<PAGE> 1
PROSPECTUS
[GULFMARK GULFMARK OFFSHORE, INC.
OFFSHORE LOGO] OFFER TO EXCHANGE
8 3/4% SENIOR NOTES DUE 2008
FOR ALL OUTSTANDING 8 3/4% SENIOR NOTES DUE 2008
---------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME
ON AUGUST 24, 1998, UNLESS EXTENDED
---------------------------
GulfMark Offshore, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal, to exchange $1,000
principal amount of its 8 3/4% Senior Notes Due 2008, (the "Exchange Notes"), in
a transaction registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for each $1,000 principal amount of
the outstanding 8 3/4% Senior Notes due 2008 (the "Old Notes"), of which
$130,000,000 aggregate principal amount is outstanding (the "Exchange Offer").
The Exchange Notes and the Old Notes are sometimes referred to herein
collectively as the "Notes."
The Notes will be general unsecured obligations of the Company and will be
pari passu in right of payment with all existing and future unsecured senior
Indebtedness (as defined herein) of the Company, which may include certain
borrowings under the New Credit Facility (as defined herein), and senior to all
future subordinated indebtedness of the Company. The Company conducts its
operations solely through its Subsidiaries (as defined herein) and, accordingly,
the Notes will be effectively subordinated to (i) all future secured obligations
of the Company to the extent of the assets securing such obligations and (ii)
all existing and future indebtedness and other obligations of the Company's
Subsidiaries and trade payables incurred in the ordinary course of business.
Under certain circumstances, the Company's payment obligations under the Notes
may in the future be jointly and severally guaranteed on a senior unsecured
basis by one or more of the Company's Subsidiaries. See "Description of the
Notes." As of March 31, 1998, on a pro forma basis, after giving effect to the
Offering (as defined herein) and the application of the net proceeds therefrom,
and excluding borrowings that are available under the New Credit Facility, the
Company (exclusive of its Subsidiaries) would have had no Indebtedness
outstanding other than the Notes, and the Company's Subsidiaries would have had
Indebtedness of $0.6 million outstanding. See "Prospectus Summary -- The Private
Placement" and "Description of Other Indebtedness -- New Credit Facility."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be August 24, 1998 unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day before
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to the terms and provisions of the Registration Rights
Agreement (as defined herein). See "The Exchange Offer." Old Notes may be
tendered only in denominations of $1,000 and integral multiples thereof. The
Company has agreed to pay the expenses of the Exchange Offer. There will be no
cash proceeds to the Company from the Exchange Offer. See "Use of Proceeds."
The Exchange Notes will be obligations of the Company entitled to the
benefits of the Indenture (as defined herein) relating to the Notes. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Old Notes, except that (i) the offering of the Exchange
Notes has been registered under the Securities Act, (ii) the Exchange Notes will
not be subject to transfer restrictions and (iii) the Exchange Notes will not be
entitled to registration or other rights under the Registration Rights Agreement
for payment of Liquidated Damages (as defined in the Registration Rights
Agreement (as defined herein)) upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. Following the Exchange
Offer, any holders of Old Notes will continue to be subject to the existing
restrictions on transfer thereof and, as a general matter, the Company will not
have any further obligation to such holders to provide for registration under
the Securities Act of transfers of the Old Notes held by them. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered and tendered but unaccepted Old Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange"
and "The Exchange Offer -- General."
The Old Notes were sold by the Company on June 8, 1998, to Lehman Brothers
Inc., Chase Securities Inc., Jefferies & Company, Inc. and The Robinson-Humphrey
Company (the "Initial Purchasers") in transactions not registered under the
Securities Act in reliance upon the exemption provided in Section 4(2) of the
Securities Act (the "Offering"). The Initial Purchasers placed the Old Notes
with qualified institutional buyers (as defined in Rule 144A under the
Securities Act) ("Qualified Institutional Buyers" or "QIBs"), each of whom
agreed to comply with certain transfer restrictions and other restrictions.
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless such transaction is registered under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereby in
order to satisfy the obligations of the Company under the Registration Rights
Agreement among the Company and the Initial Purchasers dated as of June 8, 1998
relating to the Old Notes (the "Registration Rights Agreement").
(Continued on next page)
---------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS," BEGINNING ON PAGE 14.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 24, 1998
<PAGE> 2
The Exchange Notes will bear interest at a rate of 8 3/4% per annum,
payable semi-annually on June 1 and December 1 of each year, commencing December
1, 1998. Holders of Exchange Notes of record on November 15, 1998, will receive
on December 1, 1998, an interest payment in an amount equal to (x) the accrued
interest on such Exchange Notes from the date of issuance thereof to December 1,
1998, plus (y) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (June 8, 1998) to the date of exchange
thereof. Interest will not be paid on Old Notes that are accepted for exchange.
The Notes mature on June 1, 2008.
The Old Notes were initially represented by one global note in registered,
global form without interest coupons (the "Old Global Note") registered in the
name of Cede & Co., as nominee for The Depository Trust Company (the
"Depositary"), as depositary. The Exchange Notes exchanged for Old Notes
represented by the Old Global Note will also be initially represented by one
global note in registered, global form without interest coupons (the "Exchange
Global Note") registered in the name of Cede & Co. as nominee for the
Depositary. See "Description of the Notes -- Book-Entry; Delivery and Form." The
Old Global Note and the Exchange Global Note are sometimes referred to herein
collectively as the "Global Notes."
Based on interpretations of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission"), Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Notes. Holders of Old Notes wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the date the Registration Statement has been declared effective by the
Commission, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution."
The Exchange Notes will be a new issue of securities for which there
currently is no market. The Company does not intend to list the Notes on any
national securities exchange or to seek admission thereof to trading on the
Nasdaq National Market. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the Exchange Notes, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development, liquidity or maintenance of any market for the Exchange Notes on
any securities exchange. See "Risk Factors -- Absence of a Public Market for the
Exchange Notes."
i
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, New York, New York 10048. Copies of such
material can also be obtained by writing to the Commission's Public Reference
Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Such reports, proxy and information statements and other information
concerning the Company can also be inspected and copied at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C., on which the
Company's common stock is traded.
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of contracts or other documents are not
necessarily complete, and each statement is qualified in its entirety by
reference to the copy of the applicable contract or other document filed with
the Commission. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the fee prescribed by the Commission, or may be examined without charge at the
public reference facilities of the Commission described above.
---------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
GULFMARK OFFSHORE, INC., 5 POST OAK PARK, SUITE 1170, HOUSTON, TEXAS 77027,
ATTENTION: FRANK R. PIERCE, EXECUTIVE VICE PRESIDENT (713) 963-9522. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AUGUST 17,
1998. SEE "INCORPORATION BY REFERENCE."
---------------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements typically include words or phrases such as
"anticipate," "estimate," "projects," "believes," and words or phrases of
similar import. Such statements are subject to certain risks, uncertainties and
assumptions, including without limitation those set forth in the "Risk Factors"
section. All statements other than statements of historical fact included in
this Prospectus, including without limitation the statements under the captions
"Summary," "Risk Factors," "The Company," and elsewhere herein regarding
GulfMark's financial position and liquidity, its strategic alternatives, future
capital needs, exploration, development and production activities of the oil and
natural gas industry, business strategies, and other plans and objectives of
management of the Company for future operations and activities, are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions, expected future developments and other
factors it believes are appropriate under the circumstances. Such statements are
subject to risks and uncertainties, including the risk factors discussed
ii
<PAGE> 4
above, general economic and business conditions, the business opportunities that
may be presented to and pursued by the Company, changes in law or regulations
and other factors, many of which are beyond the control of the Company. Although
GulfMark believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Prospective investors are therefore cautioned that
any such statements are not guarantees of future performance and that actual
results or developments may differ materially from those projected in the
forward-looking statements. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Prospectus, including, without limitation, in conjunction with
the forward-looking statements included in this Prospectus and under "Risk
Factors." All subsequent written forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
iii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements (including the notes thereto)
included or incorporated by reference elsewhere in this Prospectus. Unless the
context otherwise indicates, references in this Prospectus to the "Company" or
"GulfMark" shall mean, for dates and periods after April 30, 1997, GulfMark
Offshore, Inc. and its subsidiaries and, for dates and periods prior to April
30, 1997, GulfMark International, Inc. and its subsidiaries. See "The Company."
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors." See "Glossary" for the definition of certain
industry terminology used herein.
THE COMPANY
OVERVIEW
GulfMark provides marine support and transportation services to companies
involved in the offshore exploration and production of oil and natural gas. The
Company's vessels provide various services, including the transportation of
materials, supplies and personnel, and the positioning of drilling structures,
that support the construction and ongoing operation of offshore oil and natural
gas facilities and drilling rigs (collectively "Offshore Marine Services"). The
majority of the Company's operations are conducted in the North Sea and the
balance are conducted in Southeast Asia and offshore Brazil. After giving effect
for the Brovig Acquisition (as defined herein), the Company generated $29.8
million of pro forma EBITDA for the 12 months ended December 31, 1997. See
"-- Summary of Historical Condensed Consolidated Financial and Other Data."
The size, diversity and technologically advanced nature of GulfMark's fleet
enables it to provide offshore exploration and production operators with a broad
range of Offshore Marine Services in several key markets. The Company's fleet
has grown in size and capability from an original 11 vessels acquired in late
1990 to 34 vessels as of March 31, 1998, through strategic acquisitions and new
construction of technologically advanced vessels. Twenty-seven vessels in
GulfMark's fleet are owned, two vessels are bareboat chartered, and five vessels
are managed by the Company. The Company believes its fleet is among the youngest
in the industry, with an average age of 14 years. Excluding the six vessels
acquired by the Company from Maritime (Pte), Limited in August 1996, all of the
Company's owned vessels have been built or substantially refurbished since 1984.
The Company's North Sea fleet is comprised of vessels with a wide range of
technological capabilities and sizes. This fleet is heavily oriented toward
supply vessels, which tend to work in the more stable industry sub-segments of
platform supply and field development. The average age of the Company's North
Sea fleet is just over ten years.
On March 7, 1998, GulfMark took delivery of its most modern,
technologically sophisticated vessel to date, the Highland Rover, a modified and
extended (236(#)) UT 755 platform supply vessel. The Company also acquired five
vessels as part of the Brovig Acquisition during the first quarter of 1998. See
"-- Recent Developments." As a result of the delivery of the Highland Rover and
the Brovig Acquisition, the Company's fleet includes four owned UT 755s, the
Highland Rover, the Highland Drummer, the North Challenger, and the Highland
Piper, each built and delivered since 1996. These four vessels are currently
under contract in the North Sea.
The Company's Southeast Asia fleet consists of vessels that can
individually provide the greatest functional flexibility for the varied needs of
this geographically diverse region. Substantially all of the Company's vessels
in the Southeast Asia fleet have sufficient anchor handling and towing
capability to compete for work in areas such as Indonesia, where drilling and
production support are major users of offshore support vessels. Additionally,
the vessels are attractive as supply vessels in locales such as Thailand and
Malaysia because of their combination of on-deck and below-deck capacities and
relatively high horsepower.
1
<PAGE> 6
The Company plans to add six newly built vessels to the fleet during the
balance of 1998 and six additional newbuilds in 1999. Three of those 12 new
vessels will be owned by the Company. The Company has commenced construction in
the United Kingdom to complete an unfinished vessel hull (the "Gallant
Project"). The Company currently intends to complete the vessel as a
multi-purpose support vessel for the floating production, storage and offloading
("FPSO") market, although it still has the capacity and flexibility to complete
the vessel as a platform supply vessel ("PSV"). The Company anticipates that
delivery of the Gallant Project will occur in October 1998. The Company believes
that the comparatively low hull acquisition and completion cost (estimated at
$16.0 million, excluding capitalized interest), and the 1998 delivery of the
Gallant Project should provide the Company with a significant competitive
advantage in serving the rapidly growing FPSO market. In addition, two large
PSVs are currently under construction for the Company by Bender Shipbuilding and
Repair Co., Inc. ("Bender") in Mobile, Alabama. These vessels will be able to
operate in harsher climates and deeper water environments than traditional
supply vessels built in the U.S. for use in the Gulf of Mexico. The two Bender
vessels are scheduled for delivery in early and mid 1999, respectively, at an
estimated cost, excluding capitalized interest, of $11.0 million each. The
Company has an option with Bender to construct two additional vessels of similar
design, which, if such option is exercised, could be available in 2000.
The financial performance of the Company reflects both the growth of its
fleet and strong demand in its primary markets. GulfMark's average day rate for
its owned North Sea PSVs for the quarter ended March 31, 1998 was $10,511 per
day, compared to $9,575 per day for the quarter ended March 31, 1997. The
average day rate for its Southeast Asia fleet was $4,771 per day for the quarter
ended March 31, 1998 compared to $3,538 per day for the quarter ended March 31,
1997. The Company's owned vessels operating in the North Sea accounted for 70.6%
of the Company's vessel earnings (revenues less direct costs) in the quarter
ended March 31, 1998. The Company expects this percentage to increase as a
result of the Brovig Acquisition and the delivery of the Highland Rover.
The Company is a Delaware corporation with principal executive offices
located at 5 Post Oak Park, Suite 1170, Houston, Texas 77027-3414, and its
telephone number at that address is (713) 963-9522.
BUSINESS STRATEGY
GulfMark's goal is to enhance its position as a premier supplier of
Offshore Marine Services in international markets. The Company's strategy is to
profitably increase revenues and enhance shareholder value by (i) developing and
maintaining a large, diversified and technologically sophisticated fleet, (ii)
focusing on attractive international markets and (iii) managing its risk profile
through a balance of long-term and short-term charters. The Company believes
this strategy, coupled with an emphasis on providing dependable, high quality
services, will produce higher vessel utilization rates, relatively stable growth
rates and returns on investments that are superior to those of the Company's
competitors.
Developing and Maintaining a Large, Diversified and Technologically Advanced
Fleet
The Company regularly upgrades its fleet to improve capability, reliability
and customer satisfaction. The Company also seeks to take advantage of
attractive opportunities to acquire or build new vessels to expand its fleet.
With the delivery of the Highland Rover and the other planned 1998 and 1999
fleet additions, the Company will own and/or operate nine of the fourteen UT 755
design PSVs currently in service or on order worldwide. The UT 755 is a
technologically sophisticated design the Company helped introduce in the North
Sea with the construction of the Highland Piper and Highland Drummer, two of the
first three UT 755s built (in 1996 and 1997, respectively). The design has been
favorably received by the market and is now gaining wide acceptance.
Focusing on Attractive International Markets
GulfMark has elected to focus its current operations in the North Sea,
Southeast Asia and Brazil markets because the Company believes there are lower
levels of competition, higher barriers to entry, lower volatility of day rates
and greater potential for increasing day rates in those markets than in other
markets, such as in the
2
<PAGE> 7
Gulf of Mexico. Furthermore, the Company's operating experience in these markets
has enabled it to anticipate and profitably respond to trends in these markets,
such as the increasing demand for multi-function vessels met by the Company's
addition of UT 705s and UT 755s in its North Sea fleet. In addition, the Company
has the capacity, under appropriate market conditions, to alter the geographic
focus of its operations to a limited degree by shifting vessels between its
existing markets and by entering new ones as they develop economically and
become more profitable.
North Sea. Historically, this market has been the most demanding of all oil
and natural gas exploration frontiers due to harsh weather, erratic sea
conditions, significant water depths and long sailing distances. Exploration and
production operators in the North Sea market are typically large and well
capitalized entities (such as major oil companies and state-owned oil
companies), in large part because of the significant financial commitment
required for projects in this market. North Sea projects require comparatively
long planning horizons, and while still large compared to projects in other
markets, are becoming smaller in scale and greater in number due to the
reduction in breakeven economics encouraged by advancing technology.
Consequently, vessel demand in the North Sea tends to be relatively steady and
less susceptible to abrupt swings than vessel demand in other regions. The
Company's management has been active in this market since the mid-1970s.
Southeast Asia. Vessel requirements in this fragmented market are trending
towards higher quality, younger vessels as local certification standards have
generally become more demanding. As a result, vessel requirements in Southeast
Asia are now generally similar to the requirements in the Gulf of Mexico.
However, varying weather conditions (such as annual monsoons) and long distances
between supply centers and delivery locations demand more versatile vessel
designs than those used in the Gulf of Mexico. The Company believes that vessel
demand in this market will remain strong and potentially improve further as a
function of the number of major exploration and production projects currently in
the planning stages and the reliable supply of stable foreign currency generated
for the region's economies by the production of hydrocarbons. The Company's
management has been involved in Offshore Marine Services activities in this
market since the mid-1970s, and the Company maintains long-standing business
relationships with a number of local companies.
Brazil. Vessel requirements in this market are similar to those of the
North Sea due to the harsh operating environment. In addition, this market is
expected to expand at a rapid rate due to the privatization of Petroleo
Brasiliero S.A. ("Petrobras"), the Brazilian national oil company, and the
potential grant of concessions of Brazil's offshore acreage to international oil
companies. The Company's Brazil fleet currently consists of one vessel, the
Seapower, which has been operating in this market since 1995 and is currently
under charter to Petrobras through May 1999. Following its delivery in mid-1998,
the Leopard Bay will operate in this market under a three-year contract with
Petrobras. The Company believes that both its current vessel and the planned
vessel additions in 1998 and 1999 are well-suited to this market. The Company
expects that it will expand its presence in this market going forward.
Managing Its Risk Profile Through a Balance of Long-Term and Short-Term
Charters
The Company seeks to balance its portfolio of charters with both long-term
charters, which provide a significant degree of cash flow certainty, and
short-term charters and sharing arrangements, which provide the opportunity to
benefit when day rates are increasing. The Company utilizes its many years of
operating experience to apply this strategy within the markets in which it
operates. Approximately 63% of the Company's revenues for the first three months
of 1998 were derived from charters that will continue until at least the fourth
quarter of 1998. These contracts are typically associated with the Company's
newer vessels, predominantly in the North Sea. Moreover, certain of these
contracts include extension options. As of March 31, 1998, the Company estimates
that it will have $56.6 million and $39.2 million of revenues under such
contracts in 1999 and 2000, respectively, assuming that the options are
exercised.
The Company has also selectively employed sharing arrangements with its
customers to enhance its profitability on longer term charters. These innovative
charters provide the Company and its customers the opportunity to benefit from
rising charter rates by subchartering the contracted vessels to third parties at
prevailing market rates during any downtime in the customers' operations. If the
subcharter rate is below the
3
<PAGE> 8
original charter rate, the customer remains obligated for the contracted rate
shortfall. However, if the subcharter rate is higher than the original charter
rate, the Company and the customer share the additional revenues. These
arrangements permit both the customer and the Company to benefit from improving
market conditions and reduce any disincentive to customers from entering into
longer term charters by minimizing down time costs.
RECENT DEVELOPMENTS
The Brovig Acquisition
In February 1998, the Company acquired substantially all of Brovig Supply
ASA (renamed Gulf Offshore Norge AS) ("Brovig"), at the time a Norwegian-owned,
publicly traded company(the "Brovig Acquisition"). The Company completed the
Brovig Acquisition in March 1998. Brovig was formed through a spin-off from its
former parent on July 1, 1997 in connection with a new tax regime for
ship-owning companies in Norway. The Brovig fleet consists of four large PSVs,
including a UT 755 (the North Challenger) delivered in December 1997, and one
large anchor handling, towing and supply ("AHTS") vessel. All of these vessels
are currently operating in the North Sea. Four of the vessels are under charters
with expiration dates ranging from February 1999 to May 2000, and one vessel has
recently been awarded a construction support contract at premium rates for
summer 1998. The purchase consideration for the Brovig Acquisition was
approximately $73.0 million, including the assumption of approximately NOK 277
million ($37.4 million) of indebtedness.
