes, a Lender, or increases its Commitments, outstanding Loans and outstanding participations in Letters of Credit, pursuant to Section 10.10. "Base Rate" means for any day the greater of: 4

(i) the fluctuating commercial loan rate announced by the Administrative Agent from time to time at its Atlanta, Georgia office (or other corresponding office, in the case of any successor Administrative Agent) as its prime rate or base rate for U.S. Dollar loans in the United States of America in effect on such day (which base rate may not be the lowest rate charged by such Lender on loans to any of its customers), with any change in the Base Rate resulting from a change in such announced rate to be effective on the date of the relevant change; and (ii) the sum of (x) the rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the next Business Day, provided that (A) if such day is not a Business Day, the rate on such transactions on the immediately preceding Business Day as so published on the next Business Day shall apply, and (B) if no such rate is published on such next Business Day, the rate for such day shall be the average of the offered rates quoted to the Administrative Agent by two (2) federal funds brokers of recognized standing on such day for such transactions as selected by the Administrative Agent, plus (y) a percentage per annum equal to one-half of one percent (1/2%) per annum. "Base Rate Loan" means a Revolving Loan or Term Loan bearing interest prior to maturity at the rate specified in Section 2.8(a). "Borrower" means Transocean Sedco Forex Inc., a company organized under the laws of the Cayman Islands, and its successors. "Borrowing" means any extension of credit of the same Type made by the Lenders on the same date by way of Revolving Loans, a Competitive Loan or group of Competitive Loans having a single Interest Period, a Letter of Credit, or, if the Borrower exercises the Term Loan Option, the Term Loans, including any Borrowing advanced, continued or converted. A Borrowing is "advanced" on the day the Lenders advance funds comprising such Borrowing to the Borrower or a Letter of Credit is issued, increased or extended, is "continued" (in the case of Eurocurrency Revolving Loans or Eurocurrency Term Loans) on the date a new Interest Period commences for such Borrowing, and is "converted" (in the case of Eurocurrency Revolving Loans or Eurocurrency Term Loans) when such Borrowing is changed from one Type of Loan to the other, all as requested by the Borrower pursuant to Section 2.4. "Business Day" means any day other than a Saturday or Sunday on which banks are not authorized or required to close in Atlanta, Georgia or New York, New York and, if the applicable Business Day relates to the advance or continuation of, conversion into, or payment on a Eurocurrency Borrowing or Competitive Borrowing, on which banks are dealing in Dollar deposits in the interbank eurodollar market in London, England. "Capitalized Lease Obligations" means, for any Person, the aggregate amount of such Person's liabilities under all leases of real or personal property (or any interest therein) which is required to be capitalized on the balance sheet of such Person as determined in accordance with GAAP. 5

"Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than twelve (12) months from the date of acquisition, (ii) time deposits and certificates of deposits maturing within one year from the date of acquisition thereof or repurchase agreements with financial institutions whose short-term unsecured debt rating is A or above as obtained from either S&P or Moody's, (iii) commercial paper or Eurocommercial paper with a rating of at least A-1 by S&P or at least P-1 by Moody's, with maturities of not more than twelve (12) months from the date of acquisition, (iv) repurchase obligations entered into with any Lender, or any other Person whose short-term senior unsecured debt rating from S&P is at least A-1 or from Moody's is at least P-1, which are secured by a fully perfected security interest in any obligation of the type described in (i) above and has a market value of the time such repurchase is entered into of not less than 100% of the repurchase obligation of such Lender or such other Person thereunder, (v) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within twelve (12) months from the date of acquisition thereof or providing for the resetting of the interest rate applicable thereto not less often than annually and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's, and (vi) money market funds which have at least $1,000,000,000 in assets and which invest primarily in securities of the types described in clauses (i) through (v) above. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Competitive Loans, or Term Loans. "Code" means the Internal Revenue Code of 1986, as amended. "Co-Documentation Agents" means, collectively, Bank of America, N.A. and Wells Fargo Bank Texas, National Association, in their capacities as co-documentation agents for the Lenders, and any successor Co-Documentation Agents appointed pursuant to Section 9.7; provided, however, that no such Co-Documentation Agent shall have any duties, responsibilities, or obligations hereunder in such capacity. "Co-Syndication Agents" shall mean ABN AMRO Bank, N.V. and The Royal Bank of Scotland plc, acting in their capacities as co-syndication agents for the Lenders, and any successor Co-Syndication Agents appointed hereunder pursuant to Section 9.7; provided, however, that no such Co-Syndication Agents shall have any duties, responsibilities, or obligations hereunder in such capacity. "Collateral" means all property and assets of the Borrower in which the Administrative Agent or the Collateral Agent is granted a Lien for the benefit of the Lenders under the terms of Section 7.4. "Collateral Account" means the cash collateral account for outstanding undrawn Letters of Credit defined in Section 7.4(b). 6

"Collateral Agent" means STB acting in its capacity as collateral agent for the Lenders, and any successor collateral agent appointed hereunder pursuant to Section 9.7. "Commitment" means, relative to any Lender, such Lender's obligations to make Revolving Loans and participate in Letters of Credit pursuant to Sections 2.1 and 2.14, initially in the amount and percentage set forth opposite its signature hereto or pursuant to Section 10.10, as such obligations may be reduced or increased from time to time as expressly provided pursuant to this Agreement. "Commitment Termination Date" means the earliest of (i) December 26, 2002, or such later date to which the Commitments have been extended pursuant to Section 2.16, (ii) the date on which the Commitments are terminated in full or reduced to zero pursuant to Section 2.15, and (iii) the occurrence of any Event of Default described in Section 7.1(f) or (g) with respect to the Borrower or the occurrence and continuance of any other Event of Default and either (x) the declaration of the Loans to be due and payable pursuant to Section 7.2, or (y) in the absence of such declaration, the giving of written notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower pursuant to Section 7.2 that the Commitments have been terminated. "Competitive Bid" means an offer by a Lender to make a Competitive Loan in accordance with Section 2.5. Competitive Bid Rate" means, with respect to any Competitive Bid, the Competitive Margin or the Competitive Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by the Borrower for Competitive Bids in accordance with Section 2.5. "Competitive Borrowing" means a Borrowing of a Competitive Loan or group of Competitive Loans pursuant to Section 2.5. "Competitive Fixed Rate" means, with respect to any Competitive Loan (other than a Competitive Margin Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Competitive Fixed Rate Loan" means a Competitive Loan bearing interest at a Competitive Fixed Rate. "Competitive Loan" means a Competitive Margin Loan or a Competitive Fixed Rate Loan made pursuant to Section 2.5. "Competitive Margin" means, with respect to any Competitive Loan bearing interest at a rate based on the LIBOR Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBOR Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. 7

"Competitive Margin Loan" means a Competitive Loan bearing interest determined by reference to the LIBOR Rate and a Competitive Margin. "Compliance Certificate" means a certificate in the form of Exhibit 6.6. ----------- "Confidential Information Memorandum" shall mean the Confidential Executive Summary of the Borrower dated November 2001, as the same may be amended, restated and supplemented from time to time and distributed to the Lenders prior to the Effective Date. "Consolidated EBITDA" means, for any period, for the Borrower and its Subsidiaries, the sum of (a) net income or net loss (before discontinued operations and income or loss resulting from extraordinary items), plus (b) the sum of (i) Consolidated Interest Expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, and (v) other non-cash charges, all determined in accordance with GAAP on a consolidated basis for the Borrower and its Subsidiaries (excluding, in the case of the foregoing clauses (a) and (b), any net income or net loss and expenses and charges of any SPVs or other Persons that are not Subsidiaries), plus (c) dividends or distributions received during such period by the Borrower and its Subsidiaries from SPVs and any other Persons that are not Subsidiaries. For purposes of the foregoing, Consolidated EBITDA for the Borrower and its Subsidiaries shall not include any such amounts attributable to any Subsidiary or business acquired during such period by the Borrower or any Subsidiary to the extent such amounts relate to any period prior to the acquisition thereof. "Consolidated Indebtedness" means all Indebtedness of the Borrower and its Subsidiaries that would be reflected on a consolidated balance sheet of such Persons prepared in accordance with GAAP. "Consolidated Indebtedness to Total Capitalization Ratio" means, at any time, the ratio of Consolidated Indebtedness at such time to Total Capitalization at such time. "Consolidated Interest Expense" means, for any period, total interest expense of the Borrower and its Subsidiaries on a consolidated basis for such period, in connection with Indebtedness, all as determined in accordance with GAAP, but excluding capitalized interest expense and interest expense attributable to expected federal income tax settlements. For purposes of the foregoing, Consolidated Interest Expense for the Borrower and its Subsidiaries shall not include any such interest expense attributable to any Subsidiary or business acquired during such period by the Borrower or any Subsidiary to the extent such interest expense relates to any period prior to the acquisition thereof. "Consolidated Net Assets" means, as of any date of determination, an amount equal to the aggregate book value of the assets of the Borrower, its Subsidiaries and, to the extent of the equity interest of the Borrower and its Subsidiaries therein, SPVs at such time, minus the current liabilities of the Borrower and its Subsidiaries, all as determined on a consolidated basis in accordance with GAAP. 8

"Consolidated Net Worth" means, as of any date of determination, consolidated shareholders equity of the Borrower and its Subsidiaries determined in accordance with GAAP (but excluding the effect on shareholders equity of (i) cumulative foreign exchange translation adjustments and (ii) any non-cash asset impairment charges taken by the Borrower solely as a result of the application to the Borrower's financial statements of Financial Accounting Standards Board Statement No. 142). For purposes of this definition, SPVs shall be accounted for pursuant to the equity method of accounting. "Controlling Affiliate" means for the Borrower, (i) any other Person that directly or indirectly through one or more intermediaries controls, or is under common control with, the Borrower (other than Persons controlled by the Borrower), and (ii) any other Person owning beneficially or controlling ten percent (10%) or more of the equity interests in the Borrower. As used in this definition, "control" means the power, directly or indirectly, to direct or cause the direction of management or policies of a Person (through ownership of voting securities or other equity interests, by contract or otherwise). "Credit Documents" means this Agreement, the Notes, the Applications, the Letters of Credit, and any Subsidiary Guaranties in effect from time to time. "Default" means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default. "Dollar" and "U.S. Dollar" and the sign "$" mean lawful money of the United States of America. "Effective Date" means the date this Agreement shall become effective as defined in Section 10.16. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations or proceedings relating to any Environmental Law ("Claims") or any permit issued under any Environmental Law, including, without limitation, (i) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (ii) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to the environment. "Environmental Law" means any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect, including any judicial or administrative order, consent, decree or judgment, relating to the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Eurocurrency", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, shall bear interest at a rate determined by 9

reference to (i) in the case of a Revolving Loan or Revolving Borrowing, or a Term Loan or Term Loan Borrowing, Adjusted LIBOR and the Applicable Margin, or (ii) in the case of a Competitive Loan or Competitive Borrowing, the LIBOR Rate and the Competitive Margin. "Eurocurrency Loan" means a Eurocurrency Revolving Loan, Eurocurrency Term Loan, or a Competitive Margin Loan, as the case may be. "Eurocurrency Revolving Loan" means a Revolving Loan bearing interest before maturity at the rate specified in Section 2.8(b). "Eurocurrency Term Loan" means a Term Loan bearing interest before maturity at the rate specified in Section 2.8(b). "Event of Default" means any of the events or circumstances specified in Section 7.1. "Existing 364-Day Revolving Credit Facility" means the 364-Day Credit Agreement dated as of December 29, 2000, among the Borrower, the lenders parties thereto, SunTrust Bank, as Administrative Agent, ABN AMRO Bank, N.V., as Syndication Agent, Bank of America, N.A., as Documentation Agent, and Wells Fargo Bank Texas, National Association, as Senior Managing Agent. "Five-Year Credit Agreement" means the Credit Agreement dated as of December 29, 2000, among the Borrower, the Lenders, the Administrative Agent, the Syndication Agent, the Documentation Agent and the Senior Managing Agent, as the same may be amended, supplemented and restated from time to time. "Foreign Plan" means any pension, profit sharing, deferred compensation, or other employee benefit plan, program or arrangement maintained by any foreign Subsidiary of the Borrower which, under applicable local law, is required to be funded through a trust or other funding vehicle, but shall not include any benefit provided by a foreign government or its agencies. "GAAP" means generally accepted accounting principles from time to time in effect as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board or in such other statements, opinions and pronouncements by such other entity as may be approved by a significant segment of the U.S. accounting profession. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. 10

"Guarantor" means any Subsidiary of the Borrower required to execute and deliver a Subsidiary Guaranty hereunder pursuant to Section 6.11, in each case unless and until the relevant Subsidiary Guaranty is released pursuant to Section 6.11. "Guaranty" by any Person means all contractual obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business) of such Person guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (i) to purchase such Indebtedness or to purchase any property or assets constituting security therefor, primarily for the purpose of assuring the owner of such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness; or (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness, or (y) to maintain working capital or other balance sheet condition, or otherwise to advance or make available funds for the purchase or payment of such Indebtedness, in each case primarily for the purpose of assuring the owner of such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness; or (iii) to lease property, or to purchase securities or other property or services, of the primary obligor, primarily for the purpose of assuring the owner of such Indebtedness of the ability of the primary obligor to make payment of such Indebtedness; or (iv) otherwise to assure the owner of such Indebtedness of the primary obligor against loss in respect thereof. For the purpose of all computations made under this Agreement, the amount of a Guaranty in respect of any Indebtedness shall be deemed to be equal to the amount that would apply if such Indebtedness was the direct obligation of such Person rather than the primary obligor or, if less, the maximum aggregate potential liability of such Person under the terms of the Guaranty. "Hazardous Material" shall have the meaning assigned to that term in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Acts of 1986, and shall also include petroleum, including crude oil or any fraction thereof, or any other substance defined as "hazardous" or "toxic" or words with similar meaning and effect under any Environmental Law applicable to the Borrower or any of its Subsidiaries. "Highest Lawful Rate" means the maximum nonusurious interest rate, if any, that any time or from time to time may be contracted for, taken, reserved, charged or received on any Loans, under laws applicable to any of the Lenders which are presently in effect or, to the extent allowed by applicable law, under such laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. Determination of the rate of interest for the purpose of determining whether any Loans are usurious under all applicable laws shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the period of the full stated term of the Loans, all interest at any time contracted for, taken, reserved, charged or received from the Borrower in connection with the Loans. "Indebtedness" means, for any Person, the following obligations of such Person, without duplication: (i) obligations of such Person for borrowed money; (ii) obligations of such Person representing the deferred purchase price of property or services other than accounts payable and 11

accrued liabilities arising in the ordinary course of business and other than amounts which are being contested in good faith and for which reserves in conformity with GAAP have been provided; (iii) obligations of such Person evidenced by bonds, notes, bankers acceptances, debentures or other similar instruments of such Person, or obligations of such Person arising, whether absolute or contingent, out of letters of credit issued for such Person's account or pursuant to such Person's application securing Indebtedness; (iv) obligations of other Persons, whether or not assumed, secured by Liens (other than Permitted Liens) upon property or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, but only to the extent of such property's fair market value; (v) Capitalized Lease Obligations of such Person; (vi) obligations under Interest Rate Protection Agreements, and (vii) obligations of such Person pursuant to a Guaranty of any of the foregoing obligations of another Person; provided, however, Indebtedness shall exclude Non-recourse Debt. For purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture to the extent such Indebtedness is recourse to such Person. "Initial Availability Date" means the date on which the conditions specified in Section 4.1 are satisfied (or waived in accordance with Section 10.11). "Interest Coverage Ratio" means, as of the end of any fiscal quarter, the ratio of (i) Consolidated EBITDA for the four fiscal quarter period then ended, minus all cash dividends paid to shareholders of the Borrower, or to holders of preferred shares or other preferred equity interests issued by any Subsidiaries of the Borrower where such holders are Persons other than the Borrower or any of its Subsidiaries, during such four fiscal quarter period, and all cash income taxes paid during such four fiscal quarter period, to (ii) Consolidated Interest Expense for the four fiscal quarter period then ended. "Interest Payment Date" means (a) with respect to any Base Rate Loan, the last day of each March, June, September and December, (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, and (c) with respect to any Competitive Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Competitive Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing. "Interest Period" means (a) with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending (x) in the case of weekly Borrowings, on the same day of the next following week or second following week thereafter, and (y) in the case of monthly Borrowings, on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter (or with the consent of each Lender making a Loan as part of such Borrowing, any other period), in each case as the Borrower may elect, and (b) with respect to any Competitive Fixed Rate Borrowing, the period (which shall not be less than 7 days or 12

more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Interest Rate Protection Agreement" shall mean any interest rate swap, interest rate cap, interest rate collar, or other interest rate hedging agreement or arrangement designed to protect against fluctuations in interest rates. "Issuing Bank" is defined in the preamble. "L/C Documents" means the Letters of Credit, any Issuance Requests and Applications with respect thereto, any draft or other document presented in connection with a drawing thereunder, and this Agreement. "L/C Obligations" means the undrawn face amounts of all outstanding Letters of Credit and all unpaid Reimbursement Obligations. "Lead Arranger" means SunTrust Equitable Securities Corporation, acting in its capacity as lead arranger and book runner for the credit facilities described in this Agreement. "Lender" is defined in the preamble. "Lending Office" means the branch, office or affiliate of a Lender specified on the appropriate signature page hereof, or designated pursuant to Sections 8.4 or 10.10, as the office through which it will make its Loans hereunder for each type of Loan available hereunder. "Letter of Credit" means any of the letters of credit to be issued by the Issuing Bank for the account of the Borrower pursuant to Section 2.14(a). "LIBOR Rate" means, relative to any Interest Period for each Eurocurrency Borrowing, the rate per annum quoted at or about 11:00 a.m. (London, England time) two Business Days before the commencement of such Interest Period on that page of the Reuters, Telerate or Bloombergs reporting service (as then being used by the Administrative Agent to obtain such interest rate quotes) that displays British Bankers' Association interest settlement rates for deposits in Dollars, or if such page or such service shall cease to be available, such other page or other service (as the case may be) for the purpose of displaying British Bankers' Association interest settlement rates as reasonably determined by the Administrative Agent upon advising the Borrower as to the use of any such other service. If for any reason any such settlement interest rate for such Interest Period is not available to the Administrative Agent through any such interest rate reporting service, then the "LIBOR Rate" with respect to such Eurocurrency Borrowing will be the rate at which the Administrative Agent is offered deposits in Dollars of $5,000,000 for a period approximately equal to such Interest Period in the London interbank market at 10:00 a.m. two Business Days before the commencement of such Interest Period. 13

"Lien" means any interest in any property or asset in favor of a Person other than the owner of such property or asset and securing an obligation owed to, or a claim by, such Person, whether such interest is based on the common law, statute or contract, including, but not limited to, the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale, security agreement or trust receipt, or a lease, consignment or bailment for security purposes. "Loan" means (i) a Base Rate Loan, (ii) a Eurocurrency Revolving Loan, (iii) a Competitive Margin Loan, (iv) a Competitive Fixed Rate Loan, or (v) a Eurocurrency Term Loan, as the case may be, and "Loans" means two or more of any such Loans. "Managing Agents" means, collectively, The Bank of Nova Scotia, Credit Lyonnais New York Branch, HSBC Bank USA, and Westdeutsche Landesbank Girozentrale, New York Branch, in their capacities as managing agents for the Lenders, and any successor Managing Agents appointed pursuant to Section 9.7; provided, however, that no such Managing Agent shall have any duties, responsibilities, or obligations hereunder in such capacity. "Material Adverse Effect" means a material adverse effect on (i) the business, assets, operations or condition of the Borrower and its Subsidiaries taken as a whole, or (ii) the Borrower's ability to perform any of its payment obligations under the Agreement or the Notes, or in respect of the Letters of Credit. "Maturity Date" means the earlier of (i) the Commitment Termination Date or, if the Borrower has exercised the Term Loan Option, December 26, 2003, and (ii) the date on which the Loans have become due and payable pursuant to Section 7.2 or 7.3. "Moody's" means Moody's Investors Service, Inc., or any successor thereto. "Non-recourse Debt" means with respect to any Person (i) obligations of such Person against which the obligee has no recourse to such Person except as to certain named or described present or future assets or interests of such Person, and (ii) the obligations of SPVs to the extent the obligee thereof has no recourse to the Borrower or any of its Subsidiaries, except as to certain specified present or future assets or interests of SPVs. "Note" means any of the promissory notes of the Borrower defined in Section 2.10. "Obligations" means all obligations of the Borrower to pay fees, costs and expenses hereunder, to pay principal or interest on Loans and Reimbursement Obligations and to pay any other obligations to the Administrative Agent or any Lender or Issuing Bank arising under any Credit Document. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Percentage" means, for each Lender, the percentage of the Commitments represented by such Lender's Commitment; provided, that, if the Commitments are terminated, each Lender's Percentage shall be calculated based on such Lender's pro rata share of the total Loans and L/C Obligations then outstanding or, if no Loans or L/C Obligations are then outstanding, its 14

Commitment in effect immediately before such termination, subject to any assignments by such Lender of Obligations pursuant to Section 10.10. "Performance Guaranties" means all Guaranties of the Borrower or any of its Subsidiaries delivered in connection with the construction financing of drill ships, offshore mobile drilling units or offshore drilling rigs for which firm drilling contracts have been obtained by the Borrower, any of its Subsidiaries or a SPV. "Performance Letters of Credit" means all letters of credit for the account of the Borrower, any Subsidiary or a SPV issued as support for Non-recourse Debt or a Performance Guaranty. "Permitted Business" has the meaning ascribed to such term in Section 6.8. "Permitted Liens" means the Liens permitted as described in Section 6.10. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government or any agency or political subdivision thereof. "Plan" means an employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code that is either (i) maintained by the Borrower or any of its Subsidiaries, or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower or any of its Subsidiaries is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made or had an obligation to make contributions. "Reimbursement Obligations" has the meaning ascribed to such term in Section 2.14(c). "Related Credit Extensions" has the meaning ascribed to such term in Section 2.16(c). "Required Lenders" means, (i) prior to the conversion of any Revolving Loans to Term Loans pursuant to Section 2.3, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time; provided that, for purposes of declaring the Loans to be due and payable pursuant to Article 7, and for all purposes after the Loans become due and payable pursuant to Article 7 or the Commitments expire or terminate, the outstanding Competitive Loans of the Lenders shall be included in their respective Revolving Credit Exposures in determining the Required Lenders, and (ii) on and after the conversion of any Revolving Loans to Term Loans pursuant to Section 2.3, Lenders having outstanding Term Loans representing more than 50% of the sum of the total Term Loans outstanding at such time. "Revolving Credit" means the credit facility for making Revolving Loans and issuing Letters of Credit described in Sections 2.1 and 2.14. 15

"Revolving Credit Commitment Amount" means an amount equal to $250,000,000, as such amount may be reduced from time to time pursuant to the terms of this Agreement. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum at such time, without duplication, of (i) such Lender's applicable Percentage of the principal amounts of the outstanding Revolving Loans, and (ii) such Lender's applicable Percentage of the aggregate outstanding L/C Obligations. "Revolving Loan" means each of the revolving loans defined in Section 2.1. "Revolving Obligations" means the sum of the principal amount of all Revolving Loans and L/C Obligations outstanding. "Revolving/Term Notes" means certain promissory notes of the Borrower as defined in Section 2.10. "Sale-Leaseback Transaction" means any arrangement whereby the Borrower or a Subsidiary shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease property that it intends to use for substantially the same purpose or purposes as the property sold or transferred. "S&P" means Standard & Poor's Ratings Group or any successor thereto. "SPV" means any Person that is designated by the Borrower as a SPV, provided that the Borrower shall not designate as a SPV any Subsidiary that owns, directly or indirectly, any other Subsidiary that has total assets (including assets of any Subsidiaries of such other Subsidiary, but excluding any assets that would be eliminated in consolidation with the Borrower and its Subsidiaries) which equates to at least five percent (5%) of the Borrower's Total Assets, or that had net income (including net income of any Subsidiaries of such other Subsidiary, all before discontinued operations and income or loss resulting from extraordinary items, all determined in accordance with GAAP, but excluding revenues and expenses that would be eliminated in consolidation with the Borrower and its Subsidiaries) during the most recently completed fiscal year of the Borrower in excess of the greater of (i) $1,000,000, and (ii) fifteen percent (15%) of the net income (before discontinued operations and income or loss resulting from extraordinary items) for the Borrower and its Subsidiaries, all as determined on a consolidated basis in accordance with GAAP during such fiscal year of the Borrower. The Borrower may elect to treat any Subsidiary as a SPV (provided such Subsidiary would otherwise qualify as such), and may rescind any such prior election, by giving written notice thereof to the Administrative Agent specifying the name of such Subsidiary or SPV, as the case may be, and the effective date of such election, which shall be a date within sixty (60) days after the date such notice is given. The election to treat a particular Person as a SPV may only be made once. "Significant Subsidiary" has the meaning ascribed to it under Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. 16

"Statutory Reserve Rate" means, with respect to any currency, a fraction (expressed as a decimal), the numerator of which is the number 1 and the denominator of which is the number 1 minus the aggregate of the maximum reserve, liquid asset or similar percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by any Governmental Authority of the United States or of the jurisdiction of such currency or any jurisdiction in which Loans in such currency are made to which banks in such jurisdiction are subject for any category of deposits or liabilities customarily used to fund loans in such currency or by reference to which interest rates applicable to loans in such currency are determined. Such reserve, liquid asset or similar percentages shall include those imposed pursuant to Regulation D of the Board of Governors of the Federal Reserve System. Eurocurrency Loans shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any other applicable law, rule or regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means, for any Person, any other Person (other than, except in the context of Section 6.6(a), a SPV) of which more than fifty percent (50%) of the outstanding stock or comparable equity interests having ordinary voting power for the election of the board of directors of such corporation, any managers of such limited liability company or similar governing body (irrespective of whether or not at the time stock or other equity interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency), is at the time directly or indirectly owned by such former Person or by one or more of its Subsidiaries. "Subsidiary Debt Basket Amount" has the meaning ascribed to such term in Section 6.11(i). "Subsidiary Guaranty" means any Guaranty of any Subsidiary delivered pursuant to Section 6.11(j). "Taxes" has the meaning set forth in Section 5.12. "Term Loan" means each of the term loans defined in Section 2.3. "Term Loan Option" means the Borrower's option to convert outstanding Revolving Loans to Term Loans on December 26, 2002, as provided in Section 2.3. "Total Assets" means, as of any date of determination, the aggregate book value of the assets of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP as of such date. "Total Capitalization" means, as of any date of determination, the sum of Consolidated Indebtedness plus Consolidated Net Worth as of such date. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to 17

