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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-457
GULF MARK INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 74-1203713
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 POST OAK PARK, SUITE 1170, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (713) 963-9522
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. /X/
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based upon the price at which the stock was sold as of March 6, 1996:
$56,146,000.
Number of shares of common stock outstanding as of March 6, 1996:
3,336,352.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III Items 10, 11, 12 and 13 will be
included in a proxy statement to be filed pursuant to Regulation 14A, and is
incorporated herein by reference.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business..................................................................... 3
General Business............................................................. 3
Offshore Marine Services..................................................... 4
Erosion Control.............................................................. 8
Energy Ventures, Inc......................................................... 9
Employees.................................................................... 10
Item 2. Properties................................................................... 10
Item 3. Legal Proceedings............................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......................... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.... 11
Item 6. Selected Consolidated Financial Data......................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 12
Item 8. Consolidated Financial Statements and Supplementary Data..................... 17
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 40
Item 11. Executive Compensation....................................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 40
Item 13. Certain Relationships and Related Transactions............................... 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 40
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PART I
ITEM 1. BUSINESS
GENERAL BUSINESS
GulfMark International, Inc. (together with its subsidiaries, the
"Company") operates in two principal industry segments: offshore marine services
and erosion control services. In addition, the Company has a 14% ownership
interest in Energy Ventures, Inc. (NYSE:EVI), an international oilfield
equipment and service company. Originally, the Company was a consulting
engineering firm specializing in onshore oil and gas pipelines which expanded
its operations during the 1970's and 1980's into other engineering and
technology fields. As a result of a five year restructuring which was completed
in 1990, all of these operations were disposed of with the exception of erosion
control services.
The Company then entered the business of providing offshore marine services
in the international markets in 1990 through an acquisition of offshore support
vessels operating primarily in the North Sea and Southeast Asia. These offshore
support vessels provide transportation of materials, supplies and personnel to
and from offshore drilling platforms and rigs, production platforms and other
installations. Some of the vessels also perform anchor handling and towing
services. In addition to the vessels, the Company acquired various support
facilities, spare parts inventory and customer and vessel management contracts.
This acquisition marked the Company's expansion into the oilfield service and
equipment industry and signaled the completion of the Company's transition from
what was historically an engineering services oriented company. The Company then
set about the task of expanding and upgrading its marine operations with the
addition of seven vessels, two of which were newly constructed. These
acquisitions were funded with a combination of internal funds and bank debt. In
addition, the Company has three vessels in its fleet under bareboat charters and
has six vessels under management contracts.
The Company was organized as a Delaware corporation in 1953. Its principal
executive offices are located at 5 Post Oak Park, Suite 1170, Houston, Texas,
77027, and its telephone number is (713) 963-9522.
RECENT DEVELOPMENTS
The Company has contracted with a shipyard in Norway for the construction
of two UT 755 design vessels for employment in the North Sea. Delivery of the
first vessel, to be named the Highland Piper, is expected in mid-March 1996. The
second vessel is expected to be delivered in early 1997.
In December 1995 the Company purchased the Atlantic Warrior, a 1981 built
pipe carrier/platform supply vessel. This vessel had been bareboat chartered by
the Company since July 1993 when BP Shipping's offshore supply vessel fleet was
acquired.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about revenues, operating income and identifiable
assets for each segment and geographic area is contained in Note 10 to the
Consolidated Financial Statements. Financial information about Energy Ventures,
Inc. is contained in Note 3 to the Consolidated Financial Statements.
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OFFSHORE MARINE SERVICES
GENERAL
The Company through its Gulf Offshore Marine Division operates twenty-three
offshore support vessels, principally in two major offshore exploration and
production areas of the world: the North Sea and Southeast Asia. The Company
does not currently operate any vessels in offshore U.S. waters, which includes
the Gulf of Mexico, although it does maintain a warehousing and servicing center
with adjacent docking facilities in Morgan City, Louisiana. Offshore support
vessels are contracted by major oil companies and large independent oil and gas
operators to transport personnel, supplies and material, as well as to move and
position drilling structures in support of the exploration and production of oil
and gas in offshore waters.
Offshore support vessels generally fall into seven functional categories:
(1) supply vessels, (2) anchor handling, towing and supply vessels, (3)
construction support vessels, (4) standby rescue vessels, (5) crewboats, (6)
specialty vessels and (7) utility vessels. It is not unusual for a vessel to
function in more than one of these categories.
- Supply vessels (150' to 200') are used to transport supplies such as
fuel, water, drilling fluids, equipment and provisions. Large platform
supply vessels (200' to 275'), because of their large, clear after deck
and below deck capacities, are well suited for large concentrated
offshore production centers.
- Anchor handling, towing and supply vessels (150' to 250') 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.
- 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.
- Standby rescue vessels perform a safety patrol function for an area and
are equipped to provide emergency rescue and first aid in the event of
accidents.
- Crewboats are smaller vessels (75' to 120') used to transport personnel
and a limited amount of supplies to platforms and rigs.
- Specialty vessels perform diving and seismic support, as well as other
functions such as well stimulation, oil recovery and oil pollution
control.
- Utility vessels (90' to 150') provide limited crew transportation, some
transportation of oilfield support equipment and in some locations
standby functions.
The Company's vessels are capable of transporting supplies and personnel to
offshore drilling platforms and rigs, production platforms and other
installations. Thirteen of the owned vessels are used primarily for carriage of
cargo. In addition six of these vessels are capable of supporting offshore
construction in the North Sea as well as large capacity platform supply duties
and four others are capable of performing anchor handling and towing services
for moving rigs and platforms between locations. One vessel, the Searunner, is
smaller in length and is used primarily to transport crews to and from offshore
facilities.
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VESSELS
Gulf Offshore Marine operates twenty-three vessels, fourteen of which are
owned, three bareboat chartered and six managed. The following table summarizes
information on each vessel as of March 1, 1996:
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YEAR LENGTH
NAME LOCATION CLASSIFICATION BUILT (IN FEET) BHP(3) DWT(4)
- ------------------------------------ --------------- -------------------------------- ----- --------- ------ ------
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OWNED:
New build -- To be named(6)....... North Sea Pipe carrier/platform supply 1997 (6) 221 5,450 2,800
Highland Piper(5)................. North Sea Pipe carrier/platform supply 1996 (5) 221 5,450 2,800
Highland Pride(1)................. North Sea Pipe carrier/platform supply 1992 265 6,600 4,000
Highland Star(1).................. North Sea Pipe carrier/platform supply 1991 265 6,600 4,000
Highland Fortress(1).............. North Sea Pipe carrier/platform supply 1982 255 6,120 3,200
Atlantic Warrior(1)............... North Sea Pipe carrier/platform supply 1981 265 5,300 3,890
Highland Champion(1).............. North Sea Pipe carrier/platform supply 1979 265 4,800 3,320
Highland Legend(1)................ North Sea Supply 1986 194 3,590 1,442
Highland Sprite(1)................ North Sea Supply 1986 194 3,590 1,442
Sem Courageous(1)................. Southeast Asia Anchor handling, towing, supply 1981 191 4,000 1,220
Sem Valiant(1).................... Southeast Asia Anchor handling, towing, supply 1981 191 4,000 1,220
Seawhip(1)........................ Southeast Asia Anchor handling, towing, supply 1983 192 3,900 1,200
Seawitch(1)....................... Southeast Asia Anchor handling, towing, supply 1983 192 3,900 1,200
Searunner......................... Southeast Asia Crewboat 1982 120 2,720 126
Seapower(1)....................... Brazil Bulk, supply 1974 222 7,040 1,205
BAREBOAT CHARTERED:
Atlantic Guardian................. North Sea Standby 1980 189 2,600 950
SeaMark South Carolina(2)......... Southeast Asia Anchor handling, towing, supply 1983 180 3,000 1,200
SeaMark Mississippi(2)............ Southeast Asia Supply 1982 180 2,250 1,200
MANAGED:
Sea Truck......................... North Sea Pipe carrier/platform supply 1979 266 4,600 2,477
North Prince...................... North Sea Supply 1978 259 6,000 2,717
Clwyd Supporter................... North Sea Towing, standby, oil recovery 1984 266 10,700 1,400
Whalley Supporter................. North Sea Towing, standby, oil recovery 1984 266 8,700 1,400
Sefton Supporter.................. North Sea Standby, oil pollution control 1971 250 1,620 1,233
Portosalvo........................ North Sea Anchor handling, towing, supply 1982 227 12,750 2,085
</TABLE>
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(1) These vessels are mortgaged under certain debt agreements.
(2) The SeaMark South Carolina and SeaMark Mississippi are bareboat chartered to
SeaMark Ltd., a 51% owned joint venture.
(3) Break horsepower.
(4) Dead weight tons.
(5) This vessel is expected to be delivered in mid-March 1996, and will be
mortgaged under certain debt agreements.
(6) This UT-755 design vessel is expected to be delivered in early 1997, and
will be mortgaged under certain debt agreements.
OPERATIONS
Activity in the offshore marine services industry is directly related to
the activity level in international offshore oil and gas exploration,
development and production which in turn is impacted by changes in oil and gas
prices. Declines in oil and gas prices in the early 1980's and concerns relating
to the stability of prices that followed resulted in a significant reduction in
exploration and development activity worldwide. This decline in activity coupled
with the overbuilding of new vessels in the early 1980's resulted in an
oversupply of offshore support vessels. While there is some interchangeability
between geographic markets and vessels, there are barriers such as mobilization
costs and vessel suitability that restrict migration of excess capacity. This is
most notably the case in the North Sea where vessel design requirements dictated
by the harsh operating environment restrict migration of vessels into that
market and, to a lesser degree, high operating costs restrict migration out of
the market. As a result, major segments of the world market were impacted
differently by these forces because of each area's unique blend of political,
operating and economic factors.
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North Sea
The operating environment in the North Sea area is such that exploration
and development projects tend to be fewer in number but larger in scope and
therefore require longer planning horizons. Consequently, demand for support
vessels in this market is generally easier to forecast and less susceptible to
abrupt swings. This market requires vessels that are generally larger and more
sophisticated technically. Such equipment constraints require larger capital
commitments that restrict the number of participants to entities that are larger
and better capitalized.
Vessel demand began to decline late in 1991 and continued to remain low as
oil companies reduced exploration activity in reaction to lower world oil prices
and changes in certain United Kingdom tax incentives. Anticipated improvements
in demand in 1994 were delayed when oil prices declined to their lowest level
since the end of the Iraqi war. The decline in prices related to a number of
factors, including a continued sluggish world economy, an inability of the
Organization of Petroleum Exporting Companies ("OPEC") to reach an agreement on
production levels and prices and uncertainty surrounding the resumption of Iraqi
oil exports. Oil prices recovered somewhat during 1995; however, the recovery is
somewhat tenuous because of continued uncertainty about exports of Iraqi oil.
Exploration activity has strengthened with particular emphasis in the West of
Shetlands. A number of long-term drilling contracts were signed during 1995 and
should result in continued market improvement during 1996, and if such market
improvement is sustained, sharply improved activity in 1997. Construction
seasons since 1992 have been unusually short and this further contributed to the
soft market since 1991. Current contract activity indicates only a slight
improvement in 1996, but establishes a strong market in 1997 and consistent
demand through 1999 and potentially 2000.
Countering the effect of expected improvements in demand from increased
exploration and construction activity is the increase in new vessel buildings.
New vessel construction has been limited in recent years. 1995 saw the first
significant new vessel construction activity since the orders placed in 1990 and
1991. Orders for one new anchorhandler and upwards of a dozen platform supply
vessels were placed. Financial institutions appear to have sufficient capacity
and interest in supporting new construction projects. A large number of the
vessels are being built against or have been awarded long-term contracts, and
the market appears capable of absorbing the number of vessels currently on
order.
The Company's North Sea fleet includes eight owned vessels, one bareboat
chartered vessel and six managed vessels. These vessels are supported by onshore
bases in Aberdeen and Liverpool. The North Sea fleet accounts for 83% of the
Company's vessel assets measured by net book value.
Southeast Asia
The Company's Southeast Asia activity principally consists of offshore work
in Indonesia, Malaysia and Thailand, but vessels have also worked in China,
India, Vietnam, Cambodia and the Philippines. Historically, the type of vessels
required to service this market were similar in design to those operating in the
Gulf of Mexico. In this regard, past practice has been for U.S. operators to
retire vessels out of the Gulf of Mexico to work out their remaining useful
lives in this market. Recently, there has been pressure (most notably from
Malaysia) to upgrade offshore support vessel capabilities by establishing limits
on the age of vessels working in their waters and by encouraging construction of
new vessels designed particularly to operate in this market.
The Southeast Asia market differs country by country, but generally the
competitive environment is characterized by a large number of small companies in
contrast to many of the other major offshore exploration and production areas of
the world where a few large operators dominate the market. Affiliations and
joint ventures with local companies are necessary to maintain a viable marketing
presence. Therefore, the Company has a 49% ownership in a joint venture in
Malaysia. Vessels in this market are smaller than in other areas. Yet, the
varying weather conditions, annual monsoons and long distances between supply
centers have allowed for a variety of vessel designs, each suited for a
particular set of operating parameters to compete in this market. For certain
situations, contracts in this market require very specialized vessels, and
building specific vessels to contract is more common than in other markets. As a
result, the competitive pressures from having a large number of smaller
operators are lessened because vessels are not as easily interchangeable between
different locations.
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Indonesia is the only major member of OPEC in the region. Exploration
activity in Indonesia has historically focused on oil exploration. Vessel demand
in this country softened in 1992 as exploration activities were reduced while
some of the major oil companies renegotiated their production royalty and tax
structures. This reversed somewhat in 1993 and 1994 as some agreements were
reached. However, the oil companies have attempted to seek further modifications
to their production royalty and tax structures and have reduced exploration
budgets resulting in lower than expected activity in 1995, and only marginal
growth is expected for 1996.
The rapid economic growth for many countries in the Pacific Rim has
resulted in increased demand for energy and a related increase in oil and gas
exploration. Decisions by local governments to implement policies that will
reduce dependence on energy supplies from the Middle East have stimulated
additional interest in exploration in the region to avoid dependence on the
traditional OPEC sources. Virtually every country in the region has known or
potential prospects. However, exploration activity suffered during 1993 and 1994
when oil prices dipped and has been slow to recover. Budgets appear to be higher
for 1996, but there has been a reduction in available drilling rigs as demand
has accelerated faster in other areas of the world.
The Company operates five Company-owned vessels and two bareboat chartered
vessels in the Southeast Asia market from its Singapore support center. The
seven vessels working in this market are Gulf of Mexico designs; however,
several have undergone modifications to fulfill customer requirements. Four of
the Company's vessels operating in this region, the Sem Courageous, Sem Valiant,
Seawitch and Seawhip, have approximately 4,000 BHP and have additional equipment
(firefighting on two vessels, anchor handling and towing on all four vessels)
giving them a competitive advantage over the standard Gulf of Mexico design
vessel that has 2,000 BHP.
Brazil
In May 1995, the Seapower returned to Brazil to begin working under a two
year contract with Petrobras. Brazil has traditionally been a high risk area due
to its highly inflationary economy, changing political environment and harsh
working environment. The country's offshore industry requires a large number of
highly sophisticated vessels, and it is a large user of North Sea class vessels.
Other Considerations
Historically, the expenditures necessary to maintain a vessel to satisfy
international certification standards for vessels approaching twenty years of
age have made it generally prohibitively expensive to continue to operate those
vessels beyond that age. However, survey results on post-1985 built vessels now
suggest that improvements in coating systems and materials may lead to longer
expected useful lives for these vessels. Depressed conditions in the offshore
marine services industry have limited the construction of new vessels, and as a
result the normal replacement of older vessels has been substantially curtailed
since 1983. The average age of the Company's fleet is approximately 9 years.
This fact, coupled with the low level of new vessel construction, gives the
Company an advantageous marketing position with respect to certain of its
competitors. The Company currently expends approximately $1.5 million per year
to maintain its vessels in good operating condition.
Industry conditions, the availability of capital and other factors will
play a part in determining whether the Company will be able to maintain its
fleet through extending the economic life of existing vessels or acquiring new
or used vessels. If the Company is unable to replace its vessels at the end of
their economic useful lives, it could have an adverse effect on the Company's
profitability.
CUSTOMERS, CHARTER TERMS AND COMPETITION
Gulf Offshore Marine's principal customers are major and independent oil
and gas exploration and production companies working in international markets,
as well as foreign government owned or controlled organizations. During 1995,
one customer accounted for 10% or more of total consolidated revenues: Aberdeen
Services Company (North Sea) Ltd. at 11%. The loss of a major customer could
have an adverse effect on the Company's financial condition and results of
operations until a new contract is obtained. As of March 1, 1996, eight of the
Company's owned and bareboat chartered vessels are on term charters with initial
charter periods of one year or longer. Three are on charters of less than one
year but over 30 days and four of the vessels are on spot contracts (less than
30 days). One
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vessel is currently available for charter. The Highland Piper, to be delivered
in mid-March, has been committed to work under a six month charter.
Offshore supply vessel companies compete principally on the basis of
suitability of equipment, price and service. Also in certain foreign countries,
preferences are given to vessels owned by national companies. The Company has
mitigated some of the impact of such preferences through affiliations and joint
ventures with local companies.
The Company competes with approximately 20 similar companies in the North
Sea market and numerous small and large competitors in the Southeast Asia
market. Many of the Company's competitors have greater financial resources than
the Company.
GOVERNMENT REGULATION
All of Gulf Offshore Marine's vessels are subject to various international
conventions including certain safety and construction standards. In addition,
the countries under which the vessels are flagged require certain periodic
inspections and drydock examinations. Generally surveys and inspections are
performed by internationally recognized classification societies. Most of the
Company's owned vessels are flagged either in Panama, the United Kingdom or
Malaysia. Among the more significant of the conventions applicable to the
Company are: (i) the International Convention for the Prevention of Pollution of
the Sea, 1973, 1979 Protocol, (ii) the International Convention on the Safety of
Life at Sea, 1974, 1978 and 1981/1983 Protocol, and (iii) the International
Convention on Standards of Training, Certification and Watchkeeping for
Seafarers, 1978. The Company believes that its vessels are in compliance with
the material regulations applicable to them and have all licenses necessary to
conduct their business.
OPERATIONAL RISKS AND INSURANCE
The operation of marine service vessels is subject to various risks, such
as catastrophic marine disaster, adverse weather conditions, mechanical failure,
collision and errors in navigation, all of which represent a threat to the
safety of personnel and the Company's vessels, cargo, vessels under tow and
other property, as well as the environment. All of the segment's operations are
in foreign waters and as such are subject to the usual risks inherent in doing
business in foreign countries. Such risks include political changes, possible
vessel seizure, company nationalization or other governmental actions, currency
restrictions and revaluations and import/export restrictions, all of which are
beyond the control of the Company. Any of these events could result in revenue
and casualty loss, increased costs and significant liability to third parties.
The Company maintains various types of insurance that it considers to be
adequate including hull and machinery insurance for its fleet, protection and
indemnity insurance against liabilities to employees and third parties for
injury, damage or pollution and other customary insurance. There can be no
assurance, however, that such insurance coverage would be adequate to cover
losses that the Company may incur or that adequate insurance rates that the
Company considers commercially reasonable will continue to be available.
SEASONALITY OF BUSINESS
The operation of the Company's vessels is subject to seasonal factors.
Operations in the North Sea are generally at their highest level during the
months from April to August and at their lowest levels during the winter months.
Vessels operating in Southeast Asia are generally at their highest utilization
rates during the months of May to August and at their lowest utilization rates
during the monsoon season at the end of the year. In addition, operations may be
affected by unusually long or short construction seasons due to, among other
things, abnormal weather conditions.
EROSION CONTROL
The Company's Erosion Control segment ("Ercon") offers a variety of turnkey
erosion control services and installations including: problem analysis, field
surveys, engineering design, permit acquisition, material procurement and
installation. Site specific systems are designed to protect property such as
pipelines, railroads, buildings, highways, marinas, beaches and fiber optic
cable systems. Each project is reviewed to determine the most cost-effective and
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technically acceptable technique for the particular job based on engineering
analysis, research and prior experience. Projects typically take three weeks to
three months to complete and are secured generally through fixed price bids.
A significant portion of the segment's work is related to protection of
waterway crossings for pipeline transmission firms, railroads, utilities, state
highway departments and major oil companies. When soil erosion causes pipeline
exposure on a creek crossing or riverbed, relocating or lowering the pipeline
can be very costly, and may provide only a temporary solution to a potentially
dangerous problem. The segment's proprietary erosion control techniques offer
long-term protection at substantial cost-savings by eliminating pipe relocation.
Additionally, there is no downtime or production loss as the segment's systems
allow the line to remain in operation throughout the installation process. A
similar cost-benefit relationship applies to highway and railroad bridges.
Ercon continues to develop new products and techniques to address
site-specific problems for erosion control. Several patents have been granted
covering methods and systems including a "variable permeability" palisade system
to control water velocity adjacent to eroding river banks. Application has been
made for a patent covering innovations in the Eco-Flex pumped grout mat system
to allow its application where conventional bank armoring systems are losing
acceptability in today's environmentally conscious society. Modification of the
Palisade(TM) system to address certain bridge pier scour problems is being
actively pursued, and an installation of a prototype system is expected for
1996. It is anticipated that a favorable conclusion of these efforts to develop
new products will provide additional marketing opportunities.
Ercon's business is moderately seasonal since many of its products and
systems are installed under field conditions, and projects can be impacted by
inclement weather.
ENERGY VENTURES, INC.
The Company has a 14% interest in Energy Ventures, Inc. ("Energy
Ventures"), a publicly-traded (NYSE trading symbol "EVI") international oilfield
equipment manufacturer and service company that the Company now accounts for on
the cost method (see Note 3 to the Consolidated Financial Statements). Energy
Ventures has experienced substantial growth since 1986 as a result of
acquisitions and internal development. Acquisitions have focused on
under-utilized assets and proprietary technology used in the tubular, artificial
lift and completion systems and rig contracting businesses. Internal growth has
focused on investment in product development and expansion of geographic markets
through expanded distribution systems.
Energy Ventures' operations are conducted through two business segments:
oilfield equipment and contract drilling. The oilfield equipment manufactured by
Energy Ventures comprises high performance tubulars and a complete line of
artificial lift and completion tool equipment. Energy Ventures' contract
drilling rig fleet consists primarily of barge rigs used by major and large
independent oil and gas companies for exploration and development of natural gas
in the U.S. Gulf Coast area. Energy Ventures' tubular products and contract
drilling rigs provide products and services used primarily for natural gas
exploration and production. The artificial lift and completion tool equipment
product lines are tied to the maturation of oil producing formations.
Tubular products are provided through Energy Ventures' Grant Prideco
tubular products division. This division's products consist of proprietary drill
pipe and premium tubulars. Grant Prideco also designs, manufactures and markets
proprietary premium threaded connections for tubing and casing used in oil and
gas wells. Grant Prideco's products, particularly its premium tubulars, are used
primarily in connection with natural gas exploration and production. Energy
Ventures believes that Grant Prideco is the largest manufacturer and supplier of
drill pipe in the world and is one of the largest manufacturers of premium
tubulars in North America.
Artificial lift and completion tool equipment is provided through Energy
Ventures' newly formed EVI Oil Tools division through the consolidation of the
Highland and Production Oil Tool businesses. EVI Oil Tools manufactures and
services artificial lift and completion tool equipment and parts used for the
production of crude oil. EVI Oil Tools provides a wide variety of proprietary
and patented products, including the RotaFlex(R) pumping unit, the Corod(TM)
continuous sucker rod, progressive cavity pumps, the Fluid Packed(TM) Pumps and
El(TM) sucker rods, Production Oil Tools packers, Engemaq completion tools and
Vitex flow control equipment. Energy Ventures believes that EVI Oil Tools is one
of the two largest manufacturers and distributors of sucker rod lift equipment
in the world. Energy
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Ventures further believes that in this class of lift, EVI Oil Tools provides the
only integrated product line from the above ground equipment to the tools
submersed in the producing reservoir.
Contract drilling services are provided through Energy Ventures' Mallard
drilling division. Mallard has 35 barge rigs operating in the U.S. Gulf Coast
area or available for operation in that market. Mallard's domestic barge fleet
is complemented by six offshore platform workover and drilling units.
Internationally, Mallard is currently operating under contract one barge rig in
Nigeria and two platform rigs in Peru. Mallard also owns four land rigs that are
currently chartered to Argentina. Mallard owns a 49% interest in a joint venture
that owns two land rigs in Peru.
The principal customers of Energy Ventures are both domestic and
international oil and gas companies and the companies that service them. Energy
Ventures' business is highly competitive. Revenues and earnings can be affected
by changes in competitive prices, fluctuations in the level of activity in major
markets, general economic conditions and governmental regulations. Energy
Ventures competes with a large number of companies, some of which have greater
resources and more extensive and diversified operations.
EMPLOYEES
At March 1, 1996, the Company had 348 employees located in the United
States, the United Kingdom and Southeast Asia. The Company through its contract
with a crewing agency participates in collective bargaining arrangements with
approximately 181 employees working on its North Sea vessels under agreements
covering one to two year periods. The Company has no other collective bargaining
agreements. Relations with the employees are considered satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Houston, Texas.
Gulf Offshore Marine has its principal domestic offices in Lafayette, Louisiana
and docking and warehouse facilities in Morgan City, Louisiana. For local
support of its marine operations, Gulf Offshore Marine also has offices and
warehouse facilities in the United Kingdom and Singapore. Ercon maintains an
office and warehouse in Houston, Texas. Each of these facilities is under lease.
The Company's operations generally do not require highly specialized facilities,
and suitable facilities are generally available on a lease basis as required.
ITEM 3. LEGAL PROCEEDINGS
On May 4, 1992, a lawsuit styled Vila v. Southern Pacific Railroad, et al,
was filed in the 253rd Judicial District Court of Liberty County, Texas naming
as defendants Southern Pacific Railroad, the Company and others. The Plaintiffs
claim $13.34 million in actual damages and an unspecified amount in punitive
damages resulting from flooding and erosion allegedly caused by Southern Pacific
Railroad and/or the Company. The lawsuit is expected to go to trial or be
resolved some time during 1996. Management of the Company believes the claims
against the Company to be without merit and intends to vigorously contest them.
Based on a review of the merits of the case, defenses available to the Company
and the expectation of insurance coverage, management does not expect this
lawsuit to have a material adverse effect on the Company.
On November 14, 1995, an arbitration panel in Houston awarded a customer of
Ercon Development Co., the Company's subsidiary, $468,000 in connection with an
erosion control system installed on the customer's property. The amount of the
award is reflected in the accompanying statements of income. The Company made a
claim to its insurance carrier for the amount of the award and associated legal
fees; however, the insurance company has denied coverage. Coverage of the claim
and related costs of defense are the subject of ongoing litigation between the
Company and its insurance carrier.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel and in consideration of reserves recorded, that the outcome of
these legal actions will not have a material adverse effect upon the
consolidated financial positions and results of operations of the Company.
10
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $1.00 par value (the "Common Stock"), is traded
in the over-the-counter market on the NASDAQ system under the symbol "GMRK." The
following table shows the range of high and low closing bid prices for the
Company's Common Stock for the periods indicated, as reported by the NASDAQ
Stock Market. Such bid prices reflect interdealer quotations without retail
markup, markdown or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter................................ 17 14 3/4 14 1/4 12
Second quarter............................... 19 1/4 15 1/2 12 1/2 11 1/2
Third quarter................................ 24 18 16 1/4 12 1/4
Fourth quarter............................... 27 21 17 1/2 15 1/4
</TABLE>
On March 1, 1996, there were approximately 1,612 record holders of the
Common Stock. The Company has not declared or paid any dividends during the past
five years. The Company currently intends to use cash generated from operations
for further development of its business. Any resumption of dividends will depend
upon future operating conditions, dividend policies of subsidiaries and
investees, financial requirements, general business conditions and other
factors. Currently three of the Company's subsidiaries, Gulf Offshore N.S. Ltd.
(United Kingdom), Gulf Offshore Far East, Inc. (Panama) and Gulf Offshore Marine
International, Inc. (Panama), are restricted under their debt agreements from
paying dividends without the lender's approval. These subsidiaries own eight
vessels operating in the North Sea, four vessels operating in Southeast Asia and
one vessel operating in Brazil, respectively. With respect to investees, Energy
Ventures does not currently pay dividends and has restrictions on its ability to
pay dividends.
11
<PAGE> 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 36,077 $34,448 $27,887 $22,955 $17,221
======== ======= ======= ======= =======
Income before income taxes excluding
equity in earnings of Energy
Ventures, Inc. ..................... $ 1,017 $ 2,876 $ 1,997 $ 2,445 $ 2,155
Equity in earnings of Energy
Ventures, Inc. ..................... 761 (3) 1,012 1,333 155 1,451
Income tax provision.................. (3,680)(3) (1,108) (686) (732) (745)
-------- ------- ------- ------- -------
Income (loss) before extraordinary
item................................ (1,902) 2,780 2,644 1,868 2,861
Extraordinary item attributable to
Energy Ventures, Inc.(1)............ -- (706)(1) -- -- --
-------- ------- ------- ------- -------
Net income (loss)..................... $ (1,902) $ 2,074 $ 2,644 $ 1,868 $ 2,861
======== ======= ======= ======= =======
Earnings per share:
Income (loss) before extraordinary
item............................. $ (0.57) $ 0.83 $ 0.80 $ 0.56 $ 0.86
Extraordinary item(1)............... -- (0.21)(1) -- -- --
-------- ------- ------- ------- -------
Net income (loss)................... $ (0.57) $ 0.62 $ 0.80 $ 0.56 $ 0.86
======== ======= ======= ======= =======
Assets excluding investment in Energy
Ventures, Inc....................... $ 76,614 $67,088 $68,962 $57,320 $56,860
Investment in Energy Ventures,
Inc. ............................... 34,321 21,588 21,797 20,663 20,752
-------- ------- ------- ------- -------
Total assets.......................... $110,935 $88,676 $90,759 $77,983 $77,612
======== ======= ======= ======= =======
Long-term debt, excluding current
portion............................. $ 33,600 $26,727 $30,169 $18,730 $16,752
Total stockholders' equity(2)......... 58,958 53,025 50,388 48,306 50,187
</TABLE>
- ---------------
(1) The extraordinary charge of $706,000 or $0.21 per share for the year ended
December 31, 1994 is attributable to Energy Ventures' prepayment of certain
debt.
(2) The Company has not declared any cash dividends during the past five years.
Stockholders' equity includes a cumulative translation adjustment of
$(4,146,000), $(3,773,000), $(4,326,000) and $(3,699,000) in 1995, 1994,
1993, and 1992, respectively, and an unrealized gain on investment of
$8,030,000 in 1995.
(3) As a result of the Company's interest in Energy Ventures, Inc. being reduced
below 20% on June 30, 1995, the Company now follows the cost method for this
investment. Accordingly, the Company no longer reflects its equity in Energy
Ventures earnings. The Company also included $3,374,000 of additional
deferred taxes in 1995 associated with its investment in Energy Ventures.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had $5.2 million in cash and cash
equivalents as compared to $3.0 million at December 31, 1994. Investing and
financing activities used $5.7 million in cash and cash equivalents in 1995,
while $7.9 million of cash and cash equivalents was generated by operations.
This compared to $8.2 million used for investing and financing activities and
$5.7 million generated by operations in 1994.
The Company has contracted with a shipyard in Norway for the construction
of two UT 755 design vessels for deployment in the North Sea. Delivery of the
first vessel, to be named the Highland Piper, is expected in mid-March 1996. The
second vessel is expected to be delivered in early 1997. The Company made
interim construction payments during 1995 and expects to make payments, net of
government subsidies, of $11,539,000 and $10,709,000 in 1996 and 1997,
respectively. Funding of $11,238,000 in 1996 and $7,845,000 in 1997 will be
provided by additional borrowings under existing credit facilities. On December
21, 1995, the Company acquired the Atlantic
12
<PAGE> 13
Warrior, a 1981 built pipe carrier/platform supply vessel. The combination of
interim construction payments for the two new vessel buildings and the payment
to purchase the Atlantic Warrior resulted in capital expenditures of $13,301,000
in 1995. Funding for these expenditures were provided through borrowings under a
GBP4,890,000 (approximately $7,594,000) facility agreement with a bank and cash
from operations.
The Company estimates that capital and maintenance expenditures, excluding
any expenditures to build or acquire additional vessels, will be approximately
$1.7 million for 1996, of which $1.3 million relates to drydockings. This
compares to actual expenditures of $2.1 million for 1995, of which $1.1 million
relates to drydockings. These expenditures vary from year to year due to the
scheduling of drydockings, which are generally required twice for every five
year period based on the requirements of classification societies. The remaining
proposed 1996 capital expenditures of $0.4 million relate to vessel upgrades and
non-marine expenditures that are not subject to firm commitments, and the
Company may modify its plans as appropriate.