Delivery of the Highland Rover
On March 7, 1998, the Company took delivery of the Highland Rover, a
modified, extended UT 755 PSV. The UT 755 is a technologically sophisticated
design that has been favorably received by the market and is now gaining wide
acceptance. Additionally, with increasing demand for use of subsea remotely
operated vehicles ("ROVs"), vessels such as the Highland Rover, with its
specialized "moon pool" ROV launching arrangement, are expected to be especially
attractive because they provide customers with increased launch certainty in
harsh and unpredictable weather, such as that experienced in the North Sea. Upon
delivery, the Company paid the balance of the construction cost, 93.4 million
Norwegian Kroner ("NOK") (or $14.0 million), with additional borrowings under an
existing credit facility. The Highland Rover was immediately employed under a
three-year charter at an attractive rate with a marine contractor.
New Credit Facility
The Company applied the net proceeds of the Offering to repay in full the
amounts owing at the time of the closing of the Offering under each of its
then-existing credit facilities and such facilities have since been terminated.
See "-- The Private Placement." In place of these multiple facilities, on June
8, 1998 the Company entered into a single multicurrency revolving loan agreement
(the "New Credit Facility"), initially in an aggregate principal amount of $50.0
million and potentially up to an aggregate principal amount of $75.0 million.
The New Credit Facility is available to provide financing for future
acquisitions, working capital and other general corporate purposes. See
"Description of Other Indebtedness -- New Credit Facility."
Sale of Interest in SeaMark Ltd.
On July 8, 1998 the Company sold for $3 million in cash, its interest in
its 51% owned joint venture, SeaMark Ltd., which operated two bareboat chartered
vessels in Southeast Asia. Gain from the transaction is expected to approximate
the proceeds of sale and will be included in the Company's results for the
quarter ended September 30, 1998.
4
<PAGE> 9
THE PRIVATE PLACEMENT
The Old Notes were sold by the Company on June 8, 1998 to the Initial
Purchasers and were thereupon offered and sold by the Initial Purchasers only to
certain Qualified Institutional Buyers. Of the $125.7 million net proceeds
received by the Company in connection with the sale of the Old Notes, $119.6
million was used to repay in full amounts owing at the time of the closing of
the Offering under each of the Company's then-existing credit facilities. The
remaining $6.1 million of such net proceeds will be used for general corporate
purposes, including a portion of the capital expenditures associated with
vessels currently under construction. As of March 31, 1998, on a pro forma
basis, after giving effect to the Offering and the application of the net
proceeds as just described, and excluding borrowings that are available under
the New Credit Facility, the Company (exclusive of its Subsidiaries) would have
had no Indebtedness outstanding other than the Notes, and the Company's
Subsidiaries would have had Indebtedness of $0.6 million outstanding. See
"Capitalization."
5
<PAGE> 10
SUMMARY OF TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $130,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of Old Notes. The Exchange Notes will be obligations of the Company entitled to
the benefits of the Indenture. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) the Exchange Notes will not be entitled to registration
or other rights under the Registration Rights Agreement including the provision
in the Registration Rights Agreement for payment of Liquidated Damages upon
failure by the Company to consummate the Exchange Offer or the occurrence of
certain other events. See "Description of the Notes." Capitalized terms followed
by the parenthetical "(as defined)" and not defined herein will have the
meanings given them in the Indenture.
REGISTRATION RIGHTS
AGREEMENT.................. The Old Notes were sold by the Company on June 8,
1998 to the Initial Purchasers pursuant to a
Purchase Agreement, dated June 2, 1998 (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial Purchasers
entered into the Registration Rights Agreement
which, among other things, grants the holders of
the Old Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
certain obligations of the Company under the
Registration Rights Agreement.
THE EXCHANGE OFFER......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Old Notes validly tendered and accepted pursuant
to the Exchange Offer. As of the date hereof,
$130,000,000 in aggregate principal amount of Old
Notes are outstanding. The Company will issue the
Exchange Notes to tendering holders of Old Notes
promptly following the Expiration Date. The terms
of the Exchange Notes are identical in all material
respects to the Old Notes except for certain
transfer restrictions and registration rights
relating to the Old Notes.
No federal or state regulatory requirements must be
complied with or approval obtained in connection
with the Exchange Offer, other than the
registration requirements under the Securities Act.
RESALE..................... Based on existing interpretations of the Securities
Act by the staff of the Commission set forth in
several no-action letters to third parties, and
subject to the immediately following sentence, the
Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by holder thereof (other than
(i) a broker-dealer who purchased such Old Notes
directly from the Company for resale pursuant to
Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an
"affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. However,
any purchaser of Notes who is an affiliate of the
Company or who intends to participate in the
Exchange Offer for the purpose of distributing the
Exchange Notes, or any broker-dealer who purchased
the Old Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under
the Securities Act,
6
<PAGE> 11
(i) will not be able to rely on the interpretations
by the staff of the Commission set forth in the
above-mentioned no-action letters, and (ii) must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes
unless such sale or transfer is made pursuant to an
exemption from such requirements. The Company does
not intend to seek its own no-action letter and
there is no assurance that the staff of the
Commission would make a similar determination with
respect to the Exchange Notes as it has in such
no-action letters to third parties. See "The
Exchange Offer -- General" and "Plan of
Distribution." Each broker-dealer that receives
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 180 days after the
Registration Statement has been declared effective
by the Commission, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution."
EXPIRATION DATE............ 5:00 p.m., New York City time, on August 24, 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
OLD NOTES................ The Exchange Notes will bear interest at a rate of
8 3/4% per annum, payable semiannually on June 1
and December 1 of each year, commencing December 1,
1998. Holders of Exchange Notes of record on
November 15, 1998 will receive on December 1, 1998,
an interest payment in an amount equal to (i) the
accrued interest on such Exchange Notes from the
date of issuance thereof to December 1, 1998, plus
(ii) the accrued interest on the previously held
Old Notes from the date of issuance of such Old
Notes (June 8, 1998) to the date of exchange
thereof. Interest will not be paid on Old Notes
that are accepted for exchange. The Notes mature on
June 1, 2008.
PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation, to State Street Bank and
Trust Company, as Exchange Agent, at the address
set forth herein and therein or effect a tender of
Old Notes pursuant to the procedures for book-entry
transfer as provided for herein and therein. By
executing the Letter of Transmittal, each
7
<PAGE> 12
holder will represent to the Company that, among
other things, the Exchange Notes acquired pursuant
to the Exchange Offer are being acquired in the
ordinary course of business of the person receiving
such Exchange Notes, whether or not such person is
the holder, that neither the holder nor any such
other person has any arrangement or understanding
with any person to participate in the distribution
of such Exchange Notes and that neither the holder
nor any such other person is an "affiliate," as
defined in rule 405 under the Securities Act, of
the Company. See "The Exchange Offer -- Procedures
for Tendering."
Following consummation of the Exchange Offer,
holders of Old Notes not tendered as a general
matter will not have any further registration
rights, and the Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Old Notes could be adversely affected. See "Risk
Factors -- Absence of Public Market for the
Exchange Notes" and "-- Consequences of Failure to
Exchange" and "The Exchange Offer -- Consequences
of Failure to Exchange."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on his behalf. If such
beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal
and delivering his Old Notes, either (a) make
appropriate arrangements to register ownership of
the Old Notes in such holder's name or (b) obtain a
properly completed bond power from the registered
holder or endorsed certificates representing the
Old Notes to be tendered. The transfer of record
ownership may take considerable time, and
completion of such transfer prior to the Expiration
Date may not be possible. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available, or who cannot deliver their Old Notes
(or complete the procedure for book-entry transfer)
and deliver a properly completed Letter of
Transmittal and any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m. New York City Time on the
business day before the Expiration Date by
furnishing a written or facsimile transmission
notice of withdrawal to the Exchange Agent
containing the information set forth in "The
Exchange Offer -- Withdrawal of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... The Company will accept for exchange any and all
Old Notes that are properly tendered, and not
timely withdrawn, in the Exchange Offer prior to
the Expiration Date. See "The Exchange
Offer -- Procedures for
8
<PAGE> 13
Tendering." The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Expiration Date.
EXCHANGE AGENT............. State Street Bank and Trust Company, the Trustee
under the Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. The overnight courier and hand
delivery address for the Exchange Agent is State
Street Bank and Trust Company, Corporate Trust
Department, Fourth Floor, Two International Place,
Boston, Massachusetts 02110, and the mailing
address is State Street Bank and Trust Company,
Corporate Trust Department, P.O. Box 778, Boston,
Massachusetts 02102-0078. For assistance and
requests for additional copies of this Prospectus,
the Letter of Transmittal or the Notice of
Guaranteed Delivery, the telephone number for the
Exchange Agent is (617) 664-5456, and the facsimile
number for the Exchange Agent is (617) 664-5739.
See "The Exchange Offer -- The Exchange Agent."
EFFECT ON HOLDERS OF OLD
NOTES...................... Holders of Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to hold
their Old Notes and will be entitled to all the
rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in the
Old Notes and the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old
Notes could be adversely affected. See "Risk
Factors -- Consequences of Exchange and Failure to
Exchange."
CERTAIN TAX CONSEQUENCES... The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income
tax purposes. See "Certain Federal Income Tax
Considerations."
USE OF PROCEEDS............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of
Proceeds." For a discussion of the use of the net
proceeds received by the Company from the sale of
the Old Notes, see "Private Placement."
See "The Exchange Offer" for more detailed information concerning the terms
of the Exchange Offer.
9
<PAGE> 14
TERMS OF THE OLD NOTES AND THE EXCHANGE NOTES
SECURITIES OFFERED......... $130,000,000 aggregate principal amount of 8 3/4%
Senior Notes due 2008.
MATURITY DATE.............. June 1, 2008.
INTEREST PAYMENT DATES..... June 1 and December 1 commencing December 1, 1998.
MANDATORY REDEMPTION....... The Company will not be required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
OPTIONAL REDEMPTION........ The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after June 1, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest and,
in the case of the Old Notes only, Liquidated
Damages, if any, to the date of redemption. In
addition, on or before June 1, 2001, the Company
may, at its option, redeem up to 35% of the
aggregate outstanding principal amount of the Notes
at a redemption price of 108.75% of the principal
amount thereof, in each case, plus accrued and
unpaid interest and, in the case of the Old Notes
only, Liquidated Damages, if any, through the
redemption date, with the net proceeds of one or
more underwritten public offerings of common stock
of the Company, provided at least 65% of the
original aggregate principal amount of the Notes
shall remain outstanding after the occurrence of
such redemption. See "Description of the Notes --
Optional Redemption."
CHANGE OF CONTROL.......... In the event of a Change of Control, each holder of
the Notes will have the right, at the holder's
option, to require the Company to purchase such
holder's Notes, in whole or in part, at a purchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and, in
the case of the Old Notes only, Liquidated Damages,
if any, to the date of purchase. See "Description
of the Notes -- Repurchase at the Option of
Holders."
RANKING.................... The Notes will be general unsecured obligations of
the Company and will be pari passu in right of
payment to all existing and future senior
Indebtedness, including all obligations of the
Company under the New Credit Facility. The Company
conducts its operations solely through its
subsidiaries and, accordingly, the Notes will be
effectively subordinated to all existing and future
Indebtedness and other liabilities of its
subsidiaries. As of March 31, 1998, after giving
pro forma effect to the Offering and the
application of the net proceeds therefrom, and
excluding borrowings that are available under the
New Credit Facility, the Company (exclusive of its
Subsidiaries) would have had no Indebtedness
outstanding other than the Notes, and the Company's
Subsidiaries would have had Indebtedness of
approximately $0.6 million outstanding. See
"Prospectus Summary -- The Private Placement,"
"Capitalization" and "Description of the
Notes -- General."
SUBSIDIARY GUARANTEES...... Under certain circumstances, the Company's payment
obligations under the Notes may in the future be
jointly and severally guaranteed on a senior
unsecured basis by one or more of the Company's
Subsidiaries. See "Description of the
Notes -- Subsidiary Guarantees."
CERTAIN COVENANTS.......... The Indenture pursuant to which the Notes will be
issued (the "Indenture") contains certain covenants
that, among other things, limit the ability of the
Company and the Company's Subsidiaries to (i) incur
additional indebtedness, (ii) pay dividends or make
certain other re-
10
<PAGE> 15
stricted payments, (iii) enter into transactions
with affiliates, (iv) create certain liens, (v)
make certain asset dispositions and (vi) merge or
consolidate with, or transfer substantially all of
its assets to, another person. The Indenture also
limits the ability of the Company's Subsidiaries to
issue preferred stock and to create restrictions on
the ability of such Subsidiaries to pay dividends
or make any other distributions. In addition, the
Company is obligated, under certain circumstances,
to offer to purchase the Notes with the net cash
proceeds of certain sales and other dispositions of
assets at a purchase price of 101% of the principal
amount of the Notes, plus accrued and unpaid
interest and, in the case of the Old Notes only,
Liquidated Damages, if any, to the date of
purchase. See "Description of the
Notes -- Repurchase at the Option of Holders" and
"-- Certain Covenants."
EXCHANGE OFFER,
REGISTRATION RIGHTS........ Pursuant to the Registration Rights Agreement, the
Company agreed (i) to file a registration statement
(the "Exchange Offer Registration Statement") with
respect to the Exchange Offer to exchange the Old
Notes for Exchange Notes within 60 days after the
date of the original issuance of the Old Notes
(which was June 8, 1998) and (ii) to use their best
efforts to cause such registration statement to
become effective within 150 days after such issue
date. The Registration Statement of which this
Prospectus is a part constitutes such Exchange
Offer Registration Statement. If (i) the Exchange
Offer is not permitted by applicable law or (ii)
any holder of the Notes notifies the Company that
(A) it is prohibited by law or policy of the
Commission from participating in the Exchange
Offer, (B) it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration
Statement is not appropriate or available for such
resales or (C) it is a broker-dealer and owns Notes
acquired directly from the Company or an affiliate
of the Company, the Company will use its best
efforts to cause to become effective a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the Notes by the
holders thereof. If the Company fails to satisfy
these registration obligations within prescribed
time periods, it may be required to pay Liquidated
Damages to holders of Old Notes under certain
circumstances. See "Description of the
Notes -- Registration Rights; Liquidated Damages."
TRANSFER RESTRICTIONS...... Following the Exchange Offer, any Old Notes not
exchanged for Exchange Notes will continue to be
subject to the existing restrictions on transfers
thereof and may not be offered or sold within the
U.S. or to, or for the benefit of, U.S. persons
except pursuant to an exemption from, or in a
transaction not subject to, the registration
requirements of the Securities Act. See "The
Exchange Offer -- Consequences of Failure to
Exchange." The Exchange Notes would, in general, be
freely tradable after the Exchange Offer. See
"Exchange Offer."
RISK FACTORS
For a discussion of certain risk factors that should be considered in
connection with an investment in the Notes, see "Risk Factors."
11
<PAGE> 16
SUMMARY OF HISTORICAL CONDENSED CONSOLIDATED FINANCIAL AND OTHER DATA
The summary historical financial information presented below under
Operating Data, for each of the three years in the period ended December 31,
1997, has been derived from the historical consolidated financial statements of
the Company, which have been audited by Arthur Andersen LLP, independent
auditors. The historical information for the three months ended March 31, 1997
and 1998 is unaudited. The unaudited historical information is taken from
unaudited financial statements that include all adjustments, which are of a
normal recurring nature, which the Company considers necessary for a fair
presentation of the results of operations for these periods. Operating results
for the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1998. The
information presented should be read together with "Selected Consolidated
Financial Data" and the Consolidated Financial Statements including the notes
thereto incorporated by reference in this Prospectus. The Consolidated Financial
Statements included in this Prospectus, as well as the financial data presented
in the table below, present the net assets and results of operations of the
non-marine businesses of the Company's Predecessor as discontinued operations of
the Company for all periods presented. See "The Company."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, -------------------------
------------------------------- 1997 1998
1995 1996 1997 (UNAUDITED) (UNAUDITED)
------- -------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................... $27,233 $ 34,749 $ 46,019 $ 9,679 $ 16,046
Direct operating expenses.............. 15,386 16,178 18,231 4,302 5,794
General and administrative expenses.... 3,483 4,523 5,364 1,281 1,369
Depreciation and amortization.......... 5,472 5,013 6,711 1,604 2,359
------- -------- -------- -------- --------
Operating income....................... 2,892 9,035 15,713 2,492 6,524
======= ======== ======== ======== ========
Interest expense, net.................. (2,613) (3,467) (3,819) (1,132) (1,382)
OTHER DATA:
EBITDA(a).............................. $ 8,364 $ 14,048 $ 22,424 $ 4,096 $ 8,883
Ratio of earnings to fixed
charges(b)........................... 1.1 2.3 3.1 2.0 3.3
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 5,136 $ 17,234 $ 25,885 $ 10,233 $ 14,903
Vessels and equipment, net............. 61,343 87,405 105,262 94,912 179,616
Total assets excluding discontinued
operations........................... 74,904 116,470 154,661 119,771 232,642
Total debt(c).......................... 37,576 60,152 53,424 63,845 120,274
Total stockholders' equity(d).......... 31,653 47,179 85,272 44,760 88,659
</TABLE>
- ---------------
(a) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or as a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, EBITDA is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs. EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(b) This computation is submitted in accordance with Item 503(d) of Regulation
S-K. Earnings are computed as income from continuing operations before
taxes and minority interest plus fixed charges and minority interest in
income of subsidiary. Fixed charges are computed as interest, whether
expensed or capitalized, amortization of debt discount and issuance costs
and the portion of rental expense representative of interest.
(c) Includes current portion of long-term debt.
(d) Excludes discontinued operations which were disposed of on May 1, 1997.
12
<PAGE> 17
SUMMARY FLEET INFORMATION
The following table sets forth certain information with respect to the
Company's fleet as of March 31, 1998. See "Glossary" for fleet definitions.
<TABLE>
<CAPTION>
NORTH SEA SOUTHEAST ASIA BRAZIL TOTAL
--------- -------------- ------ -----
<S> <C> <C> <C> <C>
Owned......................................... 15 11 1 27(a)
Managed....................................... 5 - - 5(b)
Chartered..................................... - 2(c) - 2(d)
---- ---- ---- ----
Total......................................... 20 13 1 34
==== ==== ==== ====
</TABLE>
- ---------------
(a) Does not include one additional vessel currently under construction and
scheduled for delivery in 1998 and two additional vessels currently under
construction and scheduled for delivery in 1999.
(b) Does not include two additional vessels currently under construction and
scheduled for delivery in 1998 and three additional vessels currently under
construction and scheduled for delivery in 1999.
(c) These vessels are chartered through August 1998 to SeaMark Ltd., a
Panamanian corporation owned, as of March 31, 1998, 51% by the Company and
49% by the vessels' owners. As of July 8, 1998, the Company sold its
interest in such joint venture. See "Prospectus Summary -- The
Company -- Recent Developments."