Adjusted LIBOR or the Base Rate (in the case of a Revolving Loan or Revolving Loan Borrowing, or a Term Loan or Term Loan Borrowing), or the LIBOR Rate or a Competitive Fixed Rate (in the case of a Competitive Loan or Borrowing). "Unfunded Vested Liabilities" means, for any Plan at any time, the amount (if any) by which the present value of all vested nonforfeitable accrued benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Borrower or any of its Subsidiaries to the PBGC or such Plan. Section 1.2. Time of Day. Unless otherwise expressly provided, all ------------- references to time of day in this Agreement and the other Credit Documents shall be references to New York, New York time. Section 1.3. Accounting Terms; GAAP. Except as otherwise expressly ----------------- provided herein, and subject to the provisions of Section 10.19, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time. ARTICLE 2. THE CREDIT FACILITIES. Section 2.1. Commitments for Revolving Loans. Subject to the terms and ------------------------------- conditions hereof, each Lender severally and not jointly agrees to make one or more loans (each a"Revolving Loan") to the Borrower from time to time prior to the Commitment Termination Date on a revolving basis in an aggregate amount not to exceed at any time outstanding an amount equal to its Commitment, subject to any reductions thereof pursuant to the terms of this Agreement;provided,however, that no Lender shall be permitted or required to make any Revolving Loan if, after giving effect thereto, (i) the aggregate principal amount of the Revolving Loans, the Competitive Loans and the L/C Obligations of all Lenders would thereby exceed the Revolving Credit Commitment Amount then in effect; or (ii) the Revolving Credit Exposure of such Lender would thereby exceed its Commitment then in effect. Each Borrowing of Revolving Loans shall be made ratably from the Lenders in proportion to their respective Percentages. Revolving Loans may be repaid, in whole or in part, and all or any portion of the principal amount thereof reborrowed, before the Commitment Termination Date, subject to the terms and conditions hereof. Funding of all Revolving Loans shall be in Dollars. Section 2.2. Types of Revolving Loans and Minimum Borrowing ---------------------------------------------------- Amounts. Borrowings of Revolving Loans may be outstanding as either Base Rate - ------- Loans or Adjusted LIBOR Loans, as selected by the Borrower pursuant to Section 2.4. Each such Borrowing of Base Rate Loans shall be in an amount of not less than $1,000,000 and each such Borrowing of Adjusted LIBOR Loans shall be in an amount of not less than $5,000,000 and in an integral multiple of $100,000. Section 2.3. Term Loan Option. Unless an Event of Default has occurred ---------------- and is continuing, the Borrower may elect that the Revolving Loans of each Lender outstanding on December 26, 2002, up to an aggregate principal amount for all Lenders of $125,000,000, be converted into term loans (each a "Term Loan"), maturing in one installment on December 26, 18

2003. In order to exercise the foregoing option, the Borrower shall give irrevocable written notice of its intent to exercise such option effective as of December 26, 2002, which notice (i) must be received by the Administrative Agent not earlier than 45 days and not later than 5 Business Days prior to December 26, 2002, (ii) shall specify the principal amount of Revolving Loans to be so converted to Term Loans on such date, and (iii) shall constitute a representation and warranty by the Borrower that all conditions set forth in Section 4.2 will be satisfied as of December 26, 2002. If the aggregate outstanding principal amount of the Revolving Loans on December 26, 2002 exceed the amount specified for conversion to Term Loans pursuant to such written notice from the Borrower, the Borrower shall repay on such date the Revolving Loans in the amount of such excess on a pro rata basis according to the Revolving Loans then held by the Lenders. Term Loans may be outstanding as either Base Rate Loans or Adjusted LIBOR Loans, as selected by the Borrower pursuant to Section 2.4(b). Borrowings of Term Loans outstanding as Base Rate Loans shall be in an amount of not less than $1,000,000, and Borrowings of Term Loans outstanding as Adjusted LIBOR Loans shall be in an amount of not less than $5,000,000 and in an integral multiple of $100,000. Term Loans may be prepaid in accordance with Section 2.11, but no amounts prepaid may be re-borrowed. Section 2.4. Manner of Borrowings; Continuations and Conversions of --------------------------------------------------------- Borrowings. - ---------- (a) Notice of Revolving Loan Borrowings. The Borrower shall give --------------------------------------- notice to the Administrative Agent by no later than 12:00 p.m. (i) at least three (3) Business Days before the date on which the Borrower requests the Lenders to advance a Borrowing of Eurocurrency Revolving Loans, and (ii) on the date the Borrower requests the Lenders to advance a Borrowing of Base Rate Revolving Loans, in each case pursuant to a duly executed Borrowing Request substantially in the form of Exhibit 2.4 (each a "Borrowing Request"). The ----------- Loans included in each Revolving Borrowing shall bear interest initially at the type of rate specified in the Borrowing Request with respect to such Borrowing. (b) Notice of Continuation or Conversion of Outstanding Borrowings. ------------------------------------------------------------------ The Borrower may from time to time elect to change or continue the type of interest rate borne by each Revolving Loan Borrowing or Term Loan Borrowing, as the case may be, or, subject to the minimum amount requirements in Sections 2.2 and 2.3 for each outstanding Revolving Loan Borrowing or Term Loan Borrowing, as the case may be, a portion thereof, as follows: (i) if such Borrowing is of Eurocurrency Loans, the Borrower may continue part or all of such Borrowing as Eurocurrency Loans for an Interest Period specified by the Borrower or convert part or all of such Borrowing into Base Rate Loans on the last day of the Interest Period applicable thereto, or the Borrower may earlier convert part or all of such Borrowing into Base Rate Loans so long as it pays the breakage fees and funding losses provided in Section 2.13; and (ii) if such Borrowing is of Base Rate Loans, the Borrower may convert all or part of such Borrowing into Eurocurrency Loans for an Interest Period specified by the Borrower on any Business Day, in each case pursuant to notices of continuation or conversion as set forth below. The Borrower may select multiple Interest Periods for the Eurocurrency Loans constituting any such particular Borrowing, provided that at no time shall the number of different Interest Periods for outstanding Eurocurrency Loans exceed twenty (20) (it being understood for such purposes that (x) Interest Periods of the same duration, but commencing on different dates, shall be counted as different Interest Periods, and (y) all Interest Periods commencing on the same date 19

and of the same duration shall be counted as one Interest Period regardless of the number of Borrowings or Loans involved. Notices of the continuation of such Eurocurrency Loans for an additional Interest Period or of the conversion of part or all of such Eurocurrency Loans into Base Rate Loans or of such Base Rate Loans into Eurocurrency Loans must be given by no later than 12:00 p.m. at least three (3) Business Days before the date of the requested continuation or conversion. (c) Manner of Notice. The Borrower shall give such notices concerning ----------------- the advance, continuation, or conversion of a Borrowing pursuant to this Section 2.4 by telephone or facsimile (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing) pursuant to a Borrowing Request which shall specify the date of the requested advance, continuation or conversion (which shall be a Business Day), the amount of the requested Borrowing, whether such Borrowing is to be advanced, continued, or converted, the type of Loans to comprise such new, continued or converted Borrowing and, if such Borrowing is to be comprised of Eurocurrency Loans, the Interest Period applicable thereto. The Borrower agrees that the Administrative Agent may rely on any such telephonic or facsimile notice given by any Person it in good faith believes is an authorized representative of the Borrower without the necessity of independent investigation and that, if any such notice by telephone conflicts with any written confirmation, such telephonic notice shall govern if the Administrative Agent has acted in reliance thereon. (d) Notice to the Lenders. The Administrative Agent shall give prompt ---------------------- telephonic, telex or facsimile notice to each Lender of any notice received pursuant to this Section 2.4 relating to a Revolving Loan Borrowing or Term Loan Borrowing. The Administrative Agent shall give notice to the Borrower and each Lender by like means of the interest rate applicable to each Borrowing of Eurocurrency Loans (but, if such notice is given by telephone, the Administrative Agent shall confirm such rate in writing) promptly after the Administrative Agent has made such determination. (e) Borrower's Failure to Notify. If the Borrower fails to give notice ---------------------------- pursuant to this Section 2.4 of (i) the continuation or conversion of any outstanding principal amount of a Borrowing of Eurocurrency Loans, or (ii) a Borrowing of Revolving Loans to pay outstanding Reimbursement Obligations, and has not notified the Administrative Agent by 12:00 p.m. at least three (3) Business Days before the last day of the Interest Period for any Borrowing of Eurocurrency Loans, or by the day such Reimbursement Obligation becomes due, as the case may be, that it intends to repay such Borrowing or Reimbursement Obligation, the Borrower shall be deemed to have requested, as applicable, (x) the continuation of such Borrowing as a Eurocurrency Loan with an Interest Period of one (1) month or (y) the advance of a new Borrowing of Base Rate Loans on such day in the amount of the Reimbursement Obligation then due, which Borrowing pursuant to this clause (y) shall be deemed to have been funded on such date by the Lenders in accordance with this Section 2.4 and to have been applied on such day to pay the Reimbursement Obligation then due, in each case so long as no Event of Default shall have occurred and be continuing or would occur as a result of such Borrowing but otherwise disregarding the conditions to Borrowings set forth in Section 4.2. Upon the occurrence and during the continuance of any Event of Default, (i) each Eurocurrency Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Loan, and 20

(ii) the obligation of the Lenders to make, continue or convert Loans into Eurocurrency Loans shall be suspended. (f) Conversion. If the Borrower shall elect to convert any particular ---------- Borrowing pursuant to this Section 2.4 from one Type of Loan to the other only in part, then, from and after the date on which such conversion shall be effective, such particular Borrowing shall, for all purposes of this Agreement (including, without limitation, for purposes of subsequent application of this sentence) be deemed to instead constitute two Borrowings (each originally advanced on the same date as such particular Borrowing), one comprised of (subject to subsequent conversion in accordance with this Agreement) Eurocurrency Loans in an aggregate principal amount equal to the portion of such Borrowing so elected by the Borrower to be comprised of Eurocurrency Loans and the second comprised of (subject to subsequent conversion in accordance with this Agreement) Base Rate Loans in an aggregate principal amount equal to the portion of such particular Borrowing so elected by the Borrower to be comprised of Base Rate Loans. If the Borrower shall elect to have multiple Interest Periods apply to any such particular Borrowing comprised of Eurocurrency Loans, then, from and after the date such multiple Interest Periods commence, such particular Borrowing shall, for all purposes of this Agreement (including, without limitation, for purposes of subsequent application of this sentence), be deemed to constitute a number of separate Borrowings (each originally commencing on the same date as such particular Borrowing) equal to the number of, and corresponding to, the different Interest Periods so selected, each such deemed separate Borrowing corresponding to a particular selected Interest Period comprised of (subject to subsequent conversion in accordance with this Agreement) Eurocurrency Loans in an aggregate principal amount equal to the portion of such particular Borrowing so elected by the Borrower to have such Interest Period. This Section 2.4(f) shall be applied appropriately in the event that the Borrower shall make the elections described in the two preceding sentences at the same time with respect to the same particular Borrowing. Section 2.5. Competitive Bid Procedure. --------------------------- (a) Competitive Bid Requests. Subject to the terms and conditions set ------------------------- forth herein, from time to time before the Commitment Termination Date, the Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans. To request Competitive Bids, the Borrower shall notify the Administrative Agent of such request by telephone in the case of a Borrowing of Competitive Margin Loans, not later than 11:00 a.m., four (4) Business Days before the date of the proposed Borrowing and, in the case of a Borrowing of Competitive Fixed Rate Loans, not later than 10:00 a.m., one (1) Business Day before the date of the proposed Borrowing; provided that a Competitive Bid Request shall not be made within five (5) Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bids received in response thereto shall have been withdrawn, rejected or accepted. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in the form of Exhibit ------- 2.5A or such other form as shall be approved by the Administrative Agent and the - ---- Borrower and signed by the Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.4(a): 21

(i) the aggregate amount of the requested Competitive Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to consist of Competitive Margin Loans or Competitive Fixed Rate Loans; (iv) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Competitive Bids. Each Lender may (but shall not have any ----------------- obligation to) make one or more Competitive Bids to the Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in the form of Exhibit 2.5B or such other form as shall be approved by the Administrative ------------- Agent and the Borrower and must be received by the Administrative Agent by telecopy, in the case of a Borrowing of Competitive Margin Loans, not later than 9:30 a.m., three (3) Business Days before the proposed date of such Borrowing, and in the case of a Borrowing of Competitive Fixed Rate Loans, not later than 9:30 a.m., on the proposed date of such Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be equal to or greater than $10,000,000 and in an integral multiple of $100,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. (c) Notice to Borrower. The Administrative Agent shall promptly notify ------------------ the Borrower by telecopy of the Competitive Bid Rate or Rates and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Acceptance of Competitive Bids. Subject only to the provisions of ------------------------------- this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in the form of Exhibit 2.5D or such other form as shall be approved by ------------ the Administrative Agent and the Borrower, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Borrowing of Competitive Margin Loans, not later than 10:30 a.m., three (3) Business Days before the date of 22

the proposed Borrowing, and in the case of a Borrowing of Competitive Fixed Rate Loans, not later than 10:30 a.m. on the date of the proposed Borrowing; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made pursuant to the same Competitive Bid Request at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is equal to or greater than $10,000,000 and in an integral multiple of $100,000; provided further that if a Competitive Loan must be in an amount less than $10,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 and in any integral multiple of $100,000, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv), the amounts shall be rounded to integral multiples of $100,000 in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable. (e) Notice of Acceptance. The Administrative Agent shall promptly ---------------------- notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) Submission of Competitive Bid by Administrative Agent. If the ---------------------------------------------------------- Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. Section 2.6. Interest Periods. As provided in Sections 2.4 and 2.5, at ---------------- the time of each request for a Borrowing of Eurocurrency Loans or Competitive Fixed Rate Loans, or for the continuation or conversion of any Borrowing of Eurocurrency Revolving Loans or Eurocurrency Term Loans, the Borrower shall select the Interest Period(s) to be applicable to such Loans from among the available options, subject to the limitations in Sections 2.4 and 2.5;provided, however, that: (i) the Borrower may not select an Interest Period for a Borrowing of Revolving Loans or Competitive Bid Loans that extends beyond the Commitment Termination Date, except with respect to Revolving Loans (in an aggregate amount not to exceed the amount specified for conversion to Term Loans in the written notice specified in Section 2.3) having an Interest Period commencing after the Borrower has given the 23

Administrative Agent the notice of exercise of the Term Loan Option pursuant to Section 2.3; (ii) the Borrower may not select an Interest Period for a Borrowing of Term Loans that extends beyond the Maturity Date; (iii) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall either be (i) extended to the next succeeding Business Day, or (ii) in the case of Eurocurrency Loans only, reduced to the immediately preceding Business Day if the next succeeding Business Day is in the next calendar month; and (iv) for purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; provided, however, that if there is no such numerically corresponding day in the month in which an Interest Period is to end or if an Interest Period begins on the last Business Day of a calendar month, then in the case of Eurocurrency Loans only, such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end. Section 2.7. Funding of Loans. ------------------ (a) Disbursement of Loans. Not later than 12:00 p.m. with respect to ----------------------- Borrowings of Eurocurrency Revolving Loans and Competitive Fixed Rate Loans, and 2:00 p.m. with respect to Base Rate Revolving Loans, on the date of any requested advance of a new Borrowing of Loans, each Lender, subject to all other provisions hereof, shall make available its Loan comprising its portion of such Borrowing in funds immediately available in Atlanta, Georgia for the benefit of the Administrative Agent and according to the payment instructions of the Administrative Agent. The Administrative Agent shall make the proceeds of each such Borrowing available in immediately available funds to the Borrower (or as directed in writing by the Borrower) on such date. In the event that any Lender does not make such amounts available to the Administrative Agent by the time prescribed above, but such amount is received later that day, such amount may be credited to the Borrower in the manner described in the preceding sentence on the next Business Day (with interest on such amount to begin accruing hereunder on such next Business Day) provided that acceptance by the Borrower of any such late amount shall not be deemed a waiver by the Borrower of any rights it may have against such Lender. No Lender shall be responsible to the Borrower for any failure by another Lender to fund its portion of a Borrowing, and no such failure by a Lender shall relieve any other Lender from its obligation, if any, to fund its portion of a Borrowing. (b) Administrative Agent Reliance on Lender Funding. Unless the ---------------------------------------------------- Administrative Agent shall have been notified by a Lender before the date on which such Lender is scheduled to make payment to the Administrative Agent of the proceeds of a Loan (which notice shall be effective upon receipt) that such Lender does not intend to make such payment, the Administrative Agent may assume that such Lender has made such payment when due and in reliance upon such assumption may (but shall not be required to) make available to the Borrower 24

the proceeds of the Loan to be made by such Lender and, if any Lender has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, pay to the Administrative Agent the amount made available to the Borrower attributable to such Lender together with interest thereon for each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date such Lender pays such amount to the Administrative Agent at a rate per annum equal to the Administrative Agent's cost of funds for such amount. If such amount is not received from such Lender by the Administrative Agent immediately upon demand, the Borrower will, on demand, repay to the Administrative Agent the proceeds of the Loan attributable to such Lender with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Loan, but the Borrower will in no event be liable to pay any amounts otherwise due pursuant to Section 2.13 in respect of such repayment. Nothing in this subsection shall be deemed to relieve any Lender from any obligation to fund any Loans hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. Section 2.8. Applicable Interest Rates. --------------------------- (a) Base Rate Loans. Each Base Rate Loan shall bear interest (computed --------------- on the basis of a 365-day year or 366-day year, as the case may be, and actual days elapsed excluding the date of repayment) on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) or conversion to a Eurocurrency Revolving Loan or Eurocurrency Term Loan, at a rate per annum equal to the lesser of (i) the Highest Lawful Rate, or (ii) the Base Rate from time to time in effect. The Borrower agrees to pay such interest on each Interest Payment Date for such Loan and at maturity (whether by acceleration or otherwise). (b) Eurocurrency Loans. Each Eurocurrency Loan (whether a Revolving ------------------- Loan, Competitive Loan or Term Loan) shall bear interest (computed on the basis of a 360-day year and actual days elapsed, excluding the date of repayment) on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) or, in the case of Eurocurrency Revolving Loans or Eurocurrency Term Loans, conversion to a Base Rate Loan at a rate per annum equal to the lesser of (i) the Highest Lawful Rate, or (ii) the sum of Adjusted LIBOR plus the Applicable Margin (in the case of Eurocurrency Revolver Loans or Eurocurrency Term Loans) or LIBOR Rate plus the Competitive Margin (in the case of Competitive Margin Loans), as the case may be. The Borrower agrees to pay such interest on each Interest Payment Date for such Loan and at maturity (whether by acceleration or otherwise) or, in the case of Eurocurrency Revolving Loans or Eurocurrency Term Loans, conversion to a Base Rate Loan. (c) Competitive Fixed Rate Loans. Each Competitive Fixed Rate Loan ------------------------------- shall bear interest (computed on the basis of a 360-day year and actual days elapsed, in each case excluding the date of repayment) on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the Competitive Fixed Rate applicable to such Loan. The Borrower agrees to pay such interest on each Interest Payment Date applicable to such Competitive Fixed Rate Loan and at maturity (whether by acceleration or otherwise). 25

(d) Rate Determinations. The Administrative Agent shall determine each ------------------- interest rate applicable to the Loans and Reimbursement Obligations hereunder insofar as such interest rate involves a determination of Base Rate, Adjusted LIBOR or LIBOR Rate, or any applicable default rate pursuant to Section 2.9, and such determination shall be conclusive and binding except in the case of the Administrative Agent's manifest error or willful misconduct. The Administrative Agent shall promptly give notice to the Borrower and each Lender of each determination of Adjusted LIBOR, and to the Borrower and each Lender submitting a Competitive Bid of each determination of LIBOR Rate, with respect to each Eurocurrency Loan. Section 2.9. Default Rate. If any payment of principal on any Loan is ------------ not made when due after the expiration of the grace period therefor provided in Section 7.1(a) (whether by acceleration or otherwise), or any Reimbursement Obligation is not paid when due as provided in Section 2.14(c), such Loan or Reimbursement Obligation shall bear interest (computed on the basis of a year of 360, 365 or 366 days, as applicable, and actual days elapsed) after any such grace period expires until such principal then due is paid in full, which the Borrower agrees to pay on demand, at a rate per annum equal to: (a) for any Base Rate Loan, the lesser of (i) the Highest Lawful Rate, or (ii) the sum of two percent (2%) per annum plus the Base Rate from time to time in effect (but not less than the Base Rate in effect at the time such payment was due); (b) for any Eurocurrency Loan (whether a Eurocurrency Revolving Loan, Competitive Margin Loan, or Eurocurrency Term Loan), the lesser of (i) the Highest Lawful Rate, or (ii) the sum of two percent (2%) per annum plus the rate of interest in effect thereon at the time of such default until the end of the Interest Period for such Loan and, thereafter, at a rate per annum equal to the sum of two percent (2%) per annum plus the Base Rate from time to time in effect (but not less than the Base Rate in effect at the time such payment was due); (c) for any Competitive Fixed Rate Loan, the lesser of (i) the Highest Lawful Rate, or (ii) the sum of two percent (2%) per annum plus the Competitive Fixed Rate in effect thereon at the time of such default until the end of the Interest Period for such Loan and, thereafter, at the rate of interest that would otherwise apply to a Eurocurrency Revolving Loan pursuant to paragraph (b) above; and (d) for any unpaid Reimbursement Obligations, the lesser of (i) the Highest Lawful Rate, or (ii) the sum of two percent (2%) per annum plus the Base Rate from time to time in effect (but not less than the Base Rate in effect at the time such payment was due). It is the intention of the Administrative Agent and the Lenders to conform strictly to usury laws applicable to them. Accordingly, if the transactions contemplated hereby or any Loan or other Obligation would be usurious as to any of the Lenders under laws applicable to it (including the laws of the United States of America and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement, the Notes or any other Credit Document), then, in that event, notwithstanding anything to the contrary in this Agreement, the Notes or any other Credit 26

Document, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under laws applicable to such Lender that is contracted for, taken, reserved, charged or received by such Lender under this Agreement, the Notes or any other Credit Document or otherwise shall under no circumstances exceed the Highest Lawful Rate, and any excess shall be credited by such Lender on the principal amount of the Loans or to the Reimbursement Obligations (or, if the principal amount of the Loans and all Reimbursement Obligations shall have been paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Loans is accelerated by reason of an election of the holder or holders thereof resulting from any Event of Default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under laws applicable to such Lender may never include more than the Highest Lawful Rate, and excess interest, if any, provided for in this Agreement, the Notes, any other Credit Document or otherwise shall be automatically canceled by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Loans or to the Reimbursement Obligations (or if the principal amount of the Loans and all Reimbursement Obligations shall have been paid in full, refunded by such Lender to the Borrower). To the extent that the Texas Finance Code, Chapters 302 and 303, are relevant to the Administrative Agent and the Lenders for the purpose of determining the Highest Lawful Rate, the Administrative Agent and the Lenders hereby elect to determine the applicable rate ceiling under such Article by the indicated (weekly) rate ceiling from time to time in effect, subject to their right subsequently to change such method in accordance with applicable law. In the event the Loans and all Reimbursement Obligations are paid in full by the Borrower prior to the full stated term of the Loans and the interest received from the actual period of the existence of the Loans exceeds the Highest Lawful Rate, the Lenders shall refund to the Borrower the amount of the excess or shall credit the amount of the excess against amounts owing under the Loans and none of the Administrative Agent or the Lenders shall be subject to any of the penalties provided by law for contracting for, taking, reserving, charging or receiving interest in excess of the Highest Lawful Rate. The Texas Finance Code, Chapter 346, which regulates certain revolving credit loan accounts and revolving tri-party accounts, shall not apply to this Agreement or the Loans. Section 2.10. Repayment of Loans; Evidence of Debt. ----------------------------------------- (a) Repayment of Loans. The Borrower hereby promises to pay to the -------------------- Administrative Agent (i) for the account of each Lender, on the Commitment Termination Date, the unpaid amount of each Revolving Loan then outstanding, except to the extent such Revolving Loan is converted to a Term Loan pursuant to the Borrower's exercise of the Term Loan Option (in which case payment shall be made in respect of such Loan pursuant to clause (iii) below), (ii) for the account of each Lender that has made a Competitive Loan to the Borrower, on the last day of the Interest Period applicable to such Loan, or, if earlier, on the Commitment Termination Date, the unpaid amount of each Competitive Loan then outstanding that is owed to such Lender, and (iii) for the account of each Lender, on the Maturity Date, the unpaid amount of each Term Loan then outstanding. (b) Record of Loans by Lenders. Each Lender shall maintain in ------------------------------ accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such 27

Lender resulting from each Loan made by such Lender, including the amounts of principal and accrued interest payable and paid to such Lender from time to time hereunder. (c) Record of Loans by Administrative Agent. The Administrative Agent ---------------------------------------- shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or accrued interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) Evidence of Obligations. The entries made in the accounts ------------------------- maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie ----- ----- evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain - -------- such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Notes. The Revolving Loans outstanding to the Borrower from each ----- Lender shall, at the request of such Lender, be evidenced by promissory notes of the Borrower payable to such Lender in the form of Exhibit 2.10A (each a ------------- "Revolving/Term Note"). The Competitive Loans outstanding to the Borrower from any Lender, shall at the request of such Lender, be evidenced by a promissory note of the Borrower payable to such Lender in the form of Exhibit 2.10B (each a ------------- "Competitive Note"). The Borrower agrees to execute and deliver to the Administrative Agent, for the benefit of each Lender requesting one or more promissory notes as aforesaid, an original of each such promissory note, appropriately completed, to evidence the respective Loans made by such Lender hereunder, within ten (10) Business Days after the Borrower receives a written request therefor. (f) Recording of Loans and Payments on Notes. Each holder of a Note ------------------------------------------- shall record on its books and records or on a schedule to its appropriate Note (and prior to any transfer of its Notes shall endorse thereon or on schedules forming a part thereof appropriate notations to evidence) the amount of each Loan outstanding from it to the Borrower, all payments of principal and interest and the principal balance from time to time outstanding thereon, the type of such Loan and, if a Eurocurrency Loan or a Competitive Fixed Rate Loan, the Interest Period and interest rate applicable thereto. Such record, whether shown on the books and records of a holder of a Note or on a schedule to its Note, shall be prima facie evidence as to all such matters; provided, however, that the failure of any holder to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay all Loans outstanding to it hereunder together with accrued interest thereon. At the request of any holder of a Note and upon such holder tendering to the Borrower the Note to be replaced, the Borrower shall furnish a new Note to such holder to replace any outstanding Note and at such time the first notation appearing on the schedule on the reverse side of, or attached to, such new Note shall set forth the aggregate unpaid principal amount of all Loans, if any, then outstanding thereon. Section 2.11. Optional Prepayments. The Borrower shall have the --------------------- privilege of prepaying Base Rate Loans without premium or penalty at any time in whole or at any time and 28

from time to time in part (but, if in part, then in an amount which is equal to or greater than $1,000,000);provided, however, that the Borrower shall have given notice of such prepayment to the Administrative Agent no later than 12:00 p.m. on the date of such prepayment. The Borrower shall have the privilege of prepaying Adjusted LIBOR Loans (a) without premium or penalty in whole or in part (but, if in part, then in an amount which is equal to or greater than $5,000,000 and in an integral multiple of $100,000) only on the last Business Day of an Interest Period for such Loan, and (b) at any other time so long as the breakage fees and funding losses provided for in Section 2.13 are paid; provided, however, that the Borrower shall have given notice of such prepayment to the Administrative Agent no later than 12:00 p.m. at least three (3) Business Days before the last Business Day of such Interest Period or the proposed prepayment date. The Borrower shall not have the right to prepay any Competitive Loan without the prior written consent of the Lender thereof unless the applicable Competitive Bid Request shall have so provided, the Borrower has given timely notice to the Lender of any such prepayment as may be required pursuant to the terms of the Competitive Bid Request, and the Borrower shall have paid to such Lender in connection with any such prepayment all amounts required to be paid in connection with such prepayment pursuant to the terms of the applicable Competitive Bid Request. Any such prepayments shall be made by the payment of the principal amount to be prepaid and accrued and unpaid interest thereon to the date of such prepayment. Unless otherwise specified in writing by the Borrower, optional prepayments shall be applied first, to the Revolving Loans, second, to the Reimbursement Obligations with respect to Letters of Credit, third, to the Competitive Loans, and fourth to any other Obligations then outstanding. Section 2.12. Mandatory Prepayments of Loans. In the event and on each ------------------------------ occasion that the aggregate principal amount of outstanding Revolving Loans, Competitive Loans, and L/C Obligations exceeds the Revolving Credit Commitment Amount then in effect, then the Borrower shall promptly prepay Revolving Loans and/or Competitive Loans in an aggregate amount sufficient to eliminate such excess. Immediately upon determining the need to make any such prepayment, the Borrower shall notify the Administrative Agent of such required prepayment and of the identity of the particular Revolving Loans and/or Competitive Loans being prepaid. If the Administrative Agent shall notify the Borrower that the Administrative Agent has determined that any prepayment is required under this Section 2.12, the Borrower shall make such prepayment no later than the second Business Day following such notice. Any mandatory prepayment of Revolving Loans and/or Competitive Loans pursuant hereto shall not be limited by the notice provision for prepayments set forth in Section 2.11. Each such prepayment shall be accompanied by a payment of all accrued and unpaid interest on the Loans prepaid and any applicable breakage fees and funding losses pursuant to Section 2.13. Section 2.13. Breakage Fees. If any Lender incurs any loss, cost or -------------- expense (excluding loss of anticipated profits and other indirect or consequential damages) by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender to fund or maintain any Eurocurrency Loan or Competitive Fixed Rate Loan as a result of any of the following events other than any such occurrence as a result of a change of circumstance described in Sections 8.1 or 8.2: (a) any payment, prepayment or conversion of any such Loan on a date other than the last day of its Interest Period (whether by acceleration, mandatory prepayment or otherwise); 29