At December 31, 1995, the Company had outstanding long-term debt of
$36,644,000 borrowed under various facilities. These facilities are secured by
preferred ship mortgages on twelve of the Company's vessels and assignments of
such vessels' earnings. Interest on the borrowings accrues at rates between
LIBOR plus 1 1/4% and LIBOR plus 1 5/8% per annum. Scheduled debt repayments are
expected to total $3,044,000 million for 1996. The loan facility agreements
place certain restrictions on the ability of the subsidiaries subject to these
agreements to pay dividends. Cash held by these subsidiaries was $3,517,000 as
of December 31, 1995. As of March 1, 1996, the Company could borrow up to
$4,185,000 under its short-term credit facility and $500,000 under its long-term
credit facility without providing additional security to its lenders. An
additional $9,283,000 is available under a revolving credit facility with the
provision of further security either through vessel mortgages, securing
long-term charters or a combination thereof.
Substantially all of the Company's tax provision is for deferred taxes. The
Company has net operating loss carryforwards for tax purposes that are available
to offset taxable income generated of $8,021,000 for United States tax purposes
and of $19,498,000 for United Kingdom tax purposes in future years. The net
operating loss available in the United Kingdom is primarily the result of
accelerated depreciation allowances under United Kingdom tax law. The Company
also has foreign tax credits of $387,000 and alternative minimum tax credits of
$284,000 available to offset taxable income generated for United States tax
purposes.
The Company believes that current reserves of cash and short-term
investments, cash flows from operations and access to various credit
arrangements will provide sufficient resources to finance internal operating
requirements. The Company continues, however, to actively seek further
investment opportunities. Such investments may require the expenditure of
significant resources, either in cash, notes, stock or a combination thereof.
RESULTS OF OPERATIONS
GENERAL
The demand and pricing for the Company's services is substantially
dependent on worldwide levels of exploration and production of oil and gas.
Exploration and development activity is in turn largely dependent upon
prevailing oil and natural gas prices. Prices for oil and natural gas have
historically been extremely volatile and have reacted to actual and perceived
changes in demand and supply of oil and natural gas, domestic and worldwide
economic conditions and political instabilities in the oil producing countries.
During 1994, world oil prices declined to their lowest level since the end
of the Iraqi war. The decline in prices related to a number of factors,
including a continued sluggish world economy, an inability of OPEC to reach an
agreement on production levels and prices and uncertainty surrounding the
resumption of Iraqi oil exports. This decline in oil prices affected the demand
for the Company's offshore marine services. Oil prices recovered somewhat and
stabilized in 1995 and natural gas prices in the United States improved during
the course of 1995. However, gas prices in the United Kingdom dropped
significantly and led to reduced activity in the Southern sector of the North
Sea. Results for 1996 will continue to be affected by price levels for oil and
natural gas and other influences on exploration and development, in particular
in the North Sea and Southeast Asia.
13
<PAGE> 14
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994
Revenues increased from $34,448,000 in 1994 to $36,077,000 in 1995 while
operating income declined from $4,225,000 in 1994 to $3,450,000 as earnings in
the Southeast Asia region decreased between 1994 and 1995. Revenues and average
number of owned/bareboat chartered vessels by region and segment compared as
follows (in thousands):
<TABLE>
<CAPTION>
EROSION OFFSHORE MARINE SERVICES
CONTROL -------------------------------
------- BRAZIL
UNITED FAR AND
STATES EUROPE EAST OTHER TOTAL
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
1995:
Revenues.......................... $ 8,844 $20,176 $ 6,142 $ 915 $ 36,077
Average number of owned/bareboat
chartered vessels.............. N/A 8 7 1 16
1994:
Revenues.......................... $ 6,756 $18,685 $ 8,178 $ 829 $ 34,448
Average number of owned/bareboat
chartered vessels.............. N/A 8 9 1 18
</TABLE>
Revenues and operating income for the North Sea region improved somewhat
due to a combination of improved dayrates and utilization rates. The decline in
revenues and earnings for Southeast Asia is due primarily to lower utilization
rates as well as the lack of earnings from the Seawind which was sold in late
1994.
Erosion Control segment revenues increased by $2,088,000 in 1995 due to an
increase in the number of jobs that in turn resulted in higher operating income
for the segment of $759,000 in 1995 compared to $567,000 in 1994.
Selling, general and administrative costs increased by $174,000 in 1995
reflecting an award attributable to a customer claim. Interest expense increased
from $2,408,000 in 1994 to $2,801,000 in 1995 as the result of higher overall
interest rates and the writeoff of certain loan costs on debt which was
refinanced through a new facility with a different bank. Other income in 1994
included a gain of $842,000 from the sale of the Highland Sentinel.
In addition to variable expenses associated with the operation of the
Company's fleet, the Company also incurs fixed charges to depreciate its vessels
and amortize certain other assets, including deferred drydocking costs.
Depreciation and amortization for 1995 was $5,571,000, representing an increase
of $425,000 from 1994. This increase was due to increased drydocking
amortization expense.
Several non-recurring, non-cash charges related to the Company's investment
in Energy Ventures contributed to the lack of comparability between 1995 and
1994 net income. The loss of $(1,902,000), or $(0.57) per share, for 1995
includes $3,374,000, or $1.02 per share, for additional deferred taxes related
to the Energy Ventures investment. Secondly, equity in earnings of Energy
Ventures of $761,000 is attributable to earnings prior to June 30, 1995 since
subsequent to such date the Company followed the cost method of accounting for
this investment. This amount compares to $1,012,000 in 1994 which is
attributable to a full year under the equity method. Lastly, net income of
$2,074,000 or $0.62 per share for 1994 includes an extraordinary charge of
$706,000, net of tax, attributable to Energy Ventures' prepayment of certain
debt.
The effective tax rate of the Company was 207% in 1995 as compared to 29%
in 1994. The increase in the effective tax rate is due primarily to additional
deferred taxes associated with the Company's investment in Energy Ventures
discussed above.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993
Income before extraordinary item was $2,780,000, or $0.83 per share, for
1994 as compared to $2,644,000, or $0.80 per share, for the prior year. Higher
earnings in the North Sea region were offset by decreased earnings in the
Southeast Asia region and by decreased earnings from the Seapower. Equity in
earnings from Energy Ventures before
14
<PAGE> 15
extraordinary item decreased by $321,000 from $1,333,000 in 1993 to $1,012,000
in 1994. While Energy Ventures' operating income for 1994 increased 5% over
1993, income before extraordinary item decreased primarily as a result of higher
interest costs from increased borrowing. In addition, the Company recognized in
1994 an extraordinary charge of $706,000, net of tax, attributable to Energy
Ventures' prepayment of certain debt.
Revenues increased from $27,887,000 in 1993 to $34,448,000 in 1994. The
increase in revenues of $6,561,000 is primarily due to a full year's results
from the 1993 additions to the offshore marine services segment's fleet and, to
a lesser degree, an increase in the number and size of jobs performed by the
erosion control segment. Revenues and average number of owned/bareboat chartered
vessels by region and segment compared as follows (in thousands):
<TABLE>
<CAPTION>
EROSION
CONTROL OFFSHORE MARINE SERVICES
------- --------------------------------
UNITED BRAZIL
STATES EUROPE FAR EAST AND OTHER TOTAL
------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
1994:
Revenues............................. $ 6,756 $18,685 $ 8,178 $ 829 $34,448
Average number of owned/bareboat
chartered vessels................. N/A 8 9 1 18
1993:
Revenues............................. $ 5,323 $13,274 $ 8,082 $ 1,208 $27,887
Average number of owned/bareboat
chartered vessels................. N/A 8 8 1 17
</TABLE>
In the North Sea, the BP Shipping assets acquired in July 1993 contributed
approximately $5.3 million in additional revenue and $1.3 million in additional
operating income with a full year of service. Revenues for the North Sea fleet
also improved as a result of higher average utilization rates for the year.
Market conditions in Southeast Asia for the Company's vessels were more
competitive in 1994 as compared to 1993. The Company was able to keep
utilization rates steady from 1993; however, day rates declined.
Revenues of $1,208,000 earned in Brazil in 1993 are attributable to one
vessel working under a term charter that expired August 7, 1993. During 1994 the
vessel earned $400,000 less in revenues as it worked under several short term
contracts in various locations with more idle time and at lower rates than in
1993. This vessel returned to Brazil in May 1995 and commenced working under a
two year contract with Petrobras.
Erosion Control segment revenues increased by $1,433,000 in 1994 through
increased sales efforts that in turn were reflected in higher operating income
for the segment of $567,000 in 1994 compared to $427,000 in 1993.
Selling, general and administrative costs increased by $1,195,000 as a
result of additional support needed to serve the Company's expanded marine
fleet. Other income included a gain of $842,000 from the sale of the Highland
Sentinel in June 1994.
In addition to variable expenses associated with the operation of the
Company's fleet, the Company also incurs fixed charges to depreciate its vessels
and amortize certain other assets, including deferred drydocking costs.
Depreciation and amortization for 1994 was $5,146,000, representing an increase
of $1,294,000 from 1993. This increase includes $834,000 of additional
depreciation over 1993 related to the acquisition of the BP Shipping assets in
1993. The remainder of the increase was due to increased drydocking
expenditures.
The effective tax rate of the Company was 29% in 1994 as compared to 21% in
1993. The increase in the effective tax rate is due primarily to a lower
percentage of the Company's earnings attributable to the equity investment in
Energy Ventures which is taxed at a lower rate.
CURRENCY FLUCTUATIONS AND INFLATION
A significant portion of the Company's operations are overseas, therefore
the Company is potentially exposed to currency fluctuations and exchange risks.
Charters for vessels in the Company's North Sea fleet are primarily denominated
in British Pounds Sterling ("Sterling") and substantially all the operating
costs are in Sterling. North
15
<PAGE> 16
Sea operations generated $20.2 million in revenues, $4.0 million in operating
income and $6.1 million of cash flows from operations in 1995 in Sterling. In
1995 the Sterling/Dollar exchange rate ranged from a high of GBP = U.S.$1.64 to
a low of GBP = U.S.$1.53 for an average of GBP = U.S.$1.58 for the year. As of
March 1, 1996, the Sterling/Dollar exchange rate was GBP = U.S.$1.53. The
Company hedged the effect on cash flows of these fluctuations in the
Sterling/Dollar exchange rates through Sterling denominated borrowings that
account for 89% or $32,600,000 of total debt and represented $15.7 million or
all of the debt repayments made in 1995.
Reflected in the accompanying balance sheet for December 31, 1995, is a
$(4,146,000) cumulative translation adjustment primarily relating to the lower
Sterling exchange rate as of year end in comparison to the exchange rate when
the Company invested capital in its United Kingdom subsidiaries. Changes in the
cumulative translation adjustment are non-cash items that are primarily
attributable to investments in vessels and are partially offset by the Sterling
denominated debt in the North Sea.
During 1994 and previous years several of the Company's Southeast Asia
charters were denominated in Malaysian ringgits as were a portion of the
operating costs. Cash flows for this currency were much lower in 1995
(approximately $1.1 million). Malaysian currency rates have been relatively
stable in recent years, with the exchange rate for ringgits to U.S. dollars
averaging M$ = U.S.$0.40 during 1995 and the high and low during the year
ranging within 3% of this average. Therefore, the Company does not currently
hedge this currency. Where currency risks are high, as in Brazil, the Company
has generally accepted only a small percentage of charter hire in local currency
and the remainder is paid in U.S. dollars.
In connection with the final payment to a shipyard for the Highland Piper,
the Company entered into a forward contract to hedge approximately $10,915,000
of the commitment to pay in Norwegian Kroner against unfavorable fluctuations in
the exchange rate to Sterling which will be used to fund the payment. The
unrealized gain of $168,000 as of December 31, 1995, is not reflected in the
accompanying financial statements. Upon realization, expected to be mid-March
when the vessel is delivered, any gain or loss will be included in the cost of
the vessel. The Company expects to make additional payments in Norwegian Kroner
of $624,000 and $10,709,000 in 1996 and 1997, respectively.
To date, general inflationary trends have not had a material effect on the
Company's operating revenues or expenses.
PENDING ACCOUNTING MATTERS
Management is evaluating the useful life of twenty years currently used for
depreciating vessels in light of recent vessel performance, changes in the
materials available to protect vessel hulls and industry practice. The Company
expects to complete this evaluation in the first quarter of 1996. Based on
information currently available, the Company anticipates that the useful life of
its vessels will be extended effective January 1, 1996. Such revisions are
expected to have the effect of materially improving operating results in 1996.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which is effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such
impairment. The Company does not expect the impact of SFAS No. 121 will have a
significant effect on the Company's consolidated financial statements.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation", will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. The Company plans to continue the use of its current intrinsic value
based method of accounting for such plans. As required by SFAS No. 123, the
Company will provide pro forma disclosure of net income and earnings per share
in the notes to the consolidated financial statements as if the fair value based
method of accounting had been applied to awards covered by SFAS No. 123.
16
<PAGE> 17
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark International, Inc.:
We have audited the accompanying consolidated balance sheets of GulfMark
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GulfMark International, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
March 1, 1996
17
<PAGE> 18
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 5,163 $ 2,989
Accounts receivable................................................... 6,148 7,938
Inventory, prepaids and other......................................... 1,399 1,781
-------- -------
Total current assets.......................................... 12,710 12,708
-------- -------
INVESTMENT IN ENERGY VENTURES, INC., including unrealized gain of
$12,151,000 in 1995................................................... 34,321 21,588
-------- -------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of
$14,959,000 in 1995 and $11,179,000 in 1994........................... 61,582 51,405
-------- -------
OTHER ASSETS............................................................ 2,322 2,975
-------- -------
$110,935 $88,676
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt........... $ 4,066 $ 1,487
Accounts payable...................................................... 1,779 1,540
Accrued payroll and related expenses.................................. 564 1,009
Other accrued liabilities............................................. 1,245 1,738
-------- -------
Total current liabilities..................................... 7,654 5,774
-------- -------
LONG-TERM DEBT.......................................................... 33,600 26,727
-------- -------
DEFERRED TAXES AND OTHER................................................ 10,308 2,629
-------- -------
MINORITY INTEREST....................................................... 415 521
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized; issued and
outstanding 3,336,352 and 3,321,385 shares......................... 3,336 3,321
Additional paid-in capital............................................ 23,501 23,338
Retained earnings..................................................... 28,237 30,139
Cumulative translation adjustment..................................... (4,146) (3,773)
Unrealized gain on investment......................................... 8,030 --
-------- -------
Total stockholders' equity.................................... 58,958 53,025
-------- -------
$110,935 $88,676
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 19
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
REVENUES.................................................... $36,077 $34,448 $27,887
------- ------- -------
COST AND EXPENSES:
Direct operating expenses................................. 26,568 24,338 19,221
Selling, general and administrative expenses.............. 6,059 5,885 4,690
------- ------- -------
32,627 30,223 23,911
------- ------- -------
OPERATING INCOME............................................ 3,450 4,225 3,976
------- ------- -------
OTHER INCOME (EXPENSES):
Equity in earnings of Energy Ventures, Inc. .............. 761 1,012 1,333
Interest expense.......................................... (2,801) (2,408) (2,237)
Interest income........................................... 188 229 190
Minority interest......................................... 106 (124) (73)
Gain on sale of vessel.................................... -- 842 --
Other..................................................... 74 112 141
------- ------- -------
(1,672) (337) (646)
------- ------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM........... 1,778 3,888 3,330
INCOME TAX PROVISION........................................ (3,680) (1,108) (686)
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... (1,902) 2,780 2,644
EXTRAORDINARY ITEM ATTRIBUTABLE TO ENERGY VENTURES, INC.
(Less applicable tax benefit of $51)...................... -- (706) --
------- ------- -------
NET INCOME (LOSS)........................................... $(1,902) $ 2,074 $ 2,644
======= ======= =======
EARNINGS PER SHARE:
Income (loss) before extraordinary item................... $ (0.57) $ 0.83 $ 0.80
Extraordinary item attributable to Energy Ventures,
Inc.................................................... -- (0.21) --
------- ------- -------
Net income (loss)......................................... $ (0.57) $ 0.62 $ 0.80
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 3,322 3,320 3,312
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 20
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON
STOCK AT ADDITIONAL CUMULATIVE UNREALIZED TOTAL
$1 PAR PAID-IN RETAINED TRANSLATION GAIN ON STOCKHOLDERS'
VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENT EQUITY
-------- ---------- --------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992... $ 3,310 $ 23,274 $ 25,421 $(3,699) $ -- $48,306
Net income................... -- -- 2,644 -- -- 2,644
Issuance of stock............ 10 55 -- -- -- 65
Translation adjustment....... -- -- -- (627) -- (627)
------- -------- -------- ------- ------- -------
Balance at December 31, 1993... 3,320 23,329 28,065 (4,326) -- 50,388
Net income................... -- -- 2,074 -- -- 2,074
Issuance of stock............ 1 9 -- -- -- 10
Translation adjustment....... -- -- -- 553 -- 553
------- -------- -------- ------- ------- -------
Balance at December 31, 1994... 3,321 23,338 30,139 (3,773) -- 53,025
Net loss..................... -- -- (1,902) -- -- (1,902)
Issuance of stock............ 15 163 -- -- -- 178
Translation adjustment....... -- -- -- (373) -- (373)
Unrealized gain on
investment................ -- -- -- -- 8,030 8,030
------- -------- -------- ------- ------- -------
Balance at December 31, 1995... $ 3,336 $ 23,501 $ 28,237 $(4,146) $ 8,030 $58,958
======= ======== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 21
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ (1,902) $ 2,074 $ 2,644
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization........................... 5,571 5,146 3,852
Equity in earnings of Energy Ventures, Inc.............. (761) (255) (1,333)
Deferred and other income tax provision................. 3,571 815 574
Minority interest....................................... (106) 124 73
Gain on sale of assets.................................. -- (842) --
Change in assets and liabilities:
Accounts receivable................................... 1,769 (105) (3,166)
Inventory, prepaids and other......................... (73) (816) (153)
Accounts payable...................................... 281 (818) 809
Accrued payroll and related expenses.................. (449) 259 (108)
Other accrued liabilities............................. (498) 394 67
Other, net.............................................. 475 (264) (158)
-------- ------- --------
Net cash provided by operating activities.......... 7,878 5,712 3,101
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................ (14,229) (816) (13,247)
Expenditures for drydocking and main engine overhaul....... (1,141) (1,592) (1,354)
Proceeds from sales of vessels and other equipment......... 169 2,021 --
Acquisition of minority interest........................... -- -- (2,372)
-------- ------- --------
Net cash used in investing activities.............. (15,201) (387) (16,973)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of direct financing costs.......... 25,188 893 21,476
Repayments of debt......................................... (15,709) (8,873) (8,917)
Minority interest investment............................... -- -- 186
Proceeds from issuance of stock............................ 178 10 65
Other...................................................... (160) 124 (56)
-------- ------- --------
Net cash provided by (used in) financing
activities....................................... 9,497 (7,846) 12,754
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 2,174 (2,521) (1,118)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............... 2,989 5,510 6,628
-------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR..................... $ 5,163 $ 2,989 $ 5,510
======== ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.............................................. $ 2,793 $ 2,075 $ 1,934
======== ======= ========
Income taxes paid.......................................... $ 167 $ 360 $ 25
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 22
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
GulfMark International, Inc. and all majority-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions between
affiliated companies have been eliminated. Entities in which the Company owns
20%-50% are treated as unconsolidated subsidiaries and are accounted for by the
equity method.
STATEMENT OF CASH FLOWS
U.S. Government securities and commercial paper with original maturities of
up to three months are included in cash and cash equivalents in the accompanying
Consolidated Balance Sheets and Consolidated Statements of Cash Flows.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided by the
straight-line method with a salvage value of 10% for vessels. Vessels are
depreciated over a useful life of twenty years. Equipment, furniture and
fixtures are depreciated over two to five years. Maintenance and repairs that do
not extend the useful life of the asset and are not attributable to drydockings
of vessels are charged to operations as incurred. Major renovation costs and
modifications are capitalized and amortized over the estimated remaining useful
life. Included in net income (loss) for 1995, 1994, and 1993 is $1,457,000,
$1,433,000, and $871,000, respectively, of costs for maintenance and repairs.
Management is evaluating the useful life of twenty years currently used for
depreciating vessels in light of recent vessel performance, changes in the
materials available to protect vessel hulls and industry practice. The Company
expects to complete this evaluation in the first quarter of 1996. Based on
information currently available, the Company anticipates that the useful life of
its vessels will be extended effective January 1, 1996. Such revisions are
expected to have the effect of materially improving operating results in 1996.
OTHER ASSETS
Other assets primarily consist of deferred drydocking costs and deferred
loan costs. Costs incurred in connection with drydocking are capitalized and
amortized over approximately a 2 1/2 year period which approximates the period
between required drydockings. Deferred loan costs are amortized over the
expected term of the loan.
REVENUE RECOGNITION
Revenues from charters for offshore marine services are recognized as
earned based on contractual charter rates. Revenues from long-term contracts for
erosion control services are recognized under the percentage-of-completion
method. Revisions in cost and earnings estimates are reflected in the period
when known. On contracts where an ultimate loss is anticipated upon completion,
the entire amount of the estimated loss is accrued when known. Typically
contracts are short-term in duration.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse. SFAS No. 109 also requires that the likelihood and amount
22
<PAGE> 23
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of future taxable income be included in the criteria used to determine the
timing and amount of tax benefits recognized for net operating losses and tax
credit carryforwards in the financial statements. The adoption of SFAS No. 109
beginning January 1, 1993 had no material effect on the Company's results of
operations.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign affiliates, other than
those located in highly inflationary countries, are translated at year-end
exchange rates, while income and expenses are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine currency gains and losses
resulting from financial statement translation and those resulting from
transactions. Translation gains and losses are reported as a component of
stockholders' equity, except for those associated with highly inflationary
countries that are reported directly in the Consolidated Statements of Income.
Transaction gains and losses are reported directly in the Consolidated
Statements of Income.
In connection with the final payment to a shipyard for the Highland Piper
(see Note 2 below), the Company entered into a forward contract to hedge
approximately $10,915,000 of the commitment to pay in Norwegian Kroner against
unfavorable fluctuations in the exchange rate to Sterling which will be used to
fund the payment. The unrealized gain of $168,000 as of December 31, 1995, is
not reflected in the accompanying financial statements. Upon realization,
expected to be mid-March when the vessel is delivered, any gain or loss will be
included in the cost of the vessel.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock outstanding. Common stock equivalents have not been included in the
computation of earnings per share since the effect is not significant. Fully
diluted earnings per share is not presented as such amounts do not materially
differ from primary earnings per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
CONCENTRATION OF CREDIT RISK
The Company extends credit to various companies in the energy industry
which may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit risk through credit
approvals and limits. Historically write-offs for doubtful accounts have been
insignificant.
NATURE OF OPERATIONS
The nature and location of the Company's operations is discussed in Note 10
as well as in Part I. Item I -- Business.
PENDING ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which is effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such
impairment. The Company does not expect the impact of SFAS No. 121 will have a
significant effect on the Company's consolidated financial statements.
23
<PAGE> 24
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation", will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. The Company plans to continue the use of its current intrinsic value
based method of accounting for such plans. As required by SFAS No. 123, the
Company will provide pro forma disclosure of net income and earnings per share
in the notes to the consolidated financial statements as if the fair value based
method of accounting had been applied to awards covered by SFAS No. 123.
(2) VESSEL ACQUISITIONS
The Company has contracted with a shipyard in Norway for the construction
of two new UT 755 design vessels for deployment in the North Sea. Delivery of
the first vessel to be named the Highland Piper is expected in mid-March 1996.
The second vessel is expected to be delivered in early 1997. On December 21,
1995, the Company acquired the Atlantic Warrior, a 1981 built pipe
carrier/platform supply vessel which had been bareboat chartered by the Company
since July 1993. Included in capital expenditures for 1995 is $13,301,000
related to interim construction payments and the purchase of the Atlantic
Warrior. The Company expects to make further payments, net of government
subsidies, of $11,539,000 and $10,709,000 in 1996 and 1997, respectively,
related to the two vessels under construction. Funding for the 1995 expenditures
was provided through borrowings under a GBP4,890,000 (approximately $7,594,000)
facility. Funds of $19,095,000 for the 1996 and 1997 expenditures are expected
to be provided through additional borrowings under the Company's existing credit
facilities.
On July 9, 1993, the Company acquired from BP Shipping Limited
substantially all of the assets of its offshore supply division for $13.1
million in cash. The acquired assets primarily consisted of two platform supply
vessels, the Balblair, renamed the Highland Champion, and the Northern Fortress,
renamed the Highland Fortress, and management contracts for four platform supply
vessels and four standby rescue vessels. All of the vessels acquired and the
vessels working under the acquired management contracts are managed by the
Company's North Sea operations. Funding for the acquisition was provided through
borrowings under facility agreements with a bank.
On July 30, 1993, the Company acquired the remaining 45% minority interest
in the Highland Pride, a 1992 built pipe carrier/platform supply vessel, for
$2.4 million in cash.
The Company's 51% owned company, SeaMark Ltd., has bareboat chartered
certain vessels from the 49% owner, a U.S. owner/operator, at a combined rate of
less than $2,000 per day.
(3) INVESTMENT IN ENERGY VENTURES, INC.
Energy Ventures, Inc. ("Energy Ventures") is a publicly-traded (NYSE
trading symbol "EVI") international oilfield equipment and service company which
manufactures artificial lift and completion systems, drill pipe and premium
tubulars and provides rig contracting services. At December 31, 1995, the
Company owned 14% of the outstanding stock of Energy Ventures. The Company's
ownership interest was diluted from 20% to 17% on June 30, 1995, as a result of
Energy Ventures issuing 2.25 million shares in connection with an acquisition
and from 17% to 14% in September 1995 with the issuance of 3.45 million shares
through a public stock offering.
The shares of Energy Ventures owned by the Company are held for investment
purposes. Because of, among other things, the Company's 14% ownership of Energy
Ventures as well as the two common directors between the two companies, the
Company may be considered an "affiliate" of Energy Ventures under federal
securities rules and regulations. As such, these shares may not be able to be
sold by the Company absent registering such shares under the Securities Act of
1933 or an exemption therefrom.
Prior to June 30, 1995, the Company accounted for Energy Ventures on the
equity method; however, the reduction in the Company's ownership interest on
June 30, 1995, necessitated a change from the equity method to the cost method
and the application of certain requirements of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Under the cost
24
<PAGE> 25
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method the Company no longer records its proportionate share of Energy Ventures'
earnings as was done prior to June 30, 1995, under the equity method. Any
dividends paid by an investee under the cost method are reported as income to
the extent that such amounts are not in excess of net accumulated earnings
subsequent to the date the Company began following the cost method.
In addition, under SFAS No. 115, ". . . the portion of the security that
can reasonably be expected to qualify for sale within one year . . ." must be
reported at its "fair value." If the Company is considered an "affiliate" under
the federal securities rules and regulations, approximately 736,000 shares
represents the number of shares which may be sold by the Company without
registration pursuant to Rule 144 promulgated under the Securities Act of 1933.
Accordingly the Company has reflected in the accompanying balance sheet
approximately 736,000 shares of the Energy Ventures holding at the closing price
quoted on the New York Stock Exchange as of December 31, 1995. The related
unrealized gains and losses on those shares, effective June 30, 1995, are
reflected as a separate component of stockholders' equity, net of the related
deferred taxes, until realized. The remaining 1,799,572 shares are carried at
historical cost.
The quoted market value of Energy Ventures' shares held by the Company may
not be the value that would be realized should the Company dispose of some or
all of the shares. As of March 1, 1996, the quoted market value of Energy
Ventures' shares held by the Company was $65,925,000. The equity in earnings of
Energy Ventures and its subsidiaries for the six months ended June 30, 1995 and
the years ended December 31, 1994 and 1993, excluding extraordinary item, was
$761,000, $1,012,000, and $1,333,000, respectively. In addition, the Company
recognized in 1994 an extraordinary charge of $706,000, net of tax, attributable
to the prepayment of certain debt.
The following represents summarized financial information for Energy
Ventures. For more information regarding Energy Ventures' financial condition
and operations, reference is made to the Energy Ventures Form 10-K filed with
the Securities and Exchange Commission.
SUMMARIZED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets................... $249,574 $164,803
Non-current assets............... 241,486 185,885
-------- --------
$491,060 $350,688
======== ========
Current liabilities.............. $ 97,116 $ 70,465
Non-current liabilities.......... 165,878 169,310
Stockholders' equity............. 228,066 110,913
-------- --------
$491,060 $350,688
======== ========
</TABLE>
SUMMARIZED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................ $ 351,587 $ 248,537 $ 246,017
Expenses................ (319,147) (229,068) (227,462)
Other expenses, net..... (16,049) (13,021) (5,744)
--------- --------- ---------
Income before taxes..... 16,391 6,448 12,811
Taxes................... (5,080) (1,806) (4,864)
--------- --------- ---------
Income from continuing
operations............ 11,311 4,642 7,947
Discontinued operations,
net of taxes.......... -- -- (2,057)
--------- --------- ---------
Income before
extraordinary item.... 11,311 4,642 5,890
Extraordinary item...... -- (3,784) --
--------- --------- ---------
Net income.............. $ 11,311 $ 858 $ 5,890
======== ======== ========
</TABLE>
(4) SHORT-TERM BORROWINGS
On July 8, 1993, the Company entered into a one year loan facility
agreement with a bank under which the Company can borrow up to GBP3,300,000.
During 1994 and again during 1995, this facility was renewed for one additional
year. At December 31, 1995 and 1994, the Company had borrowings of GBP600,000
($932,000) and nil, respectively, under this facility. Interest is charged at
2 1/4% above the lending bank's LIBOR rate. This facility is secured by second
priority mortgages on various vessels as well as second assignments of such
vessels' earnings.
25
<PAGE> 26
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995 and 1994, the Company had average borrowings outstanding of
$431,000 and $3,061,000, respectively, under the facility. The weighted average
interest rate during these periods were 9.0% and 7.4%, respectively.
(5) LONG-TERM DEBT
The Company's long-term debt at December 31, 1995 and 1994, consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving $25,213,000 credit facility (GBP12,500,000 and $5,800,000 tranches), facility
reduces by 10% semiannually beginning December 31, 1996, with final payment due in
2000; interest at 1 5/8% over the lending bank's LIBOR rate (8.25% as of December 31,
1995)................................................................................ $15,415 $13,503
Loan facility payable in GBP, quarterly principal payments of GBP395,000 with final
payment of GBP6,475,000 due in 2001, interest at 1 3/8% over the lending bank's LIBOR
rates (7.9% as of December 31, 1995)................................................. 13,635 --
Loan facility payable in GBP, semiannual principal payments of GBP350,000 with final
payment of GBP340,000 due in 2001, interest at 1 1/4% over the lending bank's LIBOR
rate (7.8% as of December 31, 1995).................................................. 7,594 --
Loan facilities payable in GBP, interest at 1 3/4% over the lending bank's LIBOR
rate................................................................................. -- 14,711
------- -------
36,644 28,214
Less: Current maturities of long-term debt............................................. 3,044 1,487
------- -------
$33,600 $26,727
======= =======
</TABLE>
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<S> <C>
1996...................................................................... $ 3,044
1997...................................................................... 3,541
1998...................................................................... 6,349
1999...................................................................... 8,583
2000...................................................................... 11,105
Thereafter................................................................ 4,022
-------
$36,644
=======
</TABLE>
Each of the above facilities is secured by mortgages on various vessels as
well as assignments of such vessels' earnings. The loan facility agreements
restrict Gulf Offshore N.S. Ltd., Gulf Offshore Far East, Inc., and Gulf
Offshore Marine International, Inc., the subsidiaries that own the mortgaged
vessels, from making dividends or other distributions to their parent without
consent of the lenders. The amount of net assets restricted under these loan
provisions was $30,877,000 as of December 31, 1995, and includes cash and cash
equivalents of $3,517,000.
(6) COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Company had long-term operating leases covering
office space and automobiles. Aggregate lease expense on operating leases for
1995, 1994 and 1993 was $479,000, $328,000, and $293,000, respectively. Future
minimum rental commitments under these operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1996........................................................................ $364
1997........................................................................ 204
1998........................................................................ 62
1999........................................................................ 48
2000........................................................................ 4
----
$682
====
</TABLE>
26
<PAGE> 27
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has contracted with a shipyard in Norway for the construction
of two UT 755 design vessels for deployment in the North Sea. Under such
contracts, the Company expects to make payments to the shipyard of $11,539,000
in 1996 and $10,709,000 in 1997, net of government subsidies.
The Company along with a major railroad has been named in a lawsuit in
which the Plaintiffs are claiming damages resulting from flooding and erosion
allegedly caused by the railroad and/or the Company. The amount of the claim is
$13.34 million in actual damages and an unspecified amount in punitive damages,
and the lawsuit is expected to go to trial or be resolved some time during 1996.
Management of the Company believes the claims against the Company to be without
merit and intends to vigorously contest them. Based on a review of the merits of
the case, defenses available to the Company and the expectation of insurance
coverage, management does not expect this lawsuit to have a material adverse
effect on the Company.