(d) Does not include three additional vessels currently under construction and
scheduled for delivery in 1998 and one additional vessel currently under
construction and scheduled for delivery in 1999.
SUMMARY HISTORICAL OPERATING INFORMATION
The following table sets forth certain summary operating information for
the Company relating to average day and utilization rates for the Company's
vessels and the average number of vessels owned or chartered during the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1995 1996 1997 1997 1998
------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
Rates Per Day Worked(a)(b):
North Sea Fleet(c)...................... $7,840 $8,819 $9,930 $9,575 $10,511(d)
Southeast Asia Fleet(e)................. 3,146 3,347 3,986 3,538 4,771
Overall Utilization Rate(a)(b):
North Sea Fleet......................... 96.4% 95.1% 96.5% 92.9% 98.8%(d)
Southeast Asia Fleet(e)................. 80.5% 77.5% 75.2% 57.5% 85.9%
Average Owned/Chartered Vessels(a)(f):
North Sea Fleet......................... 7.0 7.8 9.0 8.9 12.0(d)
Southeast Asia Fleet(e)................. 7.0 9.5 13.0 13.0 13.0
------ ------ ------ ------ -------
Total................................ 14.0 17.3 22.0 21.9 25.0
====== ====== ====== ====== =======
</TABLE>
- ---------------
(a) Includes all owned or bareboat chartered PSV and AHTS vessels. The Company's
only crewboat and only standby rescue vessel (chartered until December 31,
1996) are excluded, as are all managed vessels.
(b) Rates per day worked is defined as total charter revenues divided by number
of days worked and utilization rate is defined as total days worked divided
by total days available.
(c) Revenues for vessels in the North Sea fleet are primarily earned in Sterling
(L) and have been converted to US Dollars (US$) at the average exchange rate
(US$/L) for the periods indicated. The average exchange rates were $1.6323
and $1.6460 for the periods ended March 31, 1997 and March 31, 1998,
respectively. The average exchange rates for the years ended December 31,
1995, 1996 and 1997 were $1.5778, $1.5623 and $1.6402, respectively.
(d) Includes the Brovig Acquisition calculated for the period from February 10,
1998 through March 31, 1998.
(e) Includes the vessel operating in Brazil.
(f) Adjusted for vessel additions and dispositions occurring during each period.
13
<PAGE> 18
RISK FACTORS
Prospective investors in the Notes should carefully review the information
contained elsewhere in this Prospectus and should particularly consider the
following matters:
DEPENDENCE ON OIL AND GAS INDUSTRY; MARKET VOLATILITY
The Company's operations are dependent on activity in the offshore oil and
natural gas exploration and production industry. The level of exploration and
development of offshore areas is affected by both short-term and long-term
trends in oil and natural gas prices which, in turn, are related to the demand
for petroleum products and the current availability of oil and natural gas
resources. The level of offshore activity is also related to local policies that
influence drilling activities. In recent years, oil and natural gas prices have
reacted to actual and perceived changes in the supply of and demand for oil and
natural gas, which has resulted in volatile levels of offshore exploration and
drilling activity. A significant or prolonged decline in future oil and natural
gas prices would likely result in reduced exploration and development of
offshore areas and a decline in the demand for Offshore Marine Services. Such
reduced activity could have a material adverse effect on the Company's financial
condition and results of operations.
Charter rates for the Company's vessels are also dependent on the supply of
offshore support vessels. Excess vessel capacity in the industry can result from
refurbishment of "mothballed" vessels, conversion of vessels formerly dedicated
to services other than Offshore Marine Services, construction of new vessels and
migration of vessels between markets. The continued recent additions of new
capacity to the worldwide offshore marine fleet could increase competition in
those markets where the Company presently operates, which in turn, could have a
material adverse effect on the Company's financial condition and results of
operations.
HIGHLY LEVERAGED POSITION
The Company is highly leveraged. As of March 31, 1998, after giving pro
forma effect to the Offering and the application of net proceeds therefrom, and
excluding borrowings that are available under the New Credit Facility, the
Company (exclusive of its Subsidiaries) would have no Indebtedness outstanding
other than the Notes, and the Company's Subsidiaries would have had Indebtedness
of $0.6 million outstanding. See "Capitalization" and "Selected Historical
Consolidated Financial Information." The Company's ability to make required
principal and interest payments on its indebtedness is dependent on the future
performance of the Company and its Subsidiaries. The Company's performance is
subject to a number of factors beyond its control, including the performance of
the global economy and financial markets, worldwide demand for oil and gas and
other factors affecting the Company and its Subsidiaries. Additionally, the
Indenture will impose certain operating and financial restrictions on the
Company and its Subsidiaries. Such restrictions will affect, and in many
respects will limit or prohibit, among other things, the ability of the Company
and its Subsidiaries to incur additional Indebtedness, pay dividends, permit
Subsidiaries to issue preferred stock, repay certain indebtedness prior to its
stated maturity, create liens, sell assets or engage in mergers or acquisitions
and make certain capital expenditures. These restrictions, in combination with
the leveraged nature of the Company, could limit the ability of the Company to
effect future financings or otherwise restrict corporate activity.
The Company's level of indebtedness and the restrictive covenants contained
in its debt instruments, including the Indenture, could significantly limit the
Company's ability to withstand competitive pressures or adverse economic
consequences, including the ability of the Company to make capital expenditures
for new vessel construction and other investments in its fleet. In addition,
borrowings under the New Credit Facility will be floating rate obligations of
the Company and its Subsidiaries, causing the Company and its Subsidiaries to be
sensitive to changes in prevailing interest rates. The Company currently
believes that, based on current levels of operations and anticipated growth, its
cash flow from operations, together with borrowings that are available from time
to time under the New Credit Facility, will be adequate to allow for anticipated
capital expenditures for vessel construction and fleet upgrades, to fund working
capital requirements and to make required payments of principal and interest on
its debt. However, if the Company is unable to generate sufficient cash flow
from operations in the future, it may be required to refinance all or a portion
of its debt or
14
<PAGE> 19
to obtain additional financing. There can be no assurance that any such
refinancing would be possible or that any additional financing would be
obtained.
HOLDING COMPANY STRUCTURE; RANKING OF THE NOTES; EFFECTIVE SUBORDINATION
The Company will be the sole obligor on the Notes. The Company's operations
are conducted through, and substantially all of the Company's assets are owned
by, its operating Subsidiaries, most of which are organized under foreign
jurisdictions. As a result, the Company will be dependent on the earnings and
cash flow from such Subsidiaries to meet its obligations under the Notes and to
pay its general expenses. It is expected that Subsidiary cash flow will be made
available to the Company through payments on Intercompany Loans (as defined
herein). The Notes will be general unsecured obligations of the Company ranking
pari passu with all existing and future unsecured senior Indebtedness of the
Company, which may include certain borrowings under the New Credit Facility, and
senior to all future Subordinated Indebtedness of the Company. The Notes will be
effectively subordinated, however, to all future secured obligations of the
Company to the extent of the assets securing such obligations. Furthermore,
because the Company's operations are conducted through, and substantially all of
the Company's assets are owned by, its operating Subsidiaries, the Notes will
also be effectively subordinated to all current and future obligations of such
Subsidiaries (including claims of the lenders under the New Credit Facility and
claims of trade creditors). In the event of liquidation or insolvency of the
Company or if any secured indebtedness is accelerated, the secured assets of the
Company will be available to pay obligations on the Notes only after such
secured indebtedness has been paid in full. At March 31, 1998, after giving pro
forma effect to the Offering and the application of the estimated net proceeds
therefrom, and excluding borrowings that are available under the New Credit
Facility, the Company (exclusive of its Subsidiaries) would have had no
Indebtedness outstanding other than the Notes and the Company's Subsidiaries
would have had Indebtedness of $0.6 million outstanding.
CONSTRAINTS TO REALIZING CASH FROM SUBSIDIARIES
As the Company's operations are conducted through its Subsidiaries, the
Company will be dependent upon the earnings and cash flow from such Subsidiaries
to meet its obligations under the Notes and to pay its general expenses. In
addition to the risks described above in "-- Holding Company Structure; Ranking
of the Notes; Effective Subordination," the ability of the Company's
Subsidiaries to make payments to the Company may be constrained by (i) the level
of taxation, particularly corporate profits and withholding taxes, in the
jurisdictions in which they operate, (ii) exchange controls and repatriation
restrictions in effect in the jurisdictions in which they operate, and (iii) the
ownership interests of other investors in the Company's Subsidiaries.
Substantially all of the Subsidiaries of the Company have issued
intercompany notes to the Company ("Intercompany Loans"). It is anticipated that
in connection with the application of net proceeds of the Offering, certain
Subsidiaries will issue additional Intercompany Loans to the Company. There can
be no assurance that any of the Intercompany Loans can be enforced easily, if at
all. Substantially all of the Subsidiary makers of the Intercompany Loans are
incorporated in jurisdictions outside the United States. In the event of a
default under an Intercompany Loan, any enforcement action in all likelihood
will have to occur in the jurisdiction where the maker's assets are located. The
limited jurisprudence and experience with such enforcement actions in the
relevant jurisdiction may significantly complicate, delay or limit the scope of
such enforcement action. The ability of a foreign claimant to enforce a judgment
or arbitral award obtained outside those jurisdictions may be limited.
RELIANCE ON CERTAIN CUSTOMERS
The Company's principal customers are major integrated oil companies and
large independent oil and natural gas exploration and production companies
operating in international markets, as well as foreign government owned or
controlled organizations and companies that provide logistics, construction and
other services to such oil companies and foreign government organizations. The
percentage of the Company's revenues attributable to a particular customer
varies from time to time depending on the level of oil and
15
<PAGE> 20
natural gas exploration undertaken by that customer, the suitability of the
Company's vessels for the customer's projects and other factors, many of which
are beyond the Company's control. For the year ended December 31, 1997,
approximately 16.5%, 15.4% and 13.2% of the Company's total revenues were
received from Aberdeen Services Company (North Sea) ("ASCO"), Shell U.K.
Exploration & Production ("Shell") and European Marine Contractors ("EMC"),
respectively. For the quarter ended March 31, 1998, approximately 17.5%, 14.0%
and 10.5% of the Company's total revenues were received from ASCO, Petronas
Caragali and Shell, respectively.
ENVIRONMENTAL AND GOVERNMENT REGULATION
The Company's operations are materially affected by government regulation
in the form of international conventions, federal and state laws and regulations
in jurisdictions where the Company's vessels operate and/or are registered.
These conventions, laws and regulations govern oil spills and other matters of
environmental protection, worker health and safety, as well as the manning,
construction and operation of vessels.
The Company believes that it is presently in material compliance with the
environmental laws and regulations to which the Company's operations are
subject. The Company is not a party to any pending environmental litigation or
other proceeding and is unaware of any threatened litigation or proceeding,
which, if adversely determined, would have a material adverse effect on the
financial condition or results of operations of the Company. However, the risk
of incurring substantial compliance costs, liabilities and penalties for
noncompliance are inherent in Offshore Marine Services operations. There can be
no assurance that significant costs, liabilities and penalties will not be
incurred by or imposed on the Company in the future.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to various risks, including
catastrophic marine disaster, adverse weather conditions, mechanical failure,
collision, oil and hazardous substance spills and navigation errors, all of
which represent a threat to the safety of personnel and to the Company's
vessels, cargo, equipment under tow and other property, as well as the
environment. The occurrence of any of the foregoing events could result in loss
of revenue and casualty loss, increased costs or significant liability of the
Company to third parties. Because a significant majority of the Company's vessel
earnings are produced by the 15 owned vessels in its North Sea fleet, the
occurrence of such events with respect to any of those vessels, could have a
disproportionate effect on the Company's revenues and earnings. The Company
maintains insurance coverage that it considers adequate against the casualty and
liability risks listed above, and it has not in the past experienced a loss in
excess of policy limits. There can be no assurance, however, that the Company's
existing insurance coverage can be renewed at commercially reasonable rates or
that such coverage will be adequate to cover future claims that may arise.
RELIANCE ON FOREIGN OPERATIONS
For each of the past five years, substantially all of the Company's
revenues from continuing operations were derived from foreign sources. The
Company's foreign operations are subject to various risks inherent in conducting
business in foreign nations. These risks include, among others, political
instability, potential vessel seizure, nationalization of assets, import-export
quotas and other forms of public and governmental regulation, all of which are
beyond the control of the Company. Although the Company's operations,
historically, have not been affected materially by such conditions or events, it
is not possible to predict whether any such conditions or events might develop
in the future. Also, the Company has organized its subsidiary structure and its
operations in part based on certain assumptions about various foreign and
domestic tax laws, currency exchange, and capital repatriation laws and other
relevant laws. While the Company believes that such assumptions are correct,
there can be no assurance that taxing or other authorities will reach the same
conclusion. If such assumptions are incorrect, or if the relevant countries were
to change or modify such laws or the current interpretation thereof, the Company
may suffer adverse tax and financial consequences, including the reduction of
cash flow available to meet required debt service and other obligations.
Finally, the Company conducts operations in the Southeast Asia market and has
significant customers located in
16
<PAGE> 21
Indonesia, Thailand and Malaysia. While to date the Company has not experienced
an adverse impact associated with the recent economic events in the region,
there can be no assurance that the recent volatility in Southeast Asian
economies will not adversely affect the Company's business, financial condition
or results of operations.
CURRENCY FLUCTUATIONS
Due to its foreign operations, the Company is exposed to foreign currency
exchange rate fluctuations and exchange rate risks. To minimize the Company's
exposure to these risks, the Company attempts to match the currency of the
vessel debt and operating costs with the currency of the charter revenue. For
financial statement reporting purposes, these accounts are translated into U.S.
Dollars at the weighted average exchange rates for the relevant period. From
time to time, the Company enters into forward foreign exchange contracts to
hedge specific exposures but does not engage in currency speculation. Because
the Company conducts a large portion of its operations in foreign currencies, to
the extent the U.S. Dollar appreciates in relation to applicable foreign
currencies, such appreciation could potentially adversely affect the Company's
operating revenues, cash flows and earnings when translated into U.S. Dollars.
To date, currency fluctuations have not had a material impact on the Company's
financial condition or results of operations.
ONGOING CAPITAL EXPENDITURE REQUIREMENTS
As of March 31, 1998, the average age of the Company's owned offshore
support vessel fleet was approximately 14 years. The Company believes that after
an offshore support vessel has been in service for approximately 25 years, the
amount of expenditures (which typically increase with vessel age) necessary to
satisfy required marine certification standards may not be economically
justifiable. Although the Company believes that available cash and projected
free cash flow from operations will provide funds sufficient to finance the
remaining cost of the vessels currently scheduled to be delivered, and that
borrowings available under the New Credit Facility will enable the Company to
add additional vessels to its fleet, there can be no assurance that the
Company's financial resources will be sufficient to enable it to maintain its
fleet by extending the economic life of existing vessels through major
refurbishment or by acquiring new or used vessels.
COMPETITION
The Company operates in a highly competitive industry. In addition to
price, service and reputation, the principal competitive factors for offshore
support vessel fleets include the existence of national flag preferences,
operating conditions and intended use (all of which determine the suitability of
vessel types), complexity of maintaining logistical support and the cost of
transferring equipment from one market to another. Some of the Company's
competitors have greater financial resources than the Company.
RISKS OF CONSTRUCTION DELAYS
The Company's vessel construction projects are subject to the risks of
delay and cost overruns inherent in any large construction project, including
shortages of equipment, unforeseen engineering problems, work stoppages, weather
interference, unanticipated cost increases and shortages of materials or skilled
labor. Significant cost overruns or delays would adversely affect the Company's
financial condition and results of operations. Significant delays could also
result in penalties under, or the termination of, most of the long-term
contracts under which the Company plans to operate these vessels.
INDEMNITY OBLIGATIONS TO EVI
See "The Company" for the definitions of certain of the following
capitalized terms.
The Company has agreed to indemnify Energy Ventures, Inc. (now known as
EVI, Inc. ("EVI")) against any tax liabilities in the event the Contribution,
Distribution or Merger is determined to be taxable. EVI and the Predecessor
received a tax opinion that the Contribution, Distribution and Merger would be
tax-free under the Internal Revenue Code of 1986, as amended. If, however,
contrary to the opinion, the
17
<PAGE> 22
Contribution, Distribution or Merger were ever determined to be taxable, the
potential tax liability to the Company has been estimated to be between $23
million and $36 million.
Additionally, pursuant to the Distribution Agreement, the Company has
agreed to indemnify the Predecessor, EVI and certain of their affiliates against
(i) liabilities for all past and future claims and litigation against EVI or the
Predecessor stemming from the Predecessor's or the Company's Offshore Marine
Services operations, and (ii) liabilities for claims and litigation against EVI
or the Predecessor and its current or past subsidiaries and affiliates,
including the Predecessor's erosion control business ("Ercon"), for periods
prior to May 1, 1997 (the "Distribution Indemnity"). Although the Company has
established a reserve on its Consolidated Balance Sheet which it believes to be
adequate to cover such contingencies, there can be no assurance that the reserve
is adequate.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Although there are currently no Subsidiary Guarantees (as defined) with
respect to the Notes, the Company's obligations under the Notes may, under
certain circumstances, be guaranteed on a general unsecured basis in the future
by certain of the Company's domestic subsidiaries. Various fraudulent conveyance
laws have been enacted for the protection of creditors and may be utilized by a
court of competent jurisdiction to subordinate or avoid any Subsidiary Guarantee
issued by a Subsidiary Guarantor (as defined). It is also possible that under
certain circumstances a court could hold that the direct obligations of a
Subsidiary Guarantor could be superior to the obligations under the Subsidiary
Guarantee. In addition, to the extent any Subsidiary Guarantor is organized
under the laws of a foreign jurisdiction and the Subsidiary Guarantees were
determined to be subject to the laws of such jurisdiction, the laws of
fraudulent transfer and creditor's rights may be less developed and consequently
the enforcement of Subsidiary Guarantees may be more uncertain in such
jurisdictions.
Generally, to the extent that a United States court were to find that at
the time a Subsidiary Guarantor entered into a Subsidiary Guarantee either (x)
the Subsidiary Guarantee was incurred by a Subsidiary Guarantor with the intent
to hinder, delay or defraud any present or future creditor or that a Subsidiary
Guarantor contemplated insolvency with a design to favor one or more creditors
to the exclusion in whole or in part of others or (y) the Subsidiary Guarantor
did not receive fair consideration or reasonably equivalent value for issuing
the Subsidiary Guarantee and, at the time it issued the Subsidiary Guarantee,
the Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of
the issuance of the Subsidiary Guarantee, (ii) was engaged or about to engage in
a business or transaction for which the remaining assets of the Subsidiary
Guarantor constituted unreasonably small capital, or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid or subordinate the Subsidiary Guarantee in favor
of the Subsidiary Guarantor's other obligations. Among other things, a legal
challenge of a Subsidiary Guarantee on fraudulent conveyance grounds may focus
on the benefits, if any, realized by the Subsidiary Guarantor as a result of the
issuance by the Company of the Notes. To the extent a Subsidiary Guarantee is
avoided as a fraudulent conveyance or held unenforceable for any other reason,
the Holders of the Notes would cease to have any claim in respect of such
Subsidiary Guarantor and would be creditors solely of the Company.