(b) any failure to make a principal payment of any such Loan on the due date therefor; or (c) any failure by the Borrower to borrow, continue or prepay, or convert to, any such Loan on the date specified in a notice given pursuant to Section 2.4 or 2.5 (other than by reason of a default of such Lender), then the Borrower shall pay to such Lender such amount as will reimburse such Lender for such loss, cost or expense. If any Lender makes such a claim for compensation, it shall provide to the Borrower a certificate executed by an officer of such Lender setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) no later than ninety (90) days after the event giving rise to the claim for compensation, and the amounts shown on such certificate shall be prima facie evidence of such Lender's entitlement thereto. Within ten (10) days of receipt of such certificate, the Borrower shall pay directly to such Lender such amount as will compensate such Lender for such loss, cost or expense as provided herein, unless such Lender has failed to timely give notice to the Borrower of such claim for compensation as provided herein, in which event the Borrower shall not have any obligation to pay such claim. Section 2.14. Letters of Credit. (a) Letters of Credit. Subject to the terms and conditions hereof, the ----------------- Issuing Bank agrees to issue, from time to time prior to the Commitment Termination Date, at the request of the Borrower and on behalf of the Lenders and in reliance on their obligations under this Section 2.14, one or more letters of credit (each a "Letter of Credit") for the Borrower's account in a face amount in each case of at least $500,000 and in an aggregate undrawn face amount for all Letters of Credit at any time outstanding not to exceed the Revolving Credit Commitment Amount; provided, that the Issuing Bank shall not be obligated to issue a Letter of Credit pursuant to this Section 2.14 if, after the issuance thereof, (i) the outstanding Revolving Loans, Competitive Loans, and L/C Obligations would thereby exceed the Revolving Credit Commitment Amount then in effect, or (ii) the issuance of such Letter of Credit would violate any legal or regulatory restriction then applicable to the Issuing Bank or any Lender as notified by the Issuing Bank or such Lender to the Administrative Agent before the date of issuance of such Letter of Credit. Letters of Credit and any increases and extensions thereof hereunder shall be issued in face amounts of Dollars. (b) Issuance Procedure. To request that the Issuing Bank issue a ------------------- Letter of Credit, the Borrower shall deliver to the Issuing Bank and the Administrative Agent (with a duplicate copy to an operations employee of the Issuing Bank as designated by the Issuing Bank from time to time) a duly executed Issuance Request substantially in the form of Exhibit 2.14A (each an ------------- "Issuance Request"), together with a duly executed application for the relevant Letter of Credit substantially in the form of Exhibit 2.14B (each an -------------- "Application"), or such other computerized issuance or application procedure, instituted from time to time by the Issuing Bank and the Administrative Agent and agreed to by the Borrower, completed to the reasonable satisfaction of the Issuing Bank and the Administrative Agent, and such other information as the Issuing Bank 30

and the Administrative Agent may reasonably request. In the event of any irreconcilable difference or inconsistency between this Agreement and an Application, the provisions of this Agreement shall govern. Upon receipt of a properly completed and executed Application and any other reasonably requested information at least three (3) Business Days prior to any requested issuance date, the Issuing Bank will process such Application in accordance with its customary procedures and issue the requested Letter of Credit on the requested issuance date. The Borrower may cancel any requested issuance of a Letter of Credit prior to the issuance thereof. The Issuing Bank will notify the Administrative Agent and each Lender of the amount, currency, and expiration date of each Letter of Credit it issues promptly upon issuance thereof. Each Letter of Credit shall have an expiration date no later than four (4) Business Days before the Commitment Termination Date. If the Issuing Bank issues any Letters of Credit with expiration dates that automatically extend unless the Issuing Bank gives notice that the expiration date will not so extend, the Issuing Bank will give such notice of non-renewal before the time necessary to prevent such automatic extension if (and will not give such notice of non-renewal before such time unless) before such required notice date (i) the expiration date of such Letter of Credit if so extended would be later than four (4) Business Days before the Commitment Termination Date, (ii) the Commitment Termination Date shall have occurred, (iii) a Default or an Event of Default exists and the Required Lenders have given the Issuing Bank instructions not to so permit the expiration date of such Letter of Credit to be extended, or (iv) the Issuing Bank is so directed by the Borrower. The Issuing Bank agrees to issue amendments to any Letter of Credit increasing its amount, or extending its expiration date, at the request of the Borrower, subject to the conditions precedent for all Borrowings of Section 4.2 and the other terms and conditions of this Section 2.14. (c) The Borrower's Reimbursement Obligations. ------------------------------------------- (i) The Borrower hereby irrevocably and unconditionally agrees to reimburse the Issuing Bank for each payment or disbursement made by the Issuing Bank to settle its obligations under any draft drawn or other payment made under a Letter of Credit (a "Reimbursement Obligation") within two (2) Business Days from when such draft is paid or other payment is made with either funds not borrowed hereunder or with a Borrowing of Revolving Loans subject to Section 2.4 and the other terms and conditions contained in this Agreement. The Reimbursement Obligation shall bear interest (which the Borrower hereby promises to pay) from and after the date such draft is paid or other payment is made until (but excluding the date) the Reimbursement Obligation is paid at the lesser of (x) the Highest Lawful Rate, or (y) the Base Rate, in each case so long as the Reimbursement Obligation shall not be past due, and thereafter at the default rate per annum as set forth in Section 2.9(d), whether or not the Commitment Termination Date shall have occurred. If any such payment or disbursement is reimbursed to the Issuing Bank on the date such payment or disbursement is made by the Issuing Bank, interest shall be paid on the reimbursable amount for one (1) day. The Issuing Bank shall give the Borrower notice of any drawing on a Letter of Credit within one (1) Business Day after such drawing is paid. (ii) The Borrower agrees for the benefit of the Issuing Bank and each Lender that, notwithstanding any provision of any Application, the obligations of the Borrower 31

under this Section 2.14(c) and each applicable Application shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement and each applicable Application under all circumstances whatsoever (other than the defense of payment in accordance with this Agreement), including, without limitation, the following circumstances (subject in all cases to the defense of payment in accordance with this Agreement): (1) any lack of validity or enforceability of any of the L/C Documents; (2) any amendment or waiver of or any consent to depart from all or any of the provisions of any of the L/C Documents; (3) the existence of any claim, set-off, defense or other right the Borrower may have at any time against a beneficiary of a Letter of Credit (or any person for whom a beneficiary may be acting), the Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, another L/C Document or any unrelated transaction; (4) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (5) payment by the Issuing Bank under a Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of the Letter of Credit; or (6) any other act or omission to act or delay of any kind by the Issuing Bank, any Lender or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this Section 2.14(c), constitute a legal or equitable discharge of the Borrower's obligations hereunder, under an Issuance Request or under an Application; provided, however, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (but excluding consequential damages, which are hereby waived to the extent not prohibited by applicable law) suffered by the Borrower that are caused by the Issuing Bank's gross negligence or willful misconduct. (d) The Participating Interests. Each Lender severally and not jointly --------------------------- agrees to purchase from the Issuing Bank, and the Issuing Bank hereby agrees to sell to each Lender, an undivided percentage participating interest, to the extent of its Percentage, in each Letter of Credit issued by, and Reimbursement Obligation owed to, the Issuing Bank in connection with a Letter of Credit. Upon any failure by the Borrower to pay any Reimbursement Obligation in connection with a Letter of Credit at the time required in Sections 2.14(c) and 2.4(c), or if the Issuing Bank is required at any time to return to the Borrower or to a trustee, receiver, liquidator, custodian or other Person any portion of any payment by the Borrower of any Reimbursement Obligation in connection with a Letter of Credit, the Issuing Bank shall promptly give notice of 32

same to each Lender, and the Issuing Bank shall have the right to require each Lender to fund its participation in such Reimbursement Obligation. Each Lender (except the Issuing Bank to the extent it is also a Lender) shall pay to the Issuing Bank an amount equal to such Lender's Percentage of such unpaid or recaptured Reimbursement Obligation not later than the Business Day it receives notice from the Issuing Bank to such effect, if such notice is received before 2:00 p.m., or not later than the following Business Day if such notice is received after such time. If a Lender fails to pay timely such amount to the Issuing Bank, it shall also pay to the Issuing Bank interest on such amount accrued from the date payment of such amount was made by the Issuing Bank to the date of such payment by the Lender at a rate per annum equal to the Base Rate in effect for each such day and only after such payment shall such Lender be entitled to receive its Percentage of each payment received on the relevant Reimbursement Obligation and of interest paid thereon. The several obligations of the Lenders to the Issuing Bank under this Section 2.14(d) shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment any Lender may have or have had against the Borrower, the Issuing Bank, and any other Lender or any other Person whatsoever including, but not limited to, any defense based on the failure of the demand for payment under the Letter of Credit to conform to the terms of such Letter of Credit or the legality, validity, regularity or enforceability of such Letter of Credit and INCLUDING, BUT NOT LIMITED TO, THOSE RESULTING FROM THE ISSUING BANK'S OWN SIMPLE OR CONTRIBUTORY NEGLIGENCE. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any subsequent reduction or termination of any Commitment of a Lender, and each payment by a Lender under this Section 2.14 shall be made without any offset, abatement, withholding or reduction whatsoever. Section 2.15. Commitment Terminations. The Borrower shall have the ------------------------ right at any time and from time to time, upon three (3) Business Days' prior and irrevocable written notice to the Administrative Agent, to terminate or reduce the Commitments without premium or penalty, in whole or in part, any reduction (i) to be in an amount not less than $5,000,000 as determined by the Borrower and in integral multiples of $5,000,000, and (ii) to be allocated ratably among the Lenders in proportion to their respective Commitments;provided, that the Revolving Credit Commitment Amount may not be reduced to an amount less than the sum of the aggregate principal amount of outstanding Revolving Loans, Competitive Loans, and L/C Obligations, after giving effect to payments on such proposed termination or reduction date; provided, however, that to the extent the Borrower provides to the Administrative Agent cash collateral in an amount sufficient to cover such shortage or back-to-back letters of credit from a bank(s) or financial institution(s) whose short-term unsecured debt rating is rated A or above from either S&P or Moody's or such other bank(s) or financial institution(s) satisfactory to the Required Lenders in an amount equal to the undrawn face amount of any applicable outstanding Letters of Credit with an expiration date of at least five (5) days after the expiration date of any applicable Letter of Credit and which provide that the Administrative Agent may make a drawing thereunder in the event that it pays a drawing under such Letter of Credit. The Administrative Agent shall give prompt notice to each Lender of any such termination or reduction of the Commitments. Any termination of Commitments pursuant to this Section 2.15 is permanent and may not be reinstated. 33

Section 2.16. Extension of Commitments. -------------------------- (a) The Borrower may, by notice to the Administrative Agent (which shall promptly deliver a copy to each of the Lenders) given not less than 30 days and not more than 60 days prior to December 26, 2002, request that the Lenders extend the Commitment Termination Date for an additional period of not more than 364 days as specified in such notice. Any such notice shall specify any fees that the Borrower agrees to pay as consideration for such extension, any changes to the Applicable Facility Fee Rate, Applicable Margin, and/or Applicable Utilization Fee Rate that will apply during the term of such extension and the amendments, if any, to the covenants contained herein or other provisions hereof proposed by the Borrower to be applicable during the term of such extension. Each Lender shall, by notice to the Borrower and the Administrative Agent given not earlier than the 30th day and not later than the 15th day prior to December 26, 2002, advise the Administrative Agent and the Borrower whether or not it agrees to such extension on the terms set forth in such notice. Any Lender that has not so advised the Administrative Agent by such day shall be deemed to have declined to agree to such extension. (b) If (and only if) Lenders (including any Lenders becoming parties to this Agreement as contemplated by the last sentence of paragraph (c) below) holding more than 50% of the Commitments in effect prior to such extension shall have agreed to extend the Commitment Termination Date (each such Lender being called an "Extending Lender", and Lenders not having so agreed being called "Non-Extending Lenders"), then, if the Borrower shall so elect in a notice delivered to the Administrative Agent not earlier than the 15th day and not later than the 10th day prior to December 26, 2002, the Commitment Termination Date shall be extended as to such Extending Lenders for the additional period and on the terms specified in the Borrower's notice provided for under paragraph (a) and, if such terms vary from those contained in this Agreement, the Borrower and the Extending Lenders shall enter into an amendment to this Agreement to be effective as of December 26, 2002, pursuant to which such terms shall be given effect as to the Borrower and the Extending Lenders and, to the extent consistent with Section 10.11, the other Lenders. (c) If less than all the Lenders consent to any extension request pursuant to paragraph (a), the Administrative Agent shall promptly so notify the Extending Lenders, and each Extending Lender may, in its sole discretion, give written notice to the Administrative Agent not later than 10 days prior to December 26, 2002, of the amount of the Non-Extending Lenders' Commitments, together with the corresponding amount of such Non-Extending Lenders' outstanding Loans and obligations and interests in respect of outstanding L/C Obligations (such corresponding amount of Loans and obligations and interests in respect of outstanding L/C Obligations being collectively referred to as the "Related Credit Extensions"), it is willing to accept and assume. If such Extending Lenders are willing to accept and assume Commitments and Related Credit Extensions in an aggregate amount that exceeds the amount of the Commitments and Related Credit Extensions of the Non-Extending Lenders, the Non-Extending Lenders' Commitments and Related Credit Extensions shall be allocated among Extending Lenders willing to accept and assume such Commitments and Related Credit Extensions in such amounts as shall be agreed between the Borrower and the Administrative Agent, and such Commitments and Related Credit Extensions shall be assigned, accepted and assumed in accordance with the provisions of Section 10.10. If after giving effect to the assignments 34

described above the full amount of the Commitments and Related Credit Extensions of the Non-Extending Lenders would not be assigned, accepted and assumed as set forth above prior to December 26, 2002, the Borrower may (i) arrange for one or more Extending Lenders or other assignees eligible to become Lenders hereunder (each, an "Extension Assuming Lender"), to accept and assume the unassigned amounts of the Commitments and Related Credit Extensions of the Non-Extending Lenders in accordance with Section 10.10 and become parties hereto with all the rights and obligations of Lenders hereunder, or (ii) subject to the requirements of paragraph (b) above, reduce the aggregate amount of the Commitments to an amount equal to the aggregate amount of Commitments held by all Extending Lenders and Extension Assuming Lenders all as of December 26, 2002. On December 26, 2002: (i) the Extending Lenders and Extension Assuming Lenders shall pay to the Non-Extending Lenders the principal amount of any outstanding Loans made by such Non-Extending Lenders, and any outstanding amounts paid by such Non-Extending Lenders pursuant to Section 2.14(d), all as assigned, accepted and assumed in accordance with this paragraph (c), together with any accrued interest thereon as of December 26, 2002; (ii) any accrued fees and other amounts payable hereunder to any Non-Extending Lender as of December 26, 2002 shall be paid to such Non-Extending Lender by the Borrower or by such Extending Lenders and Extension Assuming Lenders, as may be agreed by such parties; and (iii) with respect to any such Extension Assuming Lender, the applicable processing and recordation fee required under Section 10.10 shall be paid. The Commitment of any Extension Assuming Lender shall in no event be less than $5,000,000 (subject to the fourth sentence of Section 10.10(b)) unless the Commitment of a Non-Extending Lender as of December 26, 2002 is less than $5,000,000, in which case such Extension Assuming Lender may accept and assume all of such lesser amount. Any such Non-Extending Lender's rights under Sections 2.13, 3.3, 8.3, 10.3, and 10.13, and its obligations under Section 9.6, shall survive such substitution as to matters occurring on or prior to December 26, 2002, (and if such Non-Extending Lender shall continue to have Loans outstanding after December 26, 2002, shall continue in effect following December 26, 2002). At least three Business Days prior to the proposed effective date of any extension of the Commitment Termination Date pursuant to this Section, (A) each Extension Assuming Lender, if any, shall deliver to the Borrower and the Administrative Agent an Assignment Agreement or other agreement in a form approved by the Administrative Agent and the Borrower evidencing such Extension Assuming Lender's Commitment and Related Credit Extensions, duly executed by such Extension Assuming Lender, such Non-Extending Lender a Commitment and Related Credit Extensions of which is being assigned to and accepted and assumed by such Extension Assuming Lender, the Borrower and the Administrative Agent, and (B) each Extending Lender, if any, shall have delivered written confirmation satisfactory to the Borrower and the 35

Administrative Agent as to any increase in the amount of its Commitment and Related Credit Extensions resulting from its acceptance and assumption of all or a portion of the Commitments and Related Credit Extensions of the Non-Extending Lenders. As of and following the effective date of any extension made pursuant to this Section, each Extension Assuming Lender shall be a Lender for all purposes of this Agreement. (d) The decision to agree or withhold agreement to any requested extension of the Commitment Termination Date hereunder shall be at the sole discretion of each Lender. If the Commitment Termination Date shall have been extended as provided in paragraph (b) above, the Commitment of any Non-Extending Lender shall terminate on December 26, 2002, and the term "Commitment Termination Date", as used herein, shall mean, as to the Related Credit Extensions of such Non-Extending Lender (to the extent not assumed pursuant to paragraph (c)), the Commitment Termination Date in effect prior to giving effect to such extension. (e) Notwithstanding the foregoing, no extension of the Commitment Termination Date shall become effective under this Section unless (i) the conditions set forth in paragraphs (b) and (c) of Section 4.2 shall be satisfied on December 26, 2002, and the Administrative Agent shall have received a certificate to that effect dated such date and executed by the President or a Vice President of the Borrower, and (ii) the Administrative Agent shall have received (with sufficient copies for each of the Lenders (other than any Non-Extending Lenders)) documents consistent with those delivered under clause (i) of Section 4.1(a) as to the corporate power and authority of the Borrower to borrow hereunder after giving effect to such extension. ARTICLE 3. FEES AND PAYMENTS. Section 3.1. Fees. ---- (a) Facility Fees. The Borrower agrees to pay to the Administrative -------------- Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Facility Fee Rate (i) on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Initial Availability Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure, and (ii) if the Borrower has exercised the Term Loan Option, on the daily principal amount of the Term Loans of such Lender during the period from and including December 26, 2002 to but excluding the date on which all outstanding Term Loans are paid in full. Accrued facility fees shall be payable in arrears on the last Business Day of March, June, September and December of each year, commencing on December 31, 2001, on the date(s) on which the Commitments shall have terminated and the Lenders shall have no further Revolving Credit Exposures, and on the Maturity Date. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). 36

(b) Utilization Fees. (i) For any day prior to the Commitment ----------------- Termination Date on which the outstanding principal amount of the Loans and L/C Obligations shall be greater than an amount equal to 33% of the total Commitments (and for any day after the termination of all the Commitments on which any Loans or L/C Obligations shall be outstanding if the outstanding principal amount thereof on the date the Commitments terminated shall have been greater than 33% of the total Commitments in effect on such date), and (ii) if the Borrower has exercised the Term Loan Option, for any day on which any Term Loans are outstanding, the Borrower shall pay to the Administrative Agent for the account of each Lender a utilization fee equal to the Applicable Utilization Fee Rate multiplied by the aggregate amount of such Lender's outstanding Loans and applicable Percentage of L/C Obligations on such day. Accrued and unpaid utilization fees, if any, shall be payable in arrears on the last Business Day of each March, June, September and December, on the date(s) on which the Commitments shall have terminated and there are no Loans or L/C Obligations outstanding, and on the Maturity Date. All utilization fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) Letter of Credit Fees. Commencing upon the date of issuance, ------------------------ increase or extension of any Letter of Credit and thereafter on the last Business Day of each March, June, September and December, the Borrower shall pay to the Administrative Agent quarterly in advance, for the period until the next Letter of Credit fee payment date, for the ratable account of the Lenders, a non-refundable fee equal to the Applicable Margin multiplied by the outstanding face amount or increase of such Letter of Credit during such upcoming period calculated on the basis of a 360 day year and actual days elapsed and based on the then scheduled expiration date of the Letter of Credit. In addition, the Borrower shall pay to the Issuing Bank solely for the Issuing Bank's account, in connection with each Letter of Credit, issuance and administrative fees and expenses for Letters of Credit as agreed from time to time between the Issuing Bank and the Borrower. (d) Administrative Agent Fees. The Borrower shall pay to the --------------------------- Administrative Agent and Lead Arranger the fees from time to time agreed to by the Borrower, the Administrative Agent, and Lead Arranger. (e) Payment of Fees. All fees payable hereunder shall be paid on the ----------------- dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees, utilization fees, and Letter of Credit fees (other than issuance and administrative fees payable to the Issuing Bank), to the Lenders. Section 3.2. Place and Application of Payments. ------------------------------------- (a) All payments of principal of and interest on the Loans, Reimbursement Obligations and all fees and other amounts payable by the Borrower under the Credit Documents shall be made by the Borrower to the Administrative Agent, for the benefit of the Lenders entitled to such payments, in immediately available funds on the due date thereof no later than 2:00 p.m. at the office of the Administrative Agent in Atlanta, Georgia, or such other location as the Administrative Agent may designate in writing to the Borrower. Any payments received by the Administrative Agent from the Borrower after the time specified in the preceding sentence 37

shall be deemed to have been received on the next Business Day. The Administrative Agent will, on the same day each payment is received or deemed to have been received in accordance with this Section 3.2, cause to be distributed like funds to each Lender owed an Obligation for which such payment was received, pro rata based on the respective amounts of such type of Obligation then owing to each Lender. (b) If any payment received by the Administrative Agent under any Credit Document is insufficient to pay in full all amounts then due and payable to the Administrative Agent and the Lenders under the Credit Documents, such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the order set forth in Section 7.7. In calculating the amount of Obligations owing each Lender other than for principal and interest on Loans and Reimbursement Obligations and fees under Section 3.1, the Administrative Agent shall only be required to include such other Obligations that Lenders have certified to the Administrative Agent in writing are due to such Lenders. Section 3.3. Withholding Taxes. ------------------ (a) Payments Free of Withholding. Except as otherwise required by law ----------------------------- and subject to Section 3.3(b), each payment by the Borrower to any Lender, Issuing Bank or Administrative Agent under this Agreement or any other Credit Document shall be made without withholding for or on account of any present or future taxes imposed by or within the jurisdiction in which the Borrower is incorporated, any jurisdiction from which the Borrower makes any payment, or (in each case) any political subdivision or taxing authority thereof or therein, excluding, in the case of each Lender, Issuing Bank and the Administrative Agent, the following taxes: (i) taxes imposed on, based upon, or measured by such Lender's, Issuing Bank's or the Administrative Agent's net income or profits, and branch profits, franchise and similar taxes imposed on it; (ii) taxes imposed on such Lender, Issuing Bank or the Administrative Agent as a result of a present or former connection between the taxing jurisdiction and such Lender, Issuing Bank or Administrative Agent, or any affiliate thereof, as the case may be, other than a connection resulting solely from the transactions contemplated by this Agreement; (iii) taxes imposed as a result of the transfer by such Lender, Issuing Bank or Administrative Agent of its interest in this Agreement or any other Credit Document or a designation by such Lender, Issuing Bank or the Administrative Agent (other than pursuant to Section 8.3(c)) of a new Lending Office (other than taxes imposed as a result of any change in treaty, law or regulation after such transfer of such Lender's, Issuing Bank's or the Administrative Agent's interest in this Agreement or any other Credit Document or designation of a new Lending Office); (iv) taxes imposed by the United States of America (or any political subdivision thereof or tax authority therein) upon a Lender, Issuing Bank or Administrative Agent organized under the laws of a jurisdiction outside of the United 38

States, except to the extent that such tax is imposed as a result of any change in applicable law, regulation or treaty (other than any addition of or change in any "anti-treaty shopping," "limitation of benefits," or similar provision applicable to a treaty) after the date hereof, in the case of each Lender, Issuing Bank or Administrative Agent originally a party hereto or, in the case of any Purchasing Lender (as defined in Section 10.10) or other Issuing Bank or Administrative Agent, after the date on which it becomes a Lender, Issuing Bank, or Administrative Agent, as the case may be; or (v) taxes which would not have been imposed but for (a) the failure of any Lender, the Issuing Bank, or the Administrative Agent, as the case may be, to provide (I) the applicable forms prescribed by the Internal Revenue Service, as required pursuant to Section 3.3(b), or (II) any other form, certification, documentation or proof which is reasonably requested by the Borrower, or (b) a determination by a taxing authority or a court of competent jurisdiction that a form, certification, documentation or other proof provided by such Lender, Issuing Bank or the Administrative Agent to establish an exemption from such tax, assessment or other governmental charge is false; (all such present or future taxes, excluding only the taxes described in the preceding clauses (i) through (v), being hereinafter referred to as "Indemnified Taxes"). If any such withholding is so required, the Borrower shall make the withholding, pay the amount withheld to the appropriate governmental authority before penalties attach thereto or interest accrues thereon and forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Lender, Issuing Bank and the Administrative Agent is free and clear of such Indemnified Taxes (including Indemnified Taxes on such additional amount) and is equal to the amount that such Lender, Issuing Bank or the Administrative Agent (as the case may be) would have received had withholding of any Indemnified Tax not been made. If the Borrower pays any Indemnified Taxes, or any penalties or interest in connection therewith, it shall deliver official tax receipts evidencing the payment or certified copies thereof, or other evidence of payment if such tax receipts have not yet been received by the Borrower (with such tax receipts to be delivered within fifteen (15) days after being actually received), to the Lender, Issuing Bank or the Administrative Agent on whose account such withholding was made (with a copy to the Administrative Agent if not the recipient of the original) within fifteen (15) days of such payment. If the Administrative Agent, Issuing Bank or any Lender pays any Indemnified Taxes, or any penalties or interest in connection therewith, the Borrower shall reimburse the Administrative Agent, Issuing Bank or that Lender for the payment on demand in the currency in which such payment was made. Such Lender, Issuing Bank or the Administrative Agent shall make written demand on the Borrower for reimbursement hereunder no later than ninety (90) days after the earlier of (i) the date on which such Lender, Issuing Bank or the Administrative Agent makes payment of the Indemnified Taxes, penalties and interest, and (ii) the date on which the relevant taxing authority or other governmental authority makes written demand upon such Lender, Issuing Bank or the Administrative Agent for payment of the Indemnified Taxes, penalties and interest. Any such demand shall describe in reasonable detail such Indemnified Taxes, penalties or interest, including the amount thereof if then known to such Lender, Issuing Bank, or the Administrative Agent, as the case may be. In the event that such Lender, Issuing Bank or the Administrative Agent fails to give the Borrower timely notice as provided herein, the Borrower shall not have any obligation to pay such claim for reimbursement. 39