On November 14, 1995, an arbitration panel in Houston awarded a customer of
Ercon Development Co. ("Ercon"), the Company's subsidiary, $468,000 in
connection with an erosion control system installed on the customer's property.
The amount of the award is reflected in the accompanying statements of income.
The Company made a claim to its insurance carrier for the award and associated
legal fees; however, the insurance company has denied coverage. Coverage of the
claim and related costs of defense are the subject of ongoing litigation.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. Management believes, based on discussions with
its legal counsel and in consideration of reserves recorded, that the outcome of
these legal actions will not have a material adverse effect upon the
consolidated financial position and results of operations of the Company.
(7) STOCKHOLDERS' EQUITY
STOCK OPTIONS AND STOCK OPTION PLANS
Under the terms of the Company's 1993 Non-Employee Director Stock Option
Plan (the "1993 Plan"), options to purchase 5,000 shares of Common Stock were
granted to each of the Company's five non-employee directors in 1993 and are to
be granted to each new non-employee director upon his or her election. The
exercise price of options granted under the 1993 Plan is fixed at the market
price at the date of grant. As of December 31, 1995, 50,000 shares were reserved
for grant under the 1993 Plan. The options are for a term of ten years.
Under the terms of the Company's 1987 Employee Stock Option Plan (the "1987
Plan"), options may be granted to employees to purchase Common Stock at
specified prices. The 1987 Plan also provides for stock appreciation rights
(SAR's) that give the optionee the right, subject to certain conditions, to
surrender an option and receive cash and/or shares of Common Stock having a
value equal to the appreciation from date of grant of such option. As of
December 31, 1995, 168,333 shares were reserved for grant under the 1987 Plan.
Information with respect to all shares under option is summarized below:
<TABLE>
<CAPTION>
AVERAGE
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Options outstanding, December 31, 1992............................................. 71,667 $11.09
Granted.......................................................................... 25,000 14.75
Exercised........................................................................ (10,000) 6.50
-------
Options outstanding, December 31, 1993............................................. 86,667 12.67
Exercised........................................................................ (1,700) 6.50
-------
Options outstanding, December 31, 1994............................................. 84,967 12.80
Exercised........................................................................ (14,967) 11.88
-------
Options outstanding, December 31, 1995............................................. 70,000 12.99
=======
Exercisable as of December 31, 1995................................................ 70,000
Shares available for future grants as of December 31, 1995......................... 173,333
</TABLE>
27
<PAGE> 28
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
The Company is authorized by its Articles of Incorporation to issue up to
500,000 shares of $50 par value cumulative preferred stock. As of December 31,
1995, none has been issued.
(8) INCOME TAXES
Income (loss) before income taxes and extraordinary item attributable to
domestic and foreign operations was (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
U.S............................................................................. $1,690 $1,232 $ 828
Foreign......................................................................... 88 2,656 2,502
------ ------ ------
$1,778 $3,888 $3,330
====== ====== ======
</TABLE>
The components of the Company's tax provisions attributable to income
before extraordinary item are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------- ---------------------------- ---------------------------
DEFERRED DEFERRED DEFERRED
CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL CURRENT AND OTHER TOTAL
------- --------- ------ ------- --------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S....................... $ -- $ 3,495 $3,495 $ -- $ 69 $ 69 $ -- $ 118 $118
Foreign................... 109 76 185 242 797 1,039 421 147 568
---- ------ ------ ---- ---- ------ ---- ---- ----
$ 109 $ 3,571 $3,680 $ 242 $ 866 $1,108 $ 421 $ 265 $686
==== ====== ====== ==== ==== ====== ==== ==== ====
</TABLE>
Included in the 1995 deferred tax provision for the U.S. is $3,374,000 of
additional deferred taxes associated with the Company's investment in Energy
Ventures. A further $4,122,000 of deferred taxes attributable to the unrealized
gain on a portion of the investment in Energy Ventures has been reflected in the
related component of Stockholders' Equity. In addition $51,000 of deferred tax
benefit was recognized in 1994 related to an extraordinary item.
28
<PAGE> 29
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The components of the net
deferred tax liability as of December 31, 1995 and 1994, were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................................... $ 9,152 $ 7,987
Non-deductible accruals............................................................ 1,462 1,385
Foreign tax credits................................................................ 387 512
Alternative minimum tax credits.................................................... 284 292
Other tax credits.................................................................. 175 175
Other.............................................................................. -- 7
Valuation allowance................................................................ (846) (2,118)
-------- -------
10,614 8,240
-------- -------
Deferred tax liabilities:
Depreciation....................................................................... (8,400) (8,438)
Investment in equity investees..................................................... (9,929) (780)
Foreign income not currently recognizable ......................................... (709) (204)
Other.............................................................................. (323) (280)
-------- -------
(19,361) (9,702)
-------- -------
Net deferred tax liability........................................................... $ (8,747) $(1,462)
======== =======
</TABLE>
The difference between the provision at the statutory U.S. federal income
tax rate and the tax provision attributable to income from continuing operations
in the accompanying Consolidated Financial Statements is analyzed below.
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory income tax rate............................................ 34.0% 34.0% 34.0%
Differences applicable to income of unconsolidated subsidiaries................... 266.1 (7.1) (10.9)
Effect of international operations................................................ 2.2 15.8 11.8
Utilization of U.S. net operating loss carryforwards.............................. (92.0) (15.9) (15.6)
Other............................................................................. (3.5) 1.7 1.3
----- ----- -----
206.8% 28.5% 20.6%
===== ===== =====
</TABLE>
As of December 31, 1995, the Company had available the following
carryforward losses and credits for income tax purposes, that are subject to
certain limitations, to offset future taxable income (in thousands):
<TABLE>
<CAPTION>
AMOUNT EXPIRATION
------- ------------
<S> <C> <C>
U.S. tax purposes:
Net operating losses............................................................ $8,021 2001 - 2009
Foreign tax credits............................................................. 387 1996 - 2000
Alternative minimum tax credits................................................. 284 Indefinite
Other tax credits............................................................... 175 1997 - 2000
Foreign tax purposes:
Net operating losses............................................................ 19,498 Indefinite
</TABLE>
29
<PAGE> 30
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) UNAUDITED QUARTERLY FINANCIAL DATA
The following tabulation sets forth unaudited quarterly information for
1995 and 1994.
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
------ ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995:
Revenues........................................................... $7,500 $ 9,535 $10,547 $8,495
Income (loss) before income taxes.................................. (273) 916 826 309
Net income (loss).................................................. (221) (2,712) 677 354
Earnings (loss) per share.......................................... (0.07) (0.81) 0.20 0.11
1994:
Revenues........................................................... $8,047 $ 8,662 $ 8,033 $9,706
Income before income taxes and extraordinary item.................. 739 1,597 858 694
Income before extraordinary item................................... 499 924 612 745
Extraordinary item................................................. (706) -- -- --
Net income (loss).................................................. (207) 924 612 745
Earnings per share:
Income before extraordinary item................................. 0.15 0.28 0.18 0.22
Extraordinary item............................................... (0.21) -- -- --
Net income (loss)................................................ (0.06) 0.28 0.18 0.22
</TABLE>
(10) OPERATING SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company's operations are divided into two segments:
(a) Offshore marine services
The offshore marine services subsidiaries operate twenty-three (23)
vessels principally in the North Sea and Southeast Asia. The vessels
provide transportation of materials, supplies and personnel to and from
offshore platforms and drilling rigs.
(b) Erosion control
The Company offers a variety of turnkey erosion control services
and installations including problem analysis, field surveys, engineering
design, permit acquisition, material procurement and installation. The
site-specific systems are designed to protect property such as
railroads, buildings, pipelines, highways, offshore platforms, marinas,
beaches and dams.
30
<PAGE> 31
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment operating income represents revenues less operating expenses and is
not reduced for interest expense, general corporate expenses and income taxes.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Offshore marine services................................................ $ 27,233 $27,692 $22,564
Erosion control......................................................... 8,844 6,756 5,323
-------- ------- -------
Total revenues.................................................... $ 36,077 $34,448 $27,887
======== ======= =======
Operating income:
Offshore marine services................................................ $ 3,270 $ 4,993 $ 4,532
Erosion control......................................................... 759 567 427
Corporate and other..................................................... (579) (1,335) (983)
-------- ------- -------
Total operating income............................................ $ 3,450 $ 4,225 $ 3,976
======== ======= =======
Identifiable assets:
Offshore marine services................................................ $ 73,102 $63,604 $65,484
Erosion control......................................................... 1,612 2,603 1,630
Corporate and other(1).................................................. 36,221 22,469 23,645
-------- ------- -------
Total assets...................................................... $110,935 $88,676 $90,759
======== ======= =======
Capital expenditures:
Offshore marine services................................................ $ 14,518 $ 648 $13,110
Erosion control......................................................... 160 165 132
Corporate and other..................................................... 9 3 5
-------- ------- -------
Total capital expenditures........................................ $ 14,687 $ 816 $13,247
======== ======= =======
Depreciation and amortization:
Offshore marine services................................................ $ 5,446 $ 5,038 $ 3,752
Erosion control......................................................... 105 87 70
Corporate and other..................................................... 20 21 30
-------- ------- -------
Total depreciation and amortization............................... $ 5,571 $ 5,146 $ 3,852
======== ======= =======
</TABLE>
- ---------------
(1) Includes the Company's investment in Energy Ventures.
Capital expenditures of the offshore marine services segment include
approximately $13,301,000 related to the purchase of the Atlantic Warrior and
payments to the shipyard on two UT 755 design vessels under construction in
1995, and $13,084,000 in 1993 related to the purchase of substantially all of
the assets of the offshore supply division of BP Shipping Limited. For further
information see Note 2.
31
<PAGE> 32
GULFMARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC REGIONS AND MAJOR CUSTOMERS
Information by geographical area is based on the location where services
were performed. Operating income represents revenues less operating expenses and
is not reduced for interest expense and income taxes. General corporate expenses
incurred in the United States have not been allocated to foreign operations for
purposes of this disclosure.
<TABLE>
<CAPTION>
UNITED BRAZIL
STATES EUROPE FAR EAST AND OTHER TOTAL
------- ------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995:
Revenues.............................................. $ 8,844 $20,176 $ 6,142 $ 915 $ 36,077
Operating income (loss)............................... (1,006) 4,027 639 (210) 3,450
Identifiable assets................................... 38,184 60,318 10,939 1,494 110,935
1994:
Revenues.............................................. $ 6,756 $18,685 $ 8,178 $ 829 $ 34,448
Operating income (loss)............................... (1,658) 3,699 2,431 (247) 4,225
Identifiable assets................................... 25,791 43,607 19,278 -- 88,676
1993:
Revenues.............................................. $ 5,323 $13,274 $ 8,082 $ 1,208 $ 27,887
Operating income (loss)............................... (1,483) 2,400 2,701 358 3,976
Identifiable assets................................... 26,197 42,587 21,975 -- 90,759
</TABLE>
Income from operations includes revenues with one major customer comprising
11% of revenues in 1995, and two major customers comprising 12% and 11% of
revenues in 1994 and 13% and 12% of revenues in 1993.
32
<PAGE> 33
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 1,619 $ 464
Receivables, inventory, prepaids and other............................. 344 362
------- -------
Total current assets........................................... 1,963 826
------- -------
INVESTMENTS IN SUBSIDIARIES.............................................. 56,011 42,895
------- -------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of
$427,000 in 1995 and $341,000 in 1994.................................. 606 742
------- -------
ACCOUNTS AND NOTES RECEIVABLE FROM SUBSIDIARIES.......................... 8,807 9,616
------- -------
OTHER ASSETS............................................................. 11 8
------- -------
$67,398 $54,087
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............................... $ 674 $ 913
------- -------
DEFERRED TAXES AND OTHER................................................. 7,766 149
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized; issued and
outstanding 3,336,352 and 3,321,385 shares.......................... 3,336 3,321
Additional paid-in capital............................................. 23,501 23,338
Retained earnings...................................................... 28,237 30,139
Cumulative translation adjustment...................................... (4,146) (3,773)
Unrealized gain on investment.......................................... 8,030 --
------- -------
Total stockholders' equity..................................... 58,958 53,025
------- -------
$67,398 $54,087
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
33
<PAGE> 34
SCHEDULE I -- (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------ -------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES........................................................ $ 1,582 $1,530 $ 110
------- ------ -------
COSTS AND EXPENSES:
Direct operating expenses..................................... 91 90 89
Selling, general and administrative expenses.................. 1,875 2,202 1,781
------- ------ -------
1,966 2,292 1,870
------- ------ -------
OPERATING LOSS.................................................. (384) (762) (1,760)
------- ------ -------
OTHER INCOME (EXPENSES):
Equity in earnings of subsidiaries............................ 1,338 3,075 3,682
Interest income............................................... 568 472 678
Other income (expense), net................................... 71 64 162
------- ------ -------
1,977 3,611 4,522
------- ------ -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............... 1,593 2,849 2,762
INCOME TAX PROVISION............................................ (3,495) (69) (118)
------- ------ -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM......................... (1,902) 2,780 2,644
EXTRAORDINARY ITEM ATTRIBUTABLE TO ENERGY VENTURES, INC. (Less
applicable income tax benefit of $51)......................... -- (706) --
------- ------ -------
NET INCOME (LOSS)............................................... $(1,902) $2,074 $ 2,644
======= ====== =======
EARNINGS PER SHARE:
Income (loss) before extraordinary item....................... $ (0.57) $ 0.83 $ 0.80
Extraordinary item attributable to Energy Ventures, Inc....... -- (0.21) --
------- ------ -------
Net income (loss)............................................. $ (0.57) $ 0.62 $ 0.80
======= ====== =======
WEIGHTED AVERAGE SHARES OUTSTANDING............................. 3,322 3,320 3,312
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
34
<PAGE> 35
SCHEDULE I -- (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON
STOCK AT ADDITIONAL CUMULATIVE UNREALIZED TOTAL
$1 PAR PAID-IN RETAINED TRANSLATION GAIN ON STOCKHOLDERS'
VALUE CAPITAL EARNINGS ADJUSTMENT INVESTMENT EQUITY
-------- ---------- --------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992... $ 3,310 $ 23,274 $ 25,421 $(3,699) $ -- $48,306
Net income................... -- -- 2,644 -- -- 2,644
Issuance of stock............ 10 55 -- -- -- 65
Translation adjustment....... -- -- -- (627) -- (627)
------- -------- -------- ------- ------- -------
Balance at December 31, 1993... 3,320 23,329 28,065 (4,326) -- 50,388
Net income................... -- -- 2,074 -- -- 2,074
Issuance of stock............ 1 9 -- -- -- 10
Translation adjustment....... -- -- -- 553 -- 553
------- -------- -------- ------- ------- -------
Balance at December 31, 1994... 3,321 23,338 30,139 (3,773) -- 53,025
Net loss..................... -- -- (1,902) -- -- (1,902)
Issuance of stock............ 15 163 -- -- -- 178
Translation adjustment....... -- -- -- (373) -- (373)
Unrealized gain on
investment................ -- -- -- -- 8,030 8,030
------- -------- -------- ------- ------- -------
Balance at December 31, 1995... $ 3,336 $ 23,501 $ 28,237 $(4,146) $ 8,030 $58,958
======= ======== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
35
<PAGE> 36
SCHEDULE I -- (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operations...................... $ 53 $(1,248) $(1,081)
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to subsidiaries, net.............. 809 447 298
(Additions to)/sales of property and equipment, net.......... 115 45 (8)
Expenditures for drydocking and main engine overhaul......... -- -- (8)
------ ------- -------
Net cash provided by investing activities...................... 924 492 282
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and other, net........................ 178 10 65
------ ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 1,155 (746) (734)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................. 464 1,210 1,944
------ ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................... $1,619 $ 464 $ 1,210
====== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid................................................ $ -- $ -- $ --
Income taxes paid............................................ -- 15 1
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
36
<PAGE> 37
SCHEDULE I -- (CONTINUED)
GULFMARK INTERNATIONAL, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF CASH FLOWS
U.S. Government securities and commercial paper with maturities of up to
three months are included in cash and cash equivalents in the accompanying
Condensed Balance Sheets and Condensed Statements of Cash Flows.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided by the
straight-line method with a salvage value of 10% for vessels. Vessels are
depreciated over a useful life of twenty years. Equipment, furniture and
fixtures are depreciated over two to five years. Maintenance and repairs that do
not extend the useful life of the asset and are not attributable to drydockings
of vessels are charged to operations as incurred. Major renovation costs and
modifications are capitalized and amortized over the estimated remaining useful
life.
Management is evaluating the useful life of twenty years currently used for
depreciating vessels in light of recent vessel performance, changes in the
materials available to protect vessel hulls and industry practice. The Company
expects to complete this evaluation in the first quarter of 1996. Based on
information currently available, the Company anticipates that the useful life of
its vessels will be extended effective January 1, 1996. Such revisions are
expected to have the effect of materially improving operating results in 1996.
REVENUE RECOGNITION
Revenues from charters for offshore marine services are recognized as
earned based on contractual charter rates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse. SFAS No. 109 also requires that the likelihood and amount of future
taxable income be included in the criteria used to determine the timing and
amount of tax benefits recognized for net operating losses and tax credit
carryforwards in the financial statements. The adoption of SFAS No. 109
beginning January 1, 1993 had no material effect on the Company's results of
operations.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock outstanding. Common stock equivalents have not been included in the
computation of earnings per share since the effect is not significant. Fully
diluted earnings per share is not presented as such amounts do not materially
differ from primary earnings per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
37
<PAGE> 38
SCHEDULE I -- (CONTINUED)
NATURE OF OPERATIONS
The nature and location of the Company's operations is discussed in Note
(10) as well as in Part I. Item I -- Business.
PENDING ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which is effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such
impairment. The Company does not expect the impact of SFAS No. 121 will have a
significant effect on the Company's consolidated financial statements.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation", will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. The Company plans to continue the use of its current intrinsic value
based method of accounting for such plans. As required by SFAS No. 123, the
Company will provide pro forma disclosure of net income and earnings per share
in the notes to the consolidated financial statements as if the fair value based
method of accounting had been applied to awards covered by SFAS No. 123.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts previously reported to
conform with the current year presentation.
(2) CASH DIVIDENDS PAID BY SUBSIDIARIES
Cash dividends from unconsolidated subsidiaries for 1995, 1994 and 1993
were not significant, and the Company's consolidated subsidiaries have not paid
any cash dividends during the most recent three years. Certain loan facility
agreements entered into by the Company's subsidiaries restrict the amount of
distribution that can be made. The amount of net assets that is subject to such
restrictions is $30,877,000 as of December 31, 1995.
38
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT(1)
ITEM 11. EXECUTIVE COMPENSATION(1)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(1)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS(1)
(1) The information required by ITEMS 10, 11, 12 and 13 will be included in the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days of the close of its fiscal year and is
hereby incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Consolidated Financial Statements and related Schedule I of the Company are
included in ITEM 8 (Consolidated Financial Statements and Supplementary Data).
All other schedules for the Company have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements or the notes thereto.
Financial Statements and Schedules of Energy Ventures, Inc., a significant
investee of the Company, are included as Exhibit 99.1.
(3) EXHIBITS
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- -------- ------------------------------------------------ ----------------------------
<C> <S> <C>
2.1 -- Sale and Purchase Agreement dated as of June -- Form 8-K, July 9, 1993
29, 1993, made and entered into among BP
Shipping Limited, Gulf Offshore N.S. Limited
and Gulf Offshore Marine International, Inc.
3.1 -- Certificate of Incorporation, with amendments -- Form 10-K, December 31,
through March 28, 1991 1993
3.2 -- Bylaws -- Form 10-K, December 31,
1993
10.1 -- Gulf Applied Technologies, Inc. 1987 Stock -- Form 10-K, December 31,
Option Plan* 1987
10.2 -- Loan Facility Agreements dated as of July 8, -- Form 10-Q, Quarter Ended
1993, made by and between the Chase Manhattan June 30, 1993
Bank N.A. and GulfMark North Sea Limited,
Gulf Offshore Marine International, Inc.,
Gulf Offshore North Sea Ltd. and Gulf
Offshore Far East, Inc.
10.3 -- GulfMark International, Inc. 1993 -- Form S-8, Registration
Non-Employee Director Stock Option Plan.* No. 33-79212
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
FROM THE
EXHIBITS DESCRIPTION FOLLOWING DOCUMENTS
- -------- ------------------------------------------------ ----------------------------
<C> <S> <C>
10.4 -- Loan Facility Agreement dated as of June 7, -- Form 10-Q, Quarter Ended
1995, made by and between Christiania Bank og June 30, 1995
Kreditkasse and Gulf Offshore N.S. Limited
10.5 -- Agreement dated October 20, 1995 Amending and -- Filed herewith
Restating the Loan Facility Agreement dated
July 8, 1993, made by and between the Chase
Manhattan Bank N.A. and GulfMark North Sea
Limited, Gulf Offshore Marine International,
Inc., Gulf Offshore N.S. Limited and Gulf
Offshore Far East, Inc.
10.6 -- Loan Facility Agreement dated December 21, -- Filed herewith
1995, made by and between Christiania Bank og
Kreditkasse and Gulf Offshore N.S. Limited
21.1 -- Subsidiaries of GulfMark International, Inc. -- Filed herewith
23.1 -- Consent of Independent Public Accountants -- Filed herewith
27.1 -- Financial Data Schedule -- Filed herewith
99.1 -- Form 10-K for Energy Ventures, Inc. -- Filed herewith
</TABLE>
- ---------------
* This contract is a management contract or compensatory plan.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were required by the Registrant during the last
quarter of the period covered by this report.
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
GulfMark International, Inc.
(Registrant)
By: /s/ FRANK R. PIERCE
--------------------------------
Frank R. Pierce
Executive Vice President, Finance
Date: March 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ FRANK R. PIERCE Executive Vice President, Finance March 20, 1996
---------------------------------------- (Principal Financial Officer)
Frank R. Pierce
/s/ ELIZABETH D. BRUMLEY Controller March 20, 1996
---------------------------------------- (Principal Accounting Officer)
Elizabeth D. Brumley
/s/ DAVID J. BUTTERS Director March 20, 1996
----------------------------------------
David J. Butters
/s/ NORMAN G. COHEN Director March 20, 1996
----------------------------------------
Norman G. Cohen
/s/ MARSHALL A. CROWE Director March 20, 1996
----------------------------------------
Marshall A. Crowe
/s/ LOUIS S. GIMBEL, 3rd Director March 20, 1996
----------------------------------------
Louis S. Gimbel, 3rd
/s/ ROBERT B. MILLARD Director March 20, 1996
----------------------------------------
Robert B. Millard
</TABLE>
41
<PAGE> 42
EXHIBIT INDEX
EXHIBITS DESCRIPTION
- -------- ------------------------------------------------
10.5 -- Agreement dated October 20, 1995 Amending and
Restating the Loan Facility Agreement dated
July 8, 1993, made by and between the Chase
Manhattan Bank N.A. and GulfMark North Sea
Limited, Gulf Offshore Marine International,
Inc., Gulf Offshore N.S. Limited and Gulf
Offshore Far East, Inc.
10.6 -- Loan Facility Agreement dated December 21,
1995, made by and between Christiania Bank og
Kreditkasse and Gulf Offshore N.S. Limited
21.1 -- Subsidiaries of GulfMark International, Inc.
23.1 -- Consent of Independent Public Accountants
27.1 -- Financial Data Schedule
99.1 -- Form 10-K for Energy Ventures, Inc.
<PAGE> 1
EXHIBIT 10.5
GULFMARK NORTH SEA LIMITED
GULF OFFSHORE MARINE INTERNATIONAL INC
as principal borrowers
GULF OFFSHORE N.S. LIMITED
GULF OFFSHORE FAR EAST, INC.
as permitted borrowers
GULFMARK INTERNATIONAL INC.
as sponsor
THE CHASE MANHATTAN BANK, N.A.
as agent
and security trustee
THE CHASE MANHATTAN BANK, N.A.
as Hedge Counterparty
and
OTHERS
----------------------------------------------
AGREEMENT
amending and restating a
Loan Facility dated 8 July 1993
as amended by an agreement dated 20 May 1994
----------------------------------------------
CLIFFORD CHANCE
<PAGE> 2
THIS AGREEMENT is made the 20th October 1995
BETWEEN:
(1) GULFMARK NORTH SEA LIMITED ("GNS") and GULF OFFSHORE MARINE
INTERNATIONAL INC. ("GOMI") (together the "PRINCIPAL BORROWERS");
(2) GULF OFFSHORE N.S. LIMITED (GONS") and GULF OFFSHORE FAR EAST INC.
("GOFE") (together the "Permitted BORROWERS");
(3) GULFMARK INTERNATIONAL INC. (the "SPONSOR");
(4) THE CHASE MANHATTAN BANK, N.A. as agent (the "AGENT") and security
trustee ("SECURITY TRUSTEE");
(5) THE FINANCIAL INSTITUTIONS named in the First Schedule of the Facility
Agreement exhibited hereto as the Annex (the "Banks"); and
(6) THE CHASE MANHATTAN BANK, N.A. as counterparty under the Master
Agreement referred to herein (the "HEDGE COUNTERPARTY").
WHEREAS
(A) Pursuant to a facility agreement dated 8 July 1993 as amended by an
agreement dated 20 May 1994 (the "FACILITY AGREEMENT") entered into
between the Banks, the Agent, the Security Trustee, the Sponsor, the
Hedge Counterparty, the Principal Borrowers and the Permitted
Borrowers, the Banks granted to the Borrowers, upon the terms and
subject to the conditions therein set forth, a revolving loan facility
in an aggregate amount of US$5,800,000 and a sterling revolving loan
facility in an aggregate amount of pound sterling 9,400,000.
(B) The parties have agreed to amend the Facility Agreement to, inter alia,
(i) increase the sterling revolving loan facility to an aggregate
amount of pound sterling 12,500,000; and (ii) join Bank of Scotland as
a Bank in such facility as so increased.
(C) The amendments referred in (B) above are to be documented by way of
amendment and restatement of the Facility Agreement as hereinafter
described.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement (and in the Recitals) terms defined in the Facility
Agreement bear the same meaning herein.
1.2 "BANK OF SCOTLAND" shall means The Governor and Company of the Bank of
Scotland and "EFFECTIVE DATE" shall have the meaning given to it at
Clause 5.
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<PAGE> 3
2. AMENDMENT AND RESTATEMENT
The Facility Agreement shall, on and from the Effective Date (or such
other date as the Banks and the Borrowers may agree) be amended and
restated so as to conform with the copy attached hereto as The Annex.
3. REPRESENTATIONS
The Borrowers represent and warrant in the terms of Clause 18 of the
Facility Agreement as if such representations were made on the date
hereof and as if the expression "this Agreement" referred to this
Amendment Agreement (but no representation or warranty shall be given
in respect of any charter with British Gas which has at the date
hereof either expired or been terminated).
4. COUNTERPARTS
This Agreement may be executed in any number of counterparts which,
when taken together, shall constitute but one and the same instrument
and shall be governed by and construed in accordance with English law.
5. EFFECTIVE DATE
The Effective Date, for the purposes of this Amendment Agreement,
shall be the date on which the Agent receives the last of the
following documents: (i) each of the documents set out in Part 2 of
the Second Schedule to the Facility Agreement, (ii) a copy, certified
by a duly authorised officer of each Obligor, of a Board Resolution of
such Obligor approving and ratifying the execution, delivery and
performance of this Amendment Agreement and any Security Document
contemplated by Part 2 of the Second Schedule to the Facility
Agreement (iii) a certificate from a duly authorised officer of each
Obligor confirming that no changes have been made to the Memorandum or
Articles of Association (or other constitutive documents) of such
Obligor since the last certified copies thereof were delivered to the
Agent and (iv) a certificate from a duly authorised officer of each
Obligor setting out the names and signatures of the person authorised
to sign this Amendment Agreement and any Security Document
contemplated by Part 2 of the Second Schedule to the Facility
Agreement on behalf of such Obligor.
6. FEES
The Borrowers shall pay to the Agent for its own account on the date
hereof an arrangement fee equal to two fifths of one per cent of each
of the Facility Amount of each of the Dollar Facility and the Sterling
Facility.
7. ACCESSION OF THE BANK OF SCOTLAND
7.1 Without prejudice to Clause 2, on the first interest payment date (as
set out in clause 10.1 of the Facility Agreement) to occur after the
Effective Date (the "Accession Date"), Bank of Scotland shall become
party to the Facility Agreement as a Bank with the Sterling
-2-
<PAGE> 4
Commitment and Dollar Commitment shown against its name in the First
Schedule to the Facility Agreement exhibited hereto.
7.2 The Chase Manhattan Bank, N.A. in its capacity as Bank hereby assigns
to Bank of Scotland on the Accession Date fifty per cent of its share
in all Advances outstanding on the Accession Date.
7.3 Paragraphs 4, 6 and 7 of the Fifth Schedule to the Facility Agreement
shall be deemed incorporated orated herein mutatis mutandis.
7.4 For the avoidance of any doubt, the Sponsor confirms that it consents
to be provisions of Clauses 7.1 and 7.2 and the Borrowers hereby
acknowledge notification of the assignment referred to in Clause 7.2.
8. MISCELLANEOUS
8.1 Clauses 31, 33, 34, 38, 39, 41 and 42 of the Facility Agreement shall
apply mutatis mutandis to this Agreement (and as if references therein
to the Facility Agreement were references to this Agreement).
8.2 The Facility Agreement shall continue in full force and effect as so
amended and restated and all references therein, herein and in the
other Finance Documents to the "FACILITY AGREEMENT" or to the
"AGREEMENT" or similar terms shall be deemed to be references to the
Facility Agreement as so amended and restated.
AS WITNESS the hands of the representatives of the parties hereto the day and
year first before written.
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<PAGE> 5
THE BORROWERS
GULFMARK NORTH SEA LIMITED
as principal borrower
by: /s/ DAVID W. DARE
Director
Address: 10 Charlotte Road
London SW13 9QJ
Attention: David Dare
GULF OFFSHORE MARINE INTERNATIONAL INC.
as principal borrower
by: /s/ DAVID W. DARE
Attorney in Fact
Address: 201 Energy Center Parkway
Suite 220
Lafayette
Louisiana 70508
USA
Attention: Bruce Streeter
GULF OFFSHORE N.S. LIMITED
as permitted borrower
by: /s/ DAVID W. DARE
Director
Address: 10 Charlotte Road
London SW13 9QT
Attention: David Dare
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<PAGE> 6
GULF OFFSHORE FAR EAST INC.
as permitted borrower
by: /s/ DAVID W. DARE
Attorney in Fact
Address: 201 Energy Center Parkway
Suite 220
Lafayette
Louisiana 70508
USA
Attention: Bruce Streeter
THE SPONSOR
GULFMARK INTERNATIONAL INC.
by: /s/ DAVID W. DARE
Attorney in Fact
Address: 5 Post Oak Park
Suite 1170
Houston
Texas 77027
USA
Attention: Frank Pierce
THE AGENT
THE CHASE MANHATTAN BANK, N.A.
as agent and security trustee
By: /s/ G.R. SCOPES
Address: Woolgate House
Coleman Street
London EC2P 2HD
Attention: Oil and Gas Group
Facsimile: 962 5030
Telex: 8954681 CMB G
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<PAGE> 7
THE HEDGE COUNTERPARTY
THE CHASE MANHATTAN BANK, N.A.
By: /s/ G.R. SCOPES
Address: Woolgate House
Coleman Street
London EC2P 2HD
Attention: Oil and Gas Group
THE BANKS
THE CHASE MANHATTAN BANK, N.A.
By: /s/ G.R. SCOPES
Address: Woolgate House
Coleman Street
London EC2P 2HD
Attention: Oil and Gas Group
Facsimile: 962 5030
Telex: 8954681 CMB G
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
By: /s/ J.S. GARDNER
Address: International Division
Orchard Brae House
30 Queensferry Road
Edinburgh EH4 2UG
Attention: Shipping Finance
Facsimile: (131) 343 7080
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<PAGE> 8
THE ANNEX
FACILITY AGREEMENT
between
GULFMARK NORTH SEA LIMITED
GULF OFFSHORE MARINE INTERNATIONAL INC.
as principal borrowers
GULF OFFSHORE N.S. LIMITED
GULF OFFSHORE FAR EAST, INC.
as permitted borrowers
GULFMARK INTERNATIONAL INC.
as sponsor
THE CHASE MANHATTAN BANK, N.A.
as agent
and security trustee
THE CHASE MANHATTAN BANK, N.A.
as Hedge Counterparty
and
OTHERS
-7-
<PAGE> 9
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Clause Page No.