POTENTIAL INABILITY TO REPURCHASE NOTES UPON CHANGE IN CONTROL
Upon a Change of Control, each holder of the Notes will have the right to
require the Company to repurchase all or any part of such holder's Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest thereon to the
date of repurchase. However, there can be no assurance that sufficient funds
will be available to the Company at the time of any Change of Control to make
any required repurchases of Notes tendered. Moreover, restrictions in the New
Credit Facility prohibit the Company from making such required repurchases.
Therefore, any such repurchases would constitute an event of default under the
New Credit Facility. See "Description of Other Indebtedness -- New Credit
Facility."
18
<PAGE> 23
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will constitute a new class of securities with no
established trading market. The Company does not intend to list the Notes on any
national securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market. The Exchange Notes are expected to be eligible for
trading in the PORTAL market. The Company has been advised by the Initial
Purchasers that the Initial Purchasers currently intend to make a market in the
Exchange Notes. The Initial Purchasers are not obligated to do so, however, and
any market-making activities with respect to the Exchange Notes may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. See "Description of the Notes -- Registration Rights; Liquidated
Damages." Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of the trading
market for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time. If a
public trading market develops for the Exchange Notes, future trading prices of
the Exchange Notes will depend on many factors, including among other things,
prevailing interest rates, the Company's financial condition and results of
operations, and the market for similar notes. Depending on those and other
factors, the Exchange Notes may trade at a discount from their principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes have not been registered under the Securities Act or any
state securities laws and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Following the consummation of the Exchange Offer, holders who did not
exchange their Old Notes for Exchange Notes generally will not have any further
rights under the Registration Rights Agreement and will remain subject to the
existing restrictions upon transfer of such Old Notes. Because the Company
anticipates that most holders of Old Notes will elect to exchange such Old Notes
for Exchange Notes due to the general lack of restrictions on the resale of
Exchange Notes under the Securities Act, the Company anticipates that the
liquidity of the market for any Old Notes remaining after the consummation of
the Exchange Offer may be substantially limited. See "The Exchange
Offer -- Consequences of Failure to Exchange."
19
<PAGE> 24
THE COMPANY
The Company was incorporated in 1996 as "New GulfMark, Inc.", a wholly
owned subsidiary of the corporation then known as GulfMark International, Inc.
(the "Predecessor"). The Company was formed to facilitate the Predecessor's
separation of its international Offshore Marine Services business from its only
U.S. operations, an erosion control business, and its holdings of EVI common
stock. In order to accomplish this separation, the Predecessor agreed to
transfer the assets, liabilities and operations of its Offshore Marine Services
business to the Company (the "Contribution"). On April 30, 1997, stockholders of
the Predecessor approved the Contribution and the separation of the Offshore
Marine Services business which was accomplished through the distribution of all
the then outstanding Common Stock of the Company to the Predecessor's common
stockholders (the "Distribution") in accordance with the Agreement and Plan of
Distribution dated December 5, 1996 (the "Distribution Agreement") among the
Company, the Predecessor and EVI. Following the Distribution, on May 1, 1997, a
subsidiary of EVI was merged (the "Merger") with and into the Predecessor, whose
assets then consisted solely of Ercon and its investment in approximately 2.2
million shares of EVI common stock.
GulfMark provides marine support and transportation services to companies
involved in the offshore exploration and production of oil and natural gas. The
Company's vessels provide various services, including the transportation of
materials, supplies and personnel, and the positioning of drilling structures,
that support the construction and ongoing operation of offshore oil and natural
gas facilities and drilling rigs. The majority of the Company's operations are
conducted in the North Sea and the balance are conducted in Southeast Asia and
offshore Brazil.
The size, diversity and technologically advanced nature of GulfMark's fleet
enables it to provide offshore exploration and production operators with a broad
range of Offshore Marine Services in several key markets. The Company's fleet
has grown in size and capability from an original 11 vessels acquired in late
1990 to 34 vessels as of March 31, 1998 through strategic acquisitions and new
construction of technologically advanced vessels. Twenty-seven vessels in
GulfMark's fleet are owned, two vessels are bareboat chartered, and five vessels
are managed by the Company. The Company believes its fleet is among the youngest
in the industry, with an average age of 14 years. Excluding the six vessels
acquired by the Company from Maritime (Pte), Limited in August 1996, all of the
Company's owned vessels have been built or substantially refurbished since 1984.
GulfMark's goal is to enhance its position as a premier supplier of
Offshore Marine Services in international markets. The Company's strategy is to
profitably increase revenues and enhance shareholder value by (i) developing and
maintaining a large, diversified and technologically sophisticated fleet, (ii)
focusing on attractive international markets and (iii) managing its risk profile
through a balance of long-term and short-term charters. The Company believes
this strategy, coupled with an emphasis on providing dependable, high quality
services, will produce higher vessel utilization rates, relatively stable growth
rates and returns on investments that are superior to those of the Company's
competitors.
The Company is a Delaware corporation with principal executive offices
located at 5 Post Oak Park, Suite 1170, Houston, Texas 77027-3414, and its
telephone number at that address is (713) 963-9522.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any change in capitalization
of the Company.
20
<PAGE> 25
PRIVATE PLACEMENT
On June 8, 1998, the Company completed the private sale to the Initial
Purchasers of $130,000,000 principal amount of the Old Notes in a transaction
not registered under the Securities Act in reliance upon Section 4(2) of the
Securities Act. The Initial Purchasers thereupon offered and resold the Old
Notes to Qualified Institutional Buyers. Of the $125.7 million net proceeds
received by the Company in connection with the sale of the Old Notes, $119.6
million was used to repay in full amounts owing at the time of the closing of
the Offering under the Company's then existing credit facilities. The remaining
$6.1 million of such net proceeds will be used for general corporate purposes,
including a portion of the capital expenditures associated with vessels
currently under construction. See "Capitalization."
CAPITALIZATION
The following table sets forth the consolidated unaudited capitalization of
the Company at March 31, 1998 and as adjusted to reflect the Offering, assuming
application of the net proceeds therefrom as described under "Prospectus
Summary -- The Private Placement." The Company will fund the remaining cost of
vessels under construction through (i) available cash, (ii) free cash flow from
operations, and (iii) to the extent any additional funds are required,
borrowings under the New Credit Facility. See "Description of Other
Indebtedness -- New Credit Facility." This table should be read in conjunction
with the Consolidated Financial Statements of the Company, including the notes
thereto, incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
AS
ACTUAL ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and Cash Equivalents................................... $ 14,903 $ 20,369
Short-term borrowings and current portion of long-term
debt...................................................... $ 32,005 $ --
Long-term debt:
Existing Credit Facilities................................ 87,699 --
Other debt................................................ 570 570
8 3/4% Senior Notes due 2008.............................. -- 129,570
New Credit Facility....................................... -- --
-------- --------
Total debt........................................ $120,274 $130,140
Stockholders' equity:
Common Stock, $0.01 par value, 15,000,000 shares
authorized; 7,976,237 shares issued and outstanding.... $ 80 $ 80
Additional paid in capital................................ 60,609 60,609
Retained earnings......................................... 29,738 29,738
Cumulative foreign currency adjustment.................... (1,768) (1,768)
-------- --------
Total stockholders' equity........................ 88,659 88,659
-------- --------
Total capitalization.............................. $208,933 $218,799
======== ========
</TABLE>
21
<PAGE> 26
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The historical financial data presented in the table below for and at the
end of each of the years in the five-year period ended December 31, 1997 are
derived from the Consolidated Financial Statements of the Company audited by
Arthur Andersen LLP, independent public accountants. The historical financial
data presented in the table below for and at the end of each of the three-month
periods ended March 31, 1998 and March 31, 1997 are derived from the unaudited
consolidated condensed financial statements of the Company. In the opinion of
management of the Company, such unaudited consolidated condensed financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial data for such periods. The
results for the three months ended March 31, 1998 are not necessarily indicative
of the results to be achieved for the full year.
The Consolidated Financial Statements incorporated by reference in this
Prospectus, as well as the financial data presented in the table below, present
the net assets and results of operations of Ercon and the common stock of EVI
owned by the Predecessor as discontinued operations of the Company for all
periods presented. The data presented below should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto
incorporated by reference in this Prospectus and "The Company."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, -------------------------
---------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................... $ 22,564 $ 27,692 $ 27,233 $ 34,749 $ 46,019 $ 9,679 $ 16,046
Direct operating expenses.............. 12,060 15,171 15,386 16,178 18,231 4,302 5,794
General and administrative expenses.... 3,280 3,643 3,483 4,523 5,364 1,281 1,369
Depreciation and amortization.......... 3,752 5,065 5,472 5,013 6,711 1,604 2,359
-------- -------- -------- -------- -------- -------- --------
Operating income....................... 3,472 3,813 2,892 9,035 15,713 2,492 6,524
Gains on sale of vessel................ -- 842 -- -- -- -- --
Interest expense, net.................. (2,047) (2,179) (2,613) (3,467) (3,819) (1,132) (1,382)
Other income (expense), net............ 68 (12) 180 (86) (73) 82 (70)
Income tax provision................... (534) (981) (91) (1,839) (3,626) (398) (1,605)
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations...... 959 1,483 368 3,643 8,195 1,044 3,467
Income (loss) from discontinued
operations, net of taxes............. 1,685 591 (2,270) 4,796 (648) (648) --
Loss on disposal of segment, net of
taxes................................ -- -- -- -- (1,426) (1,426) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 2,644 $ 2,074 $ (1,902) $ 8,439 $ 6,121 $ (1,030) $ 3,467
======== ======== ======== ======== ======== ======== ========
Earnings per share from continuing
operations (basic)................... $ 0.14 $ 0.22 $ 0.06 $ 0.55 $ 1.15 $ 0.16 $ 0.43
Weighted average common shares
(basic).............................. 6,624 6,640 6,644 6,676 7,155 6,680 7,976
Earnings per share from continuing
operations (diluted)(a).............. $ 0.14 $ 0.22 $ 0.06 $ 0.54 $ 1.11 $ 0.15 $ 0.42
Weighted average common shares
(diluted)(a)......................... 6,664 6,666 6,703 6,782 7,413 6,795 8,236
STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in) operating
activities of continuing
operations........................... $ 2,653 $ 5,448 $ 6,389 $ 8,539 $ 19,112 $ 1,233 $ 2,595
Cash provided by (used in) investing
activities........................... (16,836) (258) (15,093) (24,493) (37,218) (12,844) (42,977)
Cash provided by (used in) financing
activities........................... 12,810 (7,970) 9,567 17,894 28,658 5,742 29,335
Effect of exchange rate changes on
cash................................. (56) 124 (160) 924 (541) (440) 65
OTHER DATA:
EBITDA(b).............................. $ 7,224 $ 8,878 $ 8,364 $ 14,048 $ 22,424 $ 4,096 $ 8,883
Ratio of earnings to fixed
charges(c)........................... 1.6 1.9 1.1 2.3 3.1 2.0 3.3
Cash dividends per common share........ -- -- -- -- -- -- --
Total vessels in fleet(d).............. 25 20 22 28 30 30 34
Average owned/chartered vessels(e)..... 14.4 15.2 14.0 17.3 22.0 21.9 25.0
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
AS OF MARCH 31,
AS OF DECEMBER 31, -------------------------
------------------------------------------------- 1997 1998
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
------- ------- ------- -------- -------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Cash and cash equivalents..................... $ 5,195 $ 2,645 $ 5,136 $ 17,234 $ 25,885 $ 10,233 $ 14,903
Vessels and equipment, net.................... 53,002 51,175 61,343 87,405 105,262 94,912 179,616
Net assets of discontinued operations(f)...... 23,569 23,512 19,275 14,837 -- 14,881 --
Total assets including discontinued
operations.................................. 90,727 87,821 94,179 131,307 154,661 134,652 232,642
Total assets excluding discontinued
operations.................................. 67,158 64,309 74,904 116,470 154,661 119,771 232,642
Total debt(g)................................. 34,460 28,214 37,576 60,152 53,424 63,845 120,274
Total stockholders' equity.................... 50,388 53,025 50,928 62,016 85,272 59,641 88,659
Total stockholders' equity excluding
discontinued operations(h).................. 26,819 29,513 31,653 47,179 85,272 44,760 88,659
</TABLE>
- ---------------
(a) Earnings per share is based on the weighted average number of shares of
Common Stock and common stock equivalents outstanding.
(b) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or as a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, EBITDA is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs. EBITDA is included herein because the Company believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(c) This computation is submitted in accordance with Item 503(d) of Regulation
S-K. Earnings are computed as income from continuing operations before
taxes and minority interest plus fixed charges and minority interest in
income of subsidiary. Fixed charges are computed as interest, whether
expensed or capitalized, amortization of debt discount and issuance costs
and the portion of rental expense representative of interest.
(d) Includes managed, in addition to owned and chartered, vessels. See
"Prospectus Summary -- Summary Fleet Information" for further information
concerning the Company's fleet.
(e) Includes owned and chartered PSVs and AHTS only. Adjusted for acquisitions
and dispositions occurring during each period. See "Prospectus
Summary -- Summary Fleet Information" for further information concerning
the Company's fleet.
(f) Reflects the financial statement information for the non-marine businesses
of the Company's Predecessor (as defined herein).
(g) Includes current portion of long-term debt.
(h) Discontinued operations were disposed of on May 1, 1997.
23
<PAGE> 28
THE EXCHANGE OFFER
GENERAL
The Old Notes were sold by the Company on June 8, 1998, to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to Qualified Institutional Buyers (as defined
in Rule 144A), each of whom agreed to comply with certain transfer restrictions
and other conditions. As a condition to the purchase of the Old Notes by the
Initial Purchasers, the Company entered into the Registration Rights Agreement
with the Initial Purchasers, which requires, among other things, that promptly
following the issuance and sale of the Old Notes, the Company file with the
Commission the Registration Statement with respect to the Exchange Notes, use
its best efforts to cause the Registration Statement to become effective under
the Securities Act and, upon the effectiveness of the Registration Statement,
offer to the holders of the Old Notes the opportunity to exchange their Old
Notes for a like principal amount of Exchange Notes, which will be issued
without a restrictive legend and may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act subject to certain
exceptions described below. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The term "holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the Company's books or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Notes are held of record by the Depositary who desires to
deliver such Old Notes by book-entry transfer of the Depositary.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a "Restricted Holder," being (i) a broker-dealer who
purchased such Old Notes directly from the Company for resale pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an "affiliate" (within the meaning of Rule 405 of the Securities Act) of
the Company), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the
Exchange Notes in its ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
Eligible Holders wishing to accept the Exchange Offer must represent that the
conditions of the foregoing proviso have been met. However, any purchaser of Old
Notes who is an affiliate of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations by the staff of the Commission set
forth in such no-action letters and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Old Notes unless such sale or transfer is made pursuant
to an exemption from such requirements. Accordingly, any holder who tenders in
the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Old Notes. Following the consummation of the
Exchange Offer, holders of Old Notes not tendered will not have any further
registration rights except in certain limited circumstances requiring the filing
of a Shelf Registration Statement (as defined), and the Old Notes will continue
to be subject to certain restrictions on transfer. See "Description of the
Notes -- Registration Rights; Liquidated Damages" and "The Exchange
Offer -- Consequences of Failure to Exchange." Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
24
<PAGE> 29
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Old Notes properly
tendered prior to 5:00 p.m. New York City time, on the Expiration Date and not
timely withdrawn. After authentication of the Exchange Notes by the Trustee or
an authenticating agent, the Company will issue and deliver $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer in denominations of $1,000
and integral multiples thereof.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) any Exchange
Notes to be received by it are being acquired in the ordinary course of its
business and (ii) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and (iii) it is not an affiliate of the Company or, if it is an affiliate, that
it will comply with applicable registration and prospectus delivery requirements
of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities (a
"Participating Broker-Dealer"), must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. Under the
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers to use this Prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of such Exchange Notes. See "Plan of
Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes, except that (i) the offering of
the Exchange Notes has been registered under the Securities Act, (ii) the
Exchange Notes will not be subject to transfer restrictions and (iii) the
holders of the Exchange Notes will not be entitled to registration or other
rights under the Registration Rights Agreement including payment of Liquidated
Damages upon failure by the Company to consummate the Exchange Offer or the
occurrence of certain other events. The Exchange Notes will evidence the same
debt as the Old Notes. The Exchange Notes will be issued under and entitled to
the benefits of the Indenture.
As of the date of this Prospectus, $130,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be issued and transferable in
book-entry form through the facilities of the Depositary, acting as depositary.
The Exchange Notes will also be issuable and transferable in book-entry form
through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the close
of business on the date of this Prospectus. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act, and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes being tendered, and holders of
the Old Notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law or under the Indenture in connection with the Exchange
Offer. The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent
for the tendering holders for the purpose of receiving Exchange Notes from the
Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than
25
<PAGE> 30
certain applicable taxes, in connection with the Exchange Offer. See
"-- Solicitation of Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 24, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept Old Notes not previously accepted, if
the conditions set forth herein under "-- Conditions of the Exchange Offer"
shall have occurred and shall not have been waived by the Company (if permitted
to be waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent and (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof by the Company to the registered holders of the Old
Notes. If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of such amendment and
the Company will extend the Exchange Offer to the extent required by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 8 3/4% per annum,
payable semi-annually on June 1 and December 1 of each year, commencing December
1, 1998. Holders of Exchange Notes of record on November 15, 1998, will receive
on December 1, 1998, an interest payment in an amount equal to (i) the accrued
interest on such Exchange Notes from the date of issuance thereof to December 1,
1998, plus (ii) the accrued interest on the previously held Old Notes from the
date of issuance of such Old Notes (June 8, 1998) to the date of exchange
thereof. Interest will not be paid on Old Notes that are accepted for exchange.
The Notes mature on June 1, 2008.
PROCEDURES FOR TENDERING
Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Old Notes (unless such tender is being effected pursuant to the procedure
for book-entry transfer, as provided for herein) to be exchanged and any other
required documentation, to State Street Bank and Trust Company, as Exchange
26
<PAGE> 31
Agent prior to 5:00 p.m. New York City time on the Expiration Date, at the
address set forth herein and in the Letter of Transmittal. Only a holder may
tender its Old Notes in the Exchange Offer.
Any financial institution that is a participant in the Depositary's
book-entry transfer facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Depositary, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS
TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT. See "-- Book Entry Transfer."