(b) U.S. Withholding Tax Exemptions. Upon the written request of the --------------------------------- Borrower or the Administrative Agent, each Lender or Issuing Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Administrative Agent, promptly after such request, two duly completed and signed copies of either Form W-8 BEN or any successor form (entitling such Lender or Issuing Bank to a complete exemption from withholding under the Code on all amounts to be received by such Lender or Issuing Bank, including fees, pursuant to the Credit Documents) or Form W-8 ECI or any successor form (relating to all amounts to be received by such Lender or Issuing Bank, including fees, pursuant to the Credit Documents) of the United States Internal Revenue Service, and any other form of the United States Internal Revenue Service reasonably necessary to accomplish exemption from withholding obligations or to facilitate the Administrative Agent's performance under this Agreement. Thereafter and from time to time, each such Lender or Issuing Bank shall submit to the Borrower and the Administrative Agent such additional duly completed and signed copies of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be required under then-current United States law or regulations to avoid United States withholding taxes on payments in respect of all amounts to be received by such Lender or Issuing Bank, including fees, pursuant to the Credit Documents. Upon the request of the Borrower, each Lender or Issuing Bank that is a United States person shall submit to the Borrower a certificate to the effect that it is such a United States person. (c) Inability of Lender to Submit Forms. If any Lender or Issuing Bank ----------------------------------- determines in good faith, as a result of any change in applicable law, regulation or treaty, or in any official application or interpretation thereof, that (i) it is unable to submit to the Borrower or Administrative Agent any form or certificate that such Lender or Issuing Bank is obligated to submit pursuant to subsection (b) of this Section 3.3, (ii) it is required to withdraw or cancel any such form or certificate previously submitted, or (iii) any such form or certificate otherwise becomes ineffective or inaccurate, such Lender or Issuing Bank shall promptly notify the Borrower and Administrative Agent of such fact, and the Lender or Issuing Bank shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable. (d) Refund of Taxes. If any Lender, Issuing Bank or the Administrative --------------- Agent receives a refund of any Indemnified Tax or any tax referred to in Section 10.3 with respect to which the Borrower has paid any amount pursuant to this Section 3.3 or Section 10.3, such Lender, Issuing Bank or the Administrative Agent shall pay the amount of such refund (including any interest received with respect thereto) to the Borrower within fifteen (15) days after receipt thereof. A Lender, Issuing Bank, or the Administrative Agent shall provide, at the sole cost and expense of the Borrower, such assistance as the Borrower may reasonably request in order to obtain such a refund; provided, however, that neither the Administrative Agent nor any Lender or Issuing Bank shall in any event be required to disclose any information to the Borrower with respect to the overall tax position of the Administrative Agent, Issuing Bank, or such Lender. 40

ARTICLE 4. CONDITIONS PRECEDENT. Section 4.1. Initial Borrowing. The obligation of each Lender to advance the initial Loans hereunder, and of the Issuing Bank to issue the initial Letter of Credit hereunder, on or after the Initial Availability Date is subject to satisfaction of the following conditions precedent: (a) The Administrative Agent shall have received the following all in form and substance reasonably satisfactory to the Administrative Agent and in sufficient number of signed counterparts, where applicable, to provide one for each Lender: (i) Certificates of Officers. Certificates of the Secretary or an -------------------------- Assistant Secretary of the Borrower containing specimen signatures of the persons authorized to execute Credit Documents on the Borrower's behalf or any other documents provided for herein or therein, together with (x) copies of resolutions of the Board of Directors or other appropriate body of the Borrower authorizing the execution and delivery of the Credit Documents, (y) copies of the Borrower's Memorandum and Articles of Association and other publicly filed organizational documents in its jurisdiction of organization and bylaws and other governing documents, and (z) a certificate of incorporation and good standing from the appropriate governing agency of the Borrower's jurisdiction of organization; (ii) Regulatory Filings and Approvals. Copies of all necessary ----------------------------------- governmental and third party approvals, registrations, and filings in respect of the transactions contemplated by this Agreement; (iii) Insurance Certificate. An insurance certificate dated not more ---------------------- than ten (10) days prior to the Initial Availability Date from the Borrower describing in reasonable detail the insurance maintained by the Borrower and its Subsidiaries as required by this Agreement; (iv) Opinions of Counsel. The opinions of (x) Baker Botts LLP, counsel ------------------- for the Borrower, in the form of Exhibit 4.1A, (y) William Turcotte, ------------ Associate General Counsel of the Borrower, in the form of Exhibit 4.1B, and ------------ (z) Walkers, Cayman Islands counsel for the Borrower, in the form of Exhibit 4.1C; ------------- (v) Closing Certificate. Certificate of the President or a Vice -------------------- President of the Borrower as to the satisfaction of all conditions set forth in this Section 4.1; and (vi) Existing 364-Day Revolving Credit Facility. Evidence that all ---------------------------------------------- commitments of the lenders under the Existing 364-Day Revolving Credit Facility are being terminated, and all amounts then outstanding under the Existing 364-Day Revolving Credit Facility are being paid in full, simultaneously on the Initial Availability Date. (b) Each of the representations and warranties of the Borrower and its Subsidiaries set forth herein and in the other Credit Documents shall be true and correct in all material respects as 41

of the time of such Borrowing, except to the extent that any such representation or warranty relates solely to an earlier date, in which case it shall have been true and correct in all material respects as of such earlier date; (c) No Default or Event of Default shall have occurred and be continuing; (d) There shall be no pending or, to the knowledge of the Borrower, threatened actions, suits or proceedings at law or in equity or by or before any governmental authority against or affecting the Borrower or any of its Subsidiaries or any of their respective businesses, properties or rights which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and (e) Payment of all fees and all expenses incurred through the Effective Date then due and owing to the Administrative Agent, the Lenders, and the Lead Arranger pursuant to this Agreement and as otherwise agreed in writing by the Borrower. Section 4.2. All Borrowings and Conversion to Term Loans. The ------------------------------------------------- obligation of each Lender to make any advance of any Loan and to convert outstanding Revolving Loans to Term Loans pursuant to Section 2.3, and of the Issuing Bank to issue any Letter of Credit hereunder (including any increase in the amount of, or extension of the expiration date of, any Letter of Credit) is subject to satisfaction of the following conditions precedent (but subject to Sections 2.4(c) and 2.14(c)): (a) Notices. The Administrative Agent shall have received (i) in the ------- case of any Loan, the Borrowing Request required by the first sentence of Section 2.4(a), or the Competitive Bid Request and notice of acceptance thereof pursuant to Section 2.5, as the case may be, (ii) in the case of any conversion of Revolving Loans to Term Loans pursuant to Section 2.3, the written notice as to the exercise of the Term Loan Option as specified in Section 2.3, and (iii) in the case of the issuance, extension or increase of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a duly completed Issuance Request and Application for such Letter of Credit, as the case may be, meeting the requirements of Section 2.14(b); (b) Warranties True and Correct. In the case of any conversion of ------------------------------ Revolving Loans to Term Loans pursuant to Section 2.3, or any advance, Borrowing, or issuance or increase of any Letter of Credit that increases the aggregate amount of Loans and L/C Obligations outstanding after giving effect to such advance, Borrowing or issuance or increase, each of the representations and warranties of the Borrower and its Subsidiaries set forth herein and in the other Credit Documents shall be true and correct in all material respects as of the time of such conversion, advance, Borrowing, or issuance or increase of any Letter of Credit, except as a result of the transactions expressly permitted hereunder or thereunder and except to the extent that any such representation or warranty relates solely to an earlier date, in which case it shall have been true and correct in all material respects as of such earlier date; (c) No Default. No Default or Event of Default shall have occurred and ---------- be continuing or would occur as a result of any such Borrowing or conversion of Revolving Loans to Term Loans pursuant to Section 2.3; or 42

(d) Regulations U and X. The Borrowing to be made by the Borrower ---------------------- shall not result in the Borrower or any Lender or Issuing Bank being in non-compliance with or in violation of Regulation U or X of the Board of Governors of the Federal Reserve System. Each acceptance by the Borrower of an advance of any Loan, the conversion of Revolving Loans to Term Loans, or of the issuance of, increase in the amount of, or extension of the expiration date of, a Letter of Credit shall be deemed to be a representation and warranty by the Borrower on the date of such acceptance, that all conditions precedent to such Borrowing set forth in this Section 4.2 and in Section 4.1 with respect to the initial Borrowings hereunder have (except to the extent waived in accordance with the terms hereof) been satisfied or fulfilled unless the Borrower gives to the Administrative Agent and the Lenders written notice to the contrary, in which case none of the Lenders shall be required to fund or convert such Loans, and the Issuing Bank shall not be required to issue, increase the amount of or extend the expiration date of such Letter of Credit, unless the Required Lenders shall have previously waived in writing such non-compliance. ARTICLE 5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to each Lender, Issuing Bank and Administrative Agent as follows: Section 5.1. Corporate Organization. The Borrower and each of its ----------------------- material Subsidiaries: (i) is duly organized and existing in good standing under the laws of the jurisdiction of its organization; (ii) has all necessary company power and authority to own the property and assets it uses in its business and otherwise to carry on its present business; and (iii) is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the property owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified or to be in good standing, as the case may be, would not have a Material Adverse Effect. Section 5.2. Power and Authority; Validity. The Borrower has the -------------------------------- organizational power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents and has taken all necessary company action to authorize the execution, delivery and performance of such Credit Documents. The Borrower has duly executed and delivered each Credit Document and each such Credit Document constitutes the legal, valid and binding obligation of the Borrower enforceable against it in accordance with its terms, subject as to enforcement only to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and equitable principles. Section 5.3. No Violation. Neither the execution, delivery or ------------- performance by the Borrower of the Credit Documents nor compliance by it with the terms and provisions thereof, nor the consummation by it of the transactions contemplated herein or therein, will (i) contravene in any material respect any applicable provision of any law, statute, rule or regulation, or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) conflict with or result in any breach of any term, covenant, condition or other provision of, or 43

constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien other than any Permitted Lien upon any of the property or assets of the Borrower or any of its Subsidiaries under, the terms of any material contractual obligation to which the Borrower or any of its Subsidiaries is a party or by which they or any of their properties or assets are bound or to which they may be subject, or (iii) violate or conflict with any provision of the Memorandum and Articles of Association, charter, articles or certificate of incorporation, partnership or limited liability company agreement, by-laws, or other applicable governance documents of the Borrower or any of its Subsidiaries. Section 5.4. Litigation. There are no actions, suits, proceedings or ---------- counterclaims (including, without limitation, derivative or injunctive actions) pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries that are reasonably likely to have a Material Adverse Effect. Section 5.5. Use of Proceeds; Margin Regulations. --------------------------------------- (a) Use of Proceeds. The proceeds of the Loans and the Letters of ----------------- Credit shall only be used for general corporate purposes of the Borrower and its Subsidiaries. (b) Margin Stock. Neither the Borrower nor any of its Subsidiaries is ------------- engaged in the business of extending credit for the purpose of purchasing or carrying margin stock. No proceeds of the Loans or the Letters of Credit will be used for a purpose which violates Regulations T, U or X of the Board of Governors of the Federal Reserve System. After application of the proceeds of the Loans, the issuance of the Letters of Credit, and any acquisitions permitted hereunder, less than 25% of the assets of each of the Borrower and its Subsidiaries consists of "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System). Section 5.6. Investment Company Act. Neither the Borrower nor any of ----------------------- its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 5.7. Public Utility Holding Company Act. Neither the Borrower ---------------------------------- nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 5.8. True and Complete Disclosure. All factual information ------------------------------- (taken as a whole) furnished by the Borrower or any of its Subsidiaries in writing to the Administrative Agent or any Lender in connection with any Credit Document or the Confidential Information Memorandum or any transaction contemplated therein did not, as of the date such information was furnished (or, if such information expressly related to a specific date, as of such specific date), contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein (taken as a whole), in light of the circumstances under which such information was furnished, not misleading, except for such statements, if any, as have been 44

updated, corrected, supplemented, superseded or modified pursuant to a written correction or supplement furnished to the Lenders prior to the date of this Agreement. Section 5.9. Financial Statements. The financial statements heretofore -------------------- delivered to the Lenders for the Borrower's fiscal year ending December 31, 2000, and for the Borrower's fiscal quarter and year-to-date period ending September 30, 2001, have been prepared in accordance with GAAP applied on a basis consistent, except as otherwise noted therein, with the Borrower's financial statements for the previous fiscal year. Such annual and quarterly financial statements fairly present on a consolidated basis the financial position of the Borrower as of the dates thereof, and the results of operations for the periods indicated, subject in the case of interim financial statements, to normal year-end audit adjustments and omission of certain footnotes (as permitted by the SEC). As of the Effective Date, the Borrower and its Subsidiaries, considered as a whole, had no material contingent liabilities or material Indebtedness required under GAAP to be disclosed in a consolidated balance sheet of the Borrower that were not disclosed in the financial statements referred to in this Section 5.9 or in the notes thereto or disclosed in writing to the Administrative Agent (with a request to the Administrative Agent to distribute such disclosure to the Lenders). Section 5.10. No Material Adverse Change. There has occurred no event -------------------------- or effect that has had or could reasonably be expected to have a Material Adverse Effect. Section 5.11. Labor Controversies. There are no labor controversies -------------------- pending or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. Section 5.12. Taxes. The Borrower and its Subsidiaries have filed all ----- United States federal income tax returns, and all other material tax returns required to be filed, whether in the United States or in any foreign jurisdiction, and have paid all governmental taxes, rates, assessments, fees, charges and levies (collectively, "Taxes") shown to be due and payable on such returns or on any assessments made against Borrower and its Subsidiaries or any of their properties (other than any such assessments, fees, charges or levies that are not more than ninety (90) days past due, or which can thereafter be paid without penalty, or which are being contested in good faith by appropriate proceedings and for which reserves have been provided in conformity with GAAP, or which the failure to pay could not reasonably be expected to have a Material Adverse Effect). Section 5.13. ERISA. With respect to each Plan, the Borrower and its ----- Subsidiaries have fulfilled their obligations under the minimum funding standards of, and are in compliance in all material respects with, ERISA and with the Code to the extent applicable to it, and have not incurred any liability under Title IV of ERISA to the PBGC other than a liability to the PBGC for premiums under Section 4007 of ERISA, except as described in Schedule 5.13 and in each case with such exceptions as could not reasonably be expected to have a Material Adverse Effect. As of the Effective Date, neither the Borrower nor any of its Subsidiaries has any material contingent liability with respect to any post-retirement benefits under a welfare plan subject to ERISA, other than liability for continuation coverage described in Part 6 of Title I of ERISA and as disclosed in the financial statements of the Borrower for the fiscal quarter ending 45

September 30, 2000, described in Section 5.9, or any other liability that could not reasonably be expected to have a Material Adverse Effect. Section 5.14. Consents. On the Initial Availability Date, all consents -------- and approvals of, and filings and registrations with, and all other actions of, all governmental agencies, authorities or instrumentalities required to have been obtained or made by the Borrower in order to obtain the Loans and Letters of Credit hereunder have been or will have been obtained or made and are or will be in full force and effect. Section 5.15. Insurance. The Borrower and its material Subsidiaries --------- currently maintain in effect, with responsible insurance companies, insurance against any loss or damage to all insurable property and assets owned by it, which insurance is of a character and in or in excess of such amounts as are customarily maintained by companies similarly situated and operating like property or assets (subject to self-insured retentions and deductibles), and insurance with respect to employers' and public and product liability risks (subject to self-insured retentions and deductibles). Section 5.16. Intellectual Property. The Borrower and its Subsidiaries --------------------- own or hold valid licenses to use all the patents, trademarks, permits, service marks, and trade names that are necessary to the operation of the business of the Borrower and its Subsidiaries as presently conducted, except where the failure to own, or hold valid licenses to use, such patents, trademarks, permits, service marks, and trade names could not reasonably be expected to have a Material Adverse Effect. Section 5.17. Ownership of Property. The Borrower and its Subsidiaries --------------------- have good title to or a valid leasehold interest in all of their real property and good title to, or a valid leasehold interest in, all of their other property, subject to no Liens except Permitted Liens, except where the failure to have such title or leasehold interest in such property could not reasonably be expected to have a Material Adverse Effect. Section 5.18. Compliance with Statutes, Etc. The Borrower and its -------------------------------- Subsidiaries are in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic and foreign, in respect of the conduct of their businesses and the ownership of their properties, except for such instances of non-compliance as could not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect. Section 5.19. Environmental Matters. ---------------------- (a) Compliance with Environmental Laws. Except as described in ------------------------------------- Schedule 5.19, the Borrower and its Subsidiaries are in compliance with all - -------------- applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws, except for such instances of non-compliance as could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Borrower, there are no pending, past or threatened Environmental Claims against the Borrower or any of its Subsidiaries on any property owned or operated by the Borrower or any of its Subsidiaries except as described in Schedule 5.19 or except as could not ------------- 46

reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Borrower, there are no conditions or occurrences on any property owned or operated by the Borrower or any of its Subsidiaries or on any property adjoining or in the vicinity of any such property that could reasonably be expected to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any such property that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. (b) Hazardous Materials. To the best of the Borrower's knowledge, (i) -------------------- Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any property owned or operated by the Borrower or any of its Subsidiaries in a manner that has violated or could reasonably be expected to violate any Environmental Law, and (ii) Hazardous Materials have not at any time been released on or from any property owned or operated by the Borrower or any of its Subsidiaries, in the case of both (i) and (ii), with such exceptions as could not reasonably be expected to have a Material Adverse Effect. Section 5.20. Existing Indebtedness. Schedule 5.20 contains a complete --------------------- ------------- and accurate list of all Indebtedness outstanding as of the Effective Date, with respect to the Borrower and its Subsidiaries, in each case in a principal amount of $20,000,000 or more (other than the Obligations hereunder and Indebtedness permitted by Section 6.11(b) through (k)) and permitted by Section 6.11(a), in each case showing the aggregate principal amount thereof, the name of the respective borrower and any other entity which directly or indirectly guaranteed such Indebtedness, and the scheduled payments of such Indebtedness. Section 5.21. Existing Liens. Schedule 5.21 contains a complete and --------------- -------------- accurate list of all Liens outstanding as of the Effective Date, with respect to the Borrower and its Subsidiaries where the Indebtedness or other obligations secured by such Lien is in a principal amount of $20,000,000 or more (other than the Liens permitted by Section 6.10(b) through (r)), and permitted by Section 6.10(a), in each case showing the name of the Person whose assets are subject to such Lien, the aggregate principal amount of the Indebtedness secured thereby, and a description of the Agreements or other instruments creating, granting, or otherwise giving rise to such Lien. ARTICLE 6. COVENANTS. The Borrower covenants and agrees that, so long as any Loan, Note, Commitment, or L/C Obligation is outstanding hereunder, or any other Obligation is due and payable hereunder: Section 6.1. Corporate Existence. Each of the Borrower and its -------------------- material Subsidiaries will preserve and maintain its organizational existence, except (i) for the dissolution of any material Subsidiaries whose assets are transferred to the Borrower or any of its Subsidiaries, (ii) where the failure to preserve, renew or keep in full force and effect the existence of any Subsidiary could not reasonably be expected to have a Material Adverse Effect, or (iii) as otherwise expressly permitted in this Agreement. Section 6.2. Maintenance. Each of the Borrower and its material ----------- Subsidiaries will maintain, preserve and keep its properties and equipment necessary to the proper conduct of its 47

business in reasonably good repair, working order and condition (normal wear and tear excepted) and will from time to time make all reasonably necessary repairs, renewals, replacements, additions and betterments thereto so that at all times such properties and equipment are reasonably preserved and maintained, in each case with such exceptions as could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect; provided, however, that nothing in this Section 6.2 shall prevent the Borrower or any material Subsidiary from discontinuing the operation or maintenance of any such properties or equipment if such discontinuance is, in the judgment of the Borrower or any material Subsidiary, as applicable, desirable in the conduct of their businesses. Section 6.3. Taxes. Each of the Borrower and its Subsidiaries will ----- duly pay and discharge all Taxes upon or against it or its properties before penalties accrue thereon (or, if later, within ninety (90) days of becoming past due), unless and to the extent that (i) the same is being contested in good faith and by appropriate proceedings and reserves have been established in conformity with GAAP, or (ii) the failure to effect such payment or discharge could not reasonably be expected to have a Material Adverse Effect. Section 6.4. ERISA. Each of the Borrower and its Subsidiaries will ----- timely pay and discharge all obligations and liabilities arising under ERISA or otherwise with respect to each Plan of a character which if unpaid or unperformed might result in the imposition of a material Lien against any properties or assets of the Borrower or any material Subsidiary and will promptly notify the Administrative Agent upon an officer of the Borrower becoming aware thereof, of (i) the occurrence of any reportable event (as defined in ERISA) relating to a Plan (other than a multi-employer plan, as defined in ERISA), so long as the event thereunder could reasonably be expected to have a Material Adverse Effect, other than any such event with respect to which the PBGC has waived notice by regulation; (ii) receipt of any notice from PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor; (iii) Borrower's or any of its Subsidiaries' intention to terminate or withdraw from any Plan if such termination or withdrawal would result in liability under Title IV of ERISA, unless such termination or withdrawal could not reasonably be expected to have a Material Adverse Effect; and (iv) the receipt by the Borrower or its Subsidiaries of notice of the occurrence of any event that could reasonably be expected to result in the incurrence of any liability (other than for benefits), fine or penalty to the Borrower and/or to the Borrower's Subsidiaries, or any plan amendment that could reasonably be expected to increase the contingent liability of the Borrower and its Subsidiaries, taken as a whole, in connection with any post-retirement benefit under a welfare plan (subject to ERISA), unless such event or amendment could not reasonably be expected to have a Material Adverse Effect. The Borrower will also promptly notify the Administrative Agent of (i) any material contributions to any Foreign Plan that have not been made by the required due date for such contribution if such default could reasonably be expected to have a Material Adverse Effect; (ii) any Foreign Plan that is not funded to the extent required by the law of the jurisdiction whose law governs such Foreign Plan based on the actuarial assumptions reasonably used at any time if such underfunding (together with any penalties likely to result) could reasonably be expected to have a Material Adverse Effect, and (iii) any material change anticipated to any Foreign Plan that could reasonably be expected to have a Material Adverse Effect. 48

Section 6.5. Insurance. Each of the Borrower and its material --------- Subsidiaries will maintain or cause to be maintained, with responsible insurance companies, insurance against any loss or damage to all insurable property and assets owned by it, such insurance to be of a character and in or in excess of such amounts as are customarily maintained by companies similarly situated and operating like property or assets (subject to self-insured retentions and deductibles) and will (subject to self-insured retentions and deductibles) maintain or cause to be maintained insurance with respect to employers' and public and product liability risks. Section 6.6. Financial Reports and Other Information. ------------------------------------------- (a) Periodic Financial Statements and Other Documents. The Borrower, --------------------------------------------------- its Subsidiaries and any SPVs will maintain a system of accounting in such manner as will enable preparation of financial statements in accordance with GAAP and will furnish to the Lenders and their respective authorized representatives such information about the business and financial condition of the Borrower, its Subsidiaries and any SPVs as any Lender may reasonably request; and, without any request, will furnish to the Administrative Agent: (i) within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter and the related consolidated statements of income and retained earnings and of cash flows for such fiscal quarter and for the portion of the fiscal year ended with the last day of such fiscal quarter, all of which shall be in reasonable detail or in the form filed with the SEC, and certified by the chief financial officer of the Borrower that they fairly present the financial condition of the Borrower and its Subsidiaries as of the dates indicated and the results of their operations and changes in their cash flows for the periods indicated and that they have been prepared in accordance with GAAP, in each case, subject to normal year-end audit adjustments and the omission of any footnotes as permitted by the SEC (delivery to the Administrative Agent of a copy of the Borrower's Form 10-Q filed with the SEC (without exhibits) in any event will satisfy the requirements of this subsection subject to Section 6.6(b)); (ii) within one hundred twenty (120) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for such fiscal year and setting forth consolidated comparative figures as of the end of and for the preceding fiscal year, audited by an independent nationally-recognized accounting firm and in the form filed with the SEC (delivery to the Administrative Agent of a copy of the Borrower's Form 10-K filed with the SEC (without exhibits) in any event will satisfy the requirements of this subsection subject to Section 6.6(b)); (iii) commencing with fiscal year 2001, to the extent actually prepared and approved by the Borrower's board of directors, a projection of Borrower's consolidated balance sheet and consolidated income, retained earnings and cash flows for its current 49

fiscal year showing such projected budget for each fiscal quarter of the Borrower ending during such year; and (iv) within ten (10) days after the sending or filing thereof, copies of all financial statements, projections, documents and other communications that the Borrower sends to its stockholders generally or files with the SEC or any similar governmental authority (and is publicly available). The Administrative Agent will forward promptly to the Lenders the information provided by the Borrower pursuant to (i) through (iv) above. (b) Compliance Certificates. Each financial statement furnished to the ----------------------- Lenders pursuant to subsections (i) and (ii) of Section 6.6(a) shall be (i) accompanied by additional information setting forth calculations excluding the effects of any SPVs and containing such calculations for any SPVs as reasonably requested by the Administrative Agent, and (ii) accompanied by (x) a written certificate signed by the Borrower's chief financial officer (or other financial officer of the Borrower), in his or her capacity as such, to the effect that no Default or Event of Default then exists or, if any such Default or Event of Default exists as of the date of such certificate, setting forth a description of such Default or Event of Default and specifying the action, if any, taken by the Borrower to remedy the same, and (y) a Compliance Certificate in the form of Exhibit 6.6 showing the Borrower's compliance with certain of the covenants set - ------------ forth herein. (c) Management Letters. Promptly upon receipt thereof, the Borrower ------------------- will provide the Administrative Agent with a copy of each report or "management letter" submitted to the Borrower by its independent accountants or auditors in connection with any annual, interim or special audit made by them of the books and records of the Borrower. (d) Notice of Events Relating to Environmental Laws and Claims. ------------------------------------------------------------------ Promptly after any officer of the Borrower obtains knowledge of any of the following, the Borrower will provide the Administrative Agent with written notice in reasonable detail of any of the following that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect: (i) any pending or threatened Environmental Claim against the Borrower, any of its Subsidiaries or any SPV or any property owned or operated by the Borrower, any of its Subsidiaries or any SPV; (ii) any condition or occurrence on any property owned or operated by the Borrower, any of its Subsidiaries or any SPV that results in noncompliance by the Borrower, any of its Subsidiaries or any SPV with any Environmental Law; and (iii) the taking of any material remedial action in response to the actual or alleged presence of any Hazardous Material on any property owned or operated by the Borrower, any of its Subsidiaries or any SPV other than in the ordinary course of business. 50