PART 1
INTERPRETATION
1. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PART 2
THE FACILITY
2. The Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Nature of Bank's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Additional Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART 3
AVAILABILITY OF THE FACILITIES
7. Availability of the Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. Determination of Eligible Amounts and Available Amounts . . . . . . . . . . . . . . . . . . . . . . 16
PART 4
INTEREST
9. Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Alternative Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART 5
REPAYMENT, CANCELLATION AND PREPAYMENT
12. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. Reduction, Cancellation and Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART 6
CHANGE IN CIRCUMSTANCES
14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15. Tax Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
17. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART 7
REPRESENTATIONS, COVENANT'S AND EVENTS OF DEFAULT
18. Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
19. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
20. Financial Condition and Security Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
22. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C> <C>
PART 8
SPONSOR'S AND BORROWERS' OBLIGATIONS
23. Borrowers' Joint and Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
24. Sponsor's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
PART 9
DEFAULT INTEREST AND INDEMNITY
25. Default Interest and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
PART 10
PAYMENTS
26. Currency of Account and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
27. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
28. Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
29. Redistribution of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PART 11
FEES, COSTS AND EXPENSES
30. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
31. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
PART 12
AGENCY PROVISIONS
32. The Agent and the Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
PART 13
ASSIGNMENT AND TRANSFERS
33. Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
34. Assignments and Transfers by the Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
35 Assignments and Transfers by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
36. Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
PART 14
MISCELLANEOUS
37. Calculations and Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
38. Remedies and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
39. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
40. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PART 15
LAW AND JURISDICTION
41. Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
42. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C> <C>
THE FIRST SCHEDULE : The Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
THE SECOND SCHEDULE : Condition Precedent Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
THE THIRD SCHEDULE : Notice of Drawdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
THE FOURTH SCHEDULE : Associated Costs Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
THE FIFTH SCHEDULE : Form of Supplemental Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 69
THE SIXTH SCHEDULE : Form of Transfer Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
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<PAGE> 12
THIS AGREEMENT originally made the 8th day of July, 1993 is amended and
restated on 20th October 1995
BETWEEN
(1) GULFMARK NORTH SEA LIMITED ("GNS") and GULF OFFSHORE MARINE
INTERNATIONAL INC. (" GOMI ") (together THE "PRINCIPAL BORROWERS");
(2) GULF OFFSHORE N.S. LIMITED ("GONS") and GULF OFFSHORE FAR EAST INC.
("GOFE") (together the "PERMITTED BORROWERS");
(3) GULFMARK INTERNATIONAL INC. (the "SPONSOR");
(4) THE CHASE MANHATTAN BANK, N.A. as agent (the "AGENT") and security
trustee ("SECURITY TRUSTEE");
(5) THE FINANCIAL INSTITUTIONS named in the First Schedule (the "BANKS");
and
(6) THE CHASE MANHATTAN BANK, N.A. as counterparty under the Master
Agreement referred to herein (THE "HEDGE COUNTERPARTY").
NOW IT IS HEREBY AGREED as follows:
PART 1
INTERPRETATION
1. INTERPRETATION
1.1 In this Agreement:
"ADVANCE" means, save as otherwise provided herein, a Dollar Advance or a
Sterling Advance made or to be made by the Banks hereunder;
"ADDITIONAL BORROWER" means any subsidiary of either of the Principal Borrowers
the entire share capital of which is legally and beneficially owned directly or
indirectly by the Principal Borrowers or either of them and which has become an
Additional Borrower under the Facility pursuant to and in accordance with
Clause 6;
"ADDITIONAL MORTGAGED VESSEL" means any vessel, other than the Original
Vessels, owned by any of the Borrowers subject to a first priority legal
mortgage and a deed of covenants collateral thereto (or documents conferring a
similar security interest), granted in favour of the Security Trustee as
security, inter alia, for the obligations of the Borrowers hereunder, which
mortgage and collateral deed of covenants (or such documents) have been duly
registered, recorded or filed as required by the Security Trustee and are in
full force and effect;
"ADVANCE PAYMENT GUARANTEE ASSIGNMENT" means the assignment referred to in
paragraph 22 of Part 2 of the Second Schedule;
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<PAGE> 13
"APPROVED CHARTER" means any charterparty, contract or engagement of
affreightment or for the carriage or transportation of cargo, mail or
passengers or any of them, relating to any of the Mortgaged Vessels, whether
now existing or hereafter entered into by any of the Borrowers or any person,
firm or company on its behalf, the terms of which are approved by the Agent;
"APPROVED CHARTER EARNINGS" in relation to a Mortgaged Vessel means the amount
of all freights and hires which may be earned by any Borrower during the term
of any Approved Charter pursuant to the terms and conditions thereof, less the
estimated cost of such Borrower during such term of maintaining and operating
the Mortgaged Vessel to which such Approved Charter relates in accordance with
the terms and conditions hereof and of the mortgage and/or deed of covenants
relating to such Mortgaged Vessel to and such Approved Charter;
"ASSOCIATED COSTS RATE" in relation to any Advance or unpaid sum denominated in
sterling shall have the meaning ascribed to it in the Fourth Schedule;
"AVAILABLE DOLLAR AMOUNT" means the principal amount at any time available for
drawing under the Dollar Facility as computed by the Agent pursuant to Clause
8;
"AVAILABLE DOLLAR COMMITMENT" in relation to a Bank at any time means, save as
otherwise provided herein, its Dollar Commitment less its portion of each
Dollar Advance which has been made hereunder and is outstanding at such time;
"AVAILABLE DOLLAR FACILITY" means, at any time and save as otherwise provided
herein, the aggregate amount from time to time of the Available Dollar
Commitments at such time;
"AVAILABLE STERLING AMOUNT" means the principal amount at any time available
for drawing under the Sterling Facility as computed by the Agent pursuant to
Clause 8;
"AVAILABLE STERLING COMMITMENT" in relation to a Bank at any time means, save
as otherwise provided herein, its Sterling Commitment less its portion of each
Sterling Advance which has been made and is outstanding at such time;
"AVAILABLE STERLING FACILITY" means, at any time and save as otherwise provided
herein, the aggregate amount from time to time of the Available Sterling
Commitments at such time;
"BENEFICIARIES" mean the Agent, the Banks and the Hedge Counterparty;
"BORROWERS" means the Principal Borrowers, the Permitted Borrowers and any
Additional Borrowers and "BORROWER" means any of them;
"BP FLEET VESSELS" means each of the p.s.v. "Highland Champion" and the p.s.v.
"Highland Fortress";
"BUILDING CONTRACT" means the Contract referred to in paragraph 21 of Part 2 of
the Second Schedule;
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<PAGE> 14
"CHRISTIANIA MORTGAGES" means each of the mortgages over:
(a) the m.v. "Highland Star";
(b) the m.v. "Highland Pride";
(c) the m.v. "Highland Legend"
(d) the Christiania Newbuild,
securing the obligations of GONS in respect of loans made or to be made by
Christiania Bank og Kreditkasse to GNS on terms disclosed to and approved by
the Agent prior to the date hereof together with any deed of covenants (and/or
such other documents as may be executed assigning the earnings and insurance of
any of those vessels;
"CHRISTIANIA NEWBUILD" means the platform supply vessel type UT755 referred to
in yard contract 66 made between GONS and the Contractor;
"CONTRACTOR" means Brattvaag Skipsverft A.S.;
"DESIGNATED VESSEL" means a vessel which in the opinion of the Agent will,
forthwith upon the making of an Advance, become an Additional Mortgaged Vessel
and in respect of which the Agent has received each of the documents referred
to in Clause 7.3(ii) and (iii);
"DOLLAR ADVANCE" means an Advance made under the Dollar Facility;
"DOLLAR COMMITMENT" in relation to a Bank at any time means, subject to the
provisions of Clause 13.1 and save as otherwise provided herein, the amount
of the commitment set opposite its name in Column 1 of the First Schedule, the
amount of any commitment transferred to it in accordance with Clause 35 less
any amount of its Dollar Commitment transferred by it in accordance with Clause
35;
"DOLLAR FACILITY" means the dollar revolving loan facility granted to the
Borrowers pursuant to Clause 2.1;
"ENVIRONMENTAL AFFILIATE" means in relation to a party an agent or employee of
that party or a person in a contractual relationship with that party, with
respect to any of the Mortgaged Vessels or its operation or its carriage of
cargo thereon whose acts or omissions have or will have a Material Adverse
Effect;
"ENVIRONMENTAL APPROVALS" means any permit, licence, approval, ruling,
variance, exemption or other authorisation required under applicable
Environmental Laws;
"ENVIRONMENTAL CLAIM" means any and all enforcement, clean-up, removal or other
governmental or regulatory actions or orders instituted or completed pursuant
to any Environmental Laws or Environmental Approvals together with claims made
by any third party relating to damage, contribution, loss or injury, resulting
from any Release of Material of Environmental Concern;
"ENVIRONMENTAL LAWS" means all national, state, local, foreign and
international laws, regulations, treaties and conventions pertaining to the
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata, navigable
waters, waters of the contiguous zone, ocean,Asters and international waters),
including laws,
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<PAGE> 15
regulations, treaties and conventions relating to the Release (or threatened
release) of Material of Environmental Concern;
"EXISTING MORTGAGES" means:
(i) the first priority Panamanian mortgages in favour of
The Chase Manhattan Bank, N.A. over each of the GOMI
Vessels each dated 30 September 1991 and registered
at the Panamanian Registry of Shipping; and
(ii) the first priority mortgage in favour of
Skandinaviska Enskilda Banken over the m.v. Highland
Sprite dated 11 November 1990 and registered at the
British Ships Registry (Port of London);
"EVENT OF DEFAULT" means any of those events specified in Clause 22.1;
"FACILITIES" means the Dollar Facility and the Sterling Facility granted to the
Borrowers in this Agreement and "Facility" means either of them;
"FACILITY AMOUNT" means, in the case of the Dollar Facility $5,800,000 and in
the case of the Sterling Facility pound sterling 12,500,000;
"FACILITY OFFICE" in relation to the Agent or any Bank means the office
identified with its signature below or such other office as it may from time to
time select;
"FINAL MATURITY DATE" means 30 June 2000;
"FINANCE DOCUMENTS" means this Agreement, the Security Documents, the Master
Agreement and all other documents from time to time creating, evidencing or
entered into as security for, or guaranteeing the obligations of the Borrowers
or any of them hereunder or thereunder and any document entered into pursuant
hereto or thereby;
"FIXED ASSET INVESTMENT" means any investment which will in the reasonable
opinion of the Sponsor increase the marketability of a Mortgaged Vessel or any
other vessel or is necessary to ensure the compliance by the owner of such
Vessel of all laws and regulations applicable to such Mortgaged Vessel or any
other vessel;
"FREELY AVAILABLE LIQUID RESOURCES" shall have the meaning ascribed thereto in
Clause 20.3;
"GMM GROUP" means each of the Principal Borrowers and their subsidiaries for
the time being;
"GNS MORTGAGES" means the first priority mortgages as amended, varied,
supplemented or novated from time to time in favour of the Security Trustee to
be executed by the relevant Borrower over each of the GNS Vessels as security,
inter alia, for the obligations of the Borrowers hereunder;
"GNS VESSELS" means each of:
(a) the BP Fleet Vessels; and
(b) the vessel m.v. "Highland Sprite";
-4-
<PAGE> 16
"GOFE ASSIGNMENT" means the assignment agreement referred to in paragraph 7 of
the Second Schedule;
"GOMI MORTGAGES" means the first priority mortgages (each as amended, varied,
novated or supplemented from time to time, and which shall include for the
avoidance of doubt an addendum to the Mortgage over each of the m.v. Seawhip,
and the m.v. Seawitch) in favour of the Security Trustee to be executed by the
relevant Borrower over each of the GOMI Vessels as security, inter alia, for
the obligations of the Borrowers hereunder;
"GNS VESSELS" means each of the vessels:
(a) the m.v. "Sem Courageous";
(b) the m.v. "Sem Valiant";
(c) the m.v. "Seawhip"; and
(d) the m.v. "Seawitch";
"GROUP" means the Sponsor and its subsidiaries for the time being;
"INSTRUCTING GROUP" means;
(i) before any Advance has been made hereunder, a group
of Banks whose Total Available Commitments amount in
aggregate to more than fifty one (51%) of the Total
Available Facility; and
(ii) thereafter, a group of Banks to whom in aggregate
more than fifty one (51%) of the Loan is (or,
immediately prior to its repayment, was then) owed;
"INTEREST Period" means, save as otherwise provided herein, any of those
periods mentioned in Clause 9.1;
"LIBOR" means, in relation to any Advance or unpaid sum, the rate per annum at
which the Agent was offering to prime banks in the London Interbank Market
deposits in the currency of and in an amount approximately equal to the amount
of such Advance or unpaid sum and for the specified period at or about 11.00
a.m. on the Quotation Date for such period and, for the purposes of this
definition, "SPECIFIED PERIOD" means the Interest Period of such Advance or, as
the case may be, the period in respect of which LIBOR falls to be determined in
relation to such unpaid sum;
"LOAN" means at any time the aggregate principal amount of all Advances (or if
such Advances are denominated in sterling, the dollar equivalent thereof) for
the time being outstanding hereunder;
"MARGIN" means one and five eighths per cent. per annum;
"MARKET VALUE" means, at any time, in relation to any Vessel, her sale value in
dollars as then most recently determined by an independent and internationally
recognized firm of shipbrokers acceptable to the Agent on the basis of a sale
of such Vessel (a) for cash (b) free of charter, liens, charges, mortgages and
encumbrances and (C) at arm's length on normal commercial terms between a
willing seller and a willing buyer;
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<PAGE> 17
"MASTER AGREEMENTS" means each of the interest rate swap and currency hedging
agreements entered or to be entered into between respectively the Agent and GNS
and the Agent and GOMI in connection with the amounts payable hereunder;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the ability of any
of the Borrowers to meet its obligations to the Security Trustee, the Agent and
the Banks hereunder or under any of the Security Documents to which any of the
Borrowers is a party;
"MATERIAL OF ENVIRONMENTAL CONCERN" means and includes pollutants,
contaminants, toxic substances, oil as defined in the United States Oil
Pollution Act of 1990, and all hazardous substances as defined in the United
States Comprehensive Environmental Response, Compensation and Liability Act;
"MORTGAGED VESSELS" means (a) each of the Original Vessels in respect of which
a first priority legal mortgage and deed of covenant or assignments collateral
thereto granted in favour of the Security Trustee is in full force and effect;
and (b) each Additional Mortgaged Vessel and "MORTGAGED VESSEL" means any of
them;
"NEWBUILD" means the platform supply vessel type UT755 which is referred to in
the Building Contract;
"NOTICE OF DRAWDOWN" means a notice substantially in the form set out in the
Third Schedule;
"OBLIGORS" means the Sponsor and the Borrowers;
"ORIGINAL FINANCIAL STATEMENTS" means:
(i) in respect of each of the Principal Borrowers, the
consolidated financial statements of such Principal
Borrower and its subsidiaries for its financial year
ended 31 December 1992; and
(ii) in the case of the Sponsor the consolidated financial
statements of the Sponsor and its subsidiaries for
its financing year ended 31 December 1992;
"ORIGINAL VESSELS" means each of the GNS Vessels and the GOMI Vessels; and
"POTENTIAL EVENT OF DEFAULT" means any event which may become (with the passage
of time, the giving of notice, the making of any determination hereunder or any
combination thereof) an Event of Default;
"PROFITS AFTER TAX" means in respect of any financial year of any member of the
GMM Group, the profit after deduction of tax thereon of such member of the GMM
Group for such financial year determined by reference to the consolidated
profit and loss account of the GMM Group in respect of such financial year and
delivered to the Agent pursuant to Clause 19.1;
"QUOTATION DATE" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the London Interbank Market for deposits in dollars for
delivery on the first day of that period Provided that,
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<PAGE> 18
if for any such period quotations would ordinarily be given on more than one
date, the Quotation Date for that period shall be the last of those dates;
"REDUCED AMOUNT" on any Reduction Date, and in relation to each of the
Facilities, means the amount of such Facility as the same has been reduced on
such Reduction Date in accordance with the provisions of Clause 13.1;
"REDUCTION DATE" means 31 December 1996 and then each of the days which are 6,
12, 18, 24, 30 and 36 months thereafter;
"RELEASE OF MATERIAL OF ENVIRONMENTAL CONCERN" means an emission, spill,
release or discharge into or upon (i) the air, (ii) surface water, (iii) ground
water or (iv) soils, of any Material of Environmental Concern for which any
member of the Group has any liability under Environmental Laws, except in
accordance with a valid Environmental Approval;
"SECURITY DOCUMENTS" means:
(i) the first priority statutory ship mortgage and deed
of covenants collateral thereto executed in respect
of the following vessels:
(a) the p.s.v. "Highland Champion";
(b) the p.s.v. "Highland Fortress";
(c) the m.v. "Highland Sprite";
(d) the m.v. "Sem Courageous"; and
(e) the m.v. "Sem Valiant";
(ii) the first preferred Panamanian ship mortgages and
assignments of earnings and insurance collateral
thereto which may be executed in respect of the
following vessels:
(a) the m.v. "Seawhip"; and
(b) the m.v. "Seawitch"
(iii) the first preferred ship mortgage and deed of
covenants collateral thereto and assignment of
earnings and insurance collateral thereto which may
be executed in respect of the Newbuild;
(iv) each of the mortgages and deed of covenants (and/or
such other documents as may be executed assigning the
earnings and insurances of any vessel) which may be
executed in respect of any vessel as security for the
obligations of the Borrowers hereunder;
(v) the Trust Deed;
(vi) the GOFE Assignment;
(vii) the Share Pledges; and
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<PAGE> 19
(viii) the Advance Payment Guarantee Assignment;
"SHARE PLEDGES" means each of the share pledges referred to in paragraph 6 of
the Second Schedule;
"SHORT TERM FACILITY" means the short term facility agreement dated 8 July 1993
as amended by the amendment agreement dated 20 May 1994, the amendment
agreement dated the date hereof, and as amended, varied, supplemented or
novated from time to time made between the Borrowers, as borrowers, the
Sponsor, as guarantor, and the Agent as lending bank;
"STERLING ADVANCE" means an Advance made under the Sterling Facility;
"STERLING COMMITMENT" in relation to a Bank at any time means, subject to the
provisions of Clause 13.1 and save as otherwise provided herein, the amount of
the commitment set opposite its name in Column 2 of the First Schedule, the
amount of any commitment transferred to in accordance with Clause 35 less any
amount of its Sterling Commitment transferred by it in accordance with Clause
35;
"STERLING FACILITY" means the sterling revolving loan facility granted to the
Borrowers pursuant to Clause 2.2;
"SUPPLEMENTAL AGREEMENT" means an agreement substantially in the form set out
in the Fifth Schedule;
"TOTAL AVAILABLE COMMITMENT" in relation to any Bank at any time means, save as
otherwise provided herein, the aggregate of its Available Dollar Commitment and
the dollar equivalent of its Available Sterling Commitment at such time;
"TOTAL AVAILABLE FACILITY" means the aggregate amount from time to time of the
Total Available Commitments;
"TRANSFER CERTIFICATE" means a certificate in the form set out in the Sixth
Schedule signed by a Bank and a Transferee whereby:
(a) such Bank seeks to procure the transfer to such
Transferee of all or a part of such Bank's rights and
obligations hereunder upon and subject to the terms
and conditions set out in Clause 35; and
(b) such Transferee undertakes to perform the obligations
it will assume as a result of delivery of such
certificate to the Agent as is contemplated in Clause
35;
"TRANSFER DATE" in relation to any Transfer Certificate means the date for the
making of the transfer as specified in such Transfer Certificate;
"TRANSFEREE" means a bank or other financial institution to which a Bank seeks
to transfer all or part of such Bank's rights and obligations hereunder;
"TRUST DEED" means the deed of trust referred to in paragraph 3 of the Second
Schedule.
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<PAGE> 20
1.2 Any reference in this Agreement to:
the "AGENT" or a "BANK" shall be construed so as to include it and any
subsequent successors and assigns in accordance with their respective
interests;
a "BUSINESS DAY" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks are generally open for business in London
and New York City;
a "CLAUSE" shall, subject to any contrary indication, be construed as a
reference to a clause hereof;
an "ENCUMBRANCE" shall be construed as a reference to a mortgage, charge,
pledge, lien or other encumbrance securing any obligation of any person or any
other type of preferential arrangement (including, without limitation, title
transfer and retention arrangements) having a similar effect;
the "EQUIVALENT" on any given date in one currency (the "FIRST CURRENCY") of an
amount denominated in another currency (the "SECOND CURRENCY") is a reference
to the amount of the first currency which could be purchased by the amount of
the second currency at the spot rate of exchange quoted by the Agent at or
about 11.00 a.m. on such date for the purchase of the first currency with the
second currency for delivery two business days thereafter;
a "HOLDING COMPANY" of a company or corporation shall be construed as a
reference to any company or corporation of which the first-mentioned company or
corporation is a subsidiary;
"INDEBTEDNESS" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
"INDEBTEDNESS FOR BORROWED MONEY" shall be construed so as to include, without
limitation, any indebtedness of any person for or in respect of:
(i) amounts raised by acceptance under any acceptance
credit facility;
(ii) amounts raised under any note purchase facility;
(iii) the amount of any liability in respect of leases or
hire purchase contracts which would, in accordance
with generally accepted accounting standards in
the United States and/or the United Kingdom (as used
in the Principal Borrowers' most recent audited annual
consolidated financial statements from time to time),
be treated as finance or capital leases;
(iv) the amount of any liability in respect of any
purchase price for assets or services the payment of
which is deferred for a period in excess of one
hundred and eighty days;
(v) amounts raised under any other transaction
(including, without limitation, any forward sale or
purchase agreement) having the commercial effect of a
borrowing (excluding, for the avoidance of doubt,
indebtedness incurred in relation to commercial
transactions);
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<PAGE> 21
a "MONTH" is a reference to a period starting on one day in a calendar month
and ending on the numerically corresponding day in the next succeeding calendar
month save that, where any such period would otherwise end on a day which is
not a business day, it shall end on the next succeeding business day, unless
that day falls in the calendar month succeeding that in which it would
otherwise have ended, in which case it shall end on the immediately preceding
business day Provided that, if a period starts on the last business day in a
calendar month or if there is no numerically corresponding day in the month in
which that period ends, that period shall end on the last business day in that
later month (and references to "MONTHS" shall be construed accordingly);
a "PERSON" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or more
of the foregoing;
"REPAY" (or any derivative form thereof) shall, subject to any contrary
indication, be construed to include "PREPAY" (or, as the case may be, the
corresponding derivative form thereof);
"REQUISITION COMPENSATION" means the sums of money or other compensation from
time to time payable or paid by any person in connection with or by reason of
requisition for title or other compulsory acquisition of the Vessels or either
of them otherwise than by requisition for hire;
"REQUISITION FOR TITLE" (as a verb) includes, in relation to an asset,
compulsorily acquire, expropriate, nationalise, seize, capture, forfeit,
condemn as prize or otherwise act so as to divest the owner thereof of title
thereto and noun forms of the verb shall be construed accordingly;
a "SCHEDULE" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
a "SUBSIDIARY" of a company or corporation shall be construed as a reference to
any company or corporation:
(i) which is controlled, directly or indirectly, by the
first-mentioned company or corporation;
(ii) more than half the issued share capital of which is
beneficially owned, directly or indirectly, by the
first-mentioned company or corporation; or
(iii) which is a subsidiary of another subsidiary of the
first-mentioned company or corporation
and, for these purposes, a company or corporation shall be treated as being
controlled by another if that other company or corporation is able to direct
its affairs and/or to control the composition of its board of directors or
equivalent body;
"TAX" shall be construed so as to include any tax, levy, impost, duty or other
charge of a similar nature (including, without limitations any penalty or
interest payable in connection with any failure to pay or any delay in paying
any of the same);
"TOTAL LOSS" shall be construed in accordance with the provisions of the
relevant Security Document;
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<PAGE> 22
"VAT" shall be construed as a reference to value added tax including any
similar tax which may be imposed in place thereof from time to time;
a "WHOLLY-OWNED SUBSIDIARY" of a company or corporation shall be construed as a
reference to any company or corporation which has no other members except that
other company or corporation and that other company's or corporation's wholly-
owned subsidiaries or persons acting on behalf of that other company or
corporation or its wholly-owned subsidiaries; and
the "WINDING-UP", "DISSOLUTION" or "ADMINISTRATION" of a company or corporation
shall be construed so as to include any equivalent or analogous proceedings
under the law of the jurisdiction in which such company or corporation is
incorporated or any jurisdiction in which such company or corporation carries
on business including the seeking of liquidation, winding-up, reorganization,
dissolution, administration, arrangement, adjustment, protection or relief of
debtors.
1.3 "POUND STERLING" and "STERLING" denote the lawful currency of the
United Kingdom and "$" and "DOLLARS" denote lawful currency of the United
States of America.
1.4 Save where the contrary is indicated, any reference in this Agreement
to:
(i) this Agreement or any other agreement or document
shall be construed as a reference to this Agreement
or, as the case may be, such other agreement or
document as the same may have been, or may from time
to time be, amended, varied, novated or supplemented;
(ii) a statute shall be construed as a reference to such
statute as the same may have been, or may from time
to time be, amended or re-enacted; and
(iii) a time of day shall be construed as a reference to
London time.
1.5 Clause and Schedule headings are for ease of reference only.
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<PAGE> 23
PART 2
THE FACILITY
2. THE FACILITY
2.1 The Banks grant to the Borrowers through their respective Facility
Offices, subject to the provisions of Clause 13 and otherwise upon the terms
and subject to the conditions hereof, a revolving loan facility in an aggregate
amount of $5,800,000.
2.2 The Banks grant to the Borrowers through their respective Facility
Offices, subject to the provisions of Clause 13 and otherwise subject to the
conditions hereof, a sterling revolving loan facility in an aggregate amount of
pound sterling 12,500,000.
3. PURPOSE
3.1 The Facility is intended to:
(i) to refinance existing indebtedness of the Permitted
Borrowers secured by the Existing Mortgages;
(ii) to be applied in or towards the cost of acquisition
of the undertaking and assets of the offshore supply
division of BP Shipping Limited, including the BP
Fleet Vessels;
(iii) to finance the completion of the Newbuild pursuant to
the terms of the Building Contract; and
(iv) for general working capital purposes.
3.2 Without prejudice to the obligations of the Borrowers under
Clause 3.1, neither the Agent, the Banks nor any of them shall be obliged to
concern themselves with the application of amounts raised by any of the
Borrowers hereunder.
4. NATURE OF BANK'S OBLIGATIONS
4.1 The obligations of each Bank hereunder are several.
4.2 The failure by a Bank to perform its obligations hereunder shall not
affect the obligations of any Borrower to any other party hereto nor shall any
such other party be liable for the failure by such Bank to perform its
obligations hereunder.
5. CONDITIONS PRECEDENT
5.1 Save as the Agent may otherwise agree, no Borrower may deliver any
Notice of Drawdown hereunder unless the Agent has confirmed to the Sponsor that
it has received all of the documents listed in the Second Schedule and that
each is, in form and substance, satisfactory to the Agent.
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<PAGE> 24
5.2 In respect of the documents referred to in paragraphs 4 and 5 of the
Second Schedule (the "UNDATED SECURITY DOCUMENTS") the Agent agrees that they
are to be held in safe custody by it (or any sub-custodian as hereinafter
referred to) unless and until an Advance is made pursuant to Clause 7: in which
event the Agent shall where such Advance is made pursuant to the provisions of
Clause 7.1 contemporaneously date, or shall procure the contemporaneous dating
of, the Undated Security Documents referred to in paragraphs 4(iv), (v) and 5
of the Second Schedule and shall then endeavor to register (as soon as IS
reasonably practicable to do so) the mortgages referred to in paragraphs 4(iv),
(v) and 5 of the Second Schedule on the Panamanian or Malaysian Register of
Ships as the case may be, and where such Advance is made pursuant to the
provisions of Clause 7.2, contemporaneously date, or shall procure the
contemporaneous dating of the Undated Security Documents referred to in
paragraphs 4(i), (ii) and (iii) of the Second Schedule and shall then endeavor
to register (as soon as is reasonably practicable to do so) the mortgages
referred to in paragraphs 4(i), (ii) and (iii) of the Second Schedule on the
British Register of Ships. The Agent may place the Undated Security Documents
with any firm of lawyers of good repute and, in the absence of gross negligence
or wilful default on the part of the Agent, the Agent shall not be responsible
for any loss thereby incurred.
5.3 The Agent shall not, in the absence of gross negligence or wilful
default on its part, be responsible for any loss, incurred by any person, if
for any reason it is not possible to put into effect any matter the subject of
Clause 5.2. The relevant Borrower shall from time to time execute and sign all
documents which the Agent may reasonably require for effecting the registration
of the Undated Security Documents and, furthermore, each of the Borrowers
agrees not to withdraw, or purport to withdraw, the Undated Security Documents
from the custody of the Agent (or any sub-custodian as hereinbefore referred
to) except with the prior written consent of the Agent.
6. ADDITIONAL BORROWERS
6.1 The Sponsor may with the prior written consent of the Agent on behalf
of the Banks, such consent not to be unreasonably withheld, from time to time
designate any wholly-owned subsidiary of either of the Principal Borrowers as
an Additional Borrower for the purposes of the Facilities, in which event the
Sponsor shall promptly deliver or cause to be delivered to the Agent a
Supplemental Agreement duly executed by the parties thereto (other than the
Agent).
6.2 Upon delivery to the Agent of any Supplemental Agreement referred to
in Clause 6.1 and subject to (i) the Agent having confirmed to the person or
persons party to such Supplemental Agreement as proposed Additional Borrower or
Borrowers that it has received, in form and substance satisfactory to it, all
of the conditions precedent specified therein and (h) the Agent being satisfied
that neither the rights of the Banks under this Agreement nor any security
provided under the Security Documents are adversely affected in any way by the
proposed accession of any such Additional Borrower or Borrower, this Agreement
shall thenceforth be read and construed as if each wholly-owned subsidiary of
either of the Principal Borrowers which is a party to such Supplemental
Agreement as a proposed Additional Borrower were a party hereto having all the
rights and obligations of a Borrower and all references in any Facility
Document to "BORROWERS" and "PRINCIPAL BORROWERS" shall be treated as including
a reference to any such subsidiary which has become a party hereto in the
manner contemplated above.
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<PAGE> 25
PART 3
AVAILABILITY OF THE FACILITIES
7. AVAILABILITY OF THE FACILITIES
7.1 Subject to the provisions of Clause 7.3 and save as otherwise provided
herein, a Dollar Advance will be made by the Banks to a Borrower if:
(i) not more than ten, nor less than five business days
before the proposed date for the making of such
Advance, the Agent has received from a Borrower a
notice of drawdown therefore, receipt of which shall
oblige such Borrower to borrow the amount therein
requested on the date therein stated upon the terms
and subject to the conditions herein;
(ii) the proposed date for the making of such Advance is a
business day which falls one or more months before
the Final Maturity Date;
(iii) the proposed amount of such Advance is (a) an amount
of not less than $1,000,000 which is an integral
multiple of $500,000 and which is less than the
Available Dollar Facility or (b) equal to, the amount
of the Available Dollar Facility;
(iv) the proposed amount of such Advance less the amount
of any Dollar Advances falling to be repaid on or
before the proposed date for the making of such
Advance does not exceed the Available Dollar Amount;
(v) in the case of the initial Dollar Advance the Agent
is satisfied that first priority legal mortgages over
each of the GOMI Vessels will be duly registered,
recorded and filed immediately on the making thereof;
(vi) the interest rate applicable to such Advance during
its first Interest Period would not fail to be
determined pursuant to Clause 11.01;
(vii) the making of such Advance would not result in a
breach of the requirements of Clause 20.1; and
(viii) either:
(a) no Event of Default or Potential Event of
Default has occurred; and
(b) the representations set out in Clause 18 are
true on and as of the proposed date for the
making of such Advance,
or the Banks agree (notwithstanding any matter
mentioned at (a) or (b) above) to make such Advance.
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<PAGE> 26
7.2 Subject to the provision of Clause 7.3 and save as otherwise provided
herein, a Sterling Advance will be made by the Banks to a Borrower if:
(i) not more than ten nor less than five business days
before the proposed date for the making of such
Advance, the Agent has received from a Borrower a
Notice of Drawdown therefor, receipt of which shall
oblige such Borrower to borrow the amount therein
requested on the date therein stated upon the terms
and subject to the conditions contained herein;
(ii) the proposed date for the making of such Advance is a
business day which falls one or more months before
the Final Maturity Date;
(iii) the proposed amount of such Advance in (a) in the
case of the initial Sterling Advance pound sterling
7,350,000, and (b) in the case of each subsequent
Advance the proposed amount of such Advance is an
amount of not less than pound sterling 600,000 which
is an integral multiple of pound sterling 300,000 and
which is less than the amount of the Available
Sterling Facility or (b) equal to the amount of the
Available Sterling Facility;
(iv) the proposed amount of such Advance less the amount
of any Sterling Advances failing to be repaid on or
before the proposed date for the making of such
Advance does not exceed the Available Sterling
Amount;
(v) in the case of the initial Sterling Advance the Agent
is satisfied that first priority legal mortgages over
each of the GNS Vessels will be duly registered,
recorded and filed immediately upon the making
thereof;
(vi) the interest rate applicable to such Advance during
its first Interest Period would not fail to be
determined pursuant to Clause 11.01;
(vii) the making of such Advance would not result in a
breach of the requirements of Clause 20.1; and
(viii) either:
(a) no Event of Default or Potential Event of
Default has occurred; and
(b) the representations set out in Clause 18 are
true on and as of the proposed date for the
making of such Advance,
or each of the Banks agree (notwithstanding any
matter mentioned at (a) or (b) above) to make such
Advance.