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
If less than all of the Old Notes are tendered, a tendering holder should
fill in the amount of Old Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" of the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If the Letter of Transmittal is signed by a person
other than the registered holder listed therein, such Old Notes must be endorsed
or accompanied by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Old Notes. If the Letter
of Transmittal or any Old Notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
BY EXECUTING THE LETTER OF TRANSMITTAL, EACH HOLDER WILL REPRESENT TO THE
COMPANY THAT, AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO
THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE
PERSON RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER),
(2) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO
ENGAGE IN OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN THE DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH
OTHER PERSON IS AN "AFFILIATE" (AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT)
OF THE COMPANY OR, IF IT IS AN AFFILIATE OF THE COMPANY, THAT IT WILL COMPLY
WITH THE APPLICABLE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
SECURITIES ACT, AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS
DEFINED IN THE EXCHANGE ACT) (A) IT ACQUIRED THE OLD
27
<PAGE> 32
NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES AND (B) IT HAS NOT ENTERED INTO ANY ARRANGEMENT OR
UNDERSTANDING WITH THE COMPANY OR ANY "AFFILIATE" THEREOF TO DISTRIBUTE THE
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE OF A
BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR
OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN
ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN
CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE
EXCHANGE OFFER; HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION." IN CONNECTION WITH
THE OFFERING OF OLD NOTES, THE COMPANY AGREED TO FILE AND MAINTAIN, SUBJECT TO
CERTAIN LIMITATIONS, A REGISTRATION STATEMENT THAT WOULD ALLOW LEHMAN BROTHERS
INC. TO ENGAGE IN MARKET-MAKING TRANSACTIONS WITH RESPECT TO THE NOTES.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive irregularities or conditions of tender as
to particular Old Notes. The Company's interpretation of the terms, and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that the Company determines are not properly tendered or
the tender of which is otherwise rejected by the Company, and as to which the
defects or irregularities have not been cured or waived by the Company, will be
returned by the Exchange Agent to the tendering holder unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "-- Conditions of the Exchange
Offer," terminate the Exchange Offer and (ii) to the extent permitted by
applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
28
<PAGE> 33
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the Depositary for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Depositary's system may make book-entry delivery of Old
Notes by causing such Depositary to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the
Depositary's procedures for such transfer. ALTHOUGH DELIVERY OF OLD NOTES MAY BE
EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT THE
DTC, AN APPROPRIATE LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED
WITH ANY REQUIRED SIGNATURE GUARANTEE AND ALL OTHER REQUIRED DOCUMENTS MUST IN
EACH CASE BE TRANSMITTED TO AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT
ITS ADDRESS SET FORTH HEREIN ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE
GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE COMPLIED WITH, WITHIN THE
TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF DOCUMENTS TO THE BOOK-
ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All
references in the Prospectus to deposit or delivery of Old Notes shall be deemed
to include DTC's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Old Notes
delivered electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Old Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day before
the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business
29
<PAGE> 34
day before the Expiration Date. Any such notice of withdrawal must (i) specify
the name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes or, in the
case of Old Notes transferred by book-entry transfer, the name and number of the
account at the Depositary to be credited), (iii) be signed by the Depositor in
the same manner as the original signature on the Letter of Transmittal, by which
such Old Notes were tendered (including any required signature guarantee) or be
accompanied by documents of transfer sufficient to permit the Trustee with
respect to the Old Notes to register the transfer of such Old Notes into the
name of the Depositor withdrawing the tender and (iv) specify the name in which
any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer, and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes that have been
tendered but are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue Exchange Notes for, any Old
Notes, and may terminate the Exchange Offer before the acceptance of such Old
Notes if, in the Company's judgment, the Exchange Offer, or the making of any
exchange by a holder, violates applicable law or any applicable policy or
interpretation of the staff of the Commission.
If the Company determines that it may terminate the Exchange Offer for any
of the reasons set forth above, the Company may (i) refuse to accept any Old
Notes and return any Old Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such holders of
tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Old Notes that have not been withdrawn. If such waiver constitutes a
material change in the Exchange Offer, the Company will disclose such change by
means of a supplement to this Prospectus that will be distributed to each
registered holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. In such capacity, the
Exchange Agent has no fiduciary duties and will be acting solely on the basis of
directions of the Company. Requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Fourth Floor
Boston, Massachusetts 02102-0078 Two International Place
Boston, Massachusetts 02110
Facsimile Transmission (for Eligible Institutions only): (617) 664-5739
Confirm by Telephone: (617) 664-5456
</TABLE>
30
<PAGE> 35
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services, reimburse
the Exchange Agent for its reasonable out-of-pocket costs and expenses in
connection therewith and indemnify the Exchange Agent for all losses and claims
incurred by it as a result of the Exchange Offer. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
the Letter of Transmittal and related documents to the beneficial owners of the
Old Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed by the Company directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Old Notes will continue to be subject
to the restrictions on transfer set forth in the Indenture. The Old Notes may
not be offered, resold, pledged or otherwise transferred, except (i) to the
Company, (ii) pursuant to an effective
31
<PAGE> 36
registration statement under the Securities Act, (iii) to Qualified
Institutional Buyers in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A, (iv) in an offshore
transaction complying with Rule 903 or 904 of Regulation S under the Securities
Act, (v) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available) or (vi) in accordance with
another exemption from the registration requirements under the Securities Act
(and based upon an opinion of counsel) and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction. To the extent that Old Notes are tendered and accepted
in the Exchange Offer, the liquidity of the trading market for untendered Old
Notes could be adversely affected.
The Company may in the future seek to acquire untendered Old Notes in the
open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Old Notes in accordance with the applicable requirements of the Exchange Act
and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. The Company has no present plan to acquire any
Old Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Old Notes that are not tendered in the
Exchange Offer.
32
<PAGE> 37
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a description of the principal terms of certain other
indebtedness of the Company:
NEW CREDIT FACILITY
On June 8, 1998, the Company entered into the New Credit Facility with
Christiania Bank og Kreditkasse ASA ("CBK") as Administrative Agent and Arranger
and The Chase Manhattan Bank, London Branch ("Chase") as Security and
Documentation Agent and Arranger (CBK and Chase collectively are referred to as
the "Lenders"). The Company will be the borrower under Tranche 1 of the New
Credit Facility, and the Company and certain of its subsidiaries ("Subsidiary
Borrowers") will be the borrowers under Tranche 2. The following is a summary of
the material terms and conditions of the New Credit Facility and is subject to
the detailed provisions of the New Credit Facility agreements and documents
entered into in connection therewith.
Loans; Interest Rates; Repayment. The New Credit Facility is structured as
a multicurrency revolving loan agreement, initially in an aggregate principal
amount of $50.0 million and potentially up to an aggregate principal amount of
$75.0 million, which is available in two tranches. The proceeds of the New
Credit Facility, together with proceeds of the Offering, provided the financing
to repay in full amounts owing at the time of the closing of the Offering under
the Company's then existing credit facilities and will provide financing for
future acquisitions, working capital and other general corporate purposes. See
"Prospectus Summary -- The Private Placement."
Both Tranches will fully amortize over a period of five years. Thirty-nine
months after the closing of the New Credit Facility, and quarterly thereafter
for 8 quarters until maturity, the amount of each Tranche of the New Credit
Facility will be ratably reduced so that in the last quarter prior to maturity
of the New Credit Facility, the facility amount available in each Tranche will
be one-eighth of the original principal amount of each Tranche. Both Tranche 1
and Tranche 2 are revolving loans which may be borrowed, repaid and reborrowed
from time to time until five years after the closing of the New Credit Facility,
subject to certain customary conditions on the date of any such borrowing.
Tranche 1, initially in the amount of $25.0 million, and potentially up to
$30.0 million, bears interest at LIBOR plus a margin ranging from 1.0% to 1.375%
per annum which margin will be determined by the Company's ratio of funded debt
to total capitalization ("Leverage Ratio"). Tranche 1 is available to the
Company for general corporate purposes. Tranche 2, initially in the amount of
$25.0 million and potentially up to $45.0 million, bears interest at LIBOR plus
a margin ranging from .80% to 1.25% per annum, which will be determined by the
Company's Leverage Ratio. Tranche 2 is available to finance acquisition of (i)
up to 50% of the acquisition cost of shares in companies operating within the
same industry as the Company ("Share Acquisition") or (ii) up to 65% of the
purchase price or cost of a vessel ("Vessel Acquisition").
Security. The obligations under Tranche 1 of the New Credit Facility are
obligations of the Company as Borrower and are unsecured. The obligations under
Tranche 2 of the New Credit Facility are obligations of either the Company or
the Subsidiary Borrowers and are secured as described below. If the facility
amount available under Tranche 2 is used for a Share Acquisition, then the
Company or a Subsidiary Borrower, as the case may be, will be required to pledge
all of the stock acquired or, if the stock being acquired represents ownership
in a foreign subsidiary not taxable in the United States (a "Foreign
Subsidiary"), 66% of the stock of the Foreign Subsidiary will be required. If
any of the facility amount available under Tranche 2 is used for a Vessel
Acquisition, then the Company, or the Subsidiary Borrower, as applicable, shall
be required to grant the Lenders on the vessel(s) acquired: (i) a first priority
mortgage, (ii) an assignment of earnings and insurance and (iii) an assignment
of charters over one year.
Guarantees. The obligations of the Company will be guaranteed by all
material Subsidiaries of the Company, excluding foreign Subsidiaries not taxable
in the United States. Initially, the obligations of the Company under the New
Credit Facility will not be guaranteed by any of the Company's Subsidiaries. The
obligations of Subsidiary Borrowers under Tranche 2 are guaranteed by the
Company.
Prepayments. The Company is required to make prepayments on Tranche 2
borrowings in the event of a sale or loss of a vessel, (i) if secured by a
single vessel, in an amount equal to the amount advanced on such
33
<PAGE> 38
vessel or (ii) if secured by multiple vessels, the prepayment shall be in an
amount which corresponds to the ratio of the fair market value of the sold or
lost vessel divided by the aggregate fair market value of all vessels secured by
the advance. The Company is required to make a prepayment on a Tranche 2
borrowing for a Share Acquisition upon the sale of the shares in proportion to
the shares sold.
Conditions and Covenants. The obligations of the Lenders under the New
Credit Facility are subject to the satisfaction of certain conditions precedent
customary in similar credit facilities or otherwise appropriate under the
circumstances. The Company and each of its Subsidiaries are subject to certain
negative covenants contained in the New Credit Facility, including without
limitation covenants that restrict, subject to specified exceptions: (i) the
incurrence of additional indebtedness and other obligations, (ii) the granting
of any liens on the current or future assets of the Company or any of its
Subsidiaries, (iii) dispositions of assets, and (iv) dividends by the Company.
The New Credit Facility also contains customary affirmative covenants, including
compliance with environmental laws, reimbursement of increased costs of lenders,
financial reporting and the pledge of additional collateral under certain
circumstances. In addition, the New Credit Facility requires the Company to
maintain compliance with certain specified financial covenants including the
Leverage Ratio, a minimum interest coverage ratio, and a minimum net worth.
Certain of these financial, negative and affirmative covenants are more
restrictive than those set forth in the Indenture.
Events of Default. The New Credit Facility also includes events of default
that are typical for senior credit facilities, including without limitation,
nonpayment of principal, interest, or fees; violation of covenants; inaccuracy
of representations and warranties in any material respect; cross default to
certain other indebtedness and agreements; bankruptcy and insolvency events;
material judgments and liabilities; defaults and change of control. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on any
collateral securing such obligations, which could have material adverse results
to the holders of the Notes.
As of June 30, 1998, the Company had no Indebtedness outstanding under the
New Credit Facility.
34
<PAGE> 39
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to an Indenture (the "Indenture") among the Company and State Street Bank and
Trust Company, as trustee (the "Trustee") dated as of June 8, 1998. References
to the Notes include the Old Notes and the Exchange Notes unless the context
indicates otherwise. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the provisions
of the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the Indenture are available as set forth
below under "-- Additional Information." The definitions of certain terms used
in the following summary are set forth below under "-- Certain Definitions." For
purposes of this summary, the term "Company" refers only to GulfMark Offshore,
Inc. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company ranking pari
passu in right of payment with all current or future senior Indebtedness of the
Company, including borrowings under the Credit Facility, and senior in the right
of payment to all Subordinated Indebtedness of the Company issued in the future,
if any. The Company is a holding company that conducts substantially all of its
operations through its direct and indirect U.S. and foreign subsidiaries, and
substantially all of the Company's assets consist of equity in its direct
subsidiaries. The Notes are not guaranteed as of the Issue Date by any
Subsidiaries of the Company. The Indenture provides that the Notes will be
guaranteed by any existing or future Subsidiary of the Company that guarantees
any Indebtedness of the Company. As of March 31, 1998, on a pro forma basis
after giving effect to the Offering and the application of the net proceeds
therefrom, and excluding borrowings that are available under the New Credit
Facility, the Company (exclusive of its Subsidiaries) would have had no
Indebtedness outstanding other than the Notes, and the Company's Subsidiaries
would have had Indebtedness of $0.6 million outstanding. The Indenture limits,
subject to certain financial tests and exceptions, the amount of additional
Indebtedness that the Company and its Restricted Subsidiaries may incur. See
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
As of the Issue Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, the Company will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $200 million,
$130 million of which were issued in the Offering, and will mature on June 1,
2008. Additional amounts may be issued after the date of the Indenture in one or
more series from time to time subject to the limitations set forth under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" and restrictions contained in any Credit Facility, including
the New Credit Facility, and any other agreement to which the Company is a party
at the time of such issuance. The Company has agreed not to offer, issue or sell
any notes, bonds or other amounts under the Indenture other than the $130
million of Notes offered in the Offering and the Exchange Notes for a period of
180 days from the date of the Indenture without the prior written consent of
Lehman Brothers. Interest on the Notes will accrue at the rate of 8 3/4% per
annum and will be payable semi-annually in arrears on each June 1 and December
1, commencing on December 1, 1998, to Holders of record on the immediately
preceding May 15 and November 15. Interest on the Notes will accrue from the
most recent date to which interest and, in the case of the Old Notes only,
Liquidated Damages, if any, has been paid or, if no interest has been paid, from
the date of original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest and, in the case of the Old Notes only, Liquidated Damages, if any, on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
35
<PAGE> 40
Company, payment of interest and, in the case of the Old Notes only, Liquidated
Damages, if any, may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes;
provided that all payments with respect to Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBSIDIARY GUARANTEES
As of the Issue Date the Company's payment obligations under the Notes were
not guaranteed by any of the Company's Subsidiaries. The Indenture provides that
if any Subsidiary of the Company, after the Issue Date, guarantees any
Indebtedness of the Company, including Indebtedness under any credit facility,
then such Subsidiary shall (i) execute a supplemental indenture in form and
substance satisfactory to the Trustee providing that such Subsidiary shall
become a Guarantor under the Indenture and (ii) deliver an opinion of counsel to
the effect that such supplemental indenture has been duly authorized and
executed by such Subsidiary. In the event a Subsidiary becomes a Guarantor in
the future, the obligations of such Guarantor under its Subsidiary Guarantee
will be a general unsecured obligation of the Guarantor ranking pari passu in
right of payment with all other current or future senior Indebtedness of such
Guarantor, and senior in the right of payment to any Subordinated Indebtedness
of such Guarantor. The obligations of each Guarantor under any future Subsidiary
Guarantee will be limited to the maximum amount the Guarantors are permitted to
guarantee under applicable law without creating a "fraudulent conveyance." See
"Risk Factors -- Fraudulent Conveyance Considerations."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) such Guarantor, or any Person formed by or
surviving any such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction) equal to or greater than
the Consolidated Net Worth of such Guarantor immediately preceding the
transaction; and (iv) the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate
with, merge into or transfer all or a part of its properties and assets to the
Company or any other Guarantor and (ii) any Guarantor may merge with a Wholly
Owned Restricted Subsidiary of the Company that has no significant assets or
liabilities and was incorporated solely for purpose of reincorporating or
redomesticating such Guarantor in another State of the United States or, if such
Guarantor was organized under the laws of a jurisdiction other than a State of
the United States, in any foreign country that is a member of the Organization
for Economic Cooperation and Development; provided that, in each case, such
merged entity continues to be a Guarantor.
The Indenture provides that upon (i) the release by the lenders under all
Indebtedness of the Company of all guarantees of a Guarantor and all Liens on
the property and assets of such Guarantor relating to such Indebtedness, or (ii)
a sale or other disposition of all of the assets of any Guarantor, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Guarantor in compliance with the Indenture to any entity
that is not the Company or a Subsidiary, then such Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or otherwise,
of all of the capital stock of such Guarantor), or the Person acquiring the
property (in the event of such a sale or other disposition of all of the assets
of such Guarantor), will be released and relieved of any obligations under its
Subsidiary Guarantee; provided, however, that any such termination shall occur
only to the extent that all obligations of
36
<PAGE> 41
such Guarantor under such Indebtedness and all of its guarantees of, and under
all of its pledges of assets or other security interests which secure,
Indebtedness of the Company shall also terminate upon such release, sale or
transfer and, in the event of any sale or other disposition, that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture. See "-- Repurchase at the Option of
Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to June 1, 2003.
Thereafter, the Notes are subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and, in the case of the Old
Notes only, Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.............................................. 104.375%
2004.............................................. 102.917%
2005.............................................. 101.458%
2006 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time before June 1, 2001, the Company
may on any one or more occasions redeem up to an aggregate of 35% of the
principal amount of Notes outstanding at a redemption price of 108.75% of the
principal amount thereof, plus accrued and unpaid interest, if any, and, in the
case of the Old Notes only, Liquidated Damages, if any, thereon, to the
redemption date, with the net cash proceeds of any Public Equity Offering;
provided that at least 65% of the aggregate principal amount of Notes
outstanding on the Issue Date remain outstanding immediately after each
occurrence of such redemption; and provided, further, that each such redemption
shall occur within 60 days of the date of the closing of such Public Equity
Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest and, in the case of the Old Notes only, Liquidated
Damages, if any, cease to accrue on Notes or portions of them called for
redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, each Holder
of Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price
37
<PAGE> 42
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and, in the case of the Old Notes only, Liquidated Damages, if
any, thereon, to the date of purchase (the "Change of Control Payment"). Within
30 days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay all
outstanding Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Indebtedness to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction. The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the assets of the Company. There is little case law
interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of Notes to require the Company to repurchase such Notes
as a result of a sale, lease, exchange or other transfer of all or substantially
all of the Company's assets to a Person or a Group may be uncertain.
The Credit Facility limits the ability of the Company to purchase any Notes
and provides that certain change of control events with respect to the Company
would constitute a default thereunder. Any future Credit Facilities or other
agreements relating to Indebtedness to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
38
<PAGE> 43
Asset Sales. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (which shall be determined in good faith by the Company's Board of
Directors) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary of the Company (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or
any Subsidiary Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision and provided, further, that any Asset Sale
pursuant to a condemnation, appropriation or other similar taking, including by
deed in lieu of condemnation, or pursuant to the foreclosure or other
enforcement of a Permitted Lien or exercise by the related lienholder of rights
with respect thereto, including by deed or assignment in lieu of foreclosure
shall not be required to satisfy the conditions set forth in clauses (i) and
(ii) of this paragraph.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary, as the case may be, may apply such
Net Proceeds, at its option, (a) to permanently repay Indebtedness for borrowed
money other than Subordinated Indebtedness (and to correspondingly permanently
reduce the commitments with respect thereto in the case of revolving
borrowings), (b) to acquire a controlling interest in another business or all or
substantially all of the assets of a business, engaged in a Permitted Business,
or (c) to acquire other non-current assets to be used in a Permitted Business,
provided that the Company or such Restricted Subsidiary will have complied with
clause (b) or (c) if, within 270 days of such Asset Sale, the Company or such
Restricted Subsidiary shall have commenced and not completed or abandoned an
investment in compliance with clause (b) or (c) and such Investment is
substantially completed within 90 days after the first anniversary of such Asset
Sale. Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Indebtedness under any Credit Facility or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company shall be required to make an offer to all Holders of Notes and other
Indebtedness that ranks by its terms pari passu in right of payment with the
Notes and the terms of which contain substantially similar requirements with
respect to the application of net proceeds from asset sales as are contained in
the Indenture (an "Asset Sale Offer") to purchase on a pro rata basis the
maximum principal amount of the Notes, that is an integral multiple of $1,000,
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and, in the case of Old Notes only, Liquidated Damages, if any, to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Notes and other such Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such
39
<PAGE> 44
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company
(other than any such Equity Interests owned by a Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company or any of its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv), (v), (vi) or (vii) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter immediately following the Issue Date
to the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net proceeds
received by the Company (including the fair market value of non-cash
proceeds as determined in good faith by the Board of Directors of the
Company less issuance costs) from the issue or sale, in either case, since
the Issue Date of (A) Equity Interests of the Company (other than
Disqualified Stock), or (B) Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or Disqualified Stock or convertible or exchangeable debt
securities) sold to a Restricted Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted or exchanged
into Disqualified Stock), plus (iii) in case any Unrestricted Subsidiary
has been redesignated a Restricted Subsidiary pursuant to the terms of the
Indenture or has been merged, consolidated or amalgamated with or into, or
transfers or conveys assets to or is liquidated into, the Company or a
Restricted Subsidiary and provided that no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence
thereof, the lesser of (A) the book value (determined in accordance with
GAAP) at the date of such redesignation, combination or transfer of the
aggregate Investments made by the Company and its Restricted Subsidiaries
in such Unrestricted Subsidiary (or of the assets transferred or conveyed,
as applicable) and (B) the fair market value of such Investment in such
Unrestricted Subsidiary at the time of such redesignation, combination or
transfer (or of the assets transferred or conveyed, as applicable), in each
case as determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a resolution of
such Board and, in each case, after deducting any Indebtedness associated
with the Unrestricted Subsidiary so designated or combined or with the
assets so transferred or conveyed, plus (iv) to the extent not already
included in Consolidated Net Income for such period, without duplication,
any Restricted Investment that was made after the Issue Date is sold for
cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (v) $10 million.