(e) Notices of Default, Litigation, Etc. The Borrower will promptly, ------------------------------------- and in any event within five (5) Days, after an officer of the Borrower has knowledge thereof, give written notice to the Administrative Agent of (who will in turn provide notice to the Lenders of): (i) the occurrence of any Default or Event of Default; (ii) any litigation or governmental proceeding of the type described in Section 5.4; (iii) any circumstance that has had or could reasonably be expected to have a Material Adverse Effect; (iv) the occurrence of any event which has resulted in a breach of, or is likely to result in a breach of, Sections 6.16 or 6.17; and (v) any notice received by it, any Subsidiary or any SPV from the holder(s) of Indebtedness of the Borrower, any Subsidiary or any SPV in an amount which, in the aggregate, exceeds $30,000,000, where such notice states or claims the existence or occurrence of any default or event of default with respect to such Indebtedness under the terms of any indenture, loan or credit agreement, debenture, note, or other document evidencing or governing such Indebtedness. Section 6.7. Lender Inspection Rights. Upon reasonable notice from the ------------------------ Administrative Agent or any Lender, the Borrower will permit the Administrative Agent or any Lender (and such Persons as the Administrative Agent or such Lender may reasonably designate) during normal business hours at such entity's sole expense unless a Default or Event of Default shall have occurred and be continuing, in which event at the Borrower's expense, to visit and inspect any of the properties of the Borrower or any of its Subsidiaries, to examine all of their books and records, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Borrower authorizes such accountants to discuss with the Administrative Agent and any Lender (and such Persons as the Administrative Agent or such Lender may reasonably designate) the affairs, finances and accounts of the Borrower and its Subsidiaries), all as often, and to such extent, as may be reasonably requested. The chief financial officer of the Borrower and/or his or her designee shall be afforded the opportunity to be present at any meeting of the Administrative Agent or the Lenders and such accountants. The Administrative Agent agrees to use reasonable efforts to minimize, to the extent practicable, the number of separate requests from the Lenders to exercise their rights under this Section 6.7 and/or Section 6.6 and to coordinate the exercise by the Lenders of such rights. Section 6.8. Conduct of Business. The Borrower and its Subsidiaries --------------------- will at all times remain primarily engaged in (i) the contract drilling business, (ii) the provision of services to the energy industry, (iii) other existing businesses described in the Borrower's current SEC reports, or (iv) any related businesses (each a "Permitted Business"). Section 6.9. Restrictions on Fundamental Changes. The Borrower shall ------------------------------------ not merge or consolidate with any other Person, or cause or permit any dissolution of the Borrower or liquidation of its assets, or sell, transfer or otherwise dispose of all or substantially all of the Borrower's assets, except that: (a) The Borrower or any of its Subsidiaries may merge into, or consolidate with, any other Person if upon the consummation of any such merger or consolidation the Borrower or such Subsidiary is the surviving corporation to any such merger or consolidation (or the other Person is, or will thereby become, a Subsidiary of the Borrower); and 51

(b) The Borrower may sell or transfer all or substantially all of its assets (including stock in its Subsidiaries) to any Person if such Person is a Subsidiary of the Borrower (or a Person who will contemporaneously therewith become a Subsidiary of the Borrower); provided in the case of any transaction described in the preceding clauses (a) and (b), no Default or Event of Default shall exist immediately prior to, or after giving effect to, such transaction. Section 6.10. Liens. The Borrower and its Subsidiaries shall not create, incur, assume or suffer to exist any Lien of any kind on any property or asset of any kind of the Borrower or any Subsidiary, except the following (collectively, the "Permitted Liens"): (a) Liens existing on the date hereof (each such Lien, to the extent it secures Indebtedness or other obligations in an aggregate amount of $20,000,000 or more, being described on Schedule 5.21 attached hereto); -------------- (b) Liens arising in the ordinary course of business by operation of law, deposits, pledges or other Liens in connection with workers' compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, public or statutory obligations or other similar charges, good faith deposits, pledges or other Liens in connection with (or to obtain letters of credit in connection with) bids, performance, return-of-money or payment bonds, contracts or leases to which the Borrower or its Subsidiaries are parties or other deposits required to be made in the ordinary course of business; provided that in each case the obligation secured is not for Indebtedness for borrowed money and is not overdue or, if overdue, is being contested in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor; (c) mechanics', workmen's, materialmen's, landlords', carriers' or other similar Liens arising in the ordinary course of business (or deposits to obtain the release of such Liens) related to obligations not overdue for more than thirty (30) days if such Liens arise with respect to domestic assets and for more than ninety (90) days if such Liens arise with respect to foreign assets, or, if so overdue, that are being contested in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor, or if such Liens otherwise could not reasonably be expected to have a Material Adverse Effect; (d) Liens for Taxes not more than ninety (90) days past due or which can thereafter be paid without penalty or which are being contested in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor, or if such Liens otherwise could not reasonably be expected to have a Material Adverse Effect; (e) Liens imposed by ERISA (or comparable foreign laws) which are being contested in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor, or if such Liens otherwise could not reasonably be expected to have a Material Adverse Effect; 52

(f) Liens arising out of judgments or awards against the Borrower or any of its Subsidiaries, or in connection with surety or appeal bonds or the like in connection with bonding such judgments or awards, the time for appeal from which or petition for rehearing of which shall not have expired or for which the Borrower or such Subsidiary shall be prosecuting on appeal or proceeding for review, and for which it shall have obtained (within thirty (30) days with respect to a judgment or award rendered in the United States or within sixty (60) days with respect to a judgment or award rendered in a foreign jurisdiction after entry of such judgment or award or expiration of any previous such stay, as applicable) a stay of execution or the like pending such appeal or proceeding for review; provided, that the aggregate amount of uninsured or underinsured liabilities (net of customary deductibles, and including interest, costs, fees and penalties, if any) of the Borrower and its Subsidiaries secured by such Liens shall not exceed $50,000,000 at any one time outstanding; (g) Liens on fixed or capital assets and related inventory and intangible assets acquired, constructed, improved, altered or repaired by the Borrower or any Subsidiary; provided that (i) such Liens secure Indebtedness otherwise permitted by this Agreement, (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within 365 days after such acquisition or the later of the completion of such construction, improvement, alteration or repair or the date of commercial operation of the assets constructed, improved, altered or repaired, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing, improving, altering or repairing such fixed or capital assets, as the case may be, and (iv) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary; (h) Liens securing Interest Rate Protection Agreements or foreign exchange hedging obligations incurred in the ordinary course of business and not for speculative purposes; (i) Liens on property existing at the time such property is acquired by the Borrower or any Subsidiary of the Borrower and not created in contemplation of such acquisition (or on repairs, renewals, replacements, additions, accessions and betterments thereto), and Liens on the assets of any Person at the time such Person becomes a Subsidiary of the Borrower and not created in contemplation of such Person becoming a Subsidiary of the Borrower (or on repairs, renewals, replacements, additions, accessions and betterments thereto; (j) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing subsections (a) through (i), provided, however, that the principal amount of Indebtedness secured thereby does not exceed the principal amount secured at the time of such extension, renewal or replacement (other than amounts incurred to pay costs of such extension, renewal or replacement), and that such extension, renewal or replacement is limited to the property already subject to the Lien so extended, renewed or replaced (together with accessions and improvements thereto and replacements thereof); (k) rights reserved to or vested in any municipality or governmental, statutory or public authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to terminate such right, power, franchise, grant, license or permit or to 53

purchase, condemn, expropriate or recapture or to designate a purchaser of any of the property of a Person; (l) rights reserved to or vested in any municipality or governmental, statutory or public authority to control, regulate or use any property of a Person; (m) rights of a common owner of any interest in property held by a Person and such common owner as tenants in common or through other common ownership; (n) encumbrances (other than to secure the payment of Indebtedness), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any property or rights-of-way of a Person for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines, removal of gas, oil, coal, metals, steam, minerals, timber or other natural resources, and other like purposes, or for the joint or common use of real property, rights-of-way, facilities or equipment, or defects, irregularity and deficiencies in title of any property or rights-of-way; (o) Liens created by or resulting from zoning, planning and environmental laws and ordinances and municipal regulations; (p) Liens created by or resulting from financing statements filed by lessors of property (but only with respect to the property so leased); (q) Liens on property securing Non-recourse Debt; (r) Liens on the stock or assets of SPVs; and (s) Liens (not otherwise permitted by this Section 6.10) on property securing Indebtedness (or other obligations) not exceeding $175,000,000 in the aggregate at any time outstanding. Section 6.11. Indebtedness. The Borrower and its Subsidiaries shall ------------ not incur, assume or suffer to exist any Indebtedness, except: (a) existing Indebtedness outstanding on the Effective Date (such Indebtedness, to the extent the principal amount thereof is $20,000,000 or more, being described on Schedule 5.20 attached hereto), and any subsequent -------------- extensions, renewals or refinancings thereof so long as such Indebtedness is not increased in amount (other than amounts incurred to pay costs of such extension, renewal or refinancing), the scheduled maturity date thereof (if prior to the Maturity Date) is not accelerated, the interest rate per annum applicable thereto is not increased, any scheduled amortization of principal thereunder prior to the Maturity Date is not shortened and the payments thereunder are not increased; (b) Indebtedness under the Credit Documents; 54

(c) intercompany loans and advances to the Borrower or its Subsidiaries, and intercompany loans and advances from any of such Subsidiaries or SPVs to the Borrower or any other Subsidiaries of the Borrower; (d) Indebtedness under any Interest Rate Protection Agreements and under foreign exchange futures agreements, arrangements or options designed to protect against fluctuations in currency exchange rates; (e) Indebtedness of the Borrower that may be incurred, assumed or suffered to exist without violating any section of this Agreement, including, without limitation, Sections 6.16 and 6.17 hereof; (f) Indebtedness of any Subsidiary of the Borrower (i) under unsecured lines of credit for overdrafts or for working capital purposes in foreign countries with financial institutions, and (ii) arising from the honoring by a bank or other Person of a check, draft or similar instrument inadvertently drawing against insufficient funds, all such Indebtedness not to exceed $100,000,000 in the aggregate at any time outstanding, provided that amounts under overdraft lines of credit or outstanding as a result of drawings against insufficient funds shall be outstanding for one (1) Business Day before being included in such aggregate amount; (g) Indebtedness of a Person existing at the time such Person becomes a Subsidiary of the Borrower or is merged with or into the Borrower or any Subsidiary of the Borrower and not incurred in contemplation of such transaction; (h) Indebtedness of the Borrower or any Subsidiary of the Borrower (i) under Performance Guaranties and Performance Letters of Credit, and (ii) with respect to letters of credit issued in the ordinary course of business; (i) Indebtedness of any Subsidiaries of the Borrower in an aggregate principal amount for all Subsidiaries not to exceed an amount equal to ten percent (10%) of Consolidated Net Assets (the "Subsidiary Debt Basket Amount") in the aggregate at any time outstanding; (j) other Indebtedness of any Subsidiary of the Borrower so long as such Subsidiary has in force a Subsidiary Guaranty in substantially the form of Exhibit 6.11, provided that such Subsidiary Guaranty shall contain a provision - ------------- that such Subsidiary Guaranty and all obligations thereunder of the Guarantor party thereto shall be terminated upon delivery to the Administrative Agent by the Borrower of a certificate stating that (x) the aggregate principal amount of Indebtedness of all Subsidiaries outstanding pursuant to the preceding clause (i) and this clause (j) is equal to or less than the Subsidiary Debt Basket Amount, and (y) no Default or Event of Default has occurred and is continuing; and (k) extensions, renewals or replacements of Indebtedness permitted by this Section 6.11 that do not increase the amount of such Indebtedness (other than amounts incurred to pay costs of such extension, renewal or refinancing). 55

Section 6.12. Use of Property and Facilities; Environmental Laws. The -------------------------------------------------- Borrower and its Subsidiaries shall comply in all material respects with all Environmental Laws applicable to or affecting the properties or business operations of the Borrower or any Subsidiary of the Borrower, where the failure to comply could reasonably be expected to have a Material Adverse Effect. Section 6.13. Transactions with Affiliates. Except as otherwise ------------------------------ specifically permitted herein, the Borrower and its Subsidiaries shall not (except pursuant to contracts outstanding as of (i) with respect to the Borrower, the Effective Date or (ii) with respect to any Subsidiary of the Borrower, the Effective Date or, if later, the date such Subsidiary first became a Subsidiary of the Borrower) enter into or engage in any material transaction or arrangement or series of related transactions or arrangements which in the aggregate would be material with any Controlling Affiliate, including without limitation, the purchase from, sale to or exchange of property with, any merger or consolidation with or into, or the rendering of any service by or for, any Controlling Affiliate, except pursuant to the requirements of the Borrower's or such Subsidiary's business and unless such transaction or arrangement or series of related transactions or arrangements, taken as a whole, are no less favorable to the Borrower or such Subsidiary (other than a wholly owned Subsidiary) than would be obtained in an arms' length transaction with a Person not a Controlling Affiliate. Section 6.14. Sale and Leaseback Transactions. The Borrower will not, ------------------------------- and will not permit any of its Subsidiaries to, enter into, assume, or suffer to exist any Sale-Leaseback Transaction, except any such transaction that may be entered into, assumed or suffered to exist without violating any other provision of this Agreement, including without limitation, Sections 6.16 and 6.17. Section 6.15. Compliance with Laws. Without limiting any of the other -------------------- covenants of the Borrower in this Article 6, the Borrower and its Subsidiaries shall conduct their business, and otherwise be, in compliance with all applicable laws, regulations, ordinances and orders of any governmental or judicial authorities; provided, however, that this Section 6.15 shall not require the Borrower or any Subsidiary of the Borrower to comply with any such law, regulation, ordinance or order if (x) it shall be contesting such law, regulation, ordinance or order in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor, or (y) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. Section 6.16. Interest Coverage Ratio. The Borrower will not permit ------------------------- the Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than 3:00 to 1:00. Section 6.17. Indebtedness to Total Capitalization Ratio. The Borrower ------------------------------------------ will maintain, as of the end of each fiscal quarter of the Borrower, a ratio (expressed as a percentage) of Consolidated Indebtedness to Total Capitalization of no greater than 40%. ARTICLE 7. EVENTS OF DEFAULT AND REMEDIES. 56

Section 7.1. Events of Default. Any one or more of the following shall constitute an Event of Default: (a) default by the Borrower in the payment of any principal amount of any Loan or Reimbursement Obligation, any interest thereon or any fees payable hereunder, within two (2) Business Days following the date when due; (b) default by the Borrower in the observance or performance of any covenant set forth in Sections 6.9, 6.10, 6.16, or 6.17; (c) default by the Borrower in the observance or performance of any provision hereof or of any other Credit Document not mentioned in clauses (a) or (b) above, which is not remedied within thirty (30) days after notice thereof to the Borrower by the Administrative Agent; (d) any representation or warranty made or deemed made herein or in any other Credit Document by the Borrower or any Subsidiary proves untrue in any material respect as of the date of the making, or deemed making, thereof; (e) (x) Indedtedness in the aggregate principal amount of $50,000,000 of the Borrower and its Subsidiaries ("Material Indebtedness") shall (i) not be paid at maturity (beyond any applicable grace periods), or (ii) be declared to be due and payable or required to be prepaid, redeemed or repurchased prior to its stated maturity, or (y) any default in respect of Material Indedtedness shall occur which permits the holders thereof, or any trustees or agents on their behalf, to accelerate the maturity of such Indedtedness or requires such Indedtedness to be prepaid, redeemed, or repurchased prior to its stated maturity; (f) the Borrower or any Significant Subsidiary (i) has entered involuntarily against it an order for relief under the United States Bankruptcy Code or a comparable action is taken under any bankruptcy or insolvency law of another country or political subdivision of such country, (ii) generally does not pay, or admits its inability generally to pay, its debts as they become due, (iii) makes a general assignment for the benefit of creditors, (iv) applies for, seeks, consents to, or acquiesces in, the appointment of a receiver, custodian, trustee, liquidator or similar official for it or any substantial part of its property under the Bankruptcy Code or under the bankruptcy or insolvency laws of another country or a political subdivision of such country, (v) institutes any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code or any comparable law, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fails to file an answer or other pleading denying the material allegations of or consents to or acquiesces in any such proceeding filed against it, (vi) makes any board of directors resolution in direct furtherance of any matter described in clauses (i)-(v) above, or (vii) fails to contest in good faith any appointment or proceeding described in this Section 7.1(f); (g) a custodian, receiver, trustee, liquidator or similar official is appointed for the Borrower or any Significant Subsidiary or any substantial part of its property under the 57

Bankruptcy Code or under the bankruptcy or insolvency laws of another country or a political subdivision of such country, or a proceeding described in Section 7.1(f)(v) is instituted against the Borrower or any Significant Subsidiary, and such appointment continues undischarged or such proceeding continues undismissed and unstayed for a period of sixty (60) days (or one hundred twenty (120) days in the case of any such event occurring outside the United States of America); (h) the Borrower or any Subsidiaries of the Borrower fail within thirty (30) days with respect to any judgments or orders that are rendered in the United States or sixty (60) days with respect to any judgments or orders that are rendered in foreign jurisdictions (or such earlier date as any execution on such judgments or orders shall take place) to vacate, pay, bond or otherwise discharge any judgments or orders for the payment of money the uninsured portion of which is in excess of $50,000,000 in the aggregate and which are not stayed on appeal or otherwise being appropriately contested in good faith in a manner that stays execution; (i) (x) the Borrower or any Subsidiary of the Borrower fails to pay when due an amount that it is liable to pay to the PBGC or to a Plan under Title IV of ERISA; or a notice of intent to terminate a Plan having Unfunded Vested Liabilities of the Borrower or any of its Subsidiaries in excess of $30,000,000 (a "Material Plan") is filed under Title IV of ERISA; or the PBGC institutes proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding is instituted by a fiduciary of any Material Plan against any Borrower or any Subsidiary to collect any liability under Section 515 or 4219(c)(5) of ERISA, and in each case such proceeding is not dismissed within thirty (30) days thereafter; or a condition exists by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated, and (y) the occurrence of one or more of the matters in the preceding clause (x) could reasonably be expected to have a Material Adverse Effect; or (j) any Person or group of Persons acting in concert (as such terms are used in Rule 13d-5 under the Securities Exchange Act of 1934, as amended) shall own, directly or indirectly, beneficially or of record, securities of the Borrower (or other securities convertible into such securities) representing fifty percent (50%) or more of the combined voting power of all outstanding securities of the Borrower entitled to vote in the election of directors, other than securities having such power only by reason of the happening of a contingency. Section 7.2. Non-Bankruptcy Defaults. When any Event of Default (other ----------------------- than those described in subsections (f) or (g) of Section 7.1 with respect to the Borrower) has occurred and is continuing, the Administrative Agent shall, by notice to the Borrower: (a) if so directed by the Required Lenders, terminate the remaining Commitments to the Borrower hereunder on the date stated in such notice (which may be the date thereof); (b) if so directed by the Required Lenders, declare the principal of and the accrued interest on all outstanding Loans to be forthwith due and payable and thereupon all outstanding Loans, including both principal and interest thereon, shall be and become immediately due and payable together with all other accrued amounts payable under the Credit Documents without further demand, presentment, protest or notice of any kind, including, but not limited to, notice of intent to accelerate and notice of acceleration, each of which is expressly waived by the Borrower; and (c) if so directed by the Required Lenders, 58

demand that the Borrower immediately pay to the Administrative Agent (to be held by the Administrative Agent pursuant to Section 7.4) the full amount then available for drawing under each outstanding Letter of Credit, and the Borrower agrees to immediately make such payment and acknowledges and agrees that the Lenders, the Issuing Bank and the Administrative Agent would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Administrative Agent, for the benefit of the Lenders and the Issuing Bank, shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any Letter of Credit. The Administrative Agent, after giving notice to the Borrower pursuant to this Section 7.2, shall also promptly send a copy of such notice to the other Lenders and the Issuing Bank, but the failure to do so shall not impair or annul the effect of such notice. Section 7.3. Bankruptcy Defaults. When any Event of Default described ------------------- in subsections (f) or (g) of Section 7.1 has occurred and is continuing with respect to the Borrower, then all outstanding Loans shall immediately become due and payable together with all other accrued amounts payable under the Credit Documents without presentment, demand, protest or notice of any kind, each of which is expressly waived by the Borrower; and all obligations of the Lenders and the Issuing Bank to extend further credit pursuant to any of the terms hereof shall immediately terminate and the Borrower shall immediately pay to the Administrative Agent (to be held by the Administrative Agent pursuant to Section 7.4) the full amount then available for drawing under all outstanding Letters of Credit, the Borrower acknowledging that the Lenders, the Issuing Bank, and the Administrative Agent would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Lenders, the Issuing Bank, and the Administrative Agent shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any of the Letters of Credit. Section 7.4. Collateral for Undrawn Letters of Credit. --------------------------------------------- (a) If the prepayment of the amount available for drawing under any or all outstanding Letters of Credit is required under Section 7.2 or 7.3, the Borrower shall forthwith pay the amount required to be so prepaid, to be held by the Administrative Agent as provided in subsection (b) below. (b) All amounts prepaid pursuant to subsection (a) above shall be held by the Administrative Agent in a separate collateral account (such account, and the credit balances, properties and any investments from time to time held therein, and any substitutions for such account, any certificate of deposit or other instrument evidencing any of the foregoing and all proceeds of and earnings on any of the foregoing being collectively called the "Collateral Account") as security for, and for application to, the reimbursement of any drawing under any Letter of Credit then or thereafter paid by the Issuing Bank, and to the payment of the unpaid balance of any Loans and all other due and unpaid Obligations (collectively, the "Collateralized Obligations"). The Collateral Account shall be held in the name of and subject to the exclusive dominion and control of the Administrative Agent, for the benefit of the Issuing Bank, the Administrative Agent, and the Lenders, as pledgee hereunder. If and when required by the Borrower, the Administrative Agent shall invest and reinvest funds held in the Collateral 59

Account from time to time in Cash Equivalents specified from time to time by the Borrower, provided that the Administrative Agent is irrevocably authorized to sell on market terms any investments held in the Collateral Account when and as required to make payments out of the Collateral Account for application to Collateralized Obligations due and owing from the Borrower to the Issuing Bank, the Administrative Agent, or the Lenders. When and if (A) (i) the Borrower shall have made payment of all Collateralized Obligations then due and payable, and (ii) all relevant preference or other disgorgement periods relating to the receipt of such payments have passed, or (B) no Default or Event of Default shall be continuing, the Administrative Agent shall repay to the Borrower any remaining amounts and assets held in the Collateral Account, provided that if the Collateral Account is being released pursuant to clause (A) and any Letter of Credit then remains outstanding, the Borrower, prior to or contemporaneously with such release, shall make arrangements with respect to such outstanding Letters of Credit in the manner described in the first sentence of Section 2.15. In addition, if the aggregate amount on deposit with the Collateral Agent exceeds the Collateralized Obligations then existing, then the Administrative Agent shall release and deliver such excess amount upon the written request of the Borrower. Section 7.5. Notice of Default. The Administrative Agent shall give ------------------- notice to the Borrower under Section 7.2 promptly upon being requested to do so by the Required Lenders and shall thereupon notify all the Lenders thereof. Section 7.6. Expenses. The Borrower agrees to pay to the -------- Administrative Agent, the Issuing Bank, and each Lender all reasonable out-of-pocket expenses incurred or paid by the Administrative Agent, the Issuing Bank, or such Lender, including reasonable attorneys' fees and court costs, in connection with any Default or Event of Default hereunder or in connection with the enforcement of any of the Credit Documents. Section 7.7. Distribution and Application of Proceeds. After the -------------------------------------------- occurrence of and during the continuance of an Event of Default, any payment to the Administrative Agent, the Issuing Bank, or any Lender hereunder or from the proceeds of the Collateral Account or otherwise shall be paid to the Administrative Agent to be distributed and applied as follows (unless otherwise agreed by the Borrower, the Administrative Agent, the Issuing Bank, and all Lenders): (a) First, to the payment of any and all reasonable out-of-pocket costs and expenses of the Administrative Agent, including without limitation, reasonable attorneys' fees and out-of-pocket costs and expenses, as provided by this Agreement or by any other Credit Document, incurred in connection with the collection of such payment or in respect of the enforcement of any rights of the Administrative Agent, the Issuing Bank, or the Lenders under this Agreement or any other Credit Document; (b) Second, to the payment of any and all reasonable out-of-pocket costs and expenses of the Issuing Bank and the Lenders, including, without limitation, reasonable attorneys' fees and out-of-pocket costs and expenses, as provided by this Agreement or by any other Credit Document, incurred in connection with the collection of such payment or in respect of the enforcement of any rights of the Lenders or the Issuing Bank under this Agreement or any 60

other Credit Document, pro rata in the proportion in which the amount of such costs and expenses unpaid to each Lender or the Issuing Bank bears to the aggregate amount of the costs and expenses unpaid to all Lenders and the Issuing Bank collectively, until all such fees, costs and expenses have been paid in full; (c) Third, to the payment of any due and unpaid fees to the Administrative Agent or any Lender or Issuing Bank as provided by this Agreement or any other Credit Document, pro rata in the proportion in which the amount of such fees due and unpaid to the Administrative Agent and each Lender and Issuing Bank bears to the aggregate amount of the fees due and unpaid to the Administrative Agent and all Lenders and Issuing Bank collectively, until all such fees have been paid in full; (d) Fourth, to the payment of accrued and unpaid interest on the Loans or the Reimbursement Obligations to the date of such application, pro rata in the proportion in which the amount of such interest, accrued and unpaid to each Lender or the Issuing Bank bears to the aggregate amount of such interest accrued and unpaid to all Lenders and the Issuing Bank collectively, until all such accrued and unpaid interest has been paid in full; (e) Fifth, to the payment of the outstanding due and payable principal amount of each of the Loans and the amount of the outstanding Reimbursement Obligations (reserving cash collateral for all undrawn face amounts of any outstanding Letters of Credit (if Section 7.4(a) has not been complied with)), pro rata in the proportion in which the outstanding principal amount of such Loans and the amount of such outstanding Reimbursement Obligations owing to each Lender and Issuing Bank, together (if Section 7.4(a) has not been complied with) with the undrawn face amounts of such outstanding Letters of Credit, bears to the aggregate amount of all outstanding Loans, outstanding Reimbursement Obligations and (if Section 7.4(a) has not been complied with) the undrawn face amounts of all outstanding Letters of Credit. In the event that any such Letters of Credit, or any portions thereof, expire without being drawn, any cash collateral therefor shall be distributed by the Administrative Agent until the principal amount of all Loans and Reimbursement Obligations shall have been paid in full; (f) Sixth, to the payment of any other outstanding Obligations then due and payable, pro rata in the proportion in which the outstanding Obligations owing to each Lender, Issuing Bank and Administrative Agent bears to the aggregate amount of all such Obligations until all such Obligations have been paid in full; and (g) Seventh, to the Borrower or as the Borrower may direct. ARTICLE 8. CHANGE IN CIRCUMSTANCES. Section 8.1. Change of Law. --------------- (a) Notwithstanding any other provisions of this Agreement or any Note, if at any time any change, after the date hereof (or, if later, after the date the Administrative Agent or any Issuing Bank or Lender becomes the Administrative Agent or an Issuing Bank or Lender), in 61