7.3 Save as the Agent may otherwise agree, other than in the case of each
of the first Dollar Advance and the first Sterling Advance, no Borrower may
deliver a Notice of Drawdown hereunder in respect of an Advance the availability
of which is determined by reference to the value of a Designated Vessel, unless
the Agent has confirmed to the Sponsor that it has received in form and
substance satisfactory to it:
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<PAGE> 27
(i) evidence that such Designated Vessel
(a) is, or will be, registered in the name of a
Borrower under a flag acceptable to the
Agent, free from all charters, contracts
liens and encumbrances other than in favour
of the Security Trustee or in terms
acceptable to the Agent;
(b) is classified by the American Bureau of
Shipping A1 AMS or to an equivalent
classification acceptable to the Agent; and
(c) is, or will be, insured in accordance with
the deed of covenants (and/or such other
document as may be executed assigning the
insurances of such Designated Vessel)
referred to in Clause 7.3(iii);
(ii) a first priority mortgage in respect of such
Designated Vessel in favour of the Security Trustee;
(iii) a deed of covenants (and/or such other document as
may be executed, assigning the earnings and
insurances of such Designated Vessel)
Provided that the documents referred to in Clause 7.3(ii) and
(iii) shall be left undated and held by the Agent on the terms
and conditions of Clause 5.2 and 5.3 mutatis mutandis.
8. DETERMINATION OF ELIGIBLE AMOUNTS AND AVAILABLE AMOUNTS
At any time (i) the "AVAILABLE DOLLAR AMOUNT" shall be an amount equal
to the Eligible Dollar Amount less the amount of all Dollar Advances
outstanding at that time; and (ii) the "AVAILABLE STERLING AMOUNT"
shall be an amount equal to the Eligible Sterling Amount less the
amount of all Sterling Advances outstanding at that time where,
(a) the "ELIGIBLE DOLLAR AMOUNT" shall be the
aggregate of:
(x) the Base Dollar Available Amount at
such time; and
(y) 51% of the aggregate amount of the
Market Value of (i) any Additional
Mortgaged Vessels at such time; and
(ii) any Designated Vessels;
(b) the "ELIGIBLE STERLING AMOUNT" shall be the
aggregate of:
(x) the Base Sterling Available Amount
at such time; and
(y) 51% of the sterling equivalent of
the aggregate amount of the Market
Value of (i) any Additional
Mortgaged Vessels at such time; and
(ii) any Designated Vessels;
(c) the "BASE DOLLAR AVAILABLE AMOUNT" shall be
$4,500,000
less
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<PAGE> 28
(x) in the case of the sale of any of
the GOMI Vessels an amount equal to
51% of the proceeds of sale of any
such vessels (or, if such proceeds
are not denominated in dollars, the
dollar equivalent thereof); and
(y) an amount equal to 51% of the value
of any GOMI Vessel which ceases to
be a Mortgaged Vessel;
(d) the "BASE STERLING AVAILABLE AMOUNT" shall be
pound sterling 7,115,000
less
(x) in the case of the sale of any of
the GNS Vessels an amount equal to
51% of the proceeds of sale of such
vessels (or, if such proceeds are
not denominated in sterling, the
sterling equivalent thereof); and
(y) an amount equal to 51% of the
sterling equivalent of the value of
any of the GNS Vessels which ceases
to be a Mortgaged Vessel;
PROVIDED ALWAYS THAT the Eligible Dollar Amount and the Eligible Sterling
Amount shall be calculated without double counting the Market Value of any
Additional Mortgaged Vessels related thereto.
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<PAGE> 29
PART 4
INTEREST
9. INTEREST PERIODS
9.1 The period for which an Advance is outstanding shall be divided into
successive periods each of which (other than the first) shall start on the last
day of the preceding such period.
9.2 The duration of each Interest Period shall, save as otherwise provided
herein, be one, three or six months, in each case as the Borrower of the
Advance to which such Interest Period relates may by not less than five
business days' prior notice to the Agent select Provided that:
(i) if such Borrower fails to give such notice of its
selection in relation to an Interest Period, the
duration of that Interest Period shall, subject to
paragraphs (ii) and (iii) below, be three months.
(ii) any Interest Period which begins during or at the
same time as any other Interest Period shall (if the
Advances to which those Interest Periods relate are
in the same currency) end at the same time as that
other Interest Period; and
(iii) any Interest Period which would otherwise end during
the month preceding, or extend beyond, a Reduction
Date or the Final Maturity Date shall be of such
duration that it shall end on such date.
10. INTEREST
10.1 On the last day of each Interest Period (and in the case of an
Interest Period of a duration of six months or more, on the expiry of each
period of three months during such Interest Period) the relevant Borrower shall
pay accrued interest on the Advance to which such Interest Period relates.
10.2 The rate of interest applicable to an Advance from time to time during
an Interest Period relating thereto shall be the rate per annum which is the
sum of the Margin (and in the case of an Advance denominated in sterling the
Associated Cost Rate in respect thereof at such time) and LIBOR on the
Quotation Date therefor.
11. ALTERNATIVE INTEREST RATES
11.1 If, in relation to an Advance at or about 11.00 a.m. on the Quotation
Date for an Interest Period in respect of such Advance:
(i) the Agent was not offering to prime banks in the
London Interbank Market deposits in the currency in
which such Advance is to be denominated for the
proposed duration of such Interest Period; or
(ii) before the close of business in London on the
Quotation Date for such Interest Period, the Agent
has been notified by each of a group of Banks to
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whom in aggregate fifty-one (51) per cent or more of
the aggregate amount of Advances denominated in the
currency of such Advance is (or, if an Advance were
then to be made, would be) owed that the rate at
which such deposits were being so offered does not
reflect the cost to it of obtaining such deposits,
then, notwithstanding the provisions of Clause 9:
(a) if paragraph (i) above applies the duration
of that Interest Period shall be one month
or, if less, such that it shall end on the
next succeeding Reduction Date or the Final
Maturity Date as the case may be; and
(b) the rate of interest applicable to each
Bank's portion of the Advance to which such
Interest Period relates from time to time
during such Interest Period shall be the rate
per annum which is the sum of the Margin
(and, in the case of sterling, the Associated
Costs Rate in respect thereof at such time)
and the rate per annum notified to the Agent
by such Bank before the last day of such
Interest Period to be that which expresses as
a percentage rate per annum the cost to such
Bank of funding its portion of the Advance
during such Interest Period from whatever
sources it may reasonably select.
11.2 If (i) the event mentioned in paragraph (i) or (ii) in Clause 11.1
occurs or (ii) by reason of circumstances affecting the London Interbank Market
during any period of three consecutive business days the Agent was not offering
deposits in the currency in which an Advance is to be denominated to prime
banks in the London Interbank Market, then:
(i) the Agent shall notify the Banks, the Sponsor and the
Borrowers of such event;
(ii) if the Agent so requires, within five days of such
notification the Agent and the Sponsor and each
relevant Borrower shall enter into negotiations with
a view to agreeing a substitute basis (a) for
determining the rates of interest from time to time
applicable to the Advances and/or (b) upon which the
Advances may be maintained (whether in dollars or
sterling) thereafter and any such substitute basis
that is agreed shall take effect in accordance with
its terms and be binding on each party hereto;
Provided Always that the Agent may not agree any such
substitute basis without the prior consent of each
Bank; and
(iii) if the Agent has required the Sponsor and any
Borrower to enter into such negotiations, the Agent
may declare (any such declaration to be binding on
the Borrowers) that each Advance shall become due and
payable on the last day of its then current Interest
Period unless by then a substitute basis has been
agreed upon in relation thereto.
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PART 5
REPAYMENT, CANCELLATION AND PREPAYMENT
12. REPAYMENT
12.1 The Principal Borrowers shall, on the Final Maturity Date, repay or
procure the repayment by the Borrowers of each Advance then outstanding.
12.2 On each Reduction Date the Principal Borrowers shall repay, or procure
the repayment by the Borrowers, of the amount or amounts by which, on that
Reduction Date, Advances under either of the Facilities exceed the Reduced
Amount of that Facility.
13. REDUCTION, CANCELLATION AND PREPAYMENT
13.1 The amount of each of the Dollar Facility and the Sterling Facility
shall be reduced on each of the Reduction Dates by an amount equal to ten per
cent. (10%) of the Facility Amount.
13.2 The Sponsor may, by giving to the Agent not less than thirty days'
prior notice to that effect, cancel the whole or any part (being, in the case
of the Dollar Facility, an amount or integral multiple of $500,000 and, in the
case of the Sterling Facility, an amount or integral multiple of pound sterling
300,000)) of the Facilities. Any such cancellation shall reduce the Available
Dollar Commitment and/or the Available Sterling Commitment, as the case may be,
of the Banks rateably.
13.3 Any Borrower may, if it has given to the Agent not less than ten
business days prior notice to that effect, prepay the whole of any Advance or
any part of any Advance (being an amount, in the case of any Advance
denominated in dollars, of not less than $1,000,000 and an integral multiple of
$500,000, and in the case of any Advance denominated in sterling of not less
than pound sterling 600,000 and an integral multiple of pound sterling 300,000)
on the last day of any Interest Period relating to that Advance.
13.4 In the event any Mortgaged Vessel is sold or is or becomes or is
declared an actual or constructive or comprised or agreed total loss then the
relevant Borrower shall apply the proceeds of sale or insurance proceeds or any
requisition compensation in respect thereof:
(i) first, where such Mortgaged Vessel was a GOMI Vessel
or an Additional Mortgaged Vessel by reference to the
value of which the Eligible Dollar Amount was
calculated, in repayment of Advances then outstanding
under the Dollar Facility, and where such Mortgaged
Vessel was a GNS Vessel or an Additional Mortgaged
Vessel by reference to the value of which the Eligible
Sterling Amount was calculated, in repayment of
Advances then outstanding under the Sterling Facility;
and
(ii) second, in repayment any other Advances then
outstanding
such repayment to be effected on the last day of the Interest Period in respect
of Advances in the currency in which such proceeds are to be first applied
during which such proceeds are received or, if earlier, 120 days from the date
of total loss; Provided Always that if any such proceeds of sale or insurance
proceeds are recovered or requisition compensation received other than on the
last day
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of any Interest Period the Agent shall, at the request of the Sponsor, retain
such proceeds of sale or insurance proceeds or requisition compensation, as the
case may be, in a suspense account with interest accruing thereon for the
account of the relevant Borrower at such rate as the Agent would pay in the
normal course of its business in respect of deposits of a like amount and for a
like term.
13.5 Any notice of cancellation or prepayment given by the Sponsor or any
Borrower pursuant to Clause 13.2 or 13.3 shall be irrevocable, shall specify
the date upon which such cancellation or prepayment is to be made and the
amount of such cancellation or prepayment and, in the case of a notice of
prepayment, shall oblige such Borrower to make such prepayment on such date.
13.6 If any Bank claims indemnification from the Principal Borrowers under
Clause 14.2 or Clause 16.1 and within thirty days thereafter the Agent receives
from the Sponsor at least fifteen days' prior notice (which shall be
irrevocable) of the Borrowers' intention to repay such Bank's share of the
Advances then outstanding, the Borrowers shall on the last day of each of the
then current Interest Period of each such Advance repay such Bank's portion of
such Advances.
13.7 A Bank for whose account a repayment is to be made under Clause 13.6
shall not be obliged to make any advances hereunder on or after the date upon
which the Agent receives the Borrowers' notice of their intention to repay such
Bank's share of the Advances then outstanding, on which date such Bank's
Available Dollar Commitment and Available Sterling Commitment shall each be
reduced to zero.
13.8 The Borrowers shall not repay all or any part of any Advance except at
the times and in the manner expressly provided for in this Agreement, but,
shall subject to the terms and conditions hereof, be entitled to reborrow any
amount repaid.
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PART 6
CHANGE IN CIRCUMSTANCES
14. TAXES
14.1 All payments to be made any of the Borrowers to any person hereunder
shall be made free and clear of and without deduction for or on account of tax
unless such Borrower is required to make such a payment subject to the
deduction or withholding of tax, in which case the sum payable by such Borrower
in respect of which such deduction or withholding is required to be made shall
be increased to the extent necessary to ensure that, after the making of the
required deduction or withholding, such person receives and retains (free from
any liability in respect of any such deduction or withholding) a net sum equal
to the sum which it would have received and so retained had no such deduction
or withholding been made or required to be made.
14.2 Without prejudice to the provisions of Clause 14.1, if any person or
the Agent on its behalf is required to make any payment on account of tax (not
being a tax imposed on the net income of its Facility Office in the
jurisdiction in which it is incorporated or in which its Facility Office is
located) or otherwise on or in relation to any sum received or receivable by
such person or the Agent on its behalf hereunder (including, without
limitation, any sum received or receivable under this Clause 14) or any
liability in respect of any such payment is asserted, imposed, levied or
assessed against such person or the Agent on its behalf, the relevant Borrower
shall, upon demand of the Agent, promptly indemnify such person against such
payment or liability, together with any interest, penalties and expenses
payable or incurred in connection therewith.
14.3 A Bank intending to make a claim pursuant to Clause 14.2, it shall
notify the Agent of the event by reason of which it is entitled to make such
claim whereupon the Agent shall notify the relevant Borrower and the Sponsor
thereof Provided that nothing herein shall require any Bank to disclose any
confidential information relating to the organisation of its affairs.
15. TAX RECEIPTS
15.1 If, at any time, any of the Borrowers is required by law to make any
deduction or withholding from any sum payable by it hereunder (or if thereafter
there is any change in the rates at which or the manner in which such
deductions or withholdings are calculated), such Borrower shall promptly notify
the Agent.
15.2 If any of the Borrowers makes any payment hereunder in respect of
which it is required to make any deduction or withholding, such Borrower shall
pay the full amount required to be deducted or withheld to the relevant
taxation or other authority within the time allowed for such payment under
applicable law and shall deliver to the Agent for each Bank, within thirty days
after it has made such payment to the applicable authority, an original receipt
(or a certified copy thereof) issued by such authority evidencing the payment
to such authority of all amounts so required to be deducted or withheld in
respect of such payment.
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<PAGE> 34
16. INCREASED COSTS
16.1 If, by reason of (i) any change in law or in its interpretation or
administration and/or (ii) compliance with any request from or requirement of
any central bank or other fiscal, monetary or other authority (including,
without limitation, a request or requirement which affects the manner in which
a Bank or any holding company of such Bank is required to or does maintain
capital resources having regard to such Bank's obligations hereunder and to
amounts owing to it hereunder):
(a) a Bank or any holding company of such Bank incurs a cost as a
result of its having entered into and/or performing its
obligations under this Agreement and/or assuming or
maintaining a commitment under this Agreement and/or making
one or more Advances;
(b) a Bank or any holding company of such Bank is unable to obtain
the rate of return on its overall capital which it would have
been able to obtain but for its having entered into and/or
performing its obligations and/or assuming or maintaining a
commitment under this Agreement;
(c) there is any increase in the cost to a Bank or any holding
company of such Bank of funding or maintaining all or any of
the advances comprised in a class of advances formed by or
including the Advances; or
(d) a Bank or any holding company of such Bank becomes liable to
make any payment on account of tax or otherwise (not being a
tax imposed on the net income of its Facility Office by the
jurisdiction in which it is incorporated or in which its
Facility Office is located) on or calculated by reference to
the amount of the Advances and/or to any sum received or
receivable by it hereunder; or
(e) the Associated Costs Rate, as calculated hereunder, does not
represent the cost to any Bank of complying with the
requirements of the Bank of England in relation to its funding
or maintaining of Advances,
then the Principal Borrowers shall, from time to time on demand of the Agent,
promptly pay to the Agent for the account of that Bank amounts sufficient to
indemnify that Bank or any such holding company against, as the case may be,
(1) such cost, (2) such reduction in such rate of return (or such proportion of
such reduction as is, in the opinion of that Bank, attributable to its
obligations hereunder), (3) such increased cost (or such proportion of such
increased cost as is, in the opinion of that Bank, attributable to its funding
or maintaining Advances) or (4) such liability.
16.2 A Bank intending to make a claim pursuant to Clause 16.1, it shall
notify the Agent of the event by reason of which it is entitled to do so
whereupon the Agent shall notify the Sponsor thereof Provided that nothing
herein shall require any Bank to disclose any confidential information relating
to the Organisation of its affairs.
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17. ILLEGALITY
If, at any time, it is unlawful for a Bank to make, fund or allow to remain
outstanding all or any of the Advances, then that Bank shall, promptly after
becoming aware of the same, deliver to the Borrowers through the Agent a
certificate to that effect and:
(i) such Bank shall not thereafter be obliged to make any
Advances and the amount of its Dollar Available
Commitment and its Sterling Available Commitment
shall be immediately reduced to zero; and
(ii) if the Agent on behalf of such Bank so requires, the
Borrowers shall on such date as the Agent shall have
specified repay such Bank's share of each outstanding
Advance together with accrued interest thereon and
all other amounts owing to such Bank hereunder and
any repayment so made shall reduce rateably the
remaining obligations of the Borrowers under Clause
12.
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<PAGE> 36
PART 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
18. REPRESENTATIONS
18.1 Each of the Borrowers represents that:
(i) it is a corporation duly organised under the laws of
the Republic of Panama (in the case of GOMI and GOFE)
or England (in the case of GNS and GONS) with power
to enter into this Agreement and the Security
Documents to which it is a party and to exercise its
rights and perform its obligations hereunder and all
corporate and other action required to authorise its
execution of this Agreement and the Security
Documents to which it is a party and its performance
of its obligations hereunder has been duly taken;
(ii) under the laws of its jurisdiction of incorporation
in force at the date hereof, it will not be required
to make any deduction or withholding from any payment
it may make hereunder;
(iii) under the laws of its jurisdiction of incorporation
in force at the date hereof, the claims of the Agent
and the Banks against such Borrower under this
Agreement and under the Security Documents to which
it is a party will rank at least pari passu with the
claims of all its other unsecured creditors save
those whose claims are preferred solely by any
bankruptcy, insolvency, liquidation or other similar
laws of general application;
(iv) in any proceedings taken in its jurisdiction of
incorporation in relation to this Agreement and the
Security Documents to which it is a party, it will
not be entitled to claim for itself or any of its
assets immunity from suit, execution, attachment or
other legal process;
(v) in any proceedings taken in its jurisdiction of
incorporation in relation to this Agreement and any
of the Security Documents expressed to be governed by
English law, the choice of English law as the
governing law of this Agreement and such Security
Documents and any judgment obtained in England will
be recognised and enforced;
(vi) save for the registration of the GNS Mortgages and
the GOMI Mortgages with the appropriate authorities,
all acts, conditions and things required to be done,
fulfilled and performed in order (a) to enable it
lawfully to enter into, exercise its rights under and
perform and comply with the obligations expressed to
be assumed by it in this Agreement, (b) to ensure
that the obligations expressed to be assumed by it in
this Agreement and the Security Documents are legal,
valid and binding and (c) to make this Agreement and
the Security Documents admissible in evidence in its
jurisdiction of incorporation have been done,
fulfilled and performed;
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<PAGE> 37
(vii) under the laws of its jurisdiction of incorporation
in force at the date hereof, it is not necessary that
this Agreement and the Security Documents, other than
the GNS Mortgages and the GOMI Mortgages, the Share
Pledges and any deed of covenant or assignment of
earnings and insurance collateral thereto be filed,
recorded or enrolled with any court or other
authority in such jurisdiction or that any stamp,
registration or similar tax be paid on or in relation
to this Agreement or any Security Document; and
(viii) the obligations expressed to be assumed by it in this
Agreement and the Security Documents to which it is a
party are its legal, valid and binding obligations.
18.2 Each of the Borrowers further represents that:
(i) no member of the Group has taken any corporate action
nor have any other steps been taken or legal
proceedings been started or (to the best of the
Borrowers' knowledge and belief) threatened against
any member of the Group for its winding-up,
dissolution, administration or re-organisation or for
the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer
of it or of any or all of its assets or revenues;
(ii) no member of the Group is in breach of or in default
under any agreement to which it is a party or which
is binding on it or any of its assets to an extent or
in a manner which might have a Material Adverse
Effect on the business or financial condition of any
member of the Group;
(iii) no action or administrative proceeding of or before
any court or agency which might have a Material
Adverse Effect on the business or financial condition
of any member of the Group has been started or
threatened;
(iv) it and (to the best of its knowledge) its
Environmental Affiliates have complied with the
provisions of all applicable Environmental Laws,
except where non-compliance does not and will not
have a Material Adverse Effect;
(v) it and (to the best of its knowledge) its
Environmental Affiliates have obtained all requisite
Environmental Approvals and are in compliance with
such Environmental Approvals, except where the
failure to obtain or comply with any such
Environmental Approvals does not and will not have a
Material Adverse Effect;
(vi) neither it nor (to the best of its knowledge) its
Environmental Affiliates has received notice of any
Environmental Claim that alleges that it or any of
its Environmental Affiliates are not in compliance
with applicable Environmental Laws or Environmental
Approvals, where such non-compliance has or will
have a Material Adverse Effect;
(vii) there is no Environmental Claim pending or
threatened, to the best of its knowledge, that has or
will have a Material Adverse Effect;
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<PAGE> 38
(viii) there has been no Release of Material of
Environmental Concern except where such event does
not and will not have a Material Adverse Effect;
(ix) all of the written information supplied by any member
of the Group to the Agent and the Banks in connection
herewith is true, complete and accurate in all
material respects and it is not aware of any material
facts or circumstances that have not been disclosed
to the Agent and the Banks and which might, if
disclosed, adversely affect the decision of a person
considering whether or not to provide finance to the
Borrowers;
(x) the Sponsor is directly or indirectly, the sole legal
and beneficial owner of the entire share capital of
each of the Principal Borrowers; and
(xi) save for the Christiania Mortgages and any security
documents related or collateral thereto and any
encumbrance created pursuant to the provisions of
Clause 21.2(iii), no encumbrance exists over all or
any of the present or future revenues or assets of
any member of the Group.
18.3 Each of the Borrowers further represents that:
(i) the execution by each Borrower of this Agreement and
of each Security Document to which it is a party and
each Borrower's exercise of its rights and
performance of its obligations hereunder will not
result in the existence of nor oblige any member of
the Group to create any encumbrance over all or any
of its present or future revenues or assets: except,
insofar as the same may arise pursuant to the
Security Documents;
(ii) the execution by each Borrower of this Agreement and
each Borrowers' exercise of its rights and
performance of its obligations hereunder do not and
will not:
(a) conflict with any agreement, mortgage, bond
or other instrument or treaty to which any
Borrower is a party or which is binding upon
it or any of its assets;
(b) conflict with any Borrowers constitutive
documents and rules and regulations; or
(c) conflict with any applicable law, regulation
or official or judicial order; and
(iii) the execution by each Borrower of this Agreement
constitutes, and such Borrower's exercise of its
rights and performance of its obligations hereunder
will constitute, private and commercial acts done and
performed for private and commercial purposes.
18.4 GOFE represents that it, and each of the other parties thereto are in
compliance with all their obligations under each of the charters relating to
the GOMI Vessels, and GONS represents that it and
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<PAGE> 39
BRITISH GAS are in compliance with all their obligations under the charter
relating to the m.v. "Highland Sprite" and none of the parties to such charters
have cancelled or repudiated or sought to terminate, cancel or repudiate their
obligations thereunder.
18.5 GONS represents that:
(i) the Building Contract is in full force and effect and
has not been amended since 29 December 1994 and is
enforceable against the Contractor in accordance
with its terms; and
(ii) neither it nor the Contractor is in breach of or
default under the Building Contract.
19. FINANCIAL INFORMATION
19.1 The Sponsor shall, or shall procure that, the Principal Borrowers
shall:
(i) as soon as the same become available, but in any
event within 120 days after the end of each of its
financial years, deliver to the Agent in sufficient
copies for the Banks the audited consolidated
financial statements of the Group and each of the
Principal Borrowers for such financial year;
(ii) as soon as the same become available, but in any
event within 60 days after the end of each of its
financial quarter years, deliver to the Agent in
sufficient copies for Banks the consolidated
financial statements of the Group, each of the
Principal Borrowers and the GMM Group for such
period; and
(iii) from time to time on the request of the Agent,
furnish the Agent with such information about the
business and financial condition of the Group as the
Agent may reasonably require (including, but without
limitation, such further information as the Agent may
from time to time require in order to enable it to
ascertain where the obligations as set out in Clause
20 are complied with.
19.2 The Sponsor and each of the Principal Borrowers shall ensure that:
(i) each set of financial statements delivered by it
pursuant to Clause 19.1 is prepared on the same basis
as was used in the preparation of its Original
Financial Statements and in accordance with
accounting principles generally accepted in the
United States and/or the United Kingdom and
consistently applied;
(ii) each set of financial statements delivered by it
pursuant to Clause 19.1 is certified by a duly
authorised officer of the Sponsor as giving a true
and fair view of the financial condition of the Group
as at the end of the period to which those financial
statements relate and of the results of the Group's
operations during such period; and
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<PAGE> 40
(iii) each set of financial statements delivered by it
pursuant to paragraph (i) of Clause 19.1 has been
audited by auditors acceptable to the Agent.
20. FINANCIAL CONDITION AND SECURITY COVERAGE
20.1 Each of the Principal Borrowers shall ensure that at all times the
consolidated financial condition of the GMM Group, as evidenced by the
Sponsor's and the Principal Borrower's then most recent audited annual
consolidated financial statements and in the case of paragraph (iv) below the
then most recent quarterly financial statements delivered pursuant to Clause
19.1(ii) (each as adjusted, as the Agent may consider appropriate, to take
account of any changes in circumstances which occur after the date as of which
such audited annual consolidated financial statements or, as the case may be,
quarterly financial statements, were prepared), shall be such that:
(i) the ratio of Current Assets to Current Liabilities
shall exceed 1.15:1;
(ii) the ratio of Total Liabilities to Tangible Equity
shall not exceed 1.75:1;
(iii) the aggregate of Tangible Equity and Subordinated
Debt shall be equal to or exceed $29,000,000;
(iv) for the twelve month period preceding the date as of
which such financial statements were prepared, the
ratio of Gross Revenues to Operating Expenses shall
be equal to or exceed 1.75:1.
20.2 Each of the Borrowers shall at all times ensure that Freely Available
Liquid Resources exceed $1,500,000.
20.3 Each of the Principal Borrowers shall ensure at all times that the
aggregate of:
(i) gross revenues received in respect of the charter,
lease or hire of any of the Mortgaged Vessels during
the preceding six months; and
(ii) the projected gross revenues from any unconditional
committed charter, lease or agreement to hire of any
of the Mortgaged Vessels for the succeeding six
months
shall be equal to or exceed $5,000,000.
20.4 In this Clause 20:
(i) "CURRENT ASSETS" means the aggregate of all of the
assets of each member of the GMM Group, other than
monies due or to become due from another member of
the GMM Group, which would, in accordance with
generally accepted accounting practice in the U.S.
consistently applied, be classified as current
assets, all as shown on the latest financial
statements delivered in accordance with Clause 19.1;
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<PAGE> 41
(ii) "CURRENT LIABILITIES" means at any particular time
the aggregate of the obligations of each member of
the GMM Group to pay money other than (a) repayment
obligations in respect of Advances made hereunder
falling due within a six month period from the date
at which such liabilities are calculated and (b)
monies due or to become due to other members of the
GMM Group, which would, in accordance with generally
accepted accounting practice in the U.S.
consistently applied, be classified as current
liabilities, all as shown on the Sponsor's latest
financial statements delivered in accordance with
Clause 19.1;
(iii) "FREELY AVAILABLE LIQUID RESOURCES" means the
aggregate of any cash and deposits in any
jurisdiction from which funds are freely
transferable, denominated in freely convertible and
transferable currencies (placed in a prime bank or
reputable financial institution) then solely legally
and beneficially owned by any of the Borrowers and
free from encumbrances;
(iv) "GROSS REVENUES" means in respect of the GMM Group
and in respect of any period of time the aggregate of
the following items (all ascertained on a before tax
basis and without double counting):
(a) the revenues received or receivable by the
GMM Group during such period in respect of
the charter; use or operation of any
Mortgaged Vessel;
(b) all compensation or other consideration
received or receivable by any member of the
GMM Group during such period from any person
on account of any requisition for hire of any
Mortgaged Vessel;
(c) any and all proceeds of insurances relating
to revenue claims received or receivable by
any member of the GMM Group during such
period in respect of any Mortgaged Vessel;
(d) any other amounts received or receivable by
any member of the GMM Group during such
period which the Agent has agreed may be
taken into account in calculating the Gross
Revenues for such period,
(v) "OPERATING EXPENSES" means in respect of the GMM
Group and in respect of any period of time the
aggregate of the following items (all ascertained on
a before tax basis and without double counting):
(a) all management fees paid or payable by any
member of the GMM Group during, or which are
attributable to, such period in connection
with the management of any of the Mortgaged
Vessels; and
(b) all administrative, operating and overhead
costs and expenses paid or payable by any
member of the GMM Group in connection with
any of the Mortgaged Vessels during, or which
are attributable to, such period (other than,
for the avoidance of doubt, items relating to
depreciation or amortisation),
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but only to the extent, in the case of (a) and (b)
hereof, that such items are non-capital items and are
deductible from revenues under generally accepted
accounting principles in the United States and/or the
United Kingdom consistently applied;
(vi) "TOTAL LIABILITIES" means at any particular time the
aggregate of the obligations of each member of the
GMM Group on a consolidated basis for the payment of
monies whether borrowed or not and whether due or to
become due which would, in accordance with generally
accepted accounting practice in the U.S. consistently
applied, be classified as liabilities (including, for
the avoidance of doubt, liabilities in respect of
lease or hire purchase contracts, contracts of
charter and contracts of guarantee), other than
monies due or to become due to any other member of
the GMM Group;
(vii) "TANGIBLE EQUITY" means at any particular time the
aggregate of the amounts paid up or credited as paid
up in respect of the Principal Borrowers' share
capital and the aggregate amount of capital and
reserves of the Principal Borrowers including, but
not limited to any credit balance standing to the
consolidated profit and loss account of the GMM
Group;
but deducting
(a) any debit balance standing to the
consolidated profit and loss account of the
GMM Group; and
(b) any intangible asset, including (for the
avoidance of doubt) goodwill
but shall exclude the cumulative amount of any
translation or transaction adjustments as required to
be deducted from or added to equity but excluded from
the determination of consolidated profit and loss in
accordance with accounting principles generally
accepted in the United States;
(viii) "SUBORDINATED DEBT" means any indebtedness of any of
the Borrowers which is subordinated, in a manner and
to an extent satisfactory to the Agent, to the
indebtedness of the Borrowers under this Agreement.
20.5 All expressions used in the definitions of this Clause 20 which are
not otherwise defined herein shall be construed in accordance with generally
accepted accounting principles in the United States of America (as used in the
Sponsor's most recent audited annual consolidated financial statements).
20.6 If the Agent at any time determines that the aggregate of the Market
Value of each of the Mortgaged Vessels as determined by reference to the most
up-to-date valuation of the Mortgaged Vessels delivered pursuant to the
provisions of Clause 21.1(v) is less than 175% of the aggregate amount of all
Advances then outstanding (or the dollar equivalent thereof) (such requirement
being the "Required Security Coverage") then the Principal Borrowers shall
within ten business days after a request therefor from the Agent either;
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(a) prepay an amount of the Advance or Advances then outstanding which
shall be applied prorata in prepayment thereof, together with interest
thereon and any amounts falling due under Clause 25.4 as a result of
such prepayment; or
(b) provide additional security as may be acceptable to the Agent such
that the Required Security Coverage is met.