The foregoing provisions shall not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebted-
40
<PAGE> 45
ness which is subordinated to the Notes or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, Equity Interests
of the Company (other than any Disqualified Stock); provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of Indebtedness which is subordinated to the
Notes with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness; (iv) the payment of any dividend or distribution by a Restricted
Subsidiary of the Company to the holders of its common Equity Interests on a pro
rata basis; (v) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted Subsidiary of
the Company held by any employee or director of the Company (or any of its
Subsidiaries), or any former employee or director of the Company (or any of its
Subsidiaries) issued pursuant to any management equity plan or stock option plan
or any other management or employee benefit plan, agreement or trust; provided,
however, that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests pursuant to this clause (v) shall not
exceed $1 million in any twelve-month period; (vi) repurchases of Equity
Interests deemed to occur upon the cashless exercise of stock options; and (vii)
reasonable and customary directors' fees to the members of the Company's Board
of Directors, provided that such fees are consistent with past practice,
provided, further, that, with respect to clauses (ii), (iii), (v), (vi) and
(vii) above, no Default or Event of Default shall have occurred and be
continuing immediately after such transaction.
In determining whether any Restricted Payment is permitted by the foregoing
covenant, the Company may allocate or reallocate all or any portion of such
Restricted Payment among the clauses (i) through (vii) of the preceding
paragraph or among such clauses and the first paragraph of this covenant
including clauses (a), (b) and (c), provided that at the time of such allocation
or reallocation, all such Restricted Payments, or allocated portions thereof,
would be permitted under the various provisions of the foregoing covenant.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (as evidenced by a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate delivered to the Trustee) on the
date of the Restricted Payment of the asset(s) or securities proposed to be
transferred or issued by the Company or such Restricted Subsidiary, as the case
may be, pursuant to the Restricted Payment, such determination to be based upon
an opinion or appraisal by an Independent Financial Advisor if the fair market
value of any Restricted Payment is greater than $10 million. Not later than (i)
the end of any calendar quarter in which any Restricted Payment is made or (ii)
the making of a Restricted Payment which, when added to the sum of all previous
Restricted Payments made in a calendar quarter, would cause the aggregate of all
Restricted Payments made in such quarter to exceed $5 million, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if (i) immediately after giving effect to such
designation, the Company is able to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test under the first
paragraph of the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock", (ii) immediately before and
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing and (iii) the Company certifies
that such designation complies with this covenant. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions. Notwithstanding the foregoing, if, at any time, any
Unrestricted Subsidiary would fail to meet the requirements under the definition
of Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred as of such date.
For purposes of making the determination as to whether such designation
would cause a Default or Event of Default, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent
41
<PAGE> 46
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (i) the net book value (determined in accordance with
GAAP) of such Investments at the time of such designation, (ii) the fair market
value of such Investments at the time of such designation and (iii) the original
fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock. The Indenture
provides that the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that (a) the Company and any Guarantor may incur
Indebtedness (including Acquired Debt), (b) the Company may issue shares of
Disqualified Stock or (c) a Restricted Subsidiary may incur Acquired Debt, if,
in each case, the Company's Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.25 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees;
(ii) the incurrence by the Company of Indebtedness and letters of
credit pursuant to any Credit Facility (with letters of credit being deemed
to have a principal amount equal to the maximum potential liability of the
Company thereunder) in an aggregate principal amount not to exceed $75.0
million, less the sum of (a) the amount of Purchase Money Indebtedness
incurred by the Company or any of its Restricted Subsidiaries under clause
(vi) below and outstanding and (b) the aggregate amount of all proceeds of
Assets Sales that have been applied since the Issue Date to permanently
reduce the outstanding amount of such Indebtedness pursuant to the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales";
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (i) if the
Company or any Guarantor is the obligor on such Indebtedness, such
Indebtedness is expressly subordinate to the payment in full of all
Obligations with respect to the Notes and (ii) (A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted Subsidiary and (B)
any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Restricted Subsidiary shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Purchase Money Indebtedness, in an aggregate principal
amount (or amount of Capital Lease Obligation), including all
42
<PAGE> 47
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
Purchase Money Indebtedness incurred pursuant to this clause (vi), not to
exceed $45.0 million at any time outstanding.
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of obligations in the ordinary course of business under (A)
trade letters of credit which are to be repaid in full not more than one
year after the date on which such Indebtedness is originally incurred to
finance the purchase of goods by the Company or a Restricted Subsidiary of
the Company; (B) standby letters of credit issued for the purpose of
supporting (1) workers' compensation liabilities of the Company or any of
its Restricted Subsidiaries, or (2) performance, payment, deposit or surety
obligations of the Company or any of its Restricted Subsidiaries; and (C)
bid, advance payment and performance bonds and surety bonds of the Company
and its Restricted Subsidiaries, and refinancings thereof;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of (x) Financial Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk (including with respect to
any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding), but only to the extent such obligations do
not exceed 105% of the aggregate principal amount of the Indebtedness to
which such obligations relate, and (y) Currency Hedging Obligations in
connection with the conduct of the Permitted Business in currencies other
than the United States Dollar, and, in the case of each of clauses (x) and
(y) not for speculative purposes and incurred in the ordinary course of
business consistent with prudent business practices;
(ix) the guarantee by the Company or any Restricted Subsidiary of the
Company of Indebtedness of the Company or a Restricted Subsidiary of the
Company that was permitted to be incurred by another provision of this
covenant; provided, that the guarantee of any Indebtedness under this
clause (ix) by a Restricted Subsidiary of the Company that ceases to be a
Restricted Subsidiary shall be deemed a Restricted Investment at the time
such Restricted Subsidiary's status terminates in an amount equal to the
maximum principal amount so guaranteed, for so long as, and to the extent
that, such guarantee remains outstanding;
(x) the issuance by a Restricted Subsidiary of the Company of
preferred stock to the Company or to any of its Wholly Owned Restricted
Subsidiaries; provided, however, that any subsequent event or issuance or
transfer of any Equity Interests that results in the owner of such
preferred stock ceasing to be the Company or any of its Wholly Owned
Restricted Subsidiaries or any subsequent transfer of such preferred stock
to a Person, other than the Company or one of its Restricted Subsidiaries,
shall be deemed to be an issuance of preferred stock by such Subsidiary
that was not permitted by this clause (x); and
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding not to exceed $10
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness shall be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens, to secure (a) any Indebtedness
of the Company or such Restricted Subsidiary, unless prior to, or
contemporaneously therewith, the Notes are equally and ratably secured, or (b)
any Indebtedness of any Guarantor, unless prior to, or contemporaneously
therewith, the Subsidiary
43
<PAGE> 48
Guarantees are equally and ratably secured; provided, however, that if such
Indebtedness is expressly subordinated to the Notes or any Subsidiary
Guarantees, the Lien securing such Indebtedness will be subordinated and junior
to the Lien securing the Notes or any Subsidiary Guarantees, as the case may be,
with the same relative priority as such Indebtedness has with respect to the
Notes or any Subsidiary Guarantees.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company or the Company to (i)(x) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (y) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) the Indenture, the Notes, Existing Indebtedness and
the Credit Facility as in effect on the Issue Date and any future Liens that may
be permitted to be granted under any other provisions of the Indenture (provided
however, that if the New Credit Facility is established on or prior to the Issue
Date, the foregoing exception shall not apply thereto), (b) applicable law, (c)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except with respect to Indebtedness incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person or such Person's
subsidiaries, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (d)
restrictions of the nature described in clause (iii) above by reason of
customary non-assignment provisions in contracts, agreements, and leases entered
into in the ordinary course of business and consistent with past practices, (e)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (f) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition, (g)
agreements relating to secured Indebtedness otherwise permitted to be incurred
pursuant to the covenants described under the Indebtedness otherwise permitted
to be incurred pursuant to the covenants described under the captions
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" and "-- Liens"
that limit the right of the debtor to dispose of assets securing such
Indebtedness and (h) Permitted Refinancing Indebtedness in respect of
Indebtedness referred to in clause (a), (c) and (e) of this paragraph, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets. The Indenture provides that the
Company will not consolidate or merge with or into (whether or not the Company
is the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another corporation, Person or entity unless
(i) the Company is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes and the Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately before and after such transaction no Default or Event of Default
shall have occurred; and (iv) except in the case of a merger of the Company with
or into a Wholly Owned Restricted Subsidiary, the Company or the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the
44
<PAGE> 49
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any payment to, or sell, lease, transfer or otherwise dispose
of any properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate of any
such Person (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1 million, a resolution of its
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above, (b) with respect to any
Affiliate Transaction or series of related Affiliate Transaction involving
aggregate consideration in excess of $5 million, a resolution of its Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of its Board of
Directors, and (c) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an Independent Financial
Advisor; provided that none of the following shall be deemed to be Affiliate
Transactions: (1) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary, as the case
may be, (2) transactions between or among the Company and/or its Restricted
Subsidiaries, (3) Restricted Payments that are permitted by the covenant
described above under the caption "-- Restricted Payments", (4) fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants and of its Restricted Subsidiaries in their capacity as
such, to the extent such fees and compensation are reasonable and customary, (5)
advances to employees for moving, entertainment and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business and
consistent with past practices, (6) maintenance in the ordinary course of
business of customary benefit programs or arrangements for employees, officers
or directors, including vacation plans, health and life insurance plans,
deferred compensation plans and retirement or savings plans and similar plans,
(7) fees and compensation paid to, and indemnity provided on behalf of,
officers, directors or employees of the Company or any of its Restricted
Subsidiaries, as determined by the Board of Directors of the Company or of any
such Restricted Subsidiary, to the extent such fees and compensation are
reasonable and customary as determined by the Board of Directors of the Company
or such Restricted Subsidiary, and (8) transactions between the Company and its
Restricted Subsidiaries, on the one hand, and any Permitted Holders, on the
other, for the purposes of providing investment banking, financial advisory,
banking and other financial services, to the extent such fees and compensation
to such Permitted Holders in such transactions are reasonable and customary as
determined by the Board of Directors of the Company or such Restricted
Subsidiary.
Sale-and-Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, enter into
any sale-and-leaseback transaction; provided, however, that the Company or any
Restricted Subsidiary, as applicable, may enter into a sale-and-leaseback
transaction if (i) the Company or such Restricted Subsidiary could have (a)
incurred Indebtedness in an amount equal to the Attributable Indebtedness
relating to such sale-and-leaseback transaction pursuant to the covenant
described above under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to
the covenant described under the caption "-- Liens," (ii) the gross cash
proceeds of such sale-and-leaseback transaction are at least equal to the Fair
Market Value (as determined in accordance with the definition of such term, the
results of which determination shall be set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the
45
<PAGE> 50
subject of such sale-and-leaseback transaction and (iii) the transfer of assets
in such sale-and-leaseback transaction is permitted by, and the Company applies
the proceeds of such transaction in compliance with, the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset Sales."
Business Activities. The Indenture provides that the Company will not, and
the Company will not permit any of its Restricted Subsidiaries to, directly or
indirectly, engage in any line of business other than a Permitted Business,
except to such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.
Payments for Consent. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture, the
Subsidiary Guarantees or the Notes unless such consideration is offered to be
paid or is paid to all Holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
Reports. The Indenture will provide that whether or not the Company is
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish to each of the Holders of Notes (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such financial information, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
any consolidated Subsidiaries and, with respect to the annual information only,
reports thereon by the Company's independent public accountants (which shall be
firm(s) of established national reputation and (ii) all information that would
be required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. All such information and reports shall be
delivered to the Holders of Notes on or prior to the dates on which such filings
would have been required to be made had the Company been subject to the rules
and regulations of the Commission. In addition, whether or not required by the
rules and regulations of the Commission, the Company shall file a copy of all
such information and reports with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any Old Notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or, in
the case of the Old Notes only, Liquidated Damages with respect to, the Notes,
(ii) default in payment when due of the principal of or premium, if any, on the
Notes; (iii) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "-- Certain
Covenants -- Restricted Payments," "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets," and "-- Repurchase at the Option of Holders";
(iv) failure by the Company or any of its Restricted Subsidiaries for 30 days
after notice to comply with any of its other agreements in the Indenture or the
Notes; (v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates without duplication $5 million or
more and such default shall not have been cured or acceleration
46
<PAGE> 51
rescinded within five business days after such occurrences; (vi) failure by the
Company or any of its Restricted Subsidiaries to pay final judgments aggregating
in excess of $5 million (excluding amounts covered by insurance), which
judgments are not paid, discharged or stayed for a period of 60 days; (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries or Significant Subsidiaries; and (viii) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Guarantor, or any Person acting on behalf
of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee (other than by reason of the termination of the Indenture or the
release of any such Subsidiary Guarantee in accordance with the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest or, in the case of the Old Notes only, Liquidated Damages)
if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest and, in the case of the Old Notes only, Liquidated Damages, if any, on,
or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Guarantors, as such, shall have any liability for any obligations of the
Company under the Notes, the Subsidiary Guarantees or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and, in the case of the Old Notes only, Liquidated Damages, if any, on such
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs,
47
<PAGE> 52
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and, in the case of the
Old Notes only, Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Company must specify whether the Notes are being defeased to maturity or to
a particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has heretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (ii) all such Notes not theretofore delivered
to such Trustee for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise or will become due and payable
within one year and the Company has irrevocably deposited or caused to be
deposited with such Trustee as trust funds in trust solely for the benefit of
the Holders, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to the date of maturity or
redemption; (b) no Default or Event of Default with respect to the Indenture or
the Notes shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other instrument to
which the Company is a party or by which the
48
<PAGE> 53
Company is bound; (c) the Company has paid or caused to be paid all sums payable
by it under the Indenture; and (d) the Company has delivered irrevocable
instructions to the Trustee under the Indenture to apply the deposited money
toward the payment of such Notes at maturity or the redemption date, as the case
may be. In addition, the Company must deliver an Officers' Certificate and an
opinion of counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest or, in the case of the Old Notes only,
Liquidated Damages on any Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest or, in the case of the
Old Notes only, Liquidated Damages, if any, on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest or, in the case
of the Old Notes only, Liquidated Damages, if any, on the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "-- Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of Notes or that does
not adversely affect the legal rights under the Indenture of any such Holder, or
to comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to allow any
Guarantor to guarantee the Notes.
49
<PAGE> 54
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to GulfMark Offshore, Inc., 5 Post Oak Park, Suite
1170, Houston, Texas 77027, Attention: Frank R. Pierce, Executive Vice
President.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes held by Qualified Institutional Buyers are represented by the
Old Global Note and the Exchange Notes will be represented by the Exchange
Global Note. The Old Global Note initially was deposited, and the Exchange
Global Note will be deposited, upon issuance with the Trustee as custodian for
the Depositary, in New York, New York, and registered in the name of the
Depositary or its nominee, in each case for credit to an account of a direct or
indirect participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee. Beneficial interests in the Global Notes may not
be exchanged for Notes in certificated form except in the limited circumstances
described below. See "-- Depositary Procedures -- Exchange of Book-Entry Notes
for Certificated Notes."
The Old Global Note (including beneficial interests in the Old Global
Notes) will bear a restrictive legend describing certain restrictions on
transfer to which it is subject. See "The Exchange Offer -- Consequences of
Failure to Exchange." In addition, transfer of beneficial interests in the
Global Notes will be subject to the applicable rules and procedures of the
Depositary and its direct or indirect participants (including, if applicable,
those of the Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL")),
which may change from time to time.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Participants or Indirect Participants. The ownership interest
50
<PAGE> 55
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of the Depositary are recorded on the records of the
Participants and Indirect Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Notes, the Depositary will
credit the accounts of Participants with portions of the principal amount of
Global Notes of the individual beneficial interests represented by such Global
Notes and (ii) ownership of such interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to Participants) or by Participants
and the Indirect Participants (with respect to other owners of beneficial
interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through the Depositary, if they are Participants in such system, or indirectly
through organizations (including Euroclear and CEDEL that are Participants in
such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited to
that extent. Because the Depositary can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in the Global Notes to pledge
such interest to persons or entities that do not participate in the Depositary
system, or otherwise take actions in respect of such interests, may be affected
by the lack of physical certificate evidencing such interest. For certain other
restrictions on the transferability of the Notes, see "-- Exchange of Book-Entry
Notes for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS, OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and, in the case of Old
Notes only, Liquidated Damages, if any, and interest on a Global Note registered
in the name of the Depositary or its nominee will be payable by the Trustee to
the Depositary or its nominee in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of the Depositary's records or
any Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of the Depositary's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to the
actions and practices of the Depositary or any of its Participants or Indirect
Participants.
The Depositary has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest and, in the case of Old Notes only, Liquidated Damages,
if any), is to credit the accounts of the relevant Participants with the payment
on the payment date, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant security such as the
Global Notes as shown on the records of the Depositary. Payments by Participants
and the Indirect Participants to the beneficial owners of Notes will be governed
by standing instructions and customary practices and will not be the
responsibility of the Depositary, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by the Depositary or its
Participants in identifying the beneficial owners of the Notes, and the Company
and the Trustee may conclusively rely on and will be protected in relying on
instructions from the Depositary or its nominee as the registered owner of the
Notes for all purposes.
Interests in the Global Notes will trade in the Depositary's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of the Depositary and its Participants. Transfers between
51
<PAGE> 56
Participants in the Depositary will be effective in accordance with the
Depositary's procedures, and will be settled in same-day funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
Participants to whose account the Depositary interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, the
Depositary reserves the right to exchange Global Notes for legend Notes in
certificated form, and to distribute such Notes to its Participants.