applicable law or regulation or in the interpretation thereof makes it unlawful for any Lender to make or maintain Eurocurrency Loans, or the Issuing Bank to issue any Letter of Credit, such Lender or Issuing Bank, as the case may be, shall promptly give written notice thereof and of the basis therefor in reasonable detail to the Borrower, and such Lender's or Issuing Bank's obligations to fund affected Eurocurrency Loans or make, continue or convert such Loans under this Agreement, or to issue any such Letters of Credit, as the case may be, shall thereupon be suspended until it is no longer unlawful for such Lender to make or maintain such Loans or issue such Letters of Credit. (b) Upon the giving of the notice to Borrower referred to in subsection (a) above in respect of any such Loan, (i) any outstanding such Loan of such Lender shall be automatically converted to a Base Rate Loan in Dollars on the last day of the Interest Period then applicable thereto or on such earlier date as required by law, and (ii) such Lender shall make or continue its portion of any requested Borrowing of such Loan as a Base Rate Loan in Dollars, which Base Rate Loan shall, for all other purposes, be considered part of such Borrowing. (c) Any Lender or Issuing Bank that has given any notice pursuant to Section 8.1(a) shall, upon determining that it would no longer be unlawful for it to make such Loans or issue such Letters of Credit, give prompt written notice thereof to the Borrower and the Administrative Agent, and upon giving such notice, its obligation to make, allow conversions into and maintain such Loans or issue such Letters of Credit shall be reinstated. Section 8.2. Unavailability of Deposits or Inability to Ascertain LIBOR ---------------------------------------------------------- Rate. If on or before the first day of any Interest Period for any Borrowing of - ---- Eurocurrency Loans the Administrative Agent determines in good faith (after consultation with the other Lenders) that, due to changes in circumstances since the date hereof, adequate and fair means do not exist for determining the LIBOR Rate or such rate will not accurately reflect the cost to the Required Lenders of funding Eurocurrency Loans for such Interest Period, the Administrative Agent shall give written notice (in reasonable detail) of such determination and of the basis therefor to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower and Lenders that the circumstances giving rise to such suspension no longer exist (which the Administrative Agent shall do promptly after they do not exist), (i) the obligations of the Lenders to make, continue or convert Loans as or into such Eurocurrency Loans, or to convert Base Rate Loans into such Eurocurrency Loans, shall be suspended and (ii) each Eurocurrency Loan will automatically on the last day of the then existing Interest Period therefor, convert into a Base Rate Loan in Dollars. Section 8.3. Increased Cost and Reduced Return. ------------------------------------- (a) If, on or after the date hereof, the adoption of or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or Issuing Bank (or its Lending Office), with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency exercising control over banks or financial institutions 62

generally issued after the date hereof (or, if later, after the date the Administrative Agent, Issuing Bank, or Lender becomes the Administrative Agent, Issuing Bank, or Lender): (i) subjects any Lender or Issuing Bank (or its Lending Office) to any tax, duty or other charge related to any Eurocurrency Loan, Competitive Fixed Rate Loan, Reimbursement Obligation, or its obligation to advance or maintain Eurocurrency Loans, Competitive Fixed Rate Loans, or issue any Letter of Credit, or shall change the basis of taxation of payments to any Lender or Issuing Bank (or its Lending Office) of the principal of or interest on its Eurocurrency Loans, Competitive Fixed Rate Loans, Letters of Credit or Reimbursement Obligation or any participations in any thereof, or any other amounts due under this Agreement related to its Eurocurrency Loans, Competitive Fixed Rate Loans, Letters of Credit, Reimbursement Obligations or participations therein, or its obligation to make Eurocurrency Loans and Competitive Fixed Rate Loans, issue Letters of Credit, or acquire participations therein (except for changes with respect to taxes that are not Indemnified Taxes pursuant to Section 3.3); or (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding for any Eurocurrency Loan any such requirement included in an applicable Statutory Reserve Rate) against assets of, deposits with or for the account of, or credit extended by, any Lender or Issuing Bank (or its Lending Office) or imposes on any Lender or Issuing Bank (or its Lending Office) or on the interbank market any other condition affecting its Eurocurrency Loans, Letters of Credit, any Reimbursement Obligations owed to it, or its participation in any thereof, or its obligation to advance or maintain Eurocurrency Loans, issue Letters of Credit or participate in any thereof; and the result of any of the foregoing is to increase the cost to such Lender or Issuing Bank (or its Lending Office) of advancing or maintaining any Eurocurrency Loan or Competitive Fixed Rate Loan, issuing or maintaining a Letter of Credit or participating therein, or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank (or its Lending Office) in connection therewith under this Agreement or its Note, by an amount deemed by such Lender or Issuing Bank to be material, then, subject to Section 8.3(c), from time to time, within thirty (30) days after receipt of a certificate from such Lender or Issuing Bank (with a copy to the Administrative Agent) pursuant to subsection (c) below setting forth in reasonable detail such determination and the basis thereof, the Borrower shall be obligated to pay to such Lender or Issuing Bank such additional amount or amounts as will compensate such Lender or Issuing Bank for such increased cost or reduction. (b) If, after the date hereof, the Administrative Agent or any Lender or Issuing Bank shall have reasonably determined that the adoption after the date hereof of any applicable law, rule or regulation regarding capital adequacy, or any change therein (including, without limitation, any revision in the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other applicable capital adequacy rules heretofore adopted and issued by any governmental authority), 63

or any change after the date hereof in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Administrative Agent or any Lender or Issuing Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's or Issuing Bank's capital, or on the capital of any corporation controlling such Lender or Issuing Bank, as a consequence of its obligations hereunder to a level below that which such Lender or Issuing Bank could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or Issuing Bank's or its controlling corporation's policies with respect to capital adequacy in effect immediately before such adoption, change or compliance) by an amount reasonably deemed by such Lender or Issuing Bank to be material, then, subject to Section 8.3(c), from time to time, within thirty (30) days after its receipt of a certificate from such Lender or Issuing Bank (with a copy to the Administrative Agent) pursuant to subsection (c) below setting forth in reasonable detail such determination and the basis thereof, the Borrower shall pay to such Lender or Issuing Bank such additional amount or amounts as will compensate such Lender or Issuing Bank for such reduction or the Borrower may prepay all Eurocurrency Loans of such Lender or obtain the cancellation of all such Letters of Credit. (c) The Administrative Agent and each Lender and Issuing Bank that determines to seek compensation or additional interest under this Section 8.3 shall give written notice to the Borrower and, in the case of a Lender or Issuing Bank other than the Administrative Agent, the Administrative Agent of the circumstances that entitle the Administrative Agent or such Lender or Issuing Bank to such compensation no later than ninety (90) days after the Administrative Agent or such Lender or Issuing Bank receives actual notice or obtains actual knowledge of the law, rule, order or interpretation or occurrence of another event giving rise to a claim hereunder. In any event the Borrower shall not have any obligation to pay any amount with respect to claims accruing prior to the ninetieth day preceding such written demand. The Administrative Agent and each Lender and Issuing Bank shall use reasonable efforts to avoid the need for, or reduce the amount of, such compensation, additional interest, and any payment under Section 3.3, including, without limitation, the designation of a different Lending Office, if such action or designation will not, in the sole judgment of the Administrative Agent or such Lender or Issuing Bank made in good faith, be otherwise disadvantageous to it; provided that the foregoing shall not in any way affect the rights of any Lender or Issuing Bank or the obligations of the Borrower under this Section 8.3, and provided further that no Lender or Issuing Bank shall be obligated to make its Eurocurrency Loans or Competitive Fixed Rate Loans hereunder or fund any amount due in respect of a Letter of Credit at any office located in the United States of America. A certificate of the Administrative Agent or any Lender or Issuing Bank, as applicable, claiming compensation or additional interest under this Section 8.3, and setting forth the additional amount or amounts to be paid to it hereunder and accompanied by a statement prepared by the Administrative Agent or such Lender or Issuing Bank, as applicable, describing in reasonable detail the calculations thereof shall be prima facie evidence of the correctness thereof. In determining such amount, such Lender or Issuing Bank may use any reasonable averaging and attribution methods. 64

Section 8.4. Lending Offices. The Administrative Agent and each Lender --------------- and Issuing Bank may, at its option, elect to make or maintain its Loans and issue its Letters of Credit hereunder at the Lending Office for each type of Loan or Letter of Credit available hereunder or at such other of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to the Borrower and the Administrative Agent,providedthat, except in the case of any such transfer to another of its branches, offices or affiliates made at the request of the Borrower, the Borrower shall not be responsible for the costs arising under Section 3.3 or 8.3 resulting from any such transfer to the extent not otherwise applicable to such Lender or Issuing Bank prior to such transfer. Section 8.5. Discretion of Lender as to Manner of Funding. Subject to -------------------------------------------- the other provisions of this Agreement, each Lender and Issuing Bank shall be entitled to fund and maintain its funding of all or any part of its Loans and Letters of Credit in any manner it sees fit. Section 8.6. Substitution of Lender or Issuing Bank. If (a) any Lender -------------------------------------- or Issuing Bank has demanded compensation or additional interest or given notice of its intention to demand compensation or additional interest under Section 8.3, (b) the Borrower is required to pay any additional amount to any Lender or Issuing Bank under Section 2.13, (c) any Lender or Issuing Bank is unable to submit any form or certificate required under Section 3.3(b) or withdraws or cancels any previously submitted form with no substitution therefor, (d) any Lender or Issuing Bank gives notice of any change in law or regulations, or in the interpretation thereof, pursuant to Section 8.1, (e) any Lender or Issuing Bank has been declared insolvent or a receiver or conservator has been appointed for a material portion of its assets, business or properties or (f) any Lender or Issuing Bank shall seek to avoid its obligation to make or maintain Loans or issue Letters of Credit hereunder for any reason, including, without limitation, reliance upon 12 U.S.C. Sec. 1821(e) or (n) (1) (B), (g) any taxes referred to in Section 3.3 have been levied or imposed (or the Borrower determines in good faith that there is a substantial likelihood that such taxes will be levied or imposed) so as to require withholding or deductions by the Borrower or payment by the Borrower of additional amounts to any Lender or Issuing Bank, or other reimbursement or indemnification of any Lender or Issuing Bank, as a result thereof, (h) any Lender shall decline to consent to a modification or waiver of the terms of this Agreement or any other Credit Documents requested by the Borrower, or (i) the Issuing Bank gives notice pursuant to Section 2.14(a)(ii) that the issuance of the Letter of Credit would violate any legal or regulatory restriction then applicable to such Issuing Bank, then and in such event, upon request from the Borrower delivered to such Lender or Issuing Bank, and the Administrative Agent, such Lender shall assign, in accordance with the provisions of Section 10.10 and an appropriately completed Assignment Agreement, all of its rights and obligations under the Credit Documents to another Lender or a commercial banking institution selected by the Borrower and (in the case of a commercial banking institution) reasonably satisfactory to the Administrative Agent, in consideration for the payments set forth in such Assignment Agreement and payment by the Borrower to such Lender of all other amounts which such Lender may be owed pursuant to this Agreement, including, without limitation, Sections 2.13, 3.3, 8.3 and 10.13. ARTICLE 9. THE AGENTS. 65

Section 9.1. Appointment and Authorization of Administrative Agent, -------------------------------------------------------- Co-Syndication Agents, Co-Documentation Agents and Managing Agents. Each Lender - ------------------------------------------------------------------ hereby appoints STB as the Administrative Agent, ABN AMRO Bank, N.V. and The Royal Bank of Scotland plc as the Co-Syndication Agents, Bank of America, N.A. and Wells Fargo Bank Texas, National Association as the Co-Documentation Agents, and The Bank of Nova Scotia, Credit Lyonnais New York Branch, HSBC Bank USA, and Westdeutsche Landesbank Girozentrale, New York Branch, as Managing Agents, under the Credit Documents and hereby authorizes the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents to take such action as Administrative Agent, Co-Syndication Agents, Co-Documentation Agents and Managing Agents on each of its behalf and to exercise such powers under the Credit Documents as are delegated to the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents, respectively, by the terms thereof, together with such powers as are reasonably incidental thereto. Section 9.2. Rights and Powers. The Administrative Agent, the ------------------- Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents shall have the same rights and powers under the Credit Documents as any other Lender and may exercise or refrain from exercising such rights and power as though it were not an Administrative Agent, a Co-Syndication Agent, a Co-Documentation Agent or a Managing Agent, and the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents and their respective Controlling Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any of its Subsidiaries or Controlling Affiliates as if it were not an Administrative Agent, a Co-Syndication Agent, a Co-Documentation Agent or a Managing Agent under the Credit Documents. The term Lender as used in all Credit Documents, unless the context otherwise clearly requires, includes the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents in their respective individual capacities as a Lender. Section 9.3. Action by Administrative Agent, Co-Syndication Agents, -------------------------------------------------------- Co-Documentation Agents and Managing Agents. The obligations of the - ----------------------------------------------- Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents under the Credit Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action concerning any Default or Event of Default, except as expressly provided in Sections 7.2 and 7.4. Unless and until the Required Lenders (or, if required by Section 10.11, all of the Lenders) give such direction (including, without limitation, the giving of a notice of default as described in Section 7.1(c)), the Administrative Agent may, except as otherwise expressly provided herein or therein, take or refrain from taking such actions as it deems appropriate and in the best interest of all the Lenders. In no event, however, shall the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Managing Agents be required to take any action in violation of applicable law or of any provision of any Credit Document, and each of the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents shall in all cases be fully justified in failing or refusing to act hereunder or under any other Credit Document unless it first receives any further assurances of its indemnification from the Lenders that it may require, including prepayment of any related expenses and any other protection it requires against any and all costs, expenses, and liabilities it may incur in taking or continuing to 66

take any such action. The Administrative Agent shall be entitled to assume that no Default or Event of Default, other than non-payment of any scheduled principal or interest payment due hereunder, exists unless notified in writing to the contrary by a Lender or the Borrower. In all cases in which the Credit Documents do not require the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Managing Agents to take specific action, the Administrative Agent, each of the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents shall be fully justified in using its discretion in failing to take or in taking any action thereunder. Any instructions of the Required Lenders, or of any other group of Lenders called for under specific provisions of the Credit Documents, shall be binding on all the Lenders and holders of Notes. Section 9.4. Consultation with Experts. Each of the Administrative --------------------------- Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 9.5. Indemnification Provisions; Credit Decision. Neither the ------------------------------------------- Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents nor any of their directors, officers, agents, or employees shall be liable for any action taken or not taken by them in connection with the Credit Documents (i) with the consent or at the request of the Required Lenders (or, if required by Section 10.11, all of the Lenders), or (ii) in the absence of their own gross negligence or willful misconduct. Neither the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents nor any of their directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement, any other Credit Document or any Borrowing; (ii) the performance or observance of any of the covenants or agreements of the Borrower or any Subsidiary contained herein or in any other Credit Document; (iii) the satisfaction of any condition specified in Article 4, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness, genuineness, enforceability, value, worth or collectability hereof or of any other Credit Document or of any other documents or writings furnished in connection with any Credit Document; and the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents make no representation of any kind or character with respect to any such matters mentioned in this sentence. The Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents may execute any of their duties under any of the Credit Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders or any other Person for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care. The Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents shall not incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular and without limiting any of the foregoing, the Administrative Agent and the Co-Documentation Agents shall have no responsibility for confirming the accuracy of any Compliance Certificate or other document or instrument received by any of them under the Credit Documents. The Administrative Agent, the Co-Syndication Agents, the Co- 67

Documentation Agents and the Managing Agents may treat the payee of any Note as the holder thereof until written notice of transfer shall have been filed with such Administrative Agent signed by such owner in form satisfactory to such Administrative Agent. Each Lender acknowledges that it has independently, and without reliance on the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Managing Agents or any other Lender, obtained such information and made such investigations and inquiries regarding the Borrower and its Subsidiaries as it deems appropriate, and based upon such information, investigations and inquiries, made its own credit analysis and decision to extend credit to the Borrower in the manner set forth in the Credit Documents. It shall be the responsibility of each Lender to keep itself informed about the creditworthiness and business, properties, assets, liabilities, condition (financial or otherwise) and prospects of the Borrower and its Subsidiaries, and the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents shall have no liability whatsoever to any Lender for such matters. The Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents shall have no duty to disclose to the Lenders information that is not required by any Credit Document to be furnished by the Borrower or any Subsidiaries to such Agent at such time, but is voluntarily furnished to such Agent (either in their respective capacity as Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Managing Agents or in their individual capacity). Section 9.6. Indemnity. The Lenders shall ratably, in accordance with --------- their Percentages, indemnify and hold the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents, and their directors, officers, employees, agents and representatives harmless from and against any liabilities, losses, costs or expenses suffered or incurred by it under any Credit Document or in connection with the transactions contemplated thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified. The obligations of the Lenders under this Section 9.6 shall survive termination of this Agreement. Section 9.7. Resignation of Agents and Successor Agents. The ----------------------------------------------- Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents may resign at any time and shall resign upon any removal thereof as a Lender pursuant to the terms of this Agreement upon at least thirty (30) days' prior written notice to the Lenders and the Borrower. Any resignation of the Administrative Agent shall not be effective until a replacement therefor is appointed pursuant to the terms hereof. Upon any such resignation of the Administrative Agent or any Co-Syndication Agent, the Co-Documentation Agent or Managing Agent, the Required Lenders and, so long as no Event of Default shall then exist, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed) shall have the right to appoint a successor Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be. If no successor Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be, shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent's, Co-Syndication Agent's, Managing Agent's or Co-Documentation Agent's giving of notice of resignation, then the retiring Administrative Agent, 68

Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be, may, on behalf of the Lenders and, so long as no Event of Default shall then exist, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed) appoint a successor Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be, which shall be any Lender hereunder or any commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of its appointment as the Administrative Agent, the Co-Syndication Agent, the Co-Documentation Agent or the Managing Agent hereunder, such successor Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be, shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be, under the Credit Documents, and the retiring Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or the Managing Agent shall be discharged from its duties and obligations thereunder. After any retiring Administrative Agent's, Co-Syndication Agent's, Co-Documentation Agent's or Managing Agent's resignation hereunder as Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be, the provisions of this Article 9 and all protective provisions of the other Credit Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent, Co-Syndication Agent, Co-Documentation Agent or Managing Agent, as the case may be. ARTICLE 10. MISCELLANEOUS. Section 10.1. No Waiver. No delay or failure on the part of the ---------- Administrative Agent or any Lender or Issuing Bank, or on the part of the holder or holders of any Notes, in the exercise of any power, right or remedy under any Credit Document shall operate as a waiver thereof or as an acquiescence in any default, nor shall any single or partial exercise thereof preclude any other or further exercise of any other power, right or remedy. To the fullest extent permitted by applicable law, the powers, rights and remedies under the Credit Documents of the Administrative Agent, the Lenders, the Issuing Bank and the holder or holders of any Notes are cumulative to, and not exclusive of, any powers, rights or remedies any of them would otherwise have. Section 10.2. Non-Business Day. Subject to Section 2.6, if any payment ---------------- of principal or interest on any portion of any Loan, any Reimbursement Obligation, or any other Obligation shall fall due on a day which is not a Business Day, interest or fees (as applicable) at the rate, if any, such portion of any Loan, any Reimbursement Obligation, or other Obligation bears for the period prior to maturity shall continue to accrue in the manner set forth herein on such Obligation from the stated due date thereof to the next succeeding Business Day, on which the same shall instead be payable. Section 10.3. Documentary Taxes. The Borrower agrees that it will pay ----------------- any documentary, stamp or similar taxes payable with respect to any Credit Document, including interest and penalties, in the event any such taxes are assessed irrespective of when such assessment is made, other than any such taxes imposed as a result of any transfer of an interest in 69

a Credit Document. Each Lender and Issuing Bank that determines to seek compensation under this Section 10.3 shall give written notice to the Borrower and, in the case of a Lender or Issuing Bank other than the Administrative Agent, the Administrative Agent of the circumstances that entitle such Lender or Issuing Bank to such compensation no later than ninety (90) days after such Lender or Issuing Bank receives actual notice or obtains actual knowledge of the law, rule, order or interpretation or occurrence of another event giving rise to a claim hereunder. In any event, the Borrower shall not have any obligation to pay any amount with respect to claims accruing prior to the 90th day preceding such written demand. Section 10.4. Survival of Representations. All representations and ----------------------------- warranties made herein or in certificates given pursuant hereto shall survive the execution and delivery of this Agreement and the other Credit Documents, and shall continue in full force and effect with respect to the date as of which they were made as long as the Borrower has any Obligation hereunder or any Commitment hereunder is in effect. Section 10.5. Survival of Indemnities. All indemnities and all ------------------------- provisions relative to reimbursement to the Lenders and Issuing Bank of amounts sufficient to protect the yield of the Lenders and Issuing Bank with respect to the Loans and the L/C Obligations, including, but not limited to, Section 2.13, Section 3.3, Section 7.6, Section 8.3, Section 10.3, and Section 10.13 hereof, shall, subject to Section 8.3(c), survive the termination of this Agreement and the other Credit Documents and the payment of the Loans and all other Obligations and, with respect to any Lender or Issuing Bank, any replacement by the Borrower of such Lender pursuant to the terms hereof, in each case for a period of one (1) year. Section 10.6. Setoff. In addition to any rights now or hereafter ------ granted under applicable law and not by way of limitation of any such rights, upon the occurrence of, and throughout the continuance of, any Event of Default, each Lender and Issuing Bank and each subsequent holder of any Note is hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other Indebtedness at any time owing by that Lender or that subsequent holder to or for the credit or the account of the Borrower, whether or not matured, against and on account of the due and unpaid obligations and liabilities of the Borrower to that Lender or Issuing Bank or that subsequent holder under the Credit Documents, irrespective of whether or not that Lender or Issuing Bank or that subsequent holder shall have made any demand hereunder. Each Lender or Issuing Bank shall promptly give notice to the Borrower of any action taken by it under this Section 10.6,provided that any failure of such Lender or Issuing Bank to give such notice to the Borrower shall not affect the validity of such setoff. Each Lender and Issuing Bank agrees with each other Lender and Issuing Bank a party hereto that if such Lender or Issuing Bank receives and retains any payment, whether by setoff or application of deposit balances or otherwise, in respect of the Loans or L/C Obligations in excess of its ratable share of payments on all such Obligations then owed to the Lenders and Issuing Bank hereunder, then such Lender or Issuing Bank shall purchase for cash at face value, but without recourse, ratably from each of the other Lenders such amount of the Loans and L/C Obligations and participations therein held by each such other Lender as shall be 70

necessary to cause such Lender or Issuing Bank to share such excess payment ratably with all the other Lenders; provided, however, that if any such purchase is made by any Lender or Issuing Bank, and if such excess payment or part thereof is thereafter recovered from such purchasing Lender or Issuing Bank, the related purchases from the other Lenders or Issuing Bank shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. Section 10.7. Notices. Except as otherwise specified herein, all ------- notices under the Credit Documents shall be in writing (including cable, telecopy or telex) and shall be given to a party hereunder at its address, telecopier number or telex number set forth below or such other address, telecopier number or telex number as such party may hereafter specify by notice to the Administrative Agent and the Borrower, given by courier, by United States certified or registered mail, by telegram or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices under the Credit Documents to the Lenders, the Administrative Agent and the Issuing Bank shall be addressed to their respective addresses, telecopier or telex number, or telephone numbers set forth on the signature pages hereof, and to the Borrower to: Transocean Sedco Forex Inc. 4 Greenway Plaza Houston, Texas 77046 Attention: Gregory Cauthen Telephone No.: (713) 232-7487 Fax No.: (713) 232-7033 With a copy to: Baker Botts LLP One Shell Plaza Houston, Texas 77002-4995 Attention: Stephen Krebs Telephone No. (713) 229-1467 Fax No.: (713) 229-1522 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section 10.7, on the signature pages hereof or pursuant to Section 10.10 and a confirmation of receipt of such telecopy has been received by the sender, (ii) if given by courier, when delivered, (iii) if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested, or (iv) if given by any other means, when delivered at the addresses specified in this Section 10.7, on the signature pages hereof or pursuant to Section 10.10; provided that any notice given pursuant to Article 2 shall be effective only upon receipt and, provided further, that any notice that but for this proviso would be effective after the close of business on a Business Day or on a day that is not a Business Day shall be effective at the opening of business on the next Business Day. 71