21 COVENANTS
21.1 Each of the Borrowers shall:
(i) and shall ensure that each other Borrower shall,
obtain, comply with the terms of and do all that is
necessary to maintain in full force and effect all
authorisations, approvals, licences and consents
required in or by the laws and regulations of its
jurisdiction of incorporation to enable it lawfully
to enter into and perform its obligations under this
Agreement and each of the Security Documents or to
ensure the legality, validity, enforceability or
admissibility in evidence in its jurisdiction of
incorporation of this Agreement and each of the
Security Documents;
(ii) without prejudice to the specific requirements of the
Security Documents procure that each member of the
GMM Group maintains insurances on and in relation to
its business and assets with reputable underwriters
or insurance companies against such risks and to such
extent as is usual for companies carrying on a
business such as that carried on by such member of
the GMM Group whose practice is not to self insure;
(iii) promptly inform the Agent of the occurrence of any
Event of Default or Potential Event of Default and,
upon receipt of a written request to that effect from
the Agent, confirm to the Agent that, save as
previously notified to the Agent or as notified in
such confirmation, no Event of Default or Potential
Event of Default has occurred;
(iv) without prejudice to the priority afforded by any
mortgage and deed of covenant or assignment
collateral thereto securing the obligations of the
Borrowers hereunder ensure that at all times the
claims of the Agent and the Banks against it under
this Agreement rank at least pari passu with the
claims of all its other unsecured creditors save
those whose claims are preferred by any bankruptcy,
insolvency, liquidation or other similar laws of
general application;
(v) at the request of the Agent, deliver to the Agent or
procure the delivery to the Agent of up-to-date
valuations of the Vessels prepared at the sole cost
and expense of the Borrowers, showing the Market
Value of each of the Mortgaged Vessels;
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(vi) ensure that the Mortgaged Vessels are maintained in
good working order and condition and in any event in
such condition as enables them to maintain the
classification American Bureau of Shipping AI AMS or
to an equivalent classification acceptable to the
Agent free from all notations and recommendations
which have not been complied with within any
applicable time limit and ensure that such
classification is maintained;
(vii) comply with all applicable Environmental Laws
including, without limitation, requirements relating
to the establishment of financial responsibility (and
shall require that all Environmental Affiliates of
the Borrowers comply with all applicable
Environmental Laws and obtain and comply with all
required Environmental Approvals, which Environmental
Laws and Environmental Approvals relate to any of the
Mortgaged Vessels or their operation or their
carriage of cargo), except where such non-compliance
does not or will not have a Material Adverse Effect;
(viii) upon the request of the Agent, conduct and complete
all investigations, studies, sampling, audits and
testings reasonably required by any known (or
threatened) Release of Material of Environmental
Concern that has or will have a Material Adverse
Effect;
(ix) promptly upon the occurrence of either of the
following events, provide to the Agent a certificate
of an officer of the Sponsor specifying in detail the
nature of such event and the proposed response of the
relevant Borrower or its Environmental Affiliate
concerned:
(a) the receipt by any of the Borrowers or any
Environmental Affiliate (where the relevant
Borrower has knowledge of such receipt) of
any Environmental Claim which has or will
have a Material Adverse Effect; or
(b) any actual or threatened Release of Material
of Environmental Concern which has or will
have a Material Adverse Effect,
and upon the written request by the Agent submit to
the Agent in sufficient copies for the Banks, at
reasonable intervals, a report updating the status of
any occurrence of an Environmental Claim or a Release
of Material of Environmental Concern, that has or
will have a Material Adverse Effect;
(x) maintain the registration of the Mortgaged Vessels
under the laws and flag under which they are
currently maintained (or in the case of the m.v. "Sem
Courageous" and the m.v. "Sem Valiant" under the laws
and flag of Malaysia) and not cause or permit to be
done any act or omission whereby their registration
as such would or might be defeated or imperilled or
which might result in such Mortgaged Vessels being
required to be registered under any other flag and
registered with the appropriate authorities;
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(xi) permit the Agent on reasonable notice to inspect the
Mortgaged Vessels and their logs;
(xii) from time to time on being required to do so by the
Agent, do or procure the doing of all such acts and
execute or procure the execution of all such
documents as the Agent may reasonably consider
necessary for giving full effect to each of the
Security Documents or for securing to the Banks the
full benefit of the rights, powers and remedies
intended to be conferred upon the Agent or the
Security Trustee pursuant to the Security Documents;
(xiii) at all times ensure that the Principal Borrowers are,
subject to the rights conferred by the Share Pledges,
the sole beneficial owners of the entire issued share
capital of each of the Permitted Borrowers and each
Additional Borrower;
(xiv) commencing from the date hereof and thereafter no
later than 14 days from and inclusive of each of 30th
September, 31st December, 30th March and 30th June
deliver to the Agent in sufficient copies for the
Banks a schedule in form and substance satisfactory
to the Agent detailing Fixed Asset Investments
exceeding $50,000 made by any of the Borrowers in the
three months proceeding the date upon which such
schedule is delivered;
(xv) no later than 14 days from and inclusive of 31st
March, 30th June, 30th September and 31st December in
each calendar year, furnish the Agent in sufficient
copies for the Banks with a report in form and
substance satisfactory to the Agent and at the cost
of the Borrowers, relating to the status, employment,
earnings and location of the Mortgaged Vessels as at
the date upon which such report is furnished in
respect of the period elapsing since the previous
such report, if any;
(xvi) forthwith upon the request of the Agent, charge,
pledge or otherwise encumber in favour of the
Security Trustee pursuant to a security document in
form and substance satisfactory to the Agent any
account into which Approved Charter Earnings are
paid;
(xvii) at the reasonable request of the Agent, and subject
to the Sponsors prior consent enter into, interest
rate and currency hedging agreements with the Hedge
Counterparty or such other counterparty as the Agent
may agree, such agreement not to be unreasonably
withheld, for the purpose of minimising currency and
interest rate exposure;
(xviii) GMM Group shall deliver promptly to the Agent a
monthly report (in a format to be agreed with the
Agent) concerning the status, technical issues, cost
overruns and charge orders relating to the
refurbishment of the Newbuild under the Building
Contract; and
(xix) GMM Group shall, as soon as it becomes available, but
in any event within 14 days of the completion of the
works to be undertaken pursuant to the
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Building Contract deliver to the Agent evidence
satisfactory to the Agent that the Newbuild is
classified with Det norske Veritas with class +1 A1,
SF, EO free from any recommendation or requirement
that has not been complied with in accordance with
its terms.
21.2 None of the Borrowers shall, and the Principal Borrowers shall ensure
that no member of the GMM Group shall, without the prior written
consent of an Instructing Group:
(i) in respect of the period commencing on the date
hereof and ending on 31 December 1996 pay, make or
declare any dividend or other distribution in respect
of any financial year of such member of the GMM
Group; and
(ii) in respect of the period commencing on 1 January 1997
pay, make or declare any dividend or other such
distribution unless:-
immediately thereafter Freely Available Liquid
Resources exceeds the aggregate of:
(aa) $2,000,000; and
(bb) an amount equal to the sum of the payment
obligations of the Borrowers in respect of
principal and interest payable hereunder due
or to be paid within the six months
succeeding such time;
PROVIDED ALWAYS that in no circumstance shall the
amount of any such payment, dividend or distribution
exceed the Profits After Tax of the such member of
the GMM Group for such financial year;
(iii) incur expenditure in respect of any management fees
payable other than management fees payable to the
Sponsor in such amount as the Agent, may agree having
regard to the annual budget and operating expenses of
the Sponsor;
(iv) create or permit to subsist any encumbrance over all
or any of its present or future revenues or assets
except:-
(a) pursuant to the Security Documents; or
(b) any encumbrance imposed by law, such as
carrier's, warehouseman's, mechanics' liens
and other similar liens arising in the
ordinary course of business or permitted
under the terms of the Security Documents; or
(c) any encumbrance over assets acquired after
the date hereof otherwise than from any other
Borrower and which encumbrance is in
existence prior to such acquisition or is
created in order to secure indebtedness
incurred in respect of such acquisition;
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(d) the Christiania Mortgages; or
(e) a floating charge over the corporate accounts
maintained by the Principal Borrowers or
either of them with the Agent, securing
obligations arising under the Short Term
Facility;
(v) make any loans, grant any credit (save in the
ordinary course of business) or give any guarantee or
indemnity (except as required hereby) to or for the
benefit of any person or otherwise voluntarily assume
any liability, whether actual or contingent, in
respect of any obligation of any other person;
(vi) issue any further shares or alter any rights
attaching to its issued shares in existence at the
date hereof other than by GONS to GNS in exchange for
the shareholding of GNS in Dianne Operating Limited;
(vii) save as otherwise provided herein (disregarding sales
of stock in trade in the ordinary course of business
and sales of Mortgaged Vessels or other assets for
amounts not less than eighty per cent. of the Market
Value of such Mortgaged Vessel) sell, lease, transfer
or otherwise dispose of, by one or more transactions
or series of transactions (whether related or not),
the whole or any part (the book value of which is
thirty per cent. or more of the book value of the
whole) of its revenues or its assets;
(viii) incur any indebtedness for borrowed money other than
pursuant to this Facility and the Short Tenn Facility
in excess of $50,000 or its equivalent in other
currencies; save to the extent that such indebtedness
is owed to other members of the Group and is
subordinated to the obligations of the Borrowers
hereunder, and under each of the Security Documents
to which it is a party, on terms acceptable to the
Agent or is secured by encumbrances of the nature
referred to in Clause 21.2(iii)(c) or the Christiania
Mortgages;
(ix) carry on or engage in or be concerned with any
business or activities except insofar as they relate
to the ownership and operation of the Mortgaged
Vessels and other vessels engaged in similar
activities and activities relating thereto or
otherwise relate to the undertaking and assets of
the offshore supply division of BP Shipping Limited;
(x) merge, demerge or consolidate with any person;
(xi) undertake in any twelve month period any expenditure
of a capital nature without the Agent's consent save
insofar as such expenditure relates to:-
(a) any single Fixed Asset Investment which does
not exceed:
(i) $100,000 in respect of the GOMI
Vessels;
(ii) $150,000 in respect of each of the
m.v. Highland Sprite and m.v.
Highland Legend; and
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(iii) $250,000 in respect of each of the
BP Fleet Vessels, the m.v. Highland
Star, the m.v. Highland Pride, the
Christiania Newbuild and the
Newbuild;
(b) more than one Fixed Asset Investment the
amounts of which, when aggregated do not
exceed $500,000.
21.3 The Sponsor shall at all times remain subject to such rights as may be
conferred by the Share Pledges the sole beneficial owner free from all
encumbrances, of the entire issued share capital of each member of the GMM
Group.
21.4 The Sponsor shall not, save with the consent of the Agent or pursuant
to the Short Term Facility, give any guarantee or indemnity to or for the
benefit of any person or otherwise voluntarily assume any liability, whether
actual or contingent, in respect of any obligation of any other person
Provided always that this Clause 21.4 shall not apply to (i) the guarantee
issued by the Sponsor in favour of the Southwest Bank of Texas N.A. in respect
of indebtedness incurred by Ercon Development Co. ("Ercon") up to a maximum
aggregate principal amount of $500,000 or (ii) any bid or performance bond
issued by the Sponsor at the request of Ercon up to a maximum aggregate amount
of $500,000
21.5 GNS will ensure that upon the delivery of the Newbuild the legal and
beneficial owner (whether registered as such or not in any title or other
registry (the "Owner")) of the Newbuild shall execute in favour of the Security
Trustee
(a) a first priority mortgage of the Owner's right, title and
interest in and to the Newbuild;
(b) a first priority assignment of the Owner's right, title and
interest in and to the earnings attributable to the Newbuild;
(c) a first priority assignment of the Owner's right, title and
interest in and to the insurances attributable to the
Newbuild;
(d) if the Owner is not already an Obligor, a supplement to this
Agreement whereby inter alia the Owner becomes and is treated
for all purposes as a Guarantor; and
(e) a report, issued by an independent person, (being an insurance
broker and/or insurance consultant), addressed to the Agent
confirming that insurances effected in respect of the Newbuild
are adequate.
22. EVENTS OF DEFAULT
22.1 If:
(i) any of the Borrowers fails to pay any sum due from it
hereunder or under the Master Agreement or any
Security Document at the time, in the currency and in
the manner specified herein or therein or if such
failure results solely from
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technical or administrative difficulties relating to
the transfer of such sums, such failure is not
remedied within three days;
(ii) any representation or statement made by any of the
Borrowers in this Agreement or under any Security
Document or in any notice or other document,
certificate or statement delivered by it pursuant
hereto or thereto or in connection herewith is or
proves to have been incorrect or misleading when
made; or
(iii) any of the Borrowers or the Sponsor fails duly to
perform or comply with any of the obligations
expressed to be assumed by it in Clauses 19, 20 or 21
hereof or in the Master Agreement or duly to effect
insurance of the Mortgaged Vessels or any of them in
accordance with the applicable provisions of the
Security Documents; or
(iv) any of the Borrowers fails duly to perform or comply
with any other obligation expressed to be assumed by
it in this Agreement or under any Security Document
and such failure is not remedied within fourteen days
after the Agent has given notice thereof to such
Borrower; or
(v) any of the Borrowers is in breach of any of its
obligations under any of the Approved Charters or any
of the Borrowers seeks to cancel, terminate or
repudiate any of the Approved Charters without the
prior consent of the Agent; or
(vi) any indebtedness of the Sponsor or any member of the
GMM Group (other than indebtedness due to trade
creditors incurred in the normal course of business
of the Sponsor or such member of the GMM Group which
is disputed in good faith and by appropriate
proceedings diligently conducted) is not paid when
due or within any applicable grace period, any
indebtedness of the Sponsor or any member of the GMM
Group is declared to be or otherwise becomes due and
payable prior to its specified maturity or any
creditor or creditors of the Sponsor or any member of
the GMM Group become entitled to declare any
indebtedness of the Sponsor or such member of the GMM
Group due and payable prior to its specified
maturity; or
(vii) in any period of twelve months commencing from the
date hereof any judgments or judicial orders or
arbitration awards are made against any of the
Borrowers in an amount or an aggregate amount in
excess of $750,000 (or the equivalent in any other
currency) (other than any judgment, judicial order or
arbitration award as to which, and only to the extent
that, a reputable company or other surety, in either
case acceptable to the Agent, has acknowledged
coverage of such judgment, judicial order or
arbitration award in writing) and,
(a) any such judgment, judicial order or
arbitration award has not been stayed,
discharged, paid, bonded or vacated within 30
days or such longer period as may be agreed
by the Agent; or
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(b) enforcement proceedings have been commenced
by any creditor on any such judgment,
judicial order or arbitration award;
(viii) the Sponsor or any member of the GMM Group is unable
to pay its debts as they fall due, commences
negotiations with any one or more of its creditors
with a view to the general readjustment or
rescheduling of its indebtedness or makes a general
assignment for the benefit of or a composition with
its creditors; or
(ix) (otherwise than for the purpose of a reconstruction
on terms previously approved by the Agent) the
Sponsor or any member of the GMM Group takes any
corporate action or other steps are taken or legal
proceedings are started for its winding-up,
dissolution, administration or re-organisation or
for the appointment of a receiver, administrator,
administrative receiver, trustee or similar officer
of it or of any or all of its revenues and assets; or
(x) any execution or distress is levied against, or an
encumbrancer takes possession of the whole or any
material part of, the property, undertaking or assets
of the Sponsor or any member of the GMM Group; or
(xi) by or under the authority of any government, (a) the
management of the Sponsor or any member of the GMM
Group is wholly or partially displaced or the
authority of the Sponsor or any member of the GMM
Group in the conduct of its business is wholly or
partially curtailed or (b) all or a majority of the
issued shares of the Sponsor or any member of the GMM
Group or the whole or any part (the book value of
which is twenty per cent. or more of the book value
of the whole) of its revenues or assets is seized,
nationalised, expropriated or compulsorily acquired;
or
(xii) subject to the rights conferred by the Share Pledges,
the Sponsor ceases to be the sole legal and
beneficial owner of the entire share capital of the
Principal Borrowers; or
(xiii) the Principal Borrowers cease to be the beneficial
owner of the entire issued share capital of each of
the Permitted Borrowers and any Additional Borrower;
(xiv) save as provided in Clause 21.1(ix) any member of the
GMM Group ceases to carry on the business it carries
on at the date hereof or enters into any new type of
business; or
(xv) the Sponsor or any of the Borrowers repudiates this
Agreement or any Security Document to which it is a
party or does or causes to be done any act or thing
evidencing an intention to repudiate this Agreement
or any such Security Document; or
(xvi) at any time any act, condition or thing required to
be done, fulfilled or performed in order (a) to
enable the Sponsor or any of the Borrowers
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lawfully to enter into, exercise its rights under and
perform the obligations expressed to be assumed by it
in this Agreement and the Security Documents to which
it is a party, (b) to ensure that the obligations
expressed to be assumed by the Sponsor or any of the
Borrowers in this Agreement and the Security
Documents to which it is a party are legal, valid and
binding or (c) to make this Agreement and the
Security Documents to which it is a party admissible
in evidence in any Borrower's jurisdiction of
incorporation is not done, fulfilled or performed; or
(xvii) at any time any of the security interests constituted
by any of the Security Documents ceases to constitute
valid and perfected first priority security
interests;
(xviii) at any time it is or becomes unlawful for the Sponsor
or any of the Borrowers to perform or comply with any
or all of its obligations hereunder or under any of
the Security Documents to which it is a party or any
of the obligations of the Sponsor or any of the
Borrowers hereunder or under any of the Security
Documents to which it is a party are not or cease to
be legal, valid and binding; or
(xix) (a) any circumstances arise which give grounds in the
reasonable opinion of the Agent for belief that the
Sponsor or any of the Borrowers may not (or may be
unable to) perform or comply with its obligations
hereunder, or any of the Security Documents to which
it is a party (b) the Agent shall have given to the
Sponsor notice that it is of such opinion setting out
in reasonable detail the grounds upon which such
opinion is based and (c) after having given due
regard to any representation made by the Sponsor
during the period of ten days after the giving of
such notice by the Agent, the Agent is of the same
opinion upon the expiration of such period,
then, and in any such case and at any time thereafter, the Agent may (and, if
so instructed by an Instructing Group, shall) by written notice to the Sponsor:
(a) declare the Advances to be immediately due and payable
(whereupon the same shall become so payable together with
accrued interest thereon and any other sums then owed by the
Borrowers hereunder) or declare the Advances to be due and
payable on demand of the Agent; and/or
(b) declare that any undrawn portion of the Facilities shall be
cancelled, whereupon the same shall be cancelled and each of
the Available Dollar Facility and the Available Sterling
Facility shall be reduced to zero.
22.2 If, pursuant to Clause 22.1, the Agent declares the Advances to be due
and payable on demand of the Agent, then, and at any time thereafter, the Agent
may by written notice to the Sponsor:
(i) call for repayment of the Advances on such date as it
may specify in such notice (whereupon the same shall
become due and payable on such date
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together with accrued interest thereon and any other
sums then owed by the Borrowers hereunder) or
withdraw its declaration with effect from such date
as it may specify in such notice; and/or
(ii) select as the duration of any Interest Period which
begins whilst such declaration remains in effect a
period of six months or less.
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PART 8
SPONSOR'S AND BORROWERS' OBLIGATIONS
23. BORROWERS' JOINT AND SEVERAL OBLIGATIONS
23.1 Each obligation of or expressed to be assumed by the Borrowers or any
of them in or under this Agreement or any Security Document is the joint and
several obligation of the Borrowers and of each of them.
23.2 Each Borrower acknowledges and confirms that it is a principal and
original debtor in respect of all amounts which may become payable by the
Borrowers in accordance with the terms hereof or any Security Document and
agrees that the Beneficiaries and each of them may in all circumstances treat
it as such whether or not any Beneficiary is or becomes aware that such
Borrower is or has become a surety for another.
23.3 The Borrowers agree to indemnify and hold harmless the Beneficiaries
and each of them from and against any loss incurred by any of them as a result
of any Clause or provision of this Agreement or any Security Document being or
becoming void, voidable or unenforceable for any reason whatsoever, whether or
not known to any such person, the amount of such loss being limited to the
amount which such Beneficiary would otherwise have been entitled to recover
hereunder or under any Security Document had such Clause or provision not
become void, voidable or unenforceable.
23.4 The obligations of each Borrower under this Agreement or any Security
Document shall not be in any way discharged or impaired by reason of (i) any
time or indulgence which may be granted by the Beneficiaries or any of them to
the other Borrower or any other person from whom they may seek payment of sums
due from a Borrower under this Agreement or any Security Document, (ii) by any
variation of this Agreement or any Security Document or any related document or
(iii) by any other circumstance which might (but for this provision) constitute
a legal or equitable discharge of such Borrower.
23.5 Any rights conferred on the Beneficiaries or any of them by this
Agreement or any Security Document shall be in addition to and not in
substitution for or derogation of any other right which the Beneficiaries or
any of them might at any time have to seek from the other Borrower or any other
person payment of sums due from a Borrower or indemnification against
liabilities incurred as a result of a Borrower's default in payment of sums due
from it under this Agreement or any Security Document.
23.6 None of the Beneficiaries shall be obliged before taking steps to
enforce any rights conferred on it by this Clause or exercising any of the
rights, powers and remedies conferred on it hereby or by law (a) to take action
or obtain judgment in any court against the other Borrower or any other person
from whom they may seek payment of any sum due from a Borrower under this
Agreement or any Security Document, (b) to make or file any claim in a
bankruptcy, winding-up, liquidation or re-organization of the other Borrower or
any other such person or (c) to enforce or seek to enforce any other rights it
may have against the other Borrower or any other such person.
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<PAGE> 54
23.7 Each Borrower agrees that so long as any sums are or may be owed by
either Borrower under this Agreement or any Security Document any rights which
such Borrower may have at any time by reason of performance by it of its
obligations under this Clause to be indemnified by the other Borrower and/or to
take the benefit (in whole or in part) of any security taken pursuant to this
Agreement or any Security Document by the Banks or the Security Trustee on
their behalf shall be exercised by such Borrower in such manner and upon such
terms as the Banks may require and further agrees to hold any moneys at any
time received by it as a result of the exercise of any such rights for and on
behalf and to the order of the Banks for application in or towards payment of
any sums at any time owed by either Borrower under this Agreement or any
Security Document.
23.8 Each Borrower further agrees that so long as any sums are or may be
owed by either Borrower under this Agreement or any Security Document such
Borrower will not (i) claim any set-off or counter-claim against the other
Borrower in respect of any liability on the part of such other Borrower to such
first Borrower and attributable to this Agreement or any Security Document or
(ii) prove in competition with the Beneficiaries or any of them in any
liquidation or winding-up of the other Borrower, whether in respect of any
payment by such Borrower hereunder or under any Security Document or in respect
of any moneys including proceeds of realisation of securities, dividends or
otherwise.
24. SPONSOR'S OBLIGATIONS
For the avoidance of doubt, the obligations of the Sponsor herein contained
shall not constitute a guarantee of the obligations of the Borrowers, but shall
be limited to a liability in damages arising out of or in connection with any
breach by the Sponsor of the representations, covenants or undertakings on its
part contained herein.
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PART 9
DEFAULT INTEREST AND INDEMNITY
25. DEFAULT INTEREST AND INDEMNITY
25.1 If any sum due and payable by any of the Borrowers hereunder is not
paid on the due date therefor in accordance with the provisions of Clause 27 or
if any sum due and payable by any of the Borrowers under any judgment of any
court in connection herewith is not paid on the date of such judgment, the
period beginning on such due date or, as the case may be, the date of such
judgment and ending on the date upon which the obligation of such Borrower to
pay such sum (the balance thereof for the time being unpaid being herein
referred to as an "UNPAID SUM") is discharged shall be divided into successive
periods, each of which (other than the first) shall start on the last day of
the preceding such period and the duration of each of which shall (except as
otherwise provided in this Clause 25) be selected by the Agent.
25.2 During each such period relating thereto as is mentioned in Clause
25.1 an unpaid sum shall bear interest at the rate per annum which is the sum
from time to time of one per cent., the Margin and LIBOR on the Quotation Date
therefor and, in the case of any Advance denominated in sterling, the
Associated Costs Rate Provided that:
(i) if, for any such period, LIBOR cannot be determined,
the rate of interest applicable to such unpaid sum
shall be the sum from time to time of one per cent.,
the Margin and the rate per annum equal to the cost
to the Agent of funding such unpaid sum for such
period from whatever source it may select; and
(ii) if such unpaid sum is all or part of the Advance
which became due and payable on a day other than the
last day of an Interest Period relating thereto, the
first such period applicable thereto shall be of a
duration equal to the unexpired portion of that
Interest Period and the rate of interest applicable
thereto from time to time during such period shall be
that which exceeds by one per cent. the rate which
would have been applicable to it had it not so fallen
due.
25.3 Any interest which shall have accrued under Clause 25.2 in respect of
an unpaid sum shall be due and payable and shall be paid by the Borrower owing
such unpaid sum at the end of the period by reference to which it is calculated
or on such other date or dates as the Agent may specify by written notice to
such Borrower.
25.4 If any Bank or the Agent on its behalf receives or recovers all or any
part of such Bank's share of an Advance otherwise than on the last day of an
Interest Period relating to that Advance, the Borrowers shall pay to the Agent
on demand for account of such Bank an amount equal to the amount (if any) by
which (i) the additional interest which would have been payable on the amount
so received or recovered had it been received or recovered on the last day of
that Interest Period exceeds (ii) the amount of interest which in the opinion
of the Agent would have been payable to the Agent on the last day of that
Interest Period in respect of a dollar deposit equal to the amount so received
or
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recovered placed by it with a prime bank in London for a period starting on the
third business day following the date of such receipt or recovery and ending on
the last day of that Interest Period.
25.5 Each of the Borrowers undertakes to indemnify:
(i) each of the Agent and the Banks against any cost,
claim, loss, expense (including legal fees) or
liability together with any VAT thereon, which it may
sustain or incur as a consequence of the occurrence
of any Event of Default or any default by any of the
Borrowers in the performance of any of the
obligations expressed to be assumed by it in this
Agreement; and
(ii) each Bank against any loss it may suffer as a result
of its funding an Advance requested by a Borrower
hereunder but not made by reason of the operation of
any one or more of the provisions hereof.
25.6 Any unpaid sum shall (for the purposes of this Clause 25 and Clause
16.1) be treated as an advance and accordingly in this Clause 25 and Clause
16.1 the term "Advance" includes any unpaid sum and the term "Interest
Period", in relation to an unpaid sum, includes each such period relating
thereto as is mentioned in Clause 25.1.
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PART 10
PAYMENTS
26. CURRENCY OF ACCOUNT AND PAYMENT
26.1 The currency of account and payment for each and every sum at any time
due from any of the Borrowers hereunder is:
(a) dollars in the case of the Dollar Facility; and
(b) sterling in the case of the Sterling Facility
Provided that:
(i) each payment in respect of costs and expenses shall
be made in the currency in which the same were
incurred; and
(ii) each payment pursuant to Clause 14.2 or Clause 16.1
shall be made in the currency specified by the Bank
to whom such payment is to be made.
26.2 If any sum due from any of the Borrowers under this Agreement or any
order or judgment given or made in relation hereto has to be converted from the
currency (the "FIRST CURRENCY") in which the same is payable hereunder or under
such order or judgment into another currency (the "SECOND CURRENCY") for the
purpose of (i) making or filing a claim or proof against such Borrower, (ii)
obtaining an order or judgment in any court or other tribunal or (iii)
enforcing any order or judgment given or made in relation hereto, such Borrower
shall indemnify and hold harmless each of the persons to whom such sum is due
from and against any loss suffered as a result of any discrepancy between (a)
the rite of exchange used for such purpose to convert the sum in question from
the first currency into the second currency and (b) the rate or rates of
exchange at which such person may in the ordinary course of business purchase
the first currency with the second currency upon receipt of a sum paid to it in
satisfaction, in whole or in part, of any such order, judgment, claim or proof.
27. PAYMENTS
27.1 On each date on which this Agreement or any of the Security Documents
requires an amount to be paid by any of the Borrowers or any of the Banks, such
Borrower or, as the case may be, such Bank shall make the same available to the
Agent:
(i) where such amount is denominated in dollars by
payment in dollars and in same day funds (or in such
other funds as may for the time being be customary in
New York City for the settlement in New York City of
international banking transactions in dollars) to the
Agent's account number 001-0-962009 with The Chase
Manhattan Bank NA, New York, N.Y. 10081, U.S.A. (or
such other account or bank as the Agent may have
specified for this purpose); and
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(ii) where such amount is denominated in sterling, by
payment in sterling and immediately available, freely
transferable, cleared funds to The Chase Manhattan
Bank, N.A., London Branch, sort code 60-92-42
Attention: Global Petroleum (or such other account as
the Agent may have specified for this purpose).
27.2 If, at any time, it shall become impracticable (by reason of any
action of any governmental authority or any change in law, exchange control
regulations or any similar event) for any of the Borrowers to make any payments
hereunder in the manner specified in Clause 27.1, then such Borrower may agree
with each or any of the Banks alternative arrangements for such payments to be
made Provided that, in the absence of any such agreement with any Bank, such
Borrower shall be obliged to make all payments due to such Bank in the manner
specified herein. Upon reaching such agreement such Borrower and such Bank
shall immediately notify the Agent thereof and shall thereafter promptly notify
the Agent of all payments made direct to such Bank.
27.3 Save as otherwise provided herein, each payment received by the Agent
for the account of another person pursuant to Clause 27.1 shall be made
available by the Agent to such other person (in the case of a Bank, for the
account of its Facility Office) for value the same day by transfer to such
account of such bank in the principal financial centre of the country of the
currency of such payment as such person shall have previously notified to the
Agent.
27.4 All payments required to be made by any of the Borrowers hereunder
shall be calculated without reference to any set-off or counterclaim and shall
be made free and clear of and without any deduction for or on account of any
set-off or counterclaim.
27.5 Where a sum is to be paid hereunder to the Agent for account of
another person, the Agent shall not be obliged to make the same available to
that other person until it has been able to establish to its satisfaction that
it has actually received such sum, but if it does so and it proves to be the
case that it had not actually received such sum, the person to whom such sum
was so made available shall on request refund the same to the Agent together
with an amount sufficient to indemnify the Agent against any cost or loss it
may have suffered or incurred by reason of its having paid out such sum prior
to its having received such sum.
28. SET-OFF
Each of the Borrowers authorizes each Bank to apply any credit balance to which
such Borrower is entitled on any account of such Borrower with that Bank in
satisfaction of any sum due and payable from such Borrower to such Bank
hereunder but unpaid; for this purpose, each Bank is authorized to purchase
with the moneys standing to the credit of any such account such other
currencies as may be necessary to effect such application. No Bank shall be
obliged to exercise any right given to it by this Clause 28.
29. REDISTRIBUTION OF PAYMENTS
29.1 If, at any time, the proportion which a Bank (a "RECOVERING BANK") has
received or recovered (whether by payment, the exercise of a right of set-off
or combination of accounts or otherwise) in respect of its portion of any
payment (a "RELEVANT PAYMENT") to be made under this Agreement by any of the
Borrowers for account of such Recovering Bank and the other Bank is
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greater (the portion of such receipt or recovery giving rise to such excess
proportion being herein called an "EXCESS AMOUNT") than the proportion thereof
so received or recovered by the Bank so receiving or recovering the smallest
proportion thereof, then:
(i) such Recovering Bank shall pay to the Agent an amount
equal to such excess amount;
(ii) there shall thereupon fall due from such Borrower to
such Recovering Bank an amount equal to the amount
paid out by such Recovering Bank pursuant to
paragraph (i) above, the amount so due being, for the
purposes hereof, treated as if it were an unpaid part
of such Recovering Bank's portion of such relevant
payment; and
(iii) the Agent shall treat the amount received by it from
such Recovering Bank pursuant to paragraph (i) above
as if such amount had been received by it from such
Borrower in respect of such relevant payment and
shall pay the same to the persons entitled thereto
(including such Recovering Bank) pro rata to their
respective entitlements thereto.
29.2 If any sum (a "RELEVANT SUM") received or recovered by a Recovering
Bank in respect of any amount owing to it by any of the Borrowers becomes
repayable and is repaid by such Recovering Bank, then:
(i) each Bank which has received a share of such relevant
sum by reason of the implementation of Clause 29.1
shall, upon request of the Agent, pay to the Agent
for the account of such Recovering Bank an amount
equal to its share of such relevant sum; and
(ii) there shall thereupon fall due from such Borrower to
each such Bank an amount equal to the amount paid out
by it pursuant to paragraph (i) above, the amount so
due being, for the purposes hereof, treated as if it
were the sum payable to such Bank against which such
Bank's share of such relevant sum was applied.
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PART 11
FEES, COSTS AND EXPENSES
30. FEES
30.1 The Borrowers shall pay to the Agent for the account of the Banks a
commitment commission on the amount of each of the Available Dollar Facility
and the Available Sterling Facility from day to day during the period beginning
on the date hereof and ending on the Final Maturity Date, such commitment
commission to be calculated at the rate of three quarters of one per cent. per
annum and payable in arrear on the last day of each successive period of three
months which ends during such period and on the Final Maturity Date.
30.2 The Borrowers shall pay to the Agent for its own account the agency
fee specified in the letter of even date herewith from the Agent to the
Borrowers at the time and in the amount specified therein.
30.3 The Borrowers shall pay to the Agent for the account of the Banks an
arrangement fee equal to one per cent. of each of the Dollar Facility and the
Sterling Facility upon the date of drawdown of the first Advance made hereunder.
30.4 The Borrowers shall pay to the Agent for its own account the fees
specified in the letter of even date herewith from the Agent to the Principal
Borrowers.
31. COSTS AND EXPENSES
31.1 The Borrowers shall, from time to time on demand of the Agent,
reimburse the Agent for all costs and expenses (including legal fees, travelling
and accommodation and other reasonable out of pocket expenses) together with
any VAT thereon incurred by it in connection with the negotiation, preparation
and execution of this Agreement and the completion of the transactions herein
contemplated.