The information in this section concerning the Depositary, Euroclear and
CEDEL and their book-entry systems has been obtained from sources that the
Company believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Although the Depositary has agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in the
Depositary it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Initial Purchasers or the Trustee will have any responsibility for
the performance by the Depositary or its respective Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Exchange of Book-Entry Notes for Certificated Notes. A Global Note is
exchangeable for definitive Notes in registered certificated form if (i) the
Depositary (A) notifies the Company that it is unwilling or unable to continue
as depository for the Global Note and the Company thereupon fails to appoint a
successor depository or (B) has ceased to be a clearing agency registered under
the Exchange Act or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause issuance of the Notes in certificated form. In
addition, beneficial interests in a Global Note may be exchanged for
certificated Notes upon request but only upon at least 20 days prior written
notice given to the Trustee by or on behalf of the Depositary in accordance with
customary procedures. In all cases, certificated Notes delivered in exchange for
any Global Note or beneficial interest therein will be registered in names, and
issued in any approved denominations, requested by or on behalf of the
Depositary (in accordance with its customary procedures) and will bear, in the
case of the Old Global Note, a restrictive legend specifying certain
restrictions on transfer referred to in "The Exchange Offer -- Consequences of
Failure to Exchange", unless the Company determines otherwise in compliance with
applicable law.
Certificated Notes. Subject to certain conditions, any person having a
beneficial interest in the Global Note may, upon request to the Trustee,
exchange such beneficial interest for Notes in the form of certificated Notes.
Upon any such issuance, the Trustee is required to register such certificated
Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). All such certificated Old Notes would
be subject to legend requirements specifying certain restrictions on transfer
described herein under "The Exchange Offer -- Consequences of Failure to
Exchange." In addition, if (i) the Company notifies the Trustee in writing that
the Depositary is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Notes in the form of certificated Notes under the Indenture,
then, upon surrender by the Global Note Holder of its Global Note, Notes in such
form will be issued to each person that the Global Note Holder and the
Depositary identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same Day Settlement and Payment. The Indenture will require that payments
in respect of the Notes represented by the Global Note (including principal,
premium, if any, interest and, in the case of the Old Notes only, Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
52
<PAGE> 57
accounts specified by the Global Note Holder. With respect to certificated
Notes, the Company will make all payments of principal, premium, if any,
interest and, in the case of the Old Notes only, Liquidated Damages, if any, by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Company expects that secondary trading in
the certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company has agreed to
file with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act to allow the Holders of Transfer
Restricted Securities who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for Exchange Notes
and thereafter, to allow Lehman Brothers Inc. to engage in market-making
transactions with respect to sales of the Exchange Notes. Accordingly, the
Company will prepare and include within the Exchange Offer Registration
Statement a prospectus relating to the Exchange Offer and a prospectus relating
solely to sales of Exchange Notes by Lehman Brothers Inc. in market-making
transactions (including Exchange Notes received in exchange for Old Notes
acquired by Lehman Brothers Inc. in market-making transactions). If (i) the
Company is not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities notifies the Company within 20 business days following
consummation of the Exchange Offer that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) it may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) that it is a broker-dealer and owns Notes acquired directly from the Company
or an affiliate of the Company, the Company will file with the Commission a
Shelf Registration Statement to cover resales of the Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company will use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Old Note has been exchanged by a person other than a
broker-dealer for a Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
appropriate prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Old Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Old Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 150 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, Exchange Notes in exchange for all Old
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, the Company will use its best efforts to file
the Shelf Registration Statement with the Commission on or prior to 60 days
after such filing obligation arises (and in any event within 150 days after the
Closing Date) and to cause the Shelf Registration to be declared effective by
the Commission on or prior to 60 days after the date upon which the Company is
obligated to make such filing. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
53
<PAGE> 58
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Old Notes, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $0.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $0.50 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages on the Old
Notes will be paid by the Company on each Damages Payment Date to the Old Global
Note Holder by wire transfer of immediately available funds or by federal funds
check and to Holders of Certificated Securities by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages on the Old Notes will cease.
Holders of Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages with respect to the Old Notes set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person
or (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person; provided that, in each case, such Indebtedness was not
incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Restricted Subsidiary of such specified Person, or
such encumbered asset being acquired by such Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the covenants described above
under the captions "-- Repurchase at the Option of Holders -- Change of Control"
and "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and not
by the provisions of the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the issue or
sale by the Company or any of its Restricted Subsidiaries of Equity Interests of
any of the Company's Restricted Subsidiaries, in the case of either clause (i)
or (ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $2 million or (b) for Net Proceeds in
excess of $2 million; provided that the following will not be deemed to be Asset
Sales: (A) a transfer of assets by the Company to a Restricted Subsidiary of the
Company or by a Restricted Subsidiary of the Company to the
54
<PAGE> 59
Company or to another Restricted Subsidiary of the Company, (B) an issuance or
sale of Equity Interests by a Restricted Subsidiary of the Company to the
Company or to another Restricted Subsidiary of the Company, (C) (x) a Permitted
Investment or (y) a Restricted Payment that is permitted by the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments",
(D) any disposition of assets resulting from the enforcement or foreclosure of
Liens permitted to be incurred under the covenant described above under the
caption "-- Certain Covenants -- Liens" and (E) any disposition of assets in
trade or exchange for assets of comparable Fair Market Value related to the
Permitted Business of the Company, provided that (x) in any such trade or
exchange with a Fair Market Value in excess of $10 million, the Company shall
obtain an opinion or report from a nationally recognized investment banking
firm, appraisal firm or other valuation expert confirming that the assets
received by the Company and the Restricted Subsidiaries in such trade or
exchange have a fair market value of at least the fair market value of the
assets so traded or exchanged and (y) any cash or Cash Equivalent received by
the Company or a Restricted Subsidiary in connection with such trade or exchange
(net of direct costs relating to such transaction) shall be treated as Net
Proceeds of an Asset Sale and shall be applied in the manner set forth in the
covenant described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales."
"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, as at the time of determination, the present value (discounted at the
interest rate implicit in such transaction, determined in accordance with GAAP)
of the total obligations of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). As used in the preceding sentence, the "net
rental payment" under any lease for any such period shall mean the sum of rental
and other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease which is terminable by the lessee upon
payment of a penalty, such net rental payment shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and Eurodollar
time deposits with maturities of not more than one year from the date of
acquisition, bankers' acceptances with maturities of not more than one year from
the date of acquisition and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500.0 million
and a Thompson Bank Watch Rating of "B" or better or any commercial bank
organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development ("OECD") and has total
assets in excess of $500 million, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Rating Group with maturities of not more than one year from the date of
acquisition, (vi) deposits available for withdrawal on demand with any
commercial bank not meeting the qualifications specified in clause (iii) above
but which is organized
55
<PAGE> 60
under the laws of (a) any country that is a member if the OECD and has total
assets of $50 million or (b) any other country in which the Company or any
Restricted Subsidiary maintains an office or is engaged in any Permitted
Business, provided that, in either case, (A) all such deposits are required to
be made in such accounts in the ordinary course of business, (B) such deposits
do not exceed at any one time $2 million in the aggregate and (C) no funds so
deposited remain on deposit in such bank for more than 30 days, and (vii)
investments in money market funds substantially all of whose assets comprise
securities or deposits of the types described in clauses (i) through (v).
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture), other than
Permitted Holders, unless immediately following such sale, lease, exchange or
other transfer in compliance with the Indenture such assets are owned, directly
or indirectly, by the Company or a Wholly Owned Restricted Subsidiary of the
Company; (ii) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether or
not otherwise in compliance with the provisions of the Indenture); (iii) the
acquisition in one or more transactions, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of Voting Securities of the
Company by any Person or Group, other than Permitted Holders, that either (A)
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, at least 50% of the Company's then outstanding voting
securities entitled to vote on a regular basis for the board of directors of the
Company, or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Company's board of directors, including, without
limitation, by the acquisition of revocable proxies for the election of
directors; or (iv) the first day on which a majority of the members of the
Company's board of directors are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary, unusual or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of Consolidated Net Income for such period, losses on sales of assets
outside of the ordinary course of business) plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such depreciation and
amortization were deducted in computing such Consolidated Net Income, minus (v)
non-cash items increasing such Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash charges of, a
Restricted Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
56
<PAGE> 61
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
(for such period, on a consolidated basis, determined in accordance with GAAP);
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Restricted Subsidiaries and in
Persons that are not Restricted Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Consolidated Tangible Assets" means, with respect to any Person as of any
date, the amount which, in accordance with GAAP, would be set forth under the
caption "Total Assets" (or any like caption) on a consolidated balance sheet of
such Person and its Restricted Subsidiaries, less all intangible assets,
including, without limitation, goodwill, organization costs, patents,
trademarks, copyrights, franchises and research and development costs.
"Continuing Director" means, as of any date of determination, any member of
the Company's board of directors who (i) was a member of the Company's board of
directors on the Issue Date or (ii) was nominated for election or elected to
such board of directors with the approval of a majority of the Continuing
Directors who were members of such board of directors at the time of such
nomination or election.
"Credit Facility" means, with respect to the Company, one or more debt
facilities, commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, other borrowings (including term
loans), receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. The New Credit Facility, described under "Description of
Other Indebtedness," will constitute a Credit Facility under the Indenture.
"Currency Hedging Obligations" means, with respect to any Person, the net
payment Obligations of such Person under agreements or arrangements designed to
protect such Person against fluctuations in the currency exchange rates incurred
or entered into in the ordinary course of its business and not for speculative
purposes.
"Default" means any event that is or with the passage of time or the giving
of notice (or both) would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the
57
<PAGE> 62
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature, except to the extent that such Capital Stock is
solely redeemable with, or solely exchangeable for, any Capital Stock of such
Person that is not Disqualified Stock.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Notes" means notes registered under the Securities Act that are
issued under the Indenture in exchange for the Notes pursuant to the Exchange
Offer.
"Existing Indebtedness" means up to $0.6 million in aggregate principal
amount (or amount of Capital Lease Obligation) of Indebtedness of the Company
and its Restricted Subsidiaries (other than Indebtedness under any Credit
Facility and the Notes) in existence on the Issue Date, until such amounts are
repaid.
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of the
Company.
"Financial Hedging Obligations" means, with respect to any Person, the net
payment Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates incurred or entered into in the
ordinary course of its business and not for speculative purposes.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation or duplication, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock), times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings under any
Credit Facility) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference
58
<PAGE> 63
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the Consolidated
Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the statements and pronouncements of
the Financial Accounting Standards Board and such other statements by such other
entities as have been approved by a significant segment of the accounting
profession, which are applicable at the date of determination.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantees
or obligations the full faith and credit of the United States is pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof or pledging assets to secure), of
all or any part of any Indebtedness.
"Guarantors" means (i) each of the Company's Restricted Subsidiaries that
becomes a guarantor of the Notes in accordance with the provisions of the
Indenture described above under "Subsidiary Guarantees" and (ii) each of the
Company's Restricted Subsidiaries executing a supplemental indenture in which
such Restricted Subsidiary agrees to be bound by the terms of the Indenture;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Subsidiary Guarantee is released
in accordance with the terms thereof.
"Hedging Obligations" means, with respect to any Person, collectively, the
Currency Hedging Obligations of such Person and the Financial Hedging
Obligations of such Person.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any Indebtedness or any other liability, whether or
not contingent, of any other Person, and whether or not it appears on the
balance sheet of such other Person. The amount of any Indebtedness outstanding
as of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest, and (ii) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm that is, in the reasonable judgment of the
Board of Directors, qualified to perform the task for which such firm has been
engaged hereunder and disinterested and independent with respect to the Company
and its Affiliates; provided, that providing accounting, appraisal or investment
banking services to the Company or any of its Affiliates or having an employee,
officer or other representative serving as a member of the Board of Directors of
the Company or any of its Affiliates will not disqualify any firm from being an
Independent Financial Advisor.
59
<PAGE> 64
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and
entertainment, moving, and similar advances to officers and employees made in
the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any of its Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a direct or indirect
Subsidiary of the Company, the Company, or such Restricted Subsidiary, as the
case may be, shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the fourth paragraph of the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments."
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting, investment banking and brokers fees, and sales and
underwriting commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness (other than
Indebtedness under any Credit Facility) secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries, (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise), (ii) the incurrence of which
will not result in any recourse against any of the assets of the Company or its
Restricted Subsidiaries, and (iii) no default with respect to which (including
any rights that the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare pursuant to the express terms governing such
Indebtedness a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable prior to its stated maturity.
60
<PAGE> 65
"Obligations" means any principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Restricted Subsidiaries whether or
not a claim for post-filing interest is allowed in such proceeding), penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages with respect to the Old Notes), guarantees
(including the Subsidiary Guarantees) and other liabilities or amounts payable
under the documentation governing any Indebtedness or in respect thereof.
"Permitted Business" means the lines of business conducted by the Company
on the Issue Date and businesses reasonably related or incidental thereto or
which is a reasonable extension thereof.
"Permitted Holders" means Lehman Brothers Holdings Inc., any direct or
indirect Subsidiary of Lehman Brothers Holdings Inc., or any other Person
directly or indirectly controlled by or under direct or indirect common control
with Lehman Brothers Holdings Inc. or any of its direct or indirect
Subsidiaries. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or
deposit accounts maintained in the ordinary course of business consistent with
past practices; (c) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company; (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (f) any Investment received in settlement of
debts, claims or disputes owed to the Company or any Restricted Subsidiary of
the Company that arose out of transactions in the ordinary course of business;
(g) any Investment received in connection with or as a result of a bankruptcy,
workout or reorganization of any Person; (h) advances and extensions of credit
in the nature of accounts receivable arising from the sale or lease of goods or
services or the licensing of property in the ordinary course of business; (i)
other Investments by the Company or any Restricted Subsidiary of the Company in
any Person having an aggregate fair market value (measured as of the date each
such Investment is made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (i) (net of returns of capital, dividends and interest paid on
Investments and sales, liquidations and redemptions of Investments), not to
exceed 5% of Consolidated Tangible Assets; (j) Investments in the form of
intercompany Indebtedness or Guarantees of Indebtedness of a Restricted
Subsidiary of the Company permitted under clauses (v) and (ix) of the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock;" and (k) Investments arising in connection with
Financial Hedging Obligations or Currency Hedging Obligations that are incurred
in the ordinary course of business for the purpose of fixing or hedging currency
or interest rate risk (including with respect to any floating rate Indebtedness
that is permitted by the terms of the Indenture to be outstanding) in connection
with the conduct of the business of the Company and its Subsidiaries and not for
speculative purposes.
"Permitted Liens" means (i) Liens in favor of the Company or any Guarantor;
(ii) Liens on property of a Person existing at the time such Person is merged
into or consolidated with the Company or any Restricted Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company; (iii) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company, provided that such Liens were in existence
prior to the contemplation of such acquisition; (iv) Liens existing on the Issue
Date of the Indenture and any extensions or renewals thereof, provided that such
extension or renewal of such Liens does not extend to or cover any other
property or assets of the Company or any Restricted Subsidiary; (v) statutory
Liens (other
61
<PAGE> 66
than any Lien imposed by ERISA) or landlords and carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business; (vi) Liens for taxes, assessments,
government charges or claims not yet due and payable or which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and if a reserve or other appropriate provisions, if any,
as shall be required in conformity with GAAP shall have been made therefor;
(vii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security; (viii) Liens created or deposits made to secure the performance
of tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (ix) easements,
rights-of-way, licenses, covenants reservations, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the ordinary
course of business; (x) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been discharged
within 60 days after the expiration of any such stay; (xi) any other Liens
imposed by operation of law which do not materially affect the Company's or any
Guarantor's ability to perform its obligations under the Notes, the Subsidiary
Guarantees and the Indenture; (xii) rights of banks to set off deposits against
debts owed to said bank; (xiii) Liens upon specific items of inventory or other
goods and proceeds of the Company or its Restricted Subsidiaries securing the
Company's or any Restricted Subsidiary's obligations in respect of bankers'
acceptances issued or created for the account of any such Person to facilitate
the purchase, shipment or storage of such inventory or other goods; (xiv) Liens
securing reimbursement obligations with respect to letters of credit which
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof entered into in the ordinary course of business
consistent with past practices; (xv) Liens securing Indebtedness that is pari
passu in right of payment with the Notes, provided that the Notes are equally
and ratably secured; (xvi) Liens to secure Purchase Money Indebtedness or other
purchase money obligations incurred for the purpose of financing all or a part
of the purchase price or cost of construction or improvement of property, plant
or equipment used in the Permitted Business and acquired, constructed or
improved after the Issue Date, provided that (1) the principal amount of
Indebtedness secured by such Liens shall not exceed 100% of the lesser of cost
or Fair Market Value of the property or assets so acquired, constructed or
improved plus transaction costs related thereto, (2) such Liens shall not
encumber any other property or assets of the Company or any Restricted
Subsidiary (other than the charters or other contracts relating solely to such
property or assets, and the proceeds therefrom and accessions and upgrades
thereto) and (3) such Liens shall attach to such Property or assets within 120
days of the date of the completion of the construction or acquisition of such
Property or assets; (xvii) Liens to secure any Permitted Refinancing
Indebtedness incurred to refinance any Indebtedness secured by any Lien referred
to in the foregoing clauses (ii), (iii), (iv), (xv) and (xvi), provided,
however, that such new Lien shall be limited to all or part of the same property
that secured the original Lien (provided that such Liens may extend to
after-acquired property, including any assets or Capital Stock of any
subsequently formed or acquired Subsidiary, if such original Lien included such
property or assets as collateral); (xviii) Liens in favor of customs and revenue
authorities to secure payment of customs duties in connection with the
importation of goods in the ordinary course of business and other similar Liens
arising in the ordinary course of business; (xix) leases or subleases granted to
third Persons in ordinary course of business consistent with past practices not
interfering with the ordinary course of business of the Company or its
Restricted Subsidiaries; (xx) deposits made in the ordinary course of business
to secure liability to insurance carriers, and Liens on the proceeds of
insurance granted to insurance carriers solely to secure the payment of financed
premiums; (xxi) Liens in favor of a trustee under any indenture securing amounts
due to the trustee in connection with its services under such indenture; (xxii)
Liens under licensing agreements for use of intellectual property entered into
in the ordinary course of business; (xxiii) Liens incurred in the ordinary
course of business of the Company or any Subsidiary of the Company with respect
to obligations that do not exceed $10 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary and (xxiv) any attachment
or judgment
62
<PAGE> 67
Lien not constituting an Event of Default under clause (vi) of the first
paragraph of the section described under the caption "-- Events of Default and
Remedies."
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued and unpaid interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or a Restricted Subsidiary who is
the obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Public Equity Offering" means any public underwritten offering by the
Company of Voting Stock (other than Disqualified Stock) of the Company pursuant
to registration under the Securities Act of 1933, as amended; provided, however,
that the proceeds net of any underwriting discount and commission and other
expenses to the Company from any such offering shall be at least $25 million.