Section 10.8. Counterparts. This Agreement may be executed in any ------------ number of counterparts, and by the different parties on different counterpart signature pages, each of which when executed shall be deemed an original, but all such counterparts taken together shall constitute one and the same Agreement. Section 10.9. Successors and Assigns. This Agreement shall be binding ---------------------- upon the Borrower, each of the Lenders, the Issuing Bank, the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents, and their respective successors and assigns, and shall inure to the benefit of the Borrower, each of the Lenders, the Issuing Bank, the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents, and their respective successors and assigns, including any subsequent holder of any Note; provided, however, the Borrower may not assign any of its rights or obligations under this Agreement or any other Credit Document without the written consent of all Lenders, the Issuing Bank, the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents, and the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents and the Managing Agents may not assign any of their respective rights or obligations under this Agreement or any Credit Document except in accordance with Article 9 and no Lender or Issuing Bank may assign any of its rights or obligations under this Agreement or any other Credit Document except in accordance with Section 10.10. Any Lender or Issuing Bank may at any time pledge or assign all or any portion of its rights under this Agreement and the Notes issued to it (i) to a Federal Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such Lender, or (ii) in the case of any Lender that is a fund comprised in whole or in part of commercial loans, to a trustee for such fund in support of such Lender's obligations to such trustee; provided that no such pledge or assignment shall release a Lender or Issuing Bank from any of its obligations hereunder or substitute any such Federal Reserve Bank or such trustee for such Lender as a party hereto and the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely with such Lender or Issuing Bank in connection with the rights and obligations of such Lender and Issuing Bank under this Agreement. Section 10.10. Sales and Transfers of Borrowing and Notes; ------------------------------------------------ Participations in Borrowings and Notes. - ------------------------------------------ (a) Any Lender may, upon written notice to the Borrower, at any time sell to one or more commercial banking or other financial or lending institutions ("Participants") participating interests in any Commitment of such Lender and Related Credit Extensions of such Lender hereunder, provided that no Lender may sell any participating interests in any such Commitment or such Related Credit Extensions hereunder without also selling to such Participant the appropriate pro rata share of all such Lender's Commitment and Related Credit Extensions hereunder (but excluding interests in respect of Competitive Loans), and provided further that no Lender shall transfer, grant or assign any participation under which the Participant shall have rights to vote upon or to consent to any matter to be decided by the Lenders or the Required Lenders hereunder or under any other Credit Document or to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) increase the amount of such Lender's Commitment and such increase would affect such Participant, (ii) reduce the principal of, or interest on, any of such Lender's Borrowings, 72

or any fees or other amounts payable to such Lender hereunder and such reduction would affect such Participant, (iii) postpone any date fixed for any scheduled payment of principal of, or interest on, any of such Lender's Borrowings, or any fees or other amounts payable to such Lender hereunder and such postponement would affect such Participant, or (iv) release any collateral security for any Obligation, except as otherwise specifically provided in any Credit Document. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and such Lender shall retain the sole right to enforce the obligations of the Borrower under any Credit Document. The Borrower agrees that if amounts outstanding under this Agreement and the Notes shall have been declared or shall have become due and payable in accordance with Section 7.2 or 7.3 upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note, provided that such right of setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Section 10.6. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.13, 3.3 and 8.3 with respect to its participation in the Commitments and the Borrowings outstanding from time to time, provided that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred if no participation had been transferred and provided, further, that Sections 8.3(c) and 8.6 shall apply to the transferor Lender with respect to any claim by any Participant pursuant to Section 2.13, 3.3 or 8.3 as fully as if such claim was made by such Lender. Anything herein to the contrary notwithstanding, the Borrower shall not, at any time, be obligated to pay to any Lender any sum in excess of the sum the Borrower would have been obligated to pay to such Lender hereunder if such Lender had not sold any participation in its rights and obligations under this Agreement or any other Credit Document. (b) Any Lender may at any time sell to (i) any of such Lender's affiliates or to any other Lender or any affiliate thereof that is a commercial banking or other financial or lending institution not subject to Regulation T of the Board of Governors of the Federal Reserve System and, (ii) with the prior written consent of the Administrative Agent and the Borrower (which shall not be unreasonably withheld or delayed), to one or more commercial banking or other financial or lending institutions not subject to Regulation T of the Board of Governors of the Federal Reserve System (any of (i) or (ii), a "Purchasing Lender"), all or any part of its rights and obligations under this Agreement and the other Credit Documents, pursuant to an Assignment Agreement in the form attached as Exhibit 10.10, executed by such Purchasing Lender and such -------------- transferor Lender (and, in the case of a Purchasing Lender which is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent) and delivered to the Administrative Agent; provided that each such sale to a Purchasing Lender shall be in an amount of $5,000,000 (calculated as hereinafter set forth) or more, or if in a lesser amount or if as a result of such sale the sum of the unfunded Commitment of such Lender plus the aggregate 73

principal amount of such Lender's Loans and participations in Letters of Credits would be less than an amount of $5,000,000 (calculated as hereinafter set forth), such sale shall be of all of such Lender's rights and obligations under this Agreement and all of the other Credit Documents payable to it to one Purchasing Lender. Notwithstanding the requirement of the Borrower's consent set forth above, but subject to all of the other terms and conditions of this Section 10.10(b), any Lender may sell to one or more commercial banking or other financial or lending institutions not subject to Regulation T of the Board of Governors of the Federal Reserve System, all or any part of their rights and obligations under this Agreement and the other Credit Documents with only the consent of the Administrative Agent (which shall not be unreasonably withheld or delayed) if an Event of Default shall have occurred and be continuing. No Lender may sell or assign any portion of its Commitment and Related Credit Extensions (excluding Competitive Loans) to a Purchasing Lender without also selling to such Purchasing Lender (i) the appropriate pro rata share of all such Lender's Commitment and Related Credit Extensions hereunder (but excluding interests in respect of Competitive Loans), and (ii) a pro rata amount of such Lender's loans (excluding loans made by such Lender on a competitive bid basis pursuant to the Five-Year Credit Agreement), borrowings, promissory notes, commitment, and any obligations and interests in respect of letter of credit obligations under the Five-Year Credit Agreement (but excluding interests in respect of loans made by such Lender on a competitive bid basis thereunder); provided, however, that no such sale or assignment shall be required in respect of any interests under the Five-Year Credit Agreement where the Lender is effecting such sale or assignment under this Agreement as a Non-Extending Lender pursuant to Section 2.16(c). For purposes of calculating the satisfaction of the $5,000,000 minimum amount requirement set forth in the first sentence of this Section 10.10(b) and in Section 2.15(c), such amount shall be the sum of the total amount so sold and assigned to the Purchasing Lender pursuant to this Agreement and the total amount so sold and assigned to the Purchasing Lender pursuant to the Five-Year Credit Agreement in accordance with the immediately preceding sentence. Upon such execution, delivery and acceptance, from and after the effective date of the transfer determined pursuant to such Assignment Agreement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment Agreement, have the rights and obligations of a Lender hereunder with a Commitment as set forth herein and (y) the transferor Lender thereunder shall, to the extent provided in such Assignment Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Assignment Agreement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitments and Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement, the Notes and the other Credit Documents. On or prior to the effective date of the transfer determined pursuant to such Assignment Agreement, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for any surrendered Note, a new Note as appropriate to the order of such Purchasing Lender in an amount equal to the Commitments assumed by it pursuant to such Assignment Agreement, and, if the transferor Lender has retained a Commitment or Borrowing hereunder, a new Note to the order of the transferor Lender in an amount equal to the Commitments or Borrowings retained by it hereunder. Such new Notes shall be dated the Initial Availability Date and shall otherwise be in the form of the Notes replaced thereby. The Notes 74

surrendered by the transferor Lender shall be returned by the Administrative Agent to the Borrower marked "cancelled." (c) Upon its receipt of an Assignment Agreement executed by a transferor Lender, a Purchasing Lender and the Administrative Agent (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, by the Borrower), together with payment by the transferor Lender to the Administrative Agent hereunder of a registration and processing fee of $1,000 (unless the Borrower is replacing such Lender pursuant to the terms hereof, in which event such fee shall be paid by the Borrower), the Administrative Agent shall (i) promptly accept such Assignment Agreement, and (ii) on the effective date of the transfer determined pursuant thereto give notice of such acceptance and recordation to the Lenders and the Borrower. The Borrower shall not be responsible for such registration and processing fee or any costs or expenses incurred by any Lender, any Purchasing Lender or the Administrative Agent in connection with such assignment except as provided above. (d) If, pursuant to this Section 10.10 any interest in this Agreement or any Loan or Note is transferred to any transferee which is organized under the laws of any jurisdiction other than the United States of America or any State thereof, the transferor Lender shall cause such transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, the Borrower or the transferor Lender with respect to any payments to be made to such transferee in respect of the Loans or the L/C Obligations, (ii) to furnish to the transferor Lender (and, in the case of any Purchasing Lender, the Administrative Agent and the Borrower) two duly completed and signed copies of either U.S. Internal Revenue Service Form W-8 BEN or U.S. Internal Revenue Service Form W-8 ECI or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities (wherein such transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder), and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Borrower) to provide the transferor Lender (and, in the case of any Purchasing Lender, the Administrative Agent and the Borrower) new forms as contemplated by Section 3.3(b) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (e) Notwithstanding any other provisions of this Section 10.10, no transfer or assignment of the interests of any Lender hereunder or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans, the Notes or any other Obligations under the securities laws of any jurisdiction. Section 10.11. Amendments, Waivers and Consents. Any provision of the -------------------------------- Credit Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower, (b) the Required Lenders, and (c) if the rights or duties of the Administrative Agent, the Co-Syndication Agent, the Co-Documentation Agent or the Managing 75

Agent are affected thereby, the Administrative Agent, the Co-Syndication Agent, the Co-Documentation Agent or the Managing Agent, as the case may be,provided that: (i) no amendment or waiver shall (A) increase the Revolving Credit Commitment Amount without the consent of all Lenders or increase any Commitment of any Lender without the consent of such Lender, or (B) postpone the Commitment Termination Date or Maturity Date without the consent of all Lenders, or reduce the amount of or postpone the date for any scheduled payment of any principal of or interest (including, without limitation, any reduction in the rate of interest unless such reduction is otherwise provided herein) on any Loan or Reimbursement Obligation or of any fee payable hereunder, without the consent of each Lender owed any such Obligation, or (C) release any Collateral for any Collateralized Obligations (other than as provided in accordance with Section 7.4) without the consent of all Lenders; and (ii) no amendment or waiver shall, unless signed by each Lender, change the provisions of this Section 10.11 or the definition of Required Lenders or the number of Lenders required to take any action under any other provision of the Credit Documents. Section 10.12. Headings. Section headings used in this Agreement are -------- for reference only and shall not affect the construction of this Agreement. Section 10.13. Legal Fees, Other Costs and Indemnification. The ------------------------------------------------ Borrower, upon demand by the Administrative Agent, agrees to pay the reasonable fees and disbursements of legal counsel to the Administrative Agent in connection with the preparation and execution of the Credit Documents (which shall be in an amount agreed in writing by the Borrower), and any amendment, waiver or consent related thereto, whether or not the transactions contemplated therein are consummated. The Borrower further agrees to indemnify each Lender, Issuing Bank, the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents, and their respective directors, officers, employees and attorneys (collectively, the "Indemnified Parties"), against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable attorneys' fees and other reasonable expenses of litigation or preparation therefor, whether or not such Indemnified Party is a party thereto) which any of them may pay or incur as a result of (a) any action, suit or proceeding by any third party or governmental authority against such Indemnified Party and relating to any Credit Document, the Loans, any Letter of Credit, or the application or proposed application by any of the Borrower of the proceeds of any Loan or use of any Letter of Credit, REGARDLESS OF WHETHER SUCH CLAIMS OR ACTIONS ARE FOUNDED IN WHOLE OR IN PART UPON THE ALLEGED SIMPLE OR CONTRIBUTORY NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES AND/OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR ATTORNEYS, (b) any investigation of any third party or any governmental authority involving any Lender (as a lender hereunder), Issuing Bank, or the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Managing Agents (in such capacity hereunder) and related to any use made or proposed to be made by the Borrower of the proceeds of any Loan, or use of any Letter of Credit or any transaction financed or to be financed in whole or in part, directly or indirectly with the proceeds of any Loan or Letter of Credit, and (c) any investigation of any third party or any governmental 76

authority, litigation or proceeding involving any Lender (as a lender hereunder) or the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents or the Managing Agents (in such capacity hereunder) and related to any environmental cleanup, audit, compliance or other matter relating to any Environmental Law or the presence of any Hazardous Material (including, without limitation, any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law) with respect to the Borrower, regardless of whether caused by, or within the control of, the Borrower; provided, however, that the Borrower shall not be obligated to indemnify any Indemnified Party for any of the foregoing arising out of such Indemnified Party's gross negligence or willful misconduct, as determined pursuant to a final nonappealable judgment of a court of competent jurisdiction or as expressly agreed in writing by such Indemnified Party. The Borrower, upon demand by the Administrative Agent, the Co-Syndication Agents, the Co-Documentation Agents, the Managing Agents or a Lender or Issuing Bank at any time, shall reimburse such Agent or such Lender or Issuing Bank for any reasonable legal or other expenses incurred in connection with investigating or defending against any of the foregoing, except if the same is excluded from indemnification pursuant to the provisions of the preceding sentence. Each Indemnified Party agrees to contest any indemnified claim if requested by the Borrower, in a manner reasonably directed by the Borrower, with counsel selected by the Indemnified Party and approved by the Borrower, which approval shall not be unreasonably withheld or delayed. Any Indemnified Party that proposes to settle or compromise any such indemnified claim shall give the Borrower written notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain the Borrower's prior written consent thereto, which consent shall not be unreasonably withheld or delayed; provided that the Indemnified Party shall not be restricted from settling or compromising any such claim if the Indemnified Party waives its right to indemnity from the Borrower in respect of such claim. Section 10.14. Governing Law; Submission to Jurisdiction; Waiver of ------------------------------------------------------- Jury Trial. - ---------- (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AND THE RIGHTS AND DUTIES OF THE PARTIES THERETO, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. (B) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE CO-DOCUMENTATION AGENTS, THE MANAGING AGENTS, THE CO-SYNDICATION AGENTS, THE LENDERS, THE ISSUING BANK, OR THE BORROWER MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW 77

YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, 111 8TH AVENUE, NEW YORK, NEW YORK 10011, AS THE DESIGNEE, APPOINTEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER, SERVICE OF PROCESS IN SUCH JURISDICTION IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT HERETO. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS. (C) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. (D) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.7. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. Section 10.15. Confidentiality. Each of the Agents, Issuing Bank and --------------- Lenders agree to maintain the confidentiality of the Information (as defined below), except that Information may 78

be disclosed (i) to their respective affiliates and to prospective Purchasing Lenders and Participants and their respective directors, officers, employees and agents, including accountants, legal counsel and other advisors who have reason to use such Information in connection with the evaluation of the transactions contemplated by this Agreement (subject to similar confidentiality provisions as provided herein) solely for purposes of evaluating such Information, (ii) to the extent requested by any regulatory authority, (iii) to the extent required by applicable law or regulation or by any subpoena or similar legal process, (iv) in connection with the exercise of any remedies hereunder or any proceedings relating to this Agreement or the other Credit Documents, (v) with the consent of the Borrower, or (vi) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 10.15, or (y) becomes available on a non-confidential basis from a source other than the Borrower or its affiliates or the Lenders or their respective affiliates. For purposes hereof, "Information" means all information received by the Lenders from the Borrower relating to the Borrower or its business, other than any such information that is available to the Lenders on a non-confidential basis prior to disclosure by the Borrower. The Lenders shall be considered to have complied with their respective obligations if they have exercised the same degree of care to maintain the confidentiality of such Information as they would accord their own confidential information. Section 10.16. Effectiveness. This Agreement shall become effective on ------------- the date (the "Effective Date") on which the Borrower, the Administrative Agent, and each Lender have signed and delivered to the Administrative Agent a counterparty signature page hereto or, in the case of a Lender, the Administrative Agent has received a facsimile notice that such a counterpart has been signed and mailed to the Administrative Agent. Section 10.17. Severability. Any provision of this Agreement that is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 10.18. Currency Conversion. All payments of Obligations under ------------------- this Agreement, the Notes or any other Credit Document shall be made in Dollars. If any payment of any Obligation, whether through payment by the Borrower or the proceeds of any collateral, shall be made in a currency other than Dollars, such amount shall be converted into Dollars at the current market rate for the purchase of Dollars with the currency in which such obligation was paid, as quoted by the Lender who is the Administrative Agent in accordance with the methods customarily used by such Lender for such purposes as of the time of such determination. The parties hereto hereby agree, to the fullest extent that they may effectively do so under applicable law, that (i) if for the purposes of obtaining any judgment or award it becomes necessary to convert from any currency other than Dollars into Dollars any amount in connection with the Obligations, then the conversion shall be made as provided above on the Business Day before the day on which the judgment or award is given, (ii) in the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment or award is given and the date of payment, the Borrower will pay to the Administrative Agent, for the benefit of the Lenders, such additional amounts (if any) as may be necessary, and the Administrative Agent, on behalf of the Lenders, will pay to the Borrower such excess amounts (if any) as result 79

from such change in the rate of exchange, to assure that the amount paid on such date is the amount in such other currency, which when converted at the rate of exchange described herein on the date of payment, is the amount then due in Dollars, and (iii) any amount due from the Borrower under this Section 10.18 shall be due as a separate debt and shall not be affected by judgment or award being obtained for any other sum due. Section 10.19. Change in Accounting Principles, Fiscal Year or Tax Laws. ---------------------------------------------------------- If (i) any change in accounting principles from those used in the preparation of the financial statements of the Borrower referred to in Section 5.9 is hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or successors thereto or agencies with similar functions), and such change materially affects the calculation of any component of any financial covenant, standard or term found in this Agreement, or (ii) there is a material change in federal or foreign tax laws which materially affects any of the Borrower and its Subsidiaries' ability to comply with the financial covenants, standards or terms found in this Agreement, the Borrower and the Lenders agree to enter into negotiations in order to amend such provisions (with the agreement of the Required Lenders or, if required by Section 10.11, all of the Lenders) so as to equitably reflect such changes with the desired result that the criteria for evaluating any of the Borrower's and its Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made. Unless and until such provisions have been so amended, the provisions of this Agreement shall govern. Section 10.20. Final Agreement. The Credit Documents constitute the ---------------- entire understanding among the Credit Parties, the Lenders, the Issuing Bank, and the Administrative Agent and supersede all earlier or contemporaneous agreements, whether written or oral, concerning the subject matter of the Credit Documents. THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER CREDIT DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 10.21. Officer's Certificates. It is not intended that any ----------------------- certificate of any officer of the Borrower delivered to the Administrative Agent or any Lender pursuant to this Agreement shall give rise to any personal liability on the part of such officer. Section 10.22. Effect of Inclusion of Exceptions. It is not intended ---------------------------------- that the specification of any exception to any covenant herein shall imply that the excepted matter would, but for such exception, be prohibited or required. 80

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the day and year first above written. BORROWER: -------- TRANSOCEAN SEDCO FOREX INC., a Cayman Islands company By: /s/ GREGORY L. CAUTHEN -------------------------------- Name: Gregory L. Cauthen Title: Vice President, Chief Financial Officer and Treasurer Attest: ------------------------------- Name: Title:

SUNTRUST BANK, As Administrative Agent, Issuing Bank, and a Lender By: /s/ JOHN A. FIELDS, JR. -------------------------------- Name: John A. Fields, Jr. Title: Managing Director COMMITMENT AMOUNT: $21,500,000 PERCENTAGE: 8.60% Address for Notices: - --------------------- SunTrust Bank SunTrust Plaza 303 Peachtree Street, N.E., 3rd Floor Atlanta, GA 30308 Attn: Mr. John Fields Telephone No.: 404/724-3667 Telecopy No.: 404/827-6270 Lending Office: - --------------- SunTrust Bank SunTrust Plaza 303 Peachtree Street, N.E., 3rd Floor Atlanta, GA 30308 Attn: Mr. John Fields Telephone No.: 404/724-3667 Telecopy No.: 404/827-6270 Payment Instructions: - -------------------- Bank Name: SunTrust Bank ABA Number: 061 000 104 City, State: Atlanta, Georgia Account Number: 908 8000 112 Attention: Pat Etheridge 404/588-8358 Reference: Transocean Sedco Forex Inc.

ABN AMRO BANK, N.V., As Co-Syndication Agent and a Lender By: /s/ STUART MURRAY ----------------------------- Name: Stuart Murray Title: Group Vice President By: /s/ BO FORD ----------------------------- Name: Bo Ford Title: Assistant Vice President COMMITMENT AMOUNT: $19,000,000 PERCENTAGE: 7.60% Address for Notices: - --------------------- ABN AMRO Bank, N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60604-1003 Attn: Melanie Drzazga Telephone No.: 312/992-5135 Telecopy No.: 312/992-5111 with a copy to: ABN AMRO Bank, N.V. Three Riverway, Suite 1700 Houston, TX 77056 Attn: Stuart Murray Telephone No.: 832/681-7158 Telecopy No.: 832/681-7145 Lending Office: - --------------- ABN AMRO Bank, N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60604-1003 Attn: Loan Administration Telephone No.: 312/992-5150 Telecopy No.: 312/992-5155

ABN AMRO BANK, N.V., (CONTINUED) As Co-Syndication Agent and a Lender Letter of Credit: - ---------------- ABN AMRO Bank N.V. 200 West Monroe Street, Suite 1100 Chicago, I 60608-5002 Payment Instructions: - --------------------- Bank Name: ABN AMRO Bank, N.V. ABA Number: 026009580 City, State: New York, NY Account Name: F/O ABN AMRO Bank, N.V. Chicago Branch CPU Account Number: 650-001-178941 Attention: Reference: CPU 00193232 - Transocean Sedco Letters of Credit: - ------------------- Bank Name: ABN AMRO Bank, N.V. ABA Number: 026009580 City, State: New York, NY Account Name: F/O ABN AMRO Bank, N.V. Chicago Trade Services CPU Account Number: 653-001 1738 41 Attention: Reference: Transocean Sedco

THE ROYAL BANK OF SCOTLAND PLC, As Co-Syndication Agent and a Lender By: /s/ SCOTT W. BARTON -------------------------------- Name: Scott W. Barton Title: Senior Vice President COMMITMENT AMOUNT: $19,000,000 PERCENTAGE: 7.60% Address for Notices: - --------------------- The Royal Bank of Scotland plc 88 Pine Street New York, NY 10005 Attn: Scott Barton Vice President Lending Telephone No.: 212/269-1706 Telecopy No.: 212/480-0791 Lending Office: - --------------- The Royal Bank of Scotland plc Wall Street Plaza, 26th Floor New York, NY 10005 Attn: Jeanne De Quar Supv Operations Telephone No.: 212/269-1700, Ext. 260 Telecopy No.: 212/344-4065 Payment Instructions: - --------------------- Bank Name: Northern Trust International New York ABA Number: 026-001-122 City/State: Swift Address (NCR US33 Account Name: The Royal Bank of Scotland plc Account Number: 104083-20230 Attention: Reference: Transocean Offshore Inc.

BANK OF AMERICA, N.A., As Co-Documentation Agent and a Lender By: /s/ CLAIRE LIU -------------------------------- Name: Claire Liu Title: Managing Director COMMITMENT AMOUNT: $19,000,000 PERCENTAGE: 7.60% Address for Notices: - --------------------- Bank of America, N.A. 333 Clay Street, Suite 4550 Houston, TX 77002 Attn: Patrick Delaney, Managing Director Telephone No.: 713/651-4929 Telecopy No.: 713/651-4808 Lending Office: - --------------- Bank of America, N.A. 901 Main Street Dallas, TX 75202 Attn: Ramon Garcia Customer Service Representative Telephone No.: 214/209-2119 Telecopy No.: 214/290-9462 with a copy to: Bank of America, N.A. 333 Clay Street, Suite 4550 Houston, TX 77002 Attn: Thelma Johnson Telephone No.: 713/651-4864 Telecopy No.: 713/651-4808

BANK OF AMERICA, N.A., (CONTINUED) As Co-Documentation Agent and a Lender Payment Instructions: - --------------------- Bank Name: Bank of America, N.A. ABA Number: #111000012 City, State: Account Number: 1292000883 Attention: Corporate Loan Funds Reference: Transocean Sedco Forex Inc.

WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, As Co-Documentation Agent and a Lender By: /s/ ERIC R. HOLLINGSWORTH ---------------------------------- Name: Eric R. Hollingsworth Title: Vice President COMMITMENT AMOUNT: $19,000,000 PERCENTAGE: 7.60% Address for Notices: - --------------------- Wells Fargo Bank Texas, National Association 1000 Louisiana 3rd Floor, Energy Department Houston, TX 77002 Attn: Eric Hollingsworth, Vice President Telephone No.: 713/319-1354 Telecopy No.: 713/739-1087 (or Credit Contact Back Up) Attn: April Zaring, Relationship Associate Telephone No.: 713/319-1379 Telecopy No.: 713/739-1087 Lending Office: - --------------- Wells Fargo Bank Texas, National Association 1740 Broadway Denver, CO 80274 Attn: Tanya Ivie, Production Manager Telephone No.: 303/863-6102 Telecopy No.: 303/863-2729

WELLS FARGO BANK TEXAS, (CONTINUED) NATIONAL ASSOCIATION, As Co-Documentation Agent and a Lender Payment Instructions: - --------------------- Bank Name: Wells Fargo Bank ABA Number: 121-000-248 City, State: San Francisco, CA 94103 Account Number: 2969507201 Attention: Syndicated Loans Reference: Transocean - Obligor 9051645463, Obligation 406

THE BANK OF NOVA SCOTIA, As a Managing Agent and a Lender By: /s/ N. BELL ----------------------------- Name: N. Bell Title: Assistant Agent COMMITMENT AMOUNT: $16,000,000 PERCENTAGE: 6.40% Address for Notices: - --------------------- The Bank of Nova Scotia Houston Representative Office 1100 Louisiana, Suite 3000 Houston, TX 77002 Attn: Jean Paul Purdy Telephone No.: 713/759-3433 Telecopy No.: 713/752-2425 The Bank of Nova Scotia Houston Representative Office 1100 Louisiana, Suite 3000 Houston, TX 77002 Attn: Julie Hellman Telephone No.: 713/759-3442 Telecopy No.: 713/752-2425 Lending Office: - --------------- PRIMARY SECONDARY The Bank of Nova Scotia The Bank of Nova Scotia Atlanta Agency Atlanta Agency Suite 2700, 600 Peachtree St. NE Suite 2700, 600 Peachtree St. NE Atlanta, GA 30308 Atlanta, GA 30308 Attn: Donna Gardner Attn: Michelle Wingard Telephone No.: 404/877-1552 Telephone No.: 404/877-1562 Telecopy No.: 404/888-8998 Telecopy No.: 404/888-8998

THE BANK OF NOVA SCOTIA, (CONTINUED) As a Managing Agent and a Lender Domestic and Eurodollar Lending Office: - -------------------------------------- The Bank of Nova Scotia Atlanta Agency Suite 2700, 600 Peachtree Street, N.E. Atlanta, GA 30308 Payment Instructions: - --------------------- Bank Name: The Bank of Nova Scotia, New York Agency ABA Number: 026002532 City, State: New York, NY Account Name: BNS Atlanta Agency Account Number: #0606634 Reference: Transocean Sedco Forex Inc.

CREDIT LYONNAIS NEW YORK BRANCH, As a Managing Agent and a Lender By: /s/ BERNARO WEYMULLER ---------------------------- Name: Bernaro Weymuller Title: Senior Vice President COMMITMENT AMOUNT: $16,000,000 PERCENTAGE: 6.40% Address for Notices: - --------------------- Credit Lyonnais 1000 Louisiana Suite 5360 Houston, TX 77002 Attn: Page Dillehunt Telephone No.: 713/753-8713 Telecopy No.: 713/751-0307 Credit Lyonnais 1301 Avenue of the Americas New York, NY 10019 Attn: Bindu Menon Telephone No.: 212/761-7633 Telecopy No.: 917/849-5440 Domestic and Eurodollar Lending Office: - -------------------------------------- Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019

CREDIT LYONNAIS NEW YORK BRANCH, As a Managing Agent and a Lender (CONTINUED) Payment Instructions: - --------------------- Bank Name: Credit Lyonnais New York ABA Number: 026008073 City, State: New York, NY Account Number: 01-88179-3701-00-179 Attention: Reference: Transocean Sedco Forex Inc.