31.2 The Borrowers shall, from time to time on demand of the Agent,
reimburse the Agent and all the Banks for all costs and expenses (including
legal fees) together with any VAT thereon incurred in or in connection with the
preservation and/or enforcement of any of the rights of the Agent, the Security
Trustee and the Banks under this Agreement.
31.3 The Borrowers shall pay all stamp, registration and other taxes to
which this Agreement or any judgment given in connection herewith is or at any
time may be subject and shall, from time to time on demand of the Agent,
indemnify the Agent, the Security Trustee and the Banks against any
liabilities, costs, claims and expenses resulting from any failure to pay or
any delay in paying any such tax.
31.4 If the Borrowers fails to perform any of their obligations under this
Clause 31, each Bank shall, in the proportion borne by its share of the Loan
(or, if no Advances have been made, its Available Commitment) to the amount of
the Loan (or, if no Advances have been made, the Available Facility) for the
time being (or, if the Loan has been repaid in full, immediately prior to the
final repayment thereof), indemnify the Agent against any loss incurred by any
of them as a result of such
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failure and the Borrower shall forthwith reimburse each Bank for any payment
made by it pursuant to this Clause 31.4.
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PART 12
AGENCY PROVISIONS
32. THE AGENT AND THE BANKS
32.1 Each Bank hereby appoints the Agent to act as its agent in connection
herewith and authorises the Agent to exercise such right, powers and
discretions as are specifically delegated to the Agent by the terms hereof
together with all such rights, powers and discretions as are reasonably
identical thereto.
32.2 The Agent may:
(i) assume that:
(a) any representation made by any of the
Borrowers in connection herewith is true;
(b) no event which is or may become an Event of
Default has occurred; and
(c) none of the Borrowers is in breach of or
default under its obligations hereunder
unless it has actual knowledge or actual notice to
the contrary;
(ii) assume that the Facility Office of each Bank is that
identified with its signature below until it has
received from such Bank a notice designating some
other office of such Bank to replace its Facility
Office and act upon any such notice until the same is
superseded by a further such notice;
(iii) engage and pay for the advice or services of any
lawyers, accountants, surveyors or other experts
whose advice or services may to it seem necessary,
expedient or desirable and rely upon any advice so
obtained;
(iv) rely as to any matters of fact which might reasonably
be expected to be within the knowledge of any of the
Sponsor or the Borrowers upon a certificate signed by
or on behalf of the Sponsor or such Borrower;
(v) rely upon any communication or document believed by
it to be genuine;
(vi) refrain from exercising any right, power or
discretion vested in it as agent hereunder unless and
until instructed by an Instructing Group as to
whether or not such right, power or discretion is to
be exercised and, if it is to be exercised, as to the
manner in which it should be exercised; and
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(vii) refrain from acting in accordance with any
instructions of an Instructing Group to begin any
legal action or proceeding arising out of or in
connection with this Agreement until it shall have
received such security as it may require (whether by
way of payment in advance or otherwise) for all
costs, claims, expenses (including legal fees) and
liabilities which it will or may expend or incur in
complying with such instructions.
32.3 The Agent shall:
(i) promptly inform each Bank of the contents of any
notice or document received by it in its capacity as
Agent from the Sponsor or any of the Borrowers
hereunder;
(ii) promptly notify each Bank of the occurrence of any
Event of Default or any default by the Sponsor or any
of the Borrowers in the due performance of or
compliance with its obligations under this Agreement
of which the Agent has notice from any other party
hereto;
(iii) save as otherwise provided herein, act as agent
hereunder in accordance with any instructions given
to it by an Instructing Group, which instructions
shall be binding on the Banks; and
(iv) if so instructed by an Instructing Group, refrain
from exercising any right, power or discretion vested
in it as agent hereunder.
32.4 Notwithstanding anything to the contrary expressed or implied herein,
the Agent shall not:
(i) be bound to enquire as to:
(a) whether or not any representation made by any
of the Borrowers in connection herewith is
true;
(b) the occurrence or otherwise of any Event of
Default or Potential Event of Default;
(c) the performance by the Sponsor or any of the
Borrowers of its obligations hereunder; or
(d) any breach of or default by the Sponsor or
any of the Borrowers of or under its
obligations hereunder;
(ii) be bound to account to any Bank for any sum or the
profit element of any sum received by it for its own
account;
(iii) be bound to disclose to any other person any
information relating to any member of the Group if
such disclosure would or might in its opinion
constitute a breach of any law or regulation or be
otherwise actionable at the suit of any person; or
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(iv) be under any obligations other than those for which
express provision is made herein.
32.5 Each Bank shall, from time to time on demand by the Agent, indemnify
the Agent, in the proportion its share of the Loan (or, if no Advances have
been made, its Available Dollar Commitment) bears to the amount of the Loan
(or, if no Advances have been made, the Available Dollar Facility) at the time
of such demand (or, if the Loan has then been repaid in full, immediately prior
to the final repayment thereof), against any and all costs, claims, losses,
expenses (including legal fees) and liabilities together with any VAT thereon
which the Agent may incur, otherwise than by reason of its own gross negligence
or wilful misconduct, in acting in its capacity as agent hereunder.
32.6 The Agent accepts no responsibility for the accuracy and/or
completeness of any information supplied by the Sponsor or any of the Borrowers
in connection herewith or for the legality, validity, effectiveness, adequacy
or enforceability of this Agreement and the Agent shall be under no liability
as a result of taking or omitting to take any action in relation to this
Agreement, save in the case of gross negligence or wilful misconduct.
32.7 Each of the Banks agrees that it will not assert or seek to assert
against any director, officer or employee of the Agent any claim it might have
against any of them in respect of the matters referred to in Clause 32.6.
32.8 The Agent may accept deposits from, lend money to and generally engage
in any kind of banking or other business with any member of the Group.
32.9 The Agent may resign its appointment hereunder at any time without
assigning any reason therefor by giving not less than thirty days' prior
written notice to that effect to each of the other parties hereto Provided that
no such resignation shall be effective until a successor for the Agent is
appointed in accordance with the succeeding provisions of this Clause 32.
32.10 If the Agent gives notice of its resignation pursuant to Clause 32.9,
then any reputable and experienced bank or other financial institution may be
appointed as a successor to the Agent by an Instructing Group during the period
of such notice but, if no such successor is so appointed, the Agent may appoint
such a successor itself.
32.11 If a successor to the Agent is appointed under the provisions of
Clause 32.10, then (i) the retiring Agent shall be discharged from any further
obligation hereunder but shall remain entitled to the benefit of the provisions
of this Clause 32 and (ii) its successor and each of the other parties hereto
shall have the same rights and obligations amongst themselves as they would
have had if such successor had been a party hereto.
32.12 It is understood and agreed by each Bank that it has itself been, and
will continue to be, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
condition, affairs, status and nature of each member of the Group and,
accordingly, each Bank warrants to the Agent that it has not relied on and will
not hereafter rely on the Agent:
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(i) to check or enquire on its behalf into the adequacy,
accuracy or completeness of any information provided
by the Sponsor or any of the Borrowers in connection
with this Agreement or the transactions herein
contemplated (whether or not such information has
been or is hereafter circulated to such Bank by the
Agent); or
(ii) to assess or keep under review on its behalf the
financial condition, creditworthiness, condition,
affairs, status or nature of any member of the Group.
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PART 13
ASSIGNMENT AND TRANSFERS
33. BENEFIT OF AGREEMENT
This Agreement shall be binding upon and enure to the benefit of each party
hereto and its or any subsequent successors and assigns.
34. ASSIGNMENTS AND TRANSFERS BY THE OBLIGORS
None of the Obligors shall be entitled to assign or transfer all or
any of its rights, benefits and obligations hereunder.
35. ASSIGNMENTS AND TRANSFERS BY BANKS
35.1 Any Bank may, at any time, assign at its sole cost and expense all or
any of its rights and benefits hereunder or transfer in accordance with Clause
35.3 all or any of its rights, benefits and obligations subject to the Sponsors
consent, such consent not to be unreasonably withheld where the proposed
assignee or transferee is (i) acting through an office or branch in the United
Kingdom and is carrying on a bona fide banking business for the purposes of
Section 349 of the Income and Corporation Taxes Act 1988, or (ii) another bank
or financial institution to whom, at the time of such assignment or transfer
payments may be made without deduction or withholding on account of United
Kingdom taxes.
35.2 If any Bank assigns all or any of its rights and benefits hereunder in
accordance with Clause 35.1, then, unless and until the assignee has agreed
with the Agent and the other Banks that it shall be under the same obligations
towards each of them as it would have been under if it had been an original
party hereto as a Bank, the Agent and the other Banks shall not be obliged to
recognise such assignee as having the rights against each of them which it
would have had if it had been such a party hereto.
35.3 If any Bank wishes to transfer all or any of its rights, benefits
and/or obligations hereunder as contemplated in Clause 35.1, then such transfer
may be effected by the delivery to the Agent of a duly completed and duly
executed Transfer Certificate in which event, on the later of the Transfer Date
specified in such Transfer Certificate and the fifth business day after (or
such earlier business day endorsed by the Agent on such Transfer Certificate
falling on or after) the date of delivery of such Transfer Certificate to the
Agent:
(i) to the extent that in such Transfer Certificate the
Bank party thereto seeks to transfer its rights,
benefits and obligations hereunder, the Borrower and
such Bank shall be released from further obligations
towards one another hereunder and their respective
rights against one another shall be cancelled (such
rights, benefits and obligations being referred to in
this Clause 35.3 as "discharged rights and
obligations");
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(ii) the Borrower and the Transferee party thereto shall
assume obligations towards one another and/or acquire
rights against one another which differ from such
discharged rights and obligations only insofar as the
Borrower and such Transferee have assumed and/or
acquired the same in place of the Borrower and such
Bank; and
(iii) the Agent, such Transferee and the other Banks shall
acquire the same rights and benefits and assume the
same obligations between themselves as they would
have acquired and assumed had such Transferee been an
original party hereto as a Bank with the rights,
benefits and/or obligations acquired or assumed by it
as a result of such transfer.
35.4 On the date upon which a transfer takes effect pursuant to Clause
35.3, the Transferee in respect of such transfer shall pay to the Agent for its
own account a transfer fee of $500.
35.5 In the event that a Bank transfers its Facility Office and, at the
time of such transfer, there arises an obligation on the part of the Obligors
hereunder to pay to such Bank or any other person an amount in excess of the
amount it would have been obliged to pay but for such transfer, then, without
prejudice to any obligation of the Obligors which arise after the time of such
transfer, the Obligors shall not be obliged to pay the amount of such excess.
36. DISCLOSURE OF INFORMATION
36.1 Any information disclosed by the Borrowers to any of the Beneficiaries
in connection herewith or in connection with the negotiation of the
Facilities shall be kept confidential by such of the Beneficiaries,
Provided that:
(i) subject to the terms hereof each of the Beneficiaries
may disclose to any other of the Beneficiaries any
information about the Borrowers or any of them;
(ii) each of the Beneficiaries shall be entitled to
disclose such information:
(a) in connection with any proceedings arising
out of or in connection with any Finance
Document;
(b) if required to do so by an order of a court
of competent jurisdiction whether in
pursuance of any procedure for discovering
documents or otherwise;
(c) pursuant to any law or regulation in
accordance with which that party is required
or accustomed to act;
(d) to any governmental, banking or taxation
authority;
(e) to its auditors or legal or other
professional advisers; or
(f) if the information is in the public domain.
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36.2 Any of the Beneficiaries may, at any time with the prior consent of the
Sponsor and the Agent, such consent not to be unreasonably withheld,
disclose to any actual or potential assignee or transferee which has
executed a confidentiality undertaking in favour of the Agent and the
Sponsor in a form acceptable to the Agent and the Sponsor any
information such Beneficiary has obtained about the Obligors Provided
always that no person may disclose any information that they may have
obtained about the Obligors or any of them, to any person which it is
aware is a supplier, competitor or customer of any member of the Group.
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PART 14
MISCELLANEOUS
37. CALCULATIONS AND EVIDENCE OF DEBT
37.1 Interest and commitment commission shall accrue from day to day and
shall be calculated on the basis of a year of 360 days or in the case of
sterling 365 days (or, if market practice differs, in accordance with market
practice) and the actual number of days elapsed.
37.2 Each Bank shall maintain in accordance with its usual practice
accounts evidencing the amounts from time to time lent by and owing to it
hereunder.
37.3 The Agent shall maintain on its books a control account or accounts in
which shall be recorded (i) the amount of any Advance made or arising hereunder
and each Bank's share therein, (ii) the amount of all principal, interest and
other sums due or to become due from any of the Borrowers to any of the Banks
hereunder and each Bank's share therein and (iii) the amount of any sum
received or recovered by the Agent hereunder and each Bank's share therein.
37.4 In any legal action or proceeding arising out of or in connection with
this Agreement, the entries made in the accounts maintained pursuant to Clauses
37.2 and 37.3, save for manifest error, shall be conclusive evidence of the
existence and amounts of the obligations of the Obligors therein recorded.
37.5 A certificate of a Bank as to (i) the amount by which a sum payable to
it hereunder is to be increased under Clause 14.1 or (ii) the amount for the
time being required to indemnify it against any such cost, payment or liability
as is mentioned in Clause 14.2 or 16.1 shall, in the absence of manifest error,
be conclusive for the purposes of this Agreement.
38. REMEDIES AND WAIVERS
No failure by the Agent or the Banks or any of them to exercise, nor any delay
by the Agent or the Banks or any of them in exercising, any right or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right or remedy prevent any further or other exercise thereof
or the exercise of any other right or remedy. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided by
law.
39. PARTIAL INVALIDITY
If, at any time, any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
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40. NOTICES
40.1 Each communication to be made hereunder shall be made in writing but,
unless otherwise stated, may be made by telex, facsimile or letter.
40.2 Any communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen days' written notice to the Agent specified another address) be made or
delivered to that other person at the address identified with its signature
below (or in the case of a transferee, at the end of the Transfer Certificate
to which it is a party as Transferee) and shall be deemed to have been made or
delivered when despatched (in the case of any communication made by telex) or
(in the case of any communication made by fax) when receipt has been
acknowledged or (in the case of any communication made by letter) when left at
that address or (as the case may be) ten days after being deposited in the post
postage prepaid in an envelope addressed to it at that address Provided that
any communication or document to be made or delivered to the Agent shall be
effective only when received by the Agent and then only if the same is
expressly marked for the attention of the department or officer identified with
the Agent's signature below (or such other department or officer as the Agent
shall from time to time specify for this purpose).
40.3 Each communication and document made or delivered by one party to
another pursuant to this Agreement shall be in the English language or
accompanied by a translation thereof into English certified (by an officer of
the person making or delivering the same) as being a true and accurate
translation thereof.
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PART 15
LAW AND JURISDICTION
41. LAW
This Agreement shall be governed by, and shall be construed in accordance with,
English law.
42. JURISDICTION
42.1 Each of the parties hereto irrevocably agrees for the benefit of each
of the Agent and the Banks that the courts of England shall have jurisdiction
to hear and determine any suit, action or proceeding, and to settle any
disputes, which may arise out of or in connection with this Agreement and, for
such purposes, irrevocably submits to the jurisdiction of such courts.
42.2 Each of the Obligors irrevocably waives any objection which it
might now or hereafter have to the courts referred to in Clause 42.1 being
nominated as the forum to hear and determine any suit, action or proceeding,
and to settle any disputes, which may arise out of or in connection with this
Agreement and agrees not to claim that any such court is not a convenient or
appropriate forum.
42.3 Each of the Obligors agrees that the process by which any suit, action
or proceeding is begun may be served on it by being delivered in connection
with any suit, action or proceeding in England, to Gulf Offshore N.S. Limited
at 10 Charlotte Road, London SW13 9QJ or its place of business for the time
being. If such appointment ceases to be effective in respect of any of the
Obligors, such Obligor or Obligors shall immediately appoint a further person
in England to accept service of process on its behalf in England, and failing
the appointment within 15 days, the Agent shall be entitled to appoint such a
person by notice or to such Obligor or Obligors. Nothing contained herein shall
affect the right to serve process in any other manner permitted by law.
42.4 The submission to the jurisdiction of the courts referred to in
Clause 42.1 shall not (and shall not be construed so as to) limit the right of
the Agent, the Banks or any of them to take proceedings against any of the
Obligors in any other court of competent jurisdiction nor shall the taking of
proceedings in any one or more jurisdictions preclude the taking of proceedings
in any other jurisdiction (whether concurrently or not) if and to the extent
permitted by applicable law.
42.5 Each of the Obligors hereby consents generally in respect of any legal
action or proceeding arising out of or in connection with this Agreement to the
giving of any relief or the issue of any process in connection with such action
or proceeding including, without limitation, the making, enforcement or
execution against any property whatsoever (irrespective of its use or intended
use) of any order or judgment which may be made or given in such action or
proceeding.
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<PAGE> 72
42.6 To the extent that any of the Obligors may in any jurisdiction claim
for itself or its assets immunity from suit, execution, attachment (whether in
aid of execution, before judgment or otherwise) or other legal process and to
the extent that in any such jurisdiction there may be attributed to itself or
its assets such immunity (whether or not claimed), such Obligor hereby
irrevocably agrees not to claim and hereby irrevocably waives such immunity to
the full extent permitted by the laws of such jurisdiction.
AS WITNESS the hands of the duly authorized representatives of the parties
hereto the day and year first before written.
-61-
<PAGE> 73
THE FIRST SCHEDULE
THE BANKS
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2
BANK COMMITMENT ($) COMMITMENT (pound stering)
<S> <C> <C>
The Chase Manhattan Bank, N.A. $2,900,000 pound sterling 6,250,000
The Governor and Company of the
Bank of Scotland $2,900,000 pound sterling 6,250,000
</TABLE>
-62-
<PAGE> 74
THE SECOND SCHEDULE
CONDITION PRECEDENT DOCUMENTS
PART I
1. In relation to each of the Obligors and Chalvoyage (M) Sdn Bhd
("CHALVOYAGE"):
(i) a copy, certified a true copy by a duly authorized
officer of such Obligor, of the constitutive
documents of such Obligor and Chalvoyage;
(ii) a copy, certified a true copy by a duly authorized
officer of such Obligor and Chalvoyage, of a Board
Resolution of such Obligor and Chalvoyage approving
the execution, delivery and performance of this
Agreement and the terms and conditions hereof and
authorising a named person or persons to sign this
Agreement and any documents to be delivered by such
Obligor and Chalvoyage pursuant hereto; and
(iii) a certificate of a duly authorized officer of such
Obligor setting out the names and signatures of the
persons authorised to sign, on behalf of such
Obligor, this Agreement and any documents to be
delivered by such Obligor pursuant hereto.
2. A copy, certified a true copy by or on behalf of the Principal
Borrowers, of each such law, decree, consent, licence, approval,
registration or declaration as is, in the opinion of counsel to the
Agent, necessary to render this Agreement and the Security Documents
legal, valid, binding and enforceable, to make this Agreement and the
Security Documents admissible in evidence in each Obligor's
jurisdiction of incorporation and to enable each of the Obligors to
perform its obligations hereunder.
3. A deed of trust executed between the Security Trustee, the Banks, the
Hedge Counterparty, the Financial Institutions named in the Syndicated
Facility as banks, the Borrowers and others, pursuant to which the
Security Trustee declares itself to be trustee for the Banks, the
Hedge Counterparty and such Financial Institutions in respect of any
security granted pursuant to any Security Document.
4. A first priority statutory ship mortgage and deeds of covenant
collateral thereto executed in respect of the following vessels:-
(i) p.s.v. "Highland Champion";
(ii) p.s.v. "Highland Fortress";
(iii) m.v. "Highland Sprite";
(iv) m.v. "Sem Courageous"; and
(v) m.v. "Sem Valiant".
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<PAGE> 75
5. First preferred Panamanian ship mortgages and assignments of earnings
and insurance collateral thereto executed in respect of the following
vessels:-
(i) the m.v. "Seawhip"; and
(ii) the m.v. "Seawitch".
6. Share Pledges over:-
(i) all of the shares in GONS and GOFE legally owned by
the Principal Borrowers; and
(ii) all of the shares in Chalvoyage legally owned by
GOFE.
7. An assignment of all of the rights of GOFE in respect of the
$5,600,000 loan made or to be made available by GOFE to Chalvoyage
pursuant to an agreement made, or to be made between GOFE and
Chalvoyage.
8. Evidence that the Borrowers have complied with all of their
obligations arising under any Security Document relating to insurance
of the Original Vessels, together with a report, issued by an
independent person, (being an insurance broker and/or insurance
consultant), addressed to the Agent confirming that insurances
effected in respect of the Original Vessels are adequate.
9. All such notices of assignment as may be called for by any of the
Security Documents.
10. A valuation of the Mortgaged Vessels addressed to the Agent by an
independent valuer acceptable to the Agent, confirming that as at the
date hereof the value of the Mortgaged Vessels is not less than
$35,000,000.
11. Copies, certified true copies by a duly authorized officer of the
relevant Obligor of each charter relating to the Mortgaged Vessels,
together with confirmation that each such charter remains in full
force and effect.
12. Evidence as to the operational condition of each of the Original
Vessels, such evidence to be in such form and such terms as the Bank
may require.
13. The Master Agreements.
14. Evidence of the novation or assignment or consent by the charterers of
the BP Fleet Vessels to the novation or assignment of the time
charterparties relating to the BP Fleet Vessels.
15. An opinion of each of GOMI and GOFE's Panamanian counsel.
16. An opinion of each of GOMI and GOFE's English counsel.
17. An opinion from Chooi & Co., Malaysian counsel for the Agent.
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<PAGE> 76
18. An opinion from Arias, Fabrega and Fabrega, Panamanian counsel for the
Agent.
19. An opinion of Clifford Chance, solicitors for the Agent.
20. Evidence that GONS has agreed to act as agent for the Obligors for the
service of process in England.
PART 2
21. A certified true copy of the yard contract 67 (the "BUILDING
CONTRACT") between GONS and Brattvaag Skipsverft A.S. relating to the
building of a platform supply vessel, type UT 755 together with a
written confirmation from the Principal Borrowers that no amendments
have been made to the Building Contract.
22. An assignment to the Security Trustee of the advance payment
guarantees issued by Christiania Bank og Kreditkasse in favour of GONS
and relating to advance payments made by GONS to the Contractor under
the Building Contract.
23. A duly executed addendum to the first preferred Panamanian ship
mortgages over the m.v. Seawhip and the m.v. Seawitch in form and
substance acceptable to the Agent together with confirmation from
Patton, Moreno & Asvat that such addendum has been duly registered
with the Registry of Panamanian Ships in Panama City.
24. A legal opinion from Chooi & Co, the Malaysian counsel for the Agent,
in a form acceptable to the Security Trustee.
25. A legal opinion from Patton, Moreno & Asvat, the Panamanian counsel
for the Agent, in a form acceptable to the Security Trustee.
26. A legal opinion from Clifford Chance, solicitors for the Agent.
-65-
<PAGE> 77
THE THIRD SCHEDULE
NOTICE OF DRAWDOWN
From: [ ]
To: [ ]
Dated:
Dear Sirs,
1. We refer to the agreement (as from time to time amended, varied,
novated or supplemented, the "Facility Agreement") dated [ ], 1993 and
made between Gulfmark North Sea Limited and Gulfmark Offshore Marine Inc. as
borrowers, Gulfmark International Inc as Sponsor, The Chase Manhattan Bank, N.A.
as Agent the financial institutions named therein as banks. Terms defined in the
Facility Agreement shall have the same meaning in this notice.
2. We hereby give you notice that, pursuant to the Facility Agreement and
on [date of proposed Advance], we wish to borrow an Advance in the amount of
[ ] dollars/[ ] sterling upon the terms and subject to the conditions
contained therein.
[3. We would like this Advance to have a first Interest Period of [ ]
months' duration.]*
4. We confirm that, at the date hereof, the representations set out in
Clause 18 of the Facility Agreement are true and no Event of Default or
Potential Event of Default has occurred.
5. The proceeds of this drawdown should be credited to [insert account
details].
Yours faithfully
.........................
for and on behalf of
[ ]
- --------------------------------------------------------------------------------
*Insert only if there are no outstanding Advances.
-66-
<PAGE> 78
THE FOURTH SCHEDULE
ASSOCIATED COSTS RATE
1. For the purposes of this Agreement, the cost of compliance with
existing requirements of the Bank of England in respect of Advances denominated
in sterling will be calculated by the Agent in relation to each Advance by
reference to the circumstances existing on the first day of each Interest
Period in respect of such Advance and, if any such Interest Period exceeds
three months, at three calendar monthly intervals from the first day of such
Interest Period during its duration in accordance with the following formula:
<TABLE>
<S> <C>
AB + C(B - E) + D(B - F) per cent. per annum
------------------------
100 - (A + D)
</TABLE>
Where:
A is the percentage of eligible liabilities which the Agent is
from time to time required to maintain as an interest free
cash deposit with the Bank of England to comply with cash
ratio requirements.
B is the percentage rate per annum at which sterling deposits
are offered by the Agent, in accordance with its normal
practice, for a period equal to (i) the relevant Interest
Period (or, as the case may be, remainder of such Interest
Period) in respect of the relevant Advance or (ii) three
months, whichever is the shorter, to a leading bank in the
London Interbank Market at or about 11.00 a.m. in a sum
approximately equal to the amount of such Advance.
C is the percentage of eligible liabilities which the Agent is
from time to time required by the Bank of England to maintain
as secured money with members of the London Discount Market
Association ("LDMA") and/or as secured call money with money
brokers and gilt edged market makers.
D is the percentage of eligible liabilities which the Agent is
required from time to time to maintain as interest bearing
special deposits with the Bank of England.
E is the percentage rate per annum at which members of the LDMA
are offered sterling deposits in a sum approximately equal to
the amount of the relevant Advance as a callable fixture from
the Agent for such period as determined in accordance with B
above at or about 11.00 a.m.
F is the percentage rate per annum payable by the Bank of
England to the Agent on interest bearing special deposits.
2. For the purposes of this Schedule "ELIGIBLE LIABILITIES" and "SPECIAL
DEPOSITS" shall bear the meanings ascribed to them from time to time by the
Bank of England.
-67-
<PAGE> 79
3. The percentages used in A, C and D above shall be those required to be
maintained on the first day of the relevant period as determined in accordance
with B above.
4. In application of the above formula, A, B, C, D, E and F will be
included in the formula as figures and not as percentages e.g. if A is 0.5 per
cent. and B is 12 per cent., AB will be calculated as 0.5 x 12 and not as 0.5
per cent. x 12 per cent.
5. Calculations will be made on the basis of a 365 day year (or, if
market practice differs, in accordance with market practice).
6. A negative result obtained by subtracting E from B or F from B shall be
taken as zero.
7. The resulting figures shall be rounded upwards, if not already such a
multiple, to the nearest whole multiple of one-thirty-second of one per cent.
per annum.
8. Additional amounts calculated in accordance with this Schedule are
payable on the last day of the Interest Period to which they relate.
9. The determination of the Associated Costs Rate in relation to any
period shall, in the absence of manifest error, be conclusive and binding on
all of the parties hereto.
10. The Agent may from time to time, after consultation with the Borrower
and the Banks, determine and notify to all the parties hereto any amendments or
variations which are required to be made to the formula set out above in order
to comply with any requirements from time to time imposed by the Bank of
England in relation to Advances denominated in sterling (including without
limitation, any requirements relating to sterling primary liquidity) and, any
such determination shall, in the absence of manifest error, be conclusive and
binding on all the parties hereto.
-68-
<PAGE> 80
THE FIFTH SCHEDULE
FORM OF SUPPLEMENTAL AGREEMENT
THIS SUPPLEMENTAL AGREEMENT is made on the day of 1993.
BETWEEN
(1) [ ] (the "Original Borrowers");
(2) [Additional Borrower(s)] (the "ADDITIONAL BORROWER(S)"); and
(3) [ ] on behalf of itself as agent and on behalf of the parties
party to the Agreement defined therein as Agent, Security Trustee and
as Banks (the "AGENT").
WHEREAS
(1) By an agreement (together with the supplemental agreements referred to
in (2) below], (the "AGREEMENT") dated [ ] and made
between the Original Borrowers, The Chase Manhattan Bank, N.A. as
Agent and Security Trustee, the financial institutions therein
referred to and others, the Banks have made available to the Borrowers
a facility on the terms and conditions therein defined.
(2) The agreement referred to in (1) above has been supplemented by the
following agreements:-
[List Supplemental Agreements]
(3) Pursuant to Clause 6 of the Agreement the Original Borrowers wish to
designate the Additional Borrower(s) as borrowers under the Facility.
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
Save as otherwise defined herein terms defined in the Agreement shall bear the
same meaning herein and in the Recitals thereto.
2. ADDITIONAL BORROWER(S)
With effect as from the date that the Agent confirms to the Original Borrowers
that it has received, in form and substance satisfactory to it [in relation to
each Additional Borrower], each of the conditions precedent specified in Clause
3, the Agreement shall henceforth be read and construed as if the [each]
Additional Borrower were party to the Agreement having all the rights and
obligations of an Additional Borrower and a Borrower under the Revolving
Facility. Accordingly all references in any Facility Document to (a) any
"ADDITIONAL BORROWER" or "BORROWER" shall be treated as including reference to
(such] Additional Borrower and (b) the Agreement shall be treated as a
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<PAGE> 81
reference to the Agreement as supplemented by this Agreement to the intent that
this Agreement and the Agreement shall be read and construed together as one
single agreement.
3. CONDITIONS PRECEDENT
The following are the conditions precedent referred to in Clause 2
which are required to be delivered to the Agent in relation to the
[each] Additional Borrower:-
(a) a Deed of Accession as defined by Clause 1 of the Trust Deed;
(b) [other documents].
4. REPRESENTATIONS
[The] [Each] Additional Borrower hereby represents and warrants in respect of
itself as if the representations set out in Clause 18 of the Agreement were set
out in this Agreement.
5. COUNTERPARTS
This Agreement may be signed in counterparts, all of which taken together shall
constitute a single agreement.
6. LAW
This Agreement shall be governed by, and construed in accordance with, English
law.
[7. JURISDICTION]
[ ]
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
-70-
<PAGE> 82
THE SIXTH SCHEDULE
FORM OF TRANSFER CERTIFICATE
To: [ ]
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or
supplemented, the "Facility Agreement") dated [ ] 1993 whereby a dual
tranche revolving credit facility was made available to Gulf Offshore Marine
International Inc., Gulf North Sea Limited and Others as borrowers by a group
of banks on whose behalf The Chase Manhattan Bank, N.A. acted as agent in
connection therewith.
1. Terms defined in the Facility Agreement shall, subject to any contrary
indication, have the same meanings herein. The terms Bank, Transferee, Bank's
Participation and Amount Transferred are defined in the schedule hereto.
2. The Bank confirms that the Bank's Participation is an accurate summary
of its participation in the Facility Agreement and requests the Transferee to
accept and procure the transfer to the Transferee of a percentage of the Bank's
Participation (equal to the percentage that the Amount Transferred is of the
aggregate of the component amounts (as set out in the schedule hereto) of the
Bank's Participation) by counter-signing and delivering this Transfer
Certificate to the Agent at its address for the service of notices specified in
the Facility Agreement.
3. The Transferee hereby requests the Agent to accept this Transfer
Certificate as being delivered to the Agent pursuant to and for the purposes of
Clause 35 of the Facility Agreement so as to take effect in accordance with the
terms thereof on the Transfer Date or on such later date as may be determined
in accordance with the terms thereof.
4. The Transferee confirms that it has received a copy of the Facility
Agreement together with such other information as it has required in
connection with this transaction and that it has not relied and will not
hereafter rely on the Bank to check or enquire on its behalf into the legality,
validity, effectiveness, adequacy, accuracy or completeness of any such
information and further agrees that it has not relied and will not rely on the
Bank to assess or keep under review on its behalf the financial condition,
creditworthiness, condition, affairs, status or nature of the Borrower.
5. The Transferee hereby undertakes with the Bank and each of the other
parties to the Facility Agreement that it will perform in accordance with their
terms all those obligations which by the terms of the Facility Agreement will
be assumed by it after delivery of this Transfer Certificate to the Agent and
satisfaction of the conditions (if any) subject to which this Transfer
Certificate is expressed to take effect.
6. The Bank makes no representation or warranty and assumes no
responsibility with respect to the legality, validity, effectiveness, adequacy
or enforceability of the Facility Agreement or any document relating thereto
and assumes no responsibility for the financial condition of the Borrower
-71-
<PAGE> 83
or for the performance and observance by the Borrower of any of its obligations
under the Facility Agreement or any document relating thereto and any and all
such conditions and warranties, whether express or implied by law or otherwise,
are hereby excluded.