"Purchase Money Indebtedness" of a Person means any Indebtedness
represented by Capital Lease Obligations, mortgage or construction financings,
purchase money obligations or Acquired Debt, in each case incurred for the
purpose of financing all or any part of (i) the purchase price, acquisition cost
or cost of construction or improvement of property, plant or equipment used in
the Permitted Business of such Person and acquired, constructed or improved
after the Issue Date, provided the aggregate principal amount (or Capital Lease
Obligation) of such Indebtedness (including the amount of any Acquired Debt
incurred in connection with such acquisition, construction, or improvement)
shall not exceed the lesser of the Fair Market Value or 70% of the purchase
price, acquisition cost or cost of construction or improvement with respect to
the property, plant or equipment for which such Indebtedness is being incurred
or (ii) the purchase price or acquisition cost for the purchase or acquisition
of all of the outstanding Capital Stock of a Person whose assets consist
substantially of property, plant or equipment used in the Permitted Business,
provided the aggregate principal amount of such Indebtedness (including the
amount of any Acquired Debt incurred in connection with, or as a result of, each
purchase) shall not exceed the lesser the Fair Market Value of, or 70% of that
portion of the purchase price or acquisition cost allocable to, the property,
plant or equipment of the Person acquired.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referenced
Person that is not an Unrestricted Subsidiary; provided that, on the Issue Date,
all Subsidiaries of the Company shall be Restricted Subsidiaries of the Company.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
63
<PAGE> 68
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such Person or (b) the only general partners of which are such Person
or of one or more entities described in clause (i) and related to such Person
(or any combination thereof).
"Subsidiary Guarantee" means the guarantee of the Notes by any Guarantors
pursuant to Article 10 of the Indenture pursuant to the execution and delivery
of a supplemental indenture substantially in the form of Exhibit D to the
Indenture entered into in accordance with the covenant described above under the
caption "-- Subsidiary Guarantees."
"Unrestricted Subsidiary" means any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary of the Company) that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a resolution
of the Board of Directors as certified in an Officer's Certificate delivered to
the Trustee, but only to the extent that such Subsidiary at the time of
designation and thereafter, (a) has no Indebtedness other than Non-Recourse
Indebtedness; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained, in light of all the circumstances, at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Persons to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) do
not own any Capital Stock of or own or hold any Lien on any property of, the
Company or any Restricted Subsidiary of the Company.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary (i) 100%
of the outstanding Capital Stock and other Equity Interests of which is directly
or indirectly owned by the Company or (ii) that is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Restricted Subsidiary to transact business in such foreign
jurisdiction,
64
<PAGE> 69
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Restricted Subsidiary and, by contract or
otherwise, controls the management and business of such Restricted Subsidiary
and derives the economic benefits of ownership of such Restricted Subsidiary to
substantially the same extent as if such Restricted Subsidiary were a wholly
owned Restricted Subsidiary.
65
<PAGE> 70
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth a summary of the material anticipated federal
income tax consequences expected to result to holders from the Exchange Offer
and from the purchase, ownership and disposition of the Exchange Notes. The tax
consequences of these transactions are uncertain. The discussion of the federal
income tax consequences set forth below is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), and judicial decisions and administrative
interpretations thereunder, as of the date hereof, and such authorities may be
repealed, revoked, modified or otherwise interpreted or applied so as to result
in federal income tax consequences different from those discussed below. There
can be no assurance that the Internal Revenue Service (the "IRS") will not
challenge one or more of the tax consequences described herein, and the Company
has not obtained, nor does it intend to obtain, a ruling from the IRS or an
opinion of counsel with respect to the United States federal income tax
consequences of acquiring or holding Exchange Notes. As used herein, United
States Holders means (i) citizens or residents (within the meaning of Section
7701(b) of the Code) of the United States, (ii) corporations, partnerships or
other entities created in or under the laws of the United States or any
political subdivision thereof, (iii) estates, the income of which is subject to
United States federal income taxation regardless of its source, and (iv) in
general, trusts subject to the primary supervision of a court within the United
States and the control of a United States person as described in Section
7701(a)(30) of the Code.
This discussion does not purport to deal with all aspects of United States
federal income taxation that may be relevant to a particular Holder in light of
the Holder's circumstances (for example, persons subject to the alternative
minimum tax provisions of the Code). Also, it is not intended to be wholly
applicable to all categories of investors, some of which (such as dealers in
securities, banks, insurance companies, tax-exempt organizations, and persons
holding Exchange Notes as part of a hedging or conversion transaction or
straddle or persons deemed to sell Exchange Notes under the constructive sale
provisions of the Code) may be subject to special rules. The discussion below is
premised upon the assumption that the Exchange Notes and Old Notes constitute
indebtedness for U.S. federal income tax purposes, and that the Old Notes and
Exchange Notes are held (or would be held if acquired) as capital assets within
the meaning of Section 1221 of the Code. This summary does not discuss the tax
considerations applicable to subsequent purchasers. The discussion also does not
discuss any aspect of state, local or foreign law, nor federal estate and gift
tax law.
EXCHANGE OF NOTES
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
should not be a taxable exchange for United States federal income tax purposes.
Accordingly, a holder should have the same adjusted issue price, adjusted basis
and holding period in the Exchange Notes as it had in the Old Notes immediately
before the exchange.
STATED INTEREST
The Exchange Notes will be issued without original issue discount. Stated
interest on the Old Notes and Existing Notes will be includable in the holder's
income under such holder's method of accounting.
The Company will annually furnish to certain record holders of Exchange
Notes and to the IRS information with respect to qualified stated interest paid
during the calendar year as may be required under applicable regulations.
BOND PREMIUM
Generally, if the Exchange Notes are purchased, or if the Old Notes were
purchased, for an amount in excess of the amount payable at the maturity date
(or a call date, if appropriate) of the Exchange Notes, such excess will
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest method over the period from the date of acquisition to the
date of maturity (or until an earlier call date). If bond premium is amortized,
the amount required to be included in the holder's income each year with respect
to interest on the Note will be reduced by the amount of amortizable bond
premium allocable to such year. An election to amortize bond premium is
available only if the Exchange Notes are held as capital assets. This election
is revocable only with the consent of the IRS and applies to all obligations
owned or
66
<PAGE> 71
subsequently acquired by the holder. To the extent the excess is deducted as
amortizable bond premium, the holder's adjusted tax basis in the Exchange Notes
will be reduced.
MARKET DISCOUNT ON THE EXCHANGE NOTES
To the extent a holder had market discount with respect to an Old Note, the
holder generally will have market discount with respect to an Exchange Note. Any
principal payment or gain realized by a holder on disposition or retirement of
an Exchange Note will be treated as ordinary income to the extent that there is
accrued market discount on the Exchange Note. Unless a holder elects to accrue
under a constant-interest method, accrued market discount is the total market
discount multiplied by a fraction, the numerator of which is the number of days
the holder has held the obligation and the denominator of which is the number of
days from the date the holder acquired the obligation under its maturity. A
holder may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry an Exchange Note purchased with market discount. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includable in income. If the holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by the holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES
Upon the sale, exchange or retirement of an Exchange Note, the holder
generally will recognize gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (which does not include any amount
attributable to accrued but unpaid interest) and the holder's adjusted tax basis
in the Exchange Note.
A holder's adjusted tax basis in an Exchange Note will generally equal the
holder's adjusted basis for the Old Note exchanged therefor increased by any
market discount previously included in income by such holder with respect to
such Exchange Note and decreased by any payments received thereon that are not
qualified stated interest and the amount of any amortizable bond premium applied
to reduce interest on the Exchange Note.
Gain or loss realized on the sale, exchange or retirement of an Exchange
Note will be capital gain or loss (subject to the market discount rules,
discussed above), and will be long-term if, at the time of sale, exchange or
retirement, the Exchange Note has been held or deemed held for more than one
year. On August 5, 1997, legislation was enacted which, among other things,
reduces to 20% the maximum rate of tax on long-term capital gains on most
capital assets held by an individual for more than 18 months, and under which
gain on most capital assets held by an individual more than one year and up to
18 months is subject to tax at a maximum rate of 28%. Holders are urged to
consult their tax advisor with respects to the effects of legislation. The
deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax
if (a) the payee fails to furnish a taxpayer identification number ("TIN") to
the payor, (b) the IRS notifies the payor that the TIN furnished by the payee is
incorrect, (c) the payee has failed to report properly the receipt of
"reportable payments" and the IRS has notified the payor that withholding is
required, or (d) there has been a failure of the payee to certify under the
penalty of perjury that a payee is not subject to withholding under Section 3405
of the Code. As a result, if any one of the events discussed above occurs with
respect to a holder of Notes, the Company, its paying agent or other withholding
agent will be required to withhold a tax equal to 31% of any "reportable
payment" made in connection with the Notes of such holder. A "reportable
payment" includes, among other things, amounts paid in respect of interest or
original issue discount and amounts paid through brokers in retirement of
securities. Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
federal income tax, provided, that the required information is furnished to the
IRS. Certain holders (including, among others, corporations and certain
tax-exempt organizations) are not subject to the backup withholding rules.
67
<PAGE> 72
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE
OLD NOTES AND EACH PROSPECTIVE HOLDER AND, SUBSEQUENT TO THE EXCHANGE OFFER,
EACH HOLDER, OF EXCHANGE NOTES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
68
<PAGE> 73
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer may be a statutory underwriter and must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale for a period of 180 days after the Registration Statement is declared
effective by the Commission. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter," within the meaning of the Securities Act. For
a period of 180 days after the Registration Statement is declared effective by
the Commission, the Company will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed in the Registration Rights Agreement to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act.
EXPERTS
The validity of the issuance of the Exchange Notes offered hereby will be
passed upon for the Company by Griggs & Harrison, P.C., Houston, Texas.
The Company's Consolidated Financial Statements as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports. The consolidated financial statements of Brovig
Supply ASA (renamed Gulf Offshore Norge AS) as of and for the six months ended
December 31, 1997 and the Combined Statement of Revenues less Operating Expenses
for the twelve-month period ended December 31, 1996 and for the six-month period
ended June 30, 1997 appearing in the Company's Current Report on Form 8-K dated
February 25, 1998, as amended on April 24, 1998, have been audited by Coopers &
Lybrand ANS (PricewaterhouseCoopers DA, effective July 1, 1998), independent
accountants, as set forth in their reports thereon appearing therein. Such
Consolidated Financial Statements, are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
69
<PAGE> 74
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents
previously filed by the Company with the Commission pursuant to the Exchange
Act:
(a) Current Report of GulfMark Offshore, Inc. on Form 8-K dated June
23, 1998.
(b) Current Report of GulfMark Offshore, Inc. on Form 8-K dated May
12, 1998.
(c) Schedule 14A Proxy Statement of GulfMark Offshore, Inc. for the
Annual Meeting of Stockholders on May 14, 1998.
(d) Quarterly Report of GulfMark Offshore, Inc. on Form 10-Q for the
quarter ended March 31, 1998.
(e) Current Report of GulfMark Offshore, Inc. on Form 8-K dated
February 25, 1998, as amended on April 27, 1998.
(f) Annual Report of GulfMark Offshore, Inc. on Form 10-K for the
fiscal year ended December 31, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
thereof. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the information that has been incorporated by reference in this Prospectus
(not including exhibits to the information that is incorporated by reference
herein unless such exhibits are specifically incorporated by reference in such
information). Requests for such copies should be directed to GulfMark Offshore,
Inc. at 5 Post Oak Park, Suite 1170, Houston, Texas 77027, Attention: Frank R.
Pierce, Executive Vice President (713) 963-9522. In order to ensure timely
delivery of such documents prior to the Expiration Date, any request should be
made by August 17, 1998.
70
<PAGE> 75
GLOSSARY OF SELECTED INDUSTRY TERMS
AHTS. See Anchor Handling, Towing and Supply Vessels.
Anchor Handling, Towing and Supply Vessels. These vessels are typically
150' to 175' in length and are used to set anchors for the rigs and to tow
mobile drilling rigs and equipment from one location to another. In addition,
these vessels typically can be used as supply vessels when they are not
performing anchor handling and towing services.
Bareboat Charter. A charter contract whereby the vessel is chartered
without crew, stores or maintenance support, "the bare hull," for a fixed time
period. The contract results in the charterer being treated as the "disponet
owner" for the full duration of the charter.
Below Deck Capacity. The capacity of the tanks located below the deck of a
vessel which are used to carry various liquid and powdered products utilized in
production and drilling activities such as gas oil, potable water, drilling muds
and powdered cement.
BHP. See Brake Horsepower.
Brake Horsepower. The horsepower made available by an engine for driving
machinery other than itself. It is the highest continuous horsepower output an
engine develops.
Charter. A maritime contract for the hire of a vessel.
Classification Society. A member of the IACS (International Association of
Classification Societies) generally accepted for providing classification
services on behalf of governments. The societies are generally recognized as
establishing that ships classified are built and maintained within certain
established standards. The company has ships built under ABS (American Bureau of
Shipping), DNV (Det Norske Veritas) and LR (Lloyds Register of Shipping)
classification.
Construction Support Vessels. Can be vessels used in the actual
construction effort, such as pipe laying barges, or they can be specially
designed vessels, such as pipe carriers, used to transport the large cargos of
material and supplies required to support construction and installation of
offshore platforms and pipelines.
Crew. See Crewboats.
Crewboats. Crewboats transport personnel and cargo to and from production
platforms and rigs. Older crewboats, early 1980s built, are typically 100' to
120' ft. in length and are generally designed for speed to transport personnel.
Newer crewboat designs are generally larger, 130' to 165' ft. in length, and
have greater cargo carrying capacities. They are used primarily to transport
cargo on a time sensitive basis.
Day Rate. Total charter revenues divided by number of days worked.
Deadweight Tons. A measurement of the carrying capacity of a vessel,
calculated as the difference between the amount of water displaced by the
unloaded vessel and that displaced by the fully loaded vessel.
Drydocking. The process whereby a vessel is removed from the water to
accomplish repairs and complete classification inspection requirements. With the
exception of crewboats and vessels more than 20 years of age that are generally
drydocked more frequently, drydocks are required twice during the five-year
classification cycle. The time period of a drydocking differs based on type and
age of vessel and extent of survey and repairs needed.
DWT. See Deadweight Tons.
Dynamic Positioning. An enhanced maneuvering and control system that will
hold a vessel on station despite sea and weather conditions.
Floating Production, Storage and Offloading Vessels. Vessels (typically
converted crude oil tankers) configured and equipped to permit hydrocarbon
production to be processed, stored and offloaded, usually to ocean going tankers
for export but in some instances to local structures. These vessels are most
often used in
A-1
<PAGE> 76
areas where no pipelines or other infrastructure exists such as deep water
regions and offshore lesser-developed countries.
FPSO. See Floating Production, Storage and Offloading Vessels.
Full Production Horizon Contract. See Life of Field Contracts.
KMAR 404. An AHTS Vessel design developed by the Norwegian design and
construction firm Kvaerner-Maritime Engineering. The vessel is specifically
designed to have high BHP and winch equipment to handle advanced
semi-submersible and deepwater locations. The vessel has computer aided
navigation and support systems developed in the 1990's to meet the harsh demands
of the North Sea environment.
Large Platform Supply Vessels. These PSVs are well suited for large areas
with a concentration of offshore production platforms because of their large,
clear after deck and below deck capacities.
LgPSVs. See Large Platform Supply Vessels.
Life of Field Contract. A charter, the term of which is tied to a
production facility's lifespan.
Long-term Charter. A charter with an initial term exceeding six months.
Moon Pool. A structural modification in the hull of a vessel which provides
an opening allowing direct access to the sea. Moon pools are typically used to
launch and deploy ROVs or divers, or otherwise to allow entry and exit from the
water with some protection from wave action.
Oil Spill Response Vessels. Oil spill response vessels are specially
equipped to respond to oil spill emergencies.
On Deck Capacity. The amount of deck area on to which cargo can be loaded
on a vessel. The on deck capacity of a vessel is restricted by the weight and
dimensions of the total amount of cargo carried.
Petrobras. See Petroleo Brasiliero S.A.
Petroleo Brasiliero S.A. The Brazilian national oil company.
Platform Supply Vessels. These vessels are used to serve drilling and
production facilities and support offshore construction and maintenance work.
They are utilized for their cargo handling capabilities, particularly their
large capacity and versatility.
PSVs. See Platform Supply Vessels.
Rates Per Day. See Day Rate.
Remotely Operated Vehicle. An unmanned submersible craft which is used for
underwater construction, inspection and searches. It is controlled from the
launching vessel by umbilical controls and is "flown" through the water by a
trained technician who utilizes thrusters and cameras.
ROV. See Remotely Operated Vehicle.
Short-term Charter. A charter with an initial term of six months or less.
Specialty Vessels. These vessels generally have special features to meet
the requirements of specific jobs. The special features include large deck
spaces, high electrical generating capacities, slow controlled speed and varied
propulsion thruster configurations, extra berthing facilities and long range
capabilities. These vessels are primarily used for support of FPSOs, diving
operations, ROVs, survey operations and seismic data gathering, as well as well
stimulation oil recovery and oil pollution control.
SpV. See Speciality Vessels.
Stby. See Standby Rescue Vessels.
Standby Rescue Vessels. These vessels perform safety patrol functions for
an area and are equipped for all manned locations in the UK sector of the North
Sea. They typically remain on station to provide a safety
A-2
<PAGE> 77
backup to offshore rigs and production facilities and carry special equipment to
rescue personnel, are equipped to provide first aid and shelter and, in some
cases, also function as supply vessels.
Time Charter. The hire of a fully operational ship for a specified period
of time; the shipowner provides the ship with crew, stores and provisions, ready
in all aspects to load cargo and proceed on a voyage.
Utility Vessels. These vessels are typically 90' to 150' in length and are
used to provide limited crew transportation, some transportation of oilfield
support equipment and, in some locations, standby functions.
Utilization. Total days for which charter hire is earned divided by
calendar days in the periods adjusted for part-year availability caused by
vessel additions or dispositions.
UT 705. A supply vessel design developed by the Norwegian design and
construction firm Ulstein and first constructed in 1974. The vessel was first
designed to haul pipe in support of offshore pipeline construction. Post-1990
versions of this vessel have been enhanced to emphasize improved cargo handling
systems and sophisticated positioning capabilities, both of which provide for
high productivity and versatility in supply roles.
UT 755. A supply vessel design developed by Norwegian design and
construction firm Ulstein. Defined in the North Sea as a medium sized vessel, it
fits the definition of a large supply vessel. Vessels built to this design
incorporate a number of environment drilling units and North Sea platforms. The
vessel has high cargo to size ratio, computer controlled pumping and delivery
systems, flexibility to add additional accommodation or specialty equipment,
circular product tanks for ease of cleaning, large product capacities and
improved maneuvering capability to maximize effective working periods alongside
installations.
A-3
<PAGE> 78
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NOTES
OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. ii
Forward-Looking Statements............ ii
Prospectus Summary.................... 1
Risk Factors.......................... 14
The Company........................... 20
Use of Proceeds....................... 20
Private Placement..................... 21
Capitalization........................ 21
Selected Historical Consolidated
Financial Data...................... 22
The Exchange Offer.................... 24
Description of Other Indebtedness..... 33
Description of the Notes.............. 35
Certain Federal Income Tax
Considerations...................... 66
Plan of Distribution.................. 69
Experts............................... 69
Incorporation of Certain Documents by
Reference........................... 70
Glossary.............................. A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$130,000,000
EXCHANGE OFFER
[GULFMARK OFFSHORE LOGO]
GULFMARK OFFSHORE, INC.
8 3/4% SENIOR NOTES DUE 2008
---------------------------
PROSPECTUS
JULY 24, 1998
---------------------------
- ------------------------------------------------------
- ------------------------------------------------------