HSBC BANK USA As a Managing Agent and a Lender By: /s/ GEORGE LINHART ---------------------------- Name: George Linhart #9429 Title: Vice President COMMITMENT AMOUNT: $16,000,000 PERCENTAGE: 6.40% Address for Notices: - --------------------- HSBC Bank USA 452 Fifth Avenue, 5th Floor New York, NY 10018 Attn: George Linhart Vice President Telephone No.: 212/575-3326 Telecopy No.: 212/575-2469 Lending Office: - --------------- HSBC Bank USA One HSBC Center 26th Floor Buffalo, NY 14203 Attn: Marie Bax Loan Administrator Telephone No.: 716/841-5668 Telecopy No.: 716/841-0269 Payment Instructions: - --------------------- Bank Name: HSBC Bank USA ABA Number: 021 001 088 Account Name: Syndication & Assets Trading Account Number: 001-940503 Attention: Maria Bax Reference: ----------------------------------

WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, As a Managing Agent and a Lender By: /s/ JEFFREY S. DAVIDSON ---------------------------- Name: Jeffrey S. Davidson Title: Associate Director By: /s/ WALTER T. DUFFY, III ---------------------------- Name: Walter T. Duffy, III Title: Associate Director COMMITMENT AMOUNT: $16,000,000 PERCENTAGE: 6.40% Address for Notices: - ------------------- Westdeutsche Landesbank Girozentrale, New York Branch 1211 Avenue of the Americas New York, NY 10036 Attn: Daniel Palermo Associate Director, Loan Administration Telephone No.: 212/852-6157 Telecopy No.: 212/302-7946 Lending Office: - --------------- Westdeutsche Landesbank Girozentrale, New York Branch 1211 Avenue of the Americas New York, NY 10036 Attn: Jeffrey S. Davidson Telephone No.: 212/852-6204 Telecopy No.: 212/852-6148 Payment Instructions: - --------------------- Bank Name: The Chase Manhattan Bank, N.A. 1 Chase Manhattan Plaza, New York, NY ABA Number: 021-000-021 Account Name: Westdeutsche Landesbank Girozentrale, New York Branch Account Number: 9201060663 Attention: Reference: Transocean Sedco Forex Inc. Revolvers

THE BANK OF TOKYO-MITSUBISHI, LTD. As a Lender By: /s/ KELTON GLASSCOCK ------------------------------ Name: Kelton Glasscock Title: Vice President & Manager COMMITMENT AMOUNT: $8,000,000 PERCENTAGE: 3.20% Address for Notices: - --------------------- The Bank of Tokyo-Mitsubishi, Ltd. 1100 Louisiana Street Suite 2800 Houston, TX 77002 Attn: Iris Munoz, Senior Associate Telephone No.: 713/655-3814 Telecopy No.: 713/655-3855 Lending Office: - --------------- The Bank of Tokyo-Mitsubishi, Ltd. 1100 Louisiana Street Suite 2800 Houston, TX 77002 Attn: Nadra Breir Telephone No.: 713/655-3847 Telecopy No.: 713/658-0116 Payment Instructions: - --------------------- Bank Name: The Bank of Tokyo-Mitsubishi, Ltd. - New York ABA Number: 026009632 City, State: New York, New York Account Name: The Bank of Tokyo-Mitsubishi, Ltd. - Houston Agency Account Number: 30001710 Attention: Nadra Breir Reference: Transocean Sedco Forex

THE FUJI BANK, LIMITED, As a Lender By: /s/ JACQUES AZAGURY --------------------------- Name: Jacques Azagury Title: Senior Vice President & Manager COMMITMENT AMOUNT: $15,000,000 PERCENTAGE: 6.00% Address for Notices: - --------------------- The Fuji Bank, Limited 95 Columbus Circle Jersey City, NJ 07302 Attn: Tina Catapano Vice President and Department Head Telephone No.: 212/282-4561 Telecopy No.: 201/432-6805 Lending Office: - --------------- The Fuji Bank, Limited 1221 McKinney Street Suite 4100 Houston, TX 77010 Attn: Mark Polasek Vice President Telephone No.: 713/759-1800 Telecopy No.: 713/759-0717 Payment Instructions: - --------------------- Bank Name: The Fuji Bank, Limited ABA Number: 026009700 Account Number: 515011 Attention: US Corporate Reference: Transocean Sedco Forex Inc.

BANK ONE, N.A. As a Lender By: /s/ DIANE L. RUSSELL ------------------------- Name: Diane L. Russell Title: Vice President COMMITMENT AMOUNT: $15,000,000 PERCENTAGE: 6.00% Address for Notices: - --------------------- Bank One, N.A. Bank One Center 910 Travis, 6th Floor Houston, TX 77002 Attn: Dianne Russell Telephone No.: 713/751-3982 Telecopy No.: 713/751-3679 Borrowings, Payments, Interest, Etc. - --------------------------------------- Bank One, N.A. 1 Bank One Plaza 0634, 1FNP, 10th Floor Chicago, IL 60670 Attn: John Beirne Telephone No.: 312/732-3659 Telecopy No.: 312/732-4840 Domestic Lending Office: - ------------------------- Bank One, N.A. 1 Bank One Plaza 0634, 1FNP, 10th Floor Chicago, IL 60670

BANK ONE, N.A. (CONTINUED) As a Lender Eurodollar Lending Office: - ------------------------- Bank One, NA 1 Bank One Plaza Suite 0634, 10th Floor Chicago, IL 60670 Payment Instructions: - --------------------- Bank Name: Bank One, Chicago ABA Number: 071000013 City, State: Chicago, IL Account Number: 481152860000 Account Name: LSII Incoming Clearing A/C Attention: John Beirne Reference: Transocean Sedco Forex Inc.

THE BANK OF NEW YORK As a Lender By: /s/ PETER W. KELLER ------------------- Name: Peter W. Keller Title: Vice President COMMITMENT AMOUNT: $15,000,000 PERCENTAGE: 6.00% Address for Notices: - --------------------- The Bank of New York One Wall Street, 19th Floor New York, NY 10286 Attn: Theresa M. Burke Oil & Gas Division Telephone No.: 212/635-7532 Telecopy No.: 212/635-7923 Domestic Borrowings: Payment Instructions: - ------------------- -------------------- The Bank of New York Bank Name: The Bank of New York 101 Barclay Street ABA Number: 021000018 New York, NY 10286 City, State: New York, NY Attn Bill Barbiero Account Name: Comm. Loan Servicing Dept. Commercial Loan Servicing Account Number: 111 556 Department Attention: Bill Barbiero Telephone No.: Reference: Transocean Sedco Forex Inc. Telecopy No.: Eurodollar Lending Office: - --------------------------- The Bank of New York Bank Name: The Bank of New York 101 Barclay Street ABA Number: 021000018 New York, NY 10286 City, State: New York, NY Attn: Bill Barbiero Account Name: Comm. Loan Servicing Dept. Commercial Loan Servicing Account Number: 111 556 Department Attention: Bill Barbiero Telephone No.: Reference: Transocean Sedco Forex Inc. Telecopy No.:

THE BANK OF NEW YORK (CONTINUED) As a Lender Letters of Credit: Payment Instructions: - ----------------- -------------------- The Bank of New York Bank Name: The Bank of New York 101 Barclay Street ABA Number: 021000018 New York, NY 10286 City, State: New York, NY Attn: Venus McGregor Account Name: Trade Services Department Trade Services Department Account Number: GLA #111115 Telephone No.: Attention: Venus McGregor Telecopy No.: Reference: Transocean Sedco Forex Inc. Domestic Borrowings: Payment Instructions: - ------------------- -------------------- The Bank of New York Bank Name: The Bank of New York 101 Barclays Street ABA Number: 021000018 New York, NY 10286 City, State: New York, NY Attn: Bill Barbiero Account Name: Comm. Loan Servicing Dept. Commercial Loan Servicing Account Number: 111 556 Department Attention: Bill Barbiero Telephone No.: Reference: Transocean Sedco Forex Inc. Telecopy No.:

CITIBANK, N.A., As a Lender By: /s/ MARK S. JOHNSON ---------------------------- Name: Mark S. Johnson Title: Director COMMITMENT AMOUNT: $15,000,000 PERCENTAGE: 6.00% Address for Notices: - --------------------- Citibank, N.A. New York Shipping & Logistics 388 Greenwich Street, 23rd Floor New York, NY 10013 Attn: Mark S. Johnson Director Telephone No.: 212/816-5435 Telecopy No.: 212/816-5429 Lending Office: - --------------- Citibank, N.A. Two Penns Way Suite 200 New Castle, DE 19720 Attn: Tracey Pinkett Telephone No.: 302/894-6078 Telecopy No.: 302/894-6120 Payment Instructions: - --------------------- Bank Name: Citibank, N.A. ABA Number: 021000089 City, State: New Castle, DE Account Name: Shipping Concentration Account Number: 4054-8046 Attention: Tracey Pinkett Reference: Transocean Sedco Forex Inc.

CREDIT SUISSE FIRST BOSTON, As a Lender By: /s/ JAMES P. MORAN ------------------------ Name: James P. Moran Title: Director By: /s/ DAVID M. KOCZAN ------------------------ Name: David M. Koczan Title: Associate COMMITMENT AMOUNT: $8,000,000 PERCENTAGE: 3.20% Address for Notices: - --------------------- Credit Suisse First Boston Eleven Madison Avenue New York, NY 10010 Attn: David Koczan Associate Telephone No.: 212/325-9096 Telecopy No.: 212/325-8314 Lending Office: - --------------- Credit Suisse First Boston Eleven Madison Avenue New York, NY 10010 Attn: Nimala Durgana Telephone No.: 212/538-3525 Telecopy No.: 212/538-3477 Payment Instructions: - --------------------- Bank Name: Bank of New York ABA Number: 021 000 018 City, State: New York, NY Account Name: CSFB NY Loan Clearing Account Number: 890-0329-262 Attention: Client Services Reference: Transocean Sedco Forex Inc.

NORDEA BANK FINLAND PLC, NEW YORK BRANCH, (AS SUCCESSOR TO CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH), As a Lender By: /s/ PETER M. DODGE ------------------------------- Name: Peter M. Dodge Title: Senior Vice President By: /s/ ANGELA DOGANCAY ------------------------------- Name: Angela Dogancay Title: Vice President COMMITMENT AMOUNT: $8,000,000 PERCENTAGE: 3.20% Address for Notices: - --------------------- Nordea Bank Finland Plc, New York Branch 11 West 42nd Street, 7th Floor New York, NY 10036 Attn: Martin Lunder Senior Vice President Telephone No.: 212/827-4828 Telecopyo.: 212/827-4888 Lending Office: - --------------- Nordea Bank Finland Plc, New York Branch 437 Madison Avenue New York, NY 10022 Attn: Thelma Dongallo Assistant Treasurer Telephone No.: 212/318-9300 Telecopy No.: 212/421-4420

NORDEA BANK FINLAND PLC, NEW YORK BRANCH, (AS SUCCESSOR TO CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH), As a Lender Payment Instructions: - --------------------- Bank Name: Federal Reserve Bank of New York ABA Number: 026 010 786 City, State: New York, NY Account Name: Nordea Bank Finland Plc - New York Branch Account Number: #52150000032201001 Attention: Credit Administration Reference: Transocean Sedco Forex Inc.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, As a Lender By: /s/ ROY J. MARSDEN --------------------- Name: Roy J. Marsden Title: Executive Vice President - Americas COMMITMENT AMOUNT: $4,500,000 PERCENTAGE: 1.80% Address for Notices: - --------------------- Australia and New Zealand Banking Group Limited 1177 6th Avenue New York, NY 10036 Attn: David Giacalone Vice President Telephone No.: 212/801-9814 Telecopy No.: 212/556-4814 Lending Office: - --------------- Australia and New Zealand Banking Group Limited 1177 6th Avenue New York, NY 10036 Attn: Tessie Amante Supervisor Telephone No.: 212/801-9744 Telecopy No.: 212/801-9859 Payment Instructions: - --------------------- Bank Name: Chase Manhattan Bank ABA Number: 021-000-021 City, State: New York, NY Account Name: Australia and New Zealand Bank, New York Account Number: 400-928884 Reference: Transocean Sedco Forex Inc. Revolvers


                                                                  EXECUTION COPY

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                               RBF EXPLORATION CO.


                    ________________________________________


                   $200,000,000 SENIOR SECURED CLASS A1 NOTES
                    $50,000,000 SENIOR SECURED CLASS A2 NOTES

                    ________________________________________


                               ___________________


                          SECOND SUPPLEMENTAL INDENTURE
                                  AND AMENDMENT


                            DATED AS OF June 2, 2000




                    CHASE BANK OF TEXAS, NATIONAL ASSOCIATION

                                     Trustee

                               ___________________


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This SECOND SUPPLEMENTAL INDENTURE AND AMENDMENT ("Second Supplemental Indenture"), dated as of June 2, 2000 but effective as of the Effective Date (as hereinafter defined), is among RBF Exploration Co., a Nevada corporation (the "Issuer"), BTM Capital Corporation, a Delaware corporation (the "Owner"), Nautilus Exploration Limited, a company incorporated in the Cayman Islands (the "Standby Purchaser"), R&B Falcon Deepwater (UK) Limited, a company incorporated in England and Wales (the "Lessee") and Chase Bank of Texas, National Association, a banking association incorporated under the laws of the United States, as Trustee (the "Trustee"). RECITALS -------- WHEREAS, the Issuer and the Trustee entered into a Trust Indenture and Security Agreement, dated as of August 12, 1999 as supplemented and amended by a certain Supplemental Indenture and Amendment dated as of February 1, 2000 between the Issuer, the Owner and the Trustee (as amended the "Indenture"), pursuant to which the Issuer has originally issued $200,000,000 in principal amount of Senior Secured Class A1 Notes and $50,000,000 in principal amount of Senior Secured Class A2 Notes (collectively, the "Notes") to the Note Holders (as defined in the Indenture); and WHEREAS, the Issuer and the Owner entered into a certain Equipment Sale and Funding Agreement dated as of February 1, 2000 pursuant to which the Issuer conveyed certain property and equipment relating to the Drilling Rig (as defined in the Indenture) to the Owner and entered into related financing arrangements, and the Issuer, the Owner, and Hyundai (as defined in the Indenture) entered into a certain novation agreement of the Construction Contract (as defined in the Indenture) pursuant to which the Owner acquired that part of the Drilling Rig being constructed and supplied by Hyundai; and WHEREAS, pursuant to the Indenture and the original Assignment of Drilling Contract (as defined in the Indenture) the Issuer and/or the Owner have granted certain liens and security interests in certain accounts, equipment and other property as more fully described in the Indenture and the Assignment of Drilling Contract and the Owner has granted a certain First Preferred Ship Mortgage (as defined in the Indenture) covering among other things the Drilling Rig to the Trustee for the benefit of the Note Holders to secure among other things the Notes (all such indebtedness including, without limitation, the Notes is herein referred to as the "Senior Indebtedness"); and WHEREAS, the Owner and Sovereign Corporate Limited, a company incorporated in England and Wales ("Sovereign") have entered into a certain Hire Purchase Agreement dated as of March 20, 2000 with respect to the Drilling Rig, which requires the consent of the Trustee and the Note Holders (as amended by a Side Letter of even date herewith and as may further be amended, the "Hire Purchase Agreement"), and Sovereign now proposes to lease the Drilling Rig to the Lessee pursuant to a certain Lease Agreement of even date herewith a copy of which is attached hereto as Exhibit A (the "Lease"); and

WHEREAS, Sovereign, the Lessee, the Owner, the Trustee, the Standby Purchaser and Alliance & Leicester Group Treasury plc (in such capacity and including successor entities, the "Proceeds Account Bank") have entered into a Deed of Proceeds and Priorities of even date herewith (the "Deed of Proceeds"); and WHEREAS, pursuant to the Hire Purchase Agreement the Owner proposes to grant in favor of Sovereign a Second Naval Mortgage covering the Drilling Rig as security for the obligations of the Lessee under the Lease, a copy of which is attached hereto as Exhibit B-1 (the "Second Preferred Ship Mortgage"); and WHEREAS, the consent of the Trustee is required for the Owner to grant the Second Preferred Ship Mortgage, and the Note Holders have consented to the Trustee's giving such consent pursuant to this Second Supplemental Indenture and an Amendment and Supplement to First Naval Mortgage of even date herewith, a copy of which is attached hereto as Exhibit B-2 (the "Amendment to First Mortgage"); and WHEREAS, Sovereign, the Standby Purchaser, the Lessee, the Owner, the Issuer and the Trustee are entering into a Subordination Agreement, a copy of which is attached as Exhibit C (the "Subordination Agreement"); and WHEREAS, the Standby Purchaser and Sovereign are entering into a Standby Put-Option Agreement, a copy of which is attached as Exhibit D (the "Put-Option Agreement"); and WHEREAS, the Standby Purchaser and the Lessee are entering into a Standby Lease Agreement, a copy of which is attached as Exhibit E (the "Standby Lease"); and WHEREAS, the Issuer, the Lessee and SDDI, with the consent of the Trustee, are entering into a Transfer and Amendment Agreement in the form of Exhibit F ("Transfer Agreement"); and WHEREAS, the Issuer and Commerzbank AG are entering into a Reimbursement Agreement of even date herewith ("Reimbursement Agreement"), a Deposit Agreement and Deposit Charge of even date herewith ("Deposit Agreement") and a Counterparty Payment Agreement of even date herewith ("Counterparty Payment Agreement" and collectively with the Reimbursement Agreement and the Deposit Agreement, the "Assumption Documents"); and WHEREAS, the Note Holders desire a liquidity facility to cover for a specified period of time shortfalls in the repayment of interest on the Notes resulting from certain insolvency events with respect to the Owner and, thus, Swiss Re Financial Products Corporation ("Liquidity Provider (Swiss Re)") and the Trustee have entered into an Irrevocable Revolving Credit Agreement of even date herewith ("Credit Agreement"); and WHEREAS, the Lessee is entering into a Fixed and Floating Security Document of even date herewith ("Debenture") in favor of the Trustee; and 2

WHEREAS, Section 13.8 of the Indenture provides that the Indenture may be amended or supplemented subject to the provisions of Article 11 thereof; and WHEREAS, as of the Effective Date, the Performance Bond (as defined in the Indenture) will have expired by its terms and the Trustee shall return, with all deliberate speed, the Performance Bond to the Sureties (as defined in the Indenture); and WHEREAS, pursuant to Section 11.2 of the Indenture, each of the Note Holders have consented to the Trustee entering into this Second Supplemental Indenture and each other Lease Implementation Document to which the Trustee is a party; and WHEREAS, the Issuer, the Owner and the Trustee now desire, with the consent of each of the Note Holders, to amend and supplement the Indenture to consent to and provide for the transactions above described and to allow for and make the Standby Purchaser and the Lessee parties thereto; NOW, THEREFORE, to comply with the provisions of the Indenture and in consideration of the above premises, the Issuer, the Owner, the Standby Purchaser, the Lessee and the Trustee (collectively, the "Parties") covenant and agree for the equal and proportionate benefit of the respective Note Holders as follows: ARTICLE 1 GENERAL ------- SECTION 1.01. This Second Supplemental Indenture is supplemental to the Indenture and does and shall be deemed to form a part of, and shall be construed in connection with and as part of, the Indenture for any and all purposes. From the Effective Date, in accordance with Section 13.8 and Article 11 of the Indenture, and by executing and delivering this Second Supplemental Indenture, the Parties whose signatures appear below are subject to all of the provisions of the Indenture and this Second Supplemental Indenture. SECTION 1.02. Capitalized terms not otherwise defined herein shall have the respective meaning ascribed thereto in the Indenture. ARTICLE 2 TRUSTEE CONSENTS ---------------- SECTION 2.01. With the express written consent of each of the Note Holders, but subject to Article 8 hereof, the Trustee hereby consents to the following: 3

(a) the Owner and Sovereign implementing the Hire Purchase Agreement and Sovereign and the Lessee entering into the Lease; (b) the Owner's execution and delivery of the Second Preferred Ship Mortgage in favor of Sovereign; (c) the execution and delivery of the Transfer Agreement, subject to the Trustee's security interest in and assignment of proceeds under the SDDI Contract; (d) the Standby Purchaser and Sovereign entering into the Put-Option Agreement and the Standby Purchaser and Lessee entering into the Standby Lease and the Deed of Proceeds; (e) the termination of the Operation and Maintenance Agreement and its replacement in the form of Exhibit G hereto; (f) the application of the First Installment (as defined in the Hire Purchase Agreement) proceeds to the repayment in full of the Hull Loan (as defined in the Sale and Funding Agreement) and the Equipment Purchase Price (as defined in the Sale and Funding Agreement), and the Issuer's acknowledgement to the Owner that the Hull Loan and the Equipment Purchase Price have thereby been fully satisfied and discharged; (g) the use of the proceeds received from the Owner in satisfaction and discharge of the Hull Loan and the Equipment Purchase Price to meet certain of the Issuer's obligations and liabilities under or in connection with the Lease Implementation Documents and the Assumption Documents; (h) the transfer by the Issuer to the Parent of any proceeds of cash collateral returned to the Issuer pursuant to the Assumption Documents and the release of such proceeds from the Trust Estate; (i) the Issuer entering into each of the Reimbursement Agreement, Counterparty Payment Agreement and the Deposit Agreement; and (j) the execution, delivery and performance of any other Lease Implementation Document to the extent such performance does not violate any of the terms and provisions of the Indenture. ARTICLE 3 ADDITIONAL SECURITY INTERESTS ----------------------------- SECTION 3.01. To secure the prompt and complete payment of the principal of, and interest and any applicable Make-Whole Amount on, all of the Notes issued and delivered and Outstanding, 4

the payment of all other sums owing under the Indenture and under all other Project Documents (including, without limitation, the obligations of the Trustee under Section 2.05 of the Credit Agreement) (the "Project Indebtedness") and the performance of the covenants contained in the Indenture and in all other Project Documents, and in consideration of the premises and of the covenants contained herein and the sum of One Dollar ($1.00) paid by the Trustee to the Standby Purchaser at or before the delivery hereof, the receipt and sufficiency whereof are hereby acknowledged, the Standby Purchaser has hereby granted, bargained, sold, conveyed, assigned, transferred, mortgaged, affected, pledged, set over, confirmed, granted a continuing security interest in, and hypothecated and does hereby grant, bargain, sell, convey, assign, transfer, mortgage, affect, pledge, set over, confirm, grant a continuing security interest to the Trustee and to any co-trustee or separate trustee hereafter acting pursuant to the Indenture, and to their respective successors and assigns in trust forever (subject to Section 12.1 of the Indenture), all of its right, title and interest in, to and under the following described Properties whether now owned, existing or hereafter acquired or arising (all of such Properties, including without limitation all properties hereafter specifically subjected to the liens of the Indenture by any indenture supplemental thereto to which the Standby Purchaser has consented in writing, being hereinafter collectively referred to as the "Standby Purchaser Trust Estate"): (a) the Equipment and the Drilling Rig; (b) the Deed of Proceeds, Hire Purchase Agreement and the Standby Lease together with any amendments or modifications to any of the foregoing and all payments under and all accounts and General Intangibles generated therefrom; (c) any insurance proceeds (other than insurance proceeds payable to the Standby Purchaser under liability policies for tort, environmental and similar liabilities), condemnation proceeds and the accounts, deposit accounts, issues, profits, products, revenues and other income of and from the Drilling Rig and/or the Equipment and all the estate, right, title and interest of every nature whatsoever of the Standby Purchaser in and to the same and every part thereof; and (d) all proceeds and products of any of the foregoing. Notwithstanding the foregoing, the Standby Purchaser Trust Estate shall not include the Standby Purchaser Excepted Properties. SECTION 3.02. To secure the prompt and complete payment of the Project Indebtedness and the performance of the covenants contained in the Indenture and in all other Project Documents, and in consideration of the premises and of the covenants contained herein and the sum of One Dollar ($1.00) paid by the Trustee to the Lessee at or before the delivery hereof, the receipt and sufficiency whereof are hereby acknowledged, the Lessee has hereby granted, bargained, sold, conveyed, assigned, transferred, mortgaged, affected, pledged, set over, confirmed, granted a continuing security interest in, and hypothecated and does hereby grant, bargain, sell, convey, assign, transfer, mortgage, affect, pledge, set over, confirm, grant a continuing security interest to the Trustee and to any co-trustee or separate trustee hereafter acting pursuant to the Indenture, and to their respective 5

successors and assigns in trust forever (subject to Section 12.1 of the Indenture), all of its right, title and interest in, to and under the following described Properties whether now owned, existing or hereafter acquired or arising (all of such Properties, including without limitation all properties hereafter specifically subjected to the liens of the Indenture by any indenture supplemental thereto to which the Lessee has consented in writing, being hereinafter collectively referred to as the "Lessee Trust Estate" and together with the Standby Purchaser Trust Estate called the "Second Additional Trust Estate"): (a) All equipment, inventory, fixtures and other goods (including, without limitation, the Drilling Rig) in all forms, wherever located and whether now or hereafter existing, which are owned by the Lessee or in which the Lessee otherwise has any rights and all parts thereof, all accessions thereto, all replacements or substitutions therefor, all accounts now or hereafter arising in connection therewith, and all chattel paper, documents and general intangibles covering or relating thereto; (b) All accounts, General Intangibles (including without limitation, the Deed of Proceeds, the SDDI Contract, the Operation and Maintenance Agreement, the Lease and the Standby Lease), instruments, chattel paper and documents, deposit accounts (other than the Lessee Account to the extent it contains the initial deposit therein and the Lessee Excepted Properties) and investment property (including, without limitation, all Permitted Investments) now owned or hereafter acquired; (c) All Properties subjected to the Lien of the Indenture by each supplemental indenture entered into and delivered pursuant to Article 11 of the Indenture; (d) All insurance proceeds (other than insurance proceeds payable to the Lessee under liability policies for tort, environmental and similar liabilities), condemnation proceeds and the accounts, issues, profits, products, revenues and other income of and from the SDDI Contract and the other Properties subjected or required to be subjected to the Lien of the Indenture and all the estate, right, title and interest of every nature whatsoever of the Lessee in and to the same and every part thereof; (e) The Collection Account, the Lessee Collection Account and all other monies now or hereafter paid or deposited or required to be paid or deposited to or with a Trustee pursuant to Section 4.1, 4.2, 4.3, 5.1 or 5.3 of the Indenture or any other term hereof or any term of the other Project Documents and held or required to be held by any Trustee under the Indenture; (f) Any and all other Properties and any and all other rights, interests and privileges granted by the Lessee to any Trustee in accordance with the provisions of the Indenture and pursuant to or in connection with the provisions of the other Project Documents and all Permitted Investments with respect to any of the foregoing; and (g) All proceeds and products of any of the foregoing. 6

Notwithstanding the foregoing, the Lessee Trust Estate shall not include the Lessee Excepted Properties. The security interests granted under and pursuant to Sections 3.01 and 3.02 above are granted under and pursuant to the Indenture and all of the Second Additional Trust Estate is and shall be considered a part of the Collateral and the Trust Estate under and pursuant to the Indenture and this Second Supplemental Indenture for all intents and purposes. All of the terms and conditions of the Indenture with respect to the Collateral and the Trust Estate shall apply to the Second Additional Trust Estate. Specifically and in this connection the provisions of Sections 7.4 through and including 7.12 of the Indenture apply to the Second Additional Trust Estate and the provisions of such Sections with respect to the "Issuer" apply equally to the Standby Purchaser and the Lessee. Section 3.03. In recognition of the willingness of the Lessee to grant the security in the Lessee Trust Estate under or pursuant to this Indenture, the Trustee and the Note Holders are prepared to limit their recourse against the Lessee in the manner, and subject to the provisions, set out in this Section 3.03, and each of the parties to this I