7. The Bank hereby gives notice that nothing herein or in the Facility
Agreement (or any document relating thereto) shall oblige the Bank to (i)
accept a re-transfer from the Transferee of the whole or any part of its
rights, benefits and/or obligations under the Facility Agreement transferred
pursuant hereto or (ii) support any losses directly or indirectly sustained or
incurred by the Transferee for any reason whatsoever including, without
limitation, the non-performance by the Borrower or any other party to the
Facility Agreement (or any document relating thereto) of its obligations under
any such document. The Transferee hereby acknowledges the absence of any such
obligation as is referred to in (i) or (ii) above.
8. This Transfer Certificate and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with English
law.
THE SCHEDULE
<TABLE>
<S> <C> <C>
1. Bank:
2. Transferee:
3. Transfer Date:
4. Bank's Participation:
Bank's Dollar Commitment Bank's Portion of the Dollar Advances
Bank's Sterling Commitment Bank's Portion of the Sterling Advances
5. Amounts Transferred:
[Transferor Bank] [Transferee Bank]
By: By:
Date: Date:
</TABLE>
-72-
<PAGE> 84
ADMINISTRATIVE DETAILS OF TRANSFEREE
Address:
Contact Name:
Account for Payments
in dollars:
Telex:
Telephone:
-73-
<PAGE> 85
THE BORROWERS
GULFMARK NORTH SEA LIMITED
as principal borrower
by:
Address: 10 Charlotte Road
London SW13 9QJ
Attention:
GULF OFFSHORE MARINE INTERNATIONAL INC.
as principal borrower
by:
Address: 201 Energy Center Parkway
Suite 220
Lafayette
Louisiana 70508
USA
Attention:
GULF OFFSHORE N.S. LIMITED
as permitted borrower
by:
Address: 10 Charlotte Road
London SW13 9QT
Attention:
-74-
<PAGE> 86
GULF OFFSHORE FAR EAST INC.
as permitted borrower
by:
Address: 201 Energy Center Parkway
Suite 220
Lafayette
Louisiana 70508
USA
Attention:
THE SPONSOR
GULFMARK INTERNATIONAL INC.
by:
Address: 5 Post Oak Park
Suite 1170
Houston
Texas 77027
USA
Attention:
THE AGENT
THE CHASE MANHATTAN BANK, N.A.
as agent and security trustee
By:
Address: Woolgate House
Coleman Street
London EC2P 2HD
Attention: Oil and Gas Group
Facsimile: 962 5030
Telex: 8954681 CMB G
-75-
<PAGE> 87
THE HEDGE COUNTERPARTY
THE CHASE MANHATTAN BANK, N.A.
By:
Address: Woolgate House
Coleman Street
London EC2P 2HD
Attention: Oil and Gas Group
The Banks
THE CHASE MANHATTAN BANK, N.A.
By:
Address: Woolgate House
Coleman Street
London EC2P 2HD
Attention: Oil and Gas Group
Facsimile: 962 5030
Telex: 8954681 CMB G
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
By:
Address: International Division
Orchard Brae House
30 Queensferry Road
Edinburgh EH4 2UG
Attention: Shipping Finance
Facsimile: (131) 343 7080
-76-
<PAGE> 1
EXHIBIT 10.6
LOAN AGREEMENT
==============
Dated 19th December, 1995
between
GULF OFFSHORE N.S. LIMITED
as Borrower
-and-
CHRISTIANIA BANK OG KREDITKASSE
as Lender and Security Trustee
relating to
a Pound Sterling 4,890,000 facility
WATSON, FARLEY & WILLIAMS
<PAGE> 2
CONTENTS
========
CLAUSE PAGE
======= ====
1 INTERPRETATION 1
2 FACILITY 8
3 DRAWDOWN 8
4 INTEREST 9
5 INTEREST PERIODS 9
6 DEFAULT INTEREST 10
7 REPAYMENT AND PREPAYMENT 11
8 CONDITIONS PRECEDENT 12
9 REPRESENTATIONS AND WARRANTIES 13
10 GENERAL UNDERTAKINGS 14
11 CORPORATE UNDERTAKINGS 17
12 SECURITY COVER 19
13 PAYMENTS AND CALCULATIONS 20
14 APPLICATION OF RECEIPTS 21
15 APPLICATION OF EARNINGS 22
16 EVENTS OF DEFAULT 22
17 FEES AND EXPENSES 26
18 INDEMNITIES 28
19 NO SET-OFF OR TAX DEDUCTION 30
20 ILLEGALITY, ETC 30
21 INCREASED COSTS 31
22 CHANGES IN CIRCUMSTANCES 32
23 SET-OFF 33
24 TRANSFERS AND CHANGES IN LENDING OFFICES 33
25 VARIATIONS AND WAIVERS 36
26 NOTICES 36
27 THE SECURITY TRUSTEE 38
28 SUPPLEMENTAL 42
29 LAW AND JURISDICTION 42
EXECUTION
SCHEDULE 1 DRAWDOWN NOTICE
SCHEDULE 2 CONDITION PRECEDENT DOCUMENTS
SCHEDULE 3 TRANSFER CERTIFICATE
SCHEDULE 4 COMPLIANCE CERTIFICATE
APPENDIX A FORM OF MORTGAGE
APPENDIX B FORM OF DEED OF COVENANT
APPENDIX C FORM OF ACCOUNT SECURITY DEED
APPENDIX D FORM OF GUARANTEE
APPENDIX E FORM OF COLLATERAL MORTGAGE
APPENDIX F FORM OF COLLATERAL GENERAL ASSIGNMENT
<PAGE> 3
LOAN AGREEMENT made on the 19th day of December, 1995
==============
BETWEEN
========
(1) GULF OFFSHORE N.S. LIMITED, a company incorporated in England with
company number 2541716, whose registered office is at 10 Charlotte Road, London
SW13 9QJ, England (the "Borrower");
(2) CHRISTIANIA BANK OG KREDITKASSE, acting through its office at
Middelthunsgate 17, 0368 Oslo, Norway, as Lender; and
(3) CHRISTIANIA BANK OG KREDITKASSE, acting through its office at
Middelthunsgate 17, 0368 Oslo, Norway, as Security Trustee.
WHEREAS the Lender has agreed to make available to the Borrower a facility of
Pound Sterling 4,890,000 to assist the Borrower to finance the acquisition of
the platform supply vessel "Atlantic Warrior" from SPO MPV Limited pursuant to
a Memorandum of Agreement dated 27th October, 1995 and an Addendum thereto
dated 13th November, 1995.
IT IS AGREED as follows:
1 INTERPRETATION
1.1 Subject to Clause 1.7, in this Agreement:
"Account Security Deed" means a deed creating security in respect of the
Earnings Account in the form set out in Appendix C;
"Assigned Value" means, in relation to the Collateral Ship, the amount
in Sterling set out below for each relevant period:
Months from Drawdown Date Amount
0 - 24 Pound Sterling 980,000
24 - 48 Pound Sterling 650,000
48 onwards Pound Sterling 325,000;
"Availability Period" means the period commencing on the
<PAGE> 4
date of this Agreement and ending on (a) 31st January, 1996 (or such later
date as the Lender may agree with the Borrower) or (b) if earlier, the
date on which the Lender's obligation to make the Loan is canceled or
terminated;
"Budgeted Financial Expenses" means, in relation to each 12 month period
for which the Borrower delivers a budget to the Lender under Clause 10.6,
all budgeted payments by the Borrower during such period arising from any
of its Financial Indebtedness including principal, interest, acceptance
commission and any other continuing, regular or periodic costs and
expenses in the nature of interest (whether payable, accruing or
capitalized) but excluding any balloon repayment instalments of principal;
"Budgeted Operating Profit" means, in relation to each 12 month period for
which the Borrower delivers a budget to the Lender under Clause 10.6, the
budgeted operating revenues of the Borrower during such period less
general and administrative operating expenses (but excluding
depreciation);
"Business Day" means a day on which banks are open in Oslo and London;
"Collateral General Assignment" means, in relation to the Collateral Ship,
a first priority deed of assignment supplemental to the Collateral
Mortgage containing assignments of the Earnings, Insurances and any
requisition compensation of the Collateral Ship in the form set out in
Appendix F;
"Collateral Mortgage" means, in relation to the Collateral Ship, the first
preferred Panamanian ship mortgage on the Collateral Ship in the form set
out in Appendix E;
"Collateral Ship" means the supply vessel "Seapower", documented in the
name of GOMI under the laws and flag of the Republic of Panama with
Patente of Navigation Number 6348-76-F and International Call Sign
HP-2000, of 1,154.00 gross registered tons and 346.00 net registered tons;
<PAGE> 5
"Deed of Covenant" means, in relation to the Ship, a deed of covenant
collateral to the Mortgage and creating charges over the Ship, her
Insurances, her Earnings and any requisition compensation in the form set
out in Appendix B;
"Drawdown Date" means, in relation to the Loan, the date requested by the
Borrower for the Loan to be advanced, or (as the context requires) the
date on which the Loan is actually advanced;
"Drawdown Notice" means a notice in the form set out in Schedule 1 (or
in any other form which the Lender approves or reasonably requires);
"Earnings" means, in relation to the Ship and the Collateral Ship, all
moneys whatsoever which are now, or later become payable (actually or
contingently) to the Borrower or GOMI (as the case may be) and which arise
out of the use or operation of the Ship or the Collateral Ship (as the case
may be), including (but not limited to) (a) all freight, hire and passage
moneys, compensation payable to the Borrower or GOMI (as the case may be)
in the event of requisition of the Ship or the Collateral Ship (as the case
may be) for hire, remuneration for salvage and towage services, demurrage
and detention moneys and damages for breach (or payments for variation or
termination) of any charterparty or other contract for the employment of
the Ship or the Collateral Ship (as the case may be), (b) all moneys which
are at any time payable under Insurances in respect of loss of earnings,
and (c) if and whenever the Ship or the Collateral Ship (as the case may
be) is employed on terms whereby any moneys falling within (a) or (b) are
pooled or shared with any other person, that proportion of the net receipts
of the relevant pooling or sharing arrangement which is attributable to the
Ship or the Collateral Ship (as the case may be);
"Earnings Account" means an account in the name of the Borrower with the
Lender in London with account number 51295121, or any other account
(with that or another office of the Lender or with a bank or financial
institution other than the Lender) which is designated by the Lender as
the Earnings Account for the purposes of
<PAGE> 6
this Agreement;
"Event of Default" means any of the events or circumstances described in
Clause 16.1;
"Finance Documents" means (a) this Agreement, the Guarantee, the Deed of
Covenant, the Mortgage, the Collateral Mortgage, the Collateral General
Assignment and the Account Security Deed and (b) any other document
(whether creating a Security Interest or not) which is executed at any
time by the Borrower or any other person as security for, or to establish
any form of subordination or priorities arrangement in relation to, any
amount payable to the Lender under this Agreement or any of the documents
referred to in this definition;
"Financial Indebtedness" means, in relation to a person (the "debtor"),
a liability of the debtor (a) for principal, interest or any other sum
payable in respect of any moneys borrowed or raised by the debtor, (b)
under any loan stock, bond, note or other security issued by the debtor,
(c) under any acceptance credit, guarantee or letter of credit facility
made available to the debtor, (d) under a financial lease, a deferred
purchase consideration arrangement or any other agreement having the
commercial effect of a borrowing or raising of money by the debtor,
(e) under any interest or currency swap or any other kind of derivative
transaction entered into by the debtor, or (f) under a guarantees
indemnity or similar obligation entered into by the debtor in respect of
a liability of another person which would fall within (a) to (e) if the
references to the debtor referred to the other person;
"GNS" means GulfMark North Sea Limited, a company incorporated in England
with company number 2625893, whose registered office is at 10 Charlotte
Road, London SW13 9QJ, England;
"GOMI" means Gulf Offshore Marine International Inc., a company
incorporated in Panama, whose registered office is at Comosa Building,
Samuel Lewis Avenue, Panama City, Panama;
"Guarantee" means a guarantee in the form set out in
<PAGE> 7
Appendix D;
"Guarantors" means, together, GNS and GOMI (and, in the singular, means
either of them);
"Insurances" means, in relation to the Ship and the Collateral Ship, (a)
all policies and contracts of insurance, including entries of the Ship or
the Collateral Ship (as the case may be) in any protection and indemnity
or war risks association, which are effected in respect of the Ship or the
Collateral Ship) (as the case may be), her Earnings or otherwise in
relation to her, and (b) all rights and other assets relating to, or
derived from, any of the foregoing, including any rights to a return of a
premium;
"Interest Period" means a period determined in accordance with Clause 5;
"Latest Accounts" means, in relation to the Borrower, the latest audited
annual or unaudited quarterly accounts delivered to the Lender under
Clause 10.6 or, in relation to a Guarantor, under Clause 4.1 of the
Guarantee;
"Lender" means, subject to Clause 24.6, (a) Christiania Bank og
Kreditkasse, acting through its branch at Middelthunsgate 17, 0368 Oslo,
Norway (or through another branch notified to the Lender under Clause
24.4) and (b) the holder for the time being of a Transfer Certificate;
"Liquid Assets" means:
(i) cash in hand;
(ii) deposits in prime banks or other financial institutions with a
maturity of 6 months or less;
(iii) government issued bills and bonds; and
(iv) marketable securities quoted on a recognized stock exchange,
but excluding any of those assets (other than monies standing to the
credit of the Earnings Account) subject to any Security Interest;
"Loan" means the principal amount for the time being outstanding under
this Agreement;
<PAGE> 8
"Margin" means one and one-quarter of one per cent. (1 1/4%) per annum;
"MOA" means the Memorandum of Agreement dated 27th October, 1995 (and
the Addendum thereto dated 13th November, 1995) entered into between the
Seller and the Borrower in respect of the sale of the Ship;
"Mortgage" means, in relation to the Ship, the first priority account
current British ship mortgage on the Ship in the form set out in Appendix
A;
"net working capital" means, in relation to the Borrower and each
Guarantor and at any time, its current assets less its current
liabilities as shown in its Latest Accounts;
"Pertinent Jurisdiction", in relation to a company, means (a) England and
Wales, (b) the country under the laws of which the company is incorporated
or formed, (c) a country in which the company's central management and
control is or has recently been exercised, (d) a country in which the
overall net income of the company is subject to corporation tax, income
tax or any similar tax, (e) a country in which assets of the company
(other than securities issued by, or loans to, related companies) having a
substantial value are situated, in which the company maintains a permanent
place of business, or in which a Security Interest created by the company
must or should be registered in order to ensure its validity or priority,
and (f) a country the courts of which have jurisdiction to make a winding
up, administration or similar order in relation to the company or which
would have such jurisdiction if their assistance were requested the courts
of a country referred to in (b) or (c);
"Potential Event of Default" means an event or circumstance which, with
the giving of any notice, the lapse of time, a determination of the Lender
and/or the satisfaction of any other condition, would constitute an Event
of Default;
"Pounds", "Pound Sterling" and "Sterling" means the lawful currency for
the time being of the United Kingdom;
<PAGE> 9
"Repayment Date" means a date on which a repayment is required to be made
under Clause 7;
"Security Interest" means (a) a mortgage, charge (whether fixed or
floating) or pledge, any maritime or other lien or any other security
interest of any kind, (b) the rights of the plaintiff under an action in
rem in which the vessel concerned has been arrested or a writ has been
issued or similar step taken, and (c) any arrangement entered into by a
person (A) the effect of which is to place another person (B) in a
position which is similar, in economic terms, to the position in which B
would have been had he held a security interest over an asset of A; but
(c) does not apply to a right of set off or combination of accounts
conferred by the standard terms of business of a bank or financial
institution;
"Security Party" means each Guarantor and any other person (except the
Lender) who, as a surety or mortgagor, as a party to any subordination or
priorities arrangement, or in any similar capacity, executes a document
falling within paragraph (b) of the definition of "Finance Documents";
"Security Period" means the period commencing on the date of this
Agreement and ending on the date on which all amounts payable by the
Borrower or any Security Party under the Finance Documents have been paid;
"Security Trustee" means Christiania Bank og Kreditkasse, acting through
its branch at Middelthunsgate 17, 0368 Oslo, Norway;
"Seller" means SPO MPV Limited, a company incorporated in Bermuda, whose
registered office is in Hamilton, Bermuda;
"Ship" means the platform supply vessel presently named "Atlantic Warrior"
registered in the name of the Seller under British flag at the Port of
Hamilton, Bermuda with official number 716310 and to be purchased by the
Borrower and registered in its name under British flag at the Port of
Hamilton, Bermuda;
"Total Liabilities" means, at any time, the total liabilities of the
Borrower as shown in its Latest
<PAGE> 10
Accounts;
"Total Loss" and "Total Loss Date" have, in relation to the Ship and the
Collateral Ship, the meaning given in the Deed of Covenant and the
Collateral General Assignment respectively;
"Transfer Certificate" has the meaning given in Clause 24;
"Value Adjusted Equity" means Value Adjusted Total Assets less Total
Liabilities (excluding any Financial Indebtedness which by its terms is
subordinated to the Loan); and
"Value Adjusted Total Assets" means, at any time, the total assets of the
Borrower as shown in its Latest Accounts after deducting (i) goodwill and
(ii) the values of the ships used in the preparation of its Latest
Accounts and substituting, in the case of the Ship and the Collateral
Ship, the most recent market values shown by valuations complying with the
requirements of Clause 12.4 and, in the case of any other ships, the most
recent market values shown by valuations prepared on a similar basis (and
if no such valuations have been made, the Lender shall be entitled to
require that valuations shall be made on such similar basis).
1.2 In this Agreement:
"asset" includes every kind of property, asset, interest or right,
including any present, future or contingent right to any revenues or
other payment;
"company" includes any partnership, joint venture and unincorporated
association;
"contingent liability" means a liability which is not certain to arise
and/or the amount of which remains unascertained;
"document" includes a deed; also a letter, fax or telex;
"expense" means any kind of cost, charge or expense (including all legal
costs, charges and expenses) and any
<PAGE> 11
applicable value added or other tax;
"law" includes any form of delegated legislation, any order or decree,
any treaty or international convention and any regulation, directive or
decision of the Council of the European Union or the European Commission;
"legal or administrative action" means any legal proceeding or arbitration
and any administrative or regulatory action or investigation;
"liability" includes every kind of debt or liability (present or future,
certain or contingent), whether incurred as principal or surety or
otherwise;
"months" shall be construed in accordance with Clause 1.3;
"official consent" and "official requirement" mean respectively:
(a) any consent, authorization or clearance; and
(b) any requirement, directive, request, guideline or
notice (whether general or specific and whether or not
having the force of law);
of or issued by any fiscal, monetary or banking authority or any other
governmental, official or public authority of any kind, including the
Council of the European Union or
the European Commission; and "official requirement" also includes a
resolution of the United Nations or of its Security Council;
"parent company" has the meaning given in Clause 1.4;
"person" includes any company; any state, political sub-
division of a state and local or municipal authority; and any
international organization;
"subsidiary" has the meaning given in Clause 1.4; and
<PAGE> 12
"tax" includes any present or future tax, duty, impost, levy or charge of
any kind which is imposed by any state, any political sub-division of a
state or any local or municipal authority (including any such imposed in
connection with exchange controls), and any connected penalty, interest or
fine.
1.3 A period of one or more "months" ends on the day in the relevant calendar
month numerically corresponding to the day of the calendar month on which the
period started ("the numerically corresponding day"), but:
(a) on the Business Day following the numerically corresponding
day if the numerically corresponding day is not a Business Day
or, if there is no later Business Day in the same calendar month,
on the Business Day preceding the numerically corresponding day; or
(b) on the last Business Day in the relevant calendar month, if the
period started on the last Business Day in a calendar month or if
the last calendar month of the period has no numerically
corresponding day;
and "month" and "monthly" shall be construed accordingly.
1.4 A company (S) is a subsidiary of another company (P) if:
(a) a majority of the issued shares in S (or a majority of the issued
shares in S which carry unlimited rights to capital and income
distributions) are directly owned by P or are indirectly
attributable to P; or
(b) P has direct or indirect control over a majority of the voting
rights attaching to the issued shares of S, or
(c) P has the direct or indirect power to appoint or remove a
majority of the directors of S; or
(d) P otherwise has the direct or indirect power to ensure that the
affairs of S are conducted in accordance with the wishes of P;
<PAGE> 13
and any company of which S is a subsidiary is a parent company of S.
1.5 In this Agreement:
(a) references to, or to a provision of, a Finance Document or any
other document are references to it as amended or supplemented,
whether before the date of this Agreement or otherwise; and
(b) references to, or to a provision of, any law include any
amendment, extension, re-enactment or replacement, whether made
before the date of this Agreement or otherwise.
1.6 Clauses 1.1 to 1.5 apply unless the contrary intention appears.
1.7 References in Clause 1.1 to a document being in the form of a
particular Appendix include references to that form with any modifications to
that form which the Lender approves or reasonably requires.
1.8 The clause headings shall not affect the interpretation of this
Agreement.
2 FACILITY
2.1 Subject to the other provisions of this Agreement, the Lender shall
make a loan facility not exceeding; Pound Sterling 4,890,000 available to the
Borrower.
2.2 The Borrower undertakes with the Lender to use the Loan only for the
purposes stated in the preamble to this Agreement.
3 DRAWDOWN
3.1 The Borrower may request the Loan to be advanced by ensuring that the
Lender receives a completed Drawdown Notice not later than 11.00 a.m. (Oslo
time) 3 Business Days prior to the intended Drawdown Date.
3.2 The Drawdown Date has to be a Business Day during the Availability
Period.
<PAGE> 14
3.3 A Drawdown Notice must be signed by a director of the Borrower; and,
once served, a Drawdown Notice cannot be revoked without the prior consent of
the Lender.
3.4 Subject to the provisions of this Agreement, the Lender shall on the
Drawdown Date make available to the Borrower the proceeds of the Loan as the
Borrower shall direct in the Drawdown Notice.
4 INTEREST
4.1 Subject to the Provisions of this Agreement, interest on the Loan in
respect of an Interest Period shall be paid by the Borrower on the last day of
that Interest Period.
4.2 Subject to the provisions of this Agreement, the rate of interest on
the Loan in respect of an Interest Period shall be the aggregate of the Margin
and LIBOR for that Interest Period.
4.3 LIBOR for in Interest Period is the rate per annum determined by the
Lender to be the rate of the offered quotation for deposits in Sterling which
appears on the Reuter Monitor Money
Rates Service page designated ISDA (or such other page on that service as may
replace that page) at or about 11.00 a.m. (London time) on the second Business
Day prior to the commencement of that Interest Period for a period equal to
that Interest Period.
4.4 However, in the case of an Interest Period longer than 6 months,
accrued interest shall be paid every 6 months during the Interest Period and on
the last day of the Interest Period.
5 INTEREST PERIODS
5.1 The first Interest Period shall commence on the Drawdown Date and each
subsequent Interest Period shall commence on the expiry of the preceding
Interest Period.
5.2 Subject to Clauses 5.3 and 5.4, each Interest Period shall be:
(a) 1, 3 or 6 months as notified by the Borrower to the Lender not
later than 11.00 a.m. (London time) 3 Business Days before the
commencement of
<PAGE> 15
the Interest Period; or
(b) 3 months, if the Borrower fails to notify the Lender by the
time specified in paragraph (a) above; or
(c) such other period as the Lender may agree with the Borrower.
5.3 However,
(a) in respect of an, amount due to be repaid under Clause 7 on a
particular Repayment Date, an Interest Period shall end on that
Repayment Date; and
(b) the Borrower shall not select Interest Periods of 1 month more
often than 5 times in each period of 12 months from the first
Drawdown Date.
5.4 If, after the Borrower has selected an Interest Period longer than 6
months, the Lender notifies the Borrower by 11.00 a.m. (London time) on the
second Business Day of the Interest Period that it is not satisfied that
deposits in Sterling for a period equal to the Interest Period will be
available to it in the London Interbank Market when the Interest Period
commences, the Interest Period shall be of 6 months.
6 DEFAULT INTEREST
6.1 The Borrower shall pay interest in accordance with the following
provisions on any amount payable by the Borrower under any Finance Document
which the Lender or the Security Trustee does not receive on or before the
relevant date, that is:
(a) the date on which the Finance Documents provide that such amount
is due for payment; or
(b) if a Finance Document provides that such amount is payable on
demand, the date on which the demand is served; or
(c) if such amount has become immediately due and payable under
Clause 16.4, the date on which it became immediately due and
payable.
<PAGE> 16
6.2 Interest shall accrue on an overdue amount from (and including) the
relevant date until the date of actual payment (as well after as before
judgment) at the rate per annum determined by the Lender to be 2 percent.
above:
(a) in the case of an overdue amount of principal, the higher of the
rates set out at paragraphs (a) and (b) of Clause 6.3; or
(b) in the case of any other overdue amount, the rate set out at
paragraph (b) of Clause 6.3.
6.3 Those rates are:
(a) the rate applicable to the overdue principal amount immediately
prior to the relevant date (but only for any unexpired part of
any then current Interest Period);
(b) the Margin plus, in respect of successive periods of any duration
(including at call) up to three months which the Lender may
select from time to time:
(i) LIBOR, as determined by the Lender in accordance with
Clause 4.3; or
(ii) if the Lender determines that Sterling deposits for
any such period are not being made available to it by
leading banks in the London Interbank Market in the
ordinary course of business, a rate from time to time
determined by the Lender by reference to the cost of funds
to it from such other sources as the Lender may from time
to time determine.
6.4 The Lender shall promptly notify the Borrower of each interest rate
determined by it under Clause 6.3 and of each period selected by it for the
purposes of paragraph (b) of that Clause; but this shall not be taken to imply
that the Borrower is liable to pay such interest only with effect from the date
of the Lender's notification.
6.5 Subject to the other provisions of this Agreement, any
<PAGE> 17
interest due under this Clause shall be paid on the last day of the period by
reference to which it was determined.
6.6 Any such interest which is not paid at the end of the period by reference
to which it was determined shall thereupon be compounded.
7 REPAYMENT AND PREPAYMENT
7.1 The Borrower shall repay the Loan by 14 consecutive semiannual
instalments, the first 13 of Three hundred and fifty thousand Pounds (Pound
Sterling 350,000) each and the final instalment of Three hundred and forty
thousand Pounds (Pound Sterling 340,000).
7.2 The first instalment shall be repaid on the date falling 6 months after
the Drawdown Date and the last instalment on the date falling 84 months after
the Drawdown Date.
7.3 On the final Repayment Date, the Borrower shall additionally pay to the
Lender all other sums then accrued or owing under any Finance Document.
7.4 Subject to the following conditions, the Borrower may prepay the whole
or any part of the Loan on the last day of an Interest Period.
7.5 Those conditions are:
(a) that a partial prepayment shall be Pound Sterling
350,000 or a multiple thereof;
(b) that the Lender has received from the Borrower at least 20 days
prior written notice specifying the amount to be prepaid and the
date on which the prepayment is to be made;
(c) that the Borrower has provided evidence satisfactory to the
Lender that any official consent required by the Borrower or any
Security Party in connection with the prepayment has been obtained
and remains in force, and that any official requirement relevant
to this Agreement which affects the Borrower or any Security Party
has been complied with.
<PAGE> 18
7.6 A prepayment notice may not be withdrawn or amended without the consent
of the Lender.
7.7 If the Collateral Ship is sold or becomes a Total Loss, the Borrower
shall prepay a portion of the Loan equal to the then prevailing Assigned Value
of the Collateral Ship. Such prepayment shall be made simultaneously with the
sale of the Collateral Ship (and as a condition of the release of the
Collateral Mortgage) or within 120 days after the Total Loss Date.
7.8 If the Ship is sold or becomes a Total Loss, the Borrower shall prepay
the whole of the Loan. Such prepayment shall be made simultaneously with the
sale of the Ship (and as a condition of the release of the Mortgage) or within
120 days after the Total Loss Date.
7.9 A prepayment shall be made together with accrued interest (and any
other amount payable under Clause 18 below or otherwise) in respect of the
amount prepaid and, if the prepayment is not made on the last day of an
Interest Period together with any sums payable under Clause 18.1(b) but without
premium or penalty.
7.10 Each partial prepayment shall be applied against the repayment
instalments specified in Clause 7.1 in inverse order of maturity.
7.11 No amount prepaid may be reborrowed.
8 CONDITIONS PRECEDENT
8.1 The Lender's obligation to advance the Loan is subject to the following
conditions precedent:
(a) that the Lender receives the documents described in Schedule 2
below in form and substance satisfactory to it and its lawyers on
or before the service of a Drawdown Notice for the Loan or, in
the case of paragraph 9, on or before the Drawdown Date;
(b) that, on or before the Drawdown Date, the Lender receives the
arrangement fee referred to in Clause 17.1;
(c) that on or before the Drawdown Date, the Lender
<PAGE> 19
receives all accrued commitment fee payable pursuant to Clause
17.1;
(d) that both at the date of the Drawdown Notice and at the Drawdown
Date:
(i) no Event of Default or Potential Event of Default has
occurred and is continuing or would result from the
advance of the Loan;
(ii) the representations and warranties in Clause 9.1 and
those of the Borrower or any Security Party which are
set out in the other Finance Documents would be true
and not misleading if repeated on each of those dates
with reference to the circumstances then existing;
(iii) none of the circumstances contemplated by Clause 22
has occurred and is continuing; and
(e) that, if the ratio set out in Clause 12.1 were applied immediately
following the advance of the Loan, the Borrower would not be
obliged to provide additional security or prepay part of the
Loan under that Clause.
8.2 If the Lender, at its discretion, permits the Loan to be advanced
before certain of the conditions referred to in Clause 8.1 are satisfied, the
Borrower shall ensure that those conditions are satisfied within 5 Business
days after the Drawdown Date (or such longer period as the Lender may specify).
9 REPRESENTATIONS AND WARRANTIES
9.1 The Borrower represents and warrants to the Lender and the Security
Trustee as follows.
9.2 The Borrower is duly incorporated and validly existing under the laws
of England.
9.3 The Borrower has an authorized share capital of Pound Sterling 655,865
divided into 655,865 registered shares of Pound Sterling 1 each, of which
655,767 shares have been issued fully
<PAGE> 20
paid, and the legal title (other than the legal title to 1 share held by GOMI)
and beneficial ownership of all those shares is held, free of any Security
Interest (except as disclosed in writing to the Lender) or other claim, by GNS.
9.4 The Borrower has the corporate capacity, and has taken all corporate
action and obtained all official consents necessary for it:
(a) to execute the MOA, to purchase and pay for the Ship under the
MOA and to register the Ship in its name under British flag;
(b) to execute the Finance Documents to which the Borrower is a
party; and
(c) to borrow under this Agreement and to make all the payments
contemplated by, and to comply with, those Finance Documents.
9.5 All the official consents referred to in Clause 9.4 remain in force and
nothing has occurred which makes any of them liable to revocation.
9.6 The Finance Documents to which the Borrower is a party, do now or, as
the case may be, will, upon execution and delivery (and, where applicable,
registration as provided for in the Finance Documents):
(a) constitute the Borrower's legal, valid and binding obligations
enforceable against the Borrower in accordance with their
respective terms; and
(b) create legal, valid and binding Security Interests enforceable in
accordance with their respective terms;
subject to any relevant insolvency laws affecting creditors' rights generally.
9.7 The execution by the Borrower of each Finance Document, and the
borrowing by the Borrower of the Loan, and its compliance with each Finance
Document will not involve or lead to a contravention of:
<PAGE> 21
(a) any law or official requirement; or
(b) the constitutional documents of the Borrower; or
(c) any contractual or other obligation or restriction which is
binding on the Borrower or any of its assets.
9.8 All payments which the Borrower is liable to make under the Finance
Documents may be made without deduction or withholding for or on account of any
tax payable under any law of England.
9.9 No Event of Default or Potential Event of Default has occurred and is
continuing.
9.10 All information which has been provided in writing by or on behalf of
the Borrower or any Security Party to the Lender in connection with any Finance
Document satisfied the requirements of Clause 10.5; all audited and unaudited
accounts which have been so provided satisfied the requirements of Clause 10.7;
and there his been no material adverse change in the financial position or
state of affairs of the Borrower from that disclosed in the latest of those
accounts.
9.11 No legal or administrative action involving the Borrower has been
commenced or taken or, to the Borrower's knowledge, is likely to be commenced
or taken which, in either case, would be likely to have a material adverse
effect on the Borrower's financial position or profitability.
9.12 The copy of the MOA delivered to the Lender before the date of this
Agreement is a true and complete copy; the MOA constitutes valid, binding and
enforceable obligations of the Seller and the Borrower respectively in
accordance with its terms; and no amendments or additions to the MOA have been
agreed nor has the Borrower or the Seller waived any of their respective rights
under the MOA.
9.13 There is no agreement or understanding to allow or pay any rebate,
premium, commission or other payment (howsoever described) to the Borrower or a
third party in connection with the purchase by the Borrower of the Ship, other
than as disclosed to the Lender in writing on or prior to the date of this
<PAGE> 22
Agreement.
9.14 At the date of this Agreement, the Borrower is in compliance with
Clauses 10.2, 10.4, 10.9 and 10.13.
9.15 The Borrower has paid all taxes applicable to, or imposed on or in
relation to the Borrower, its business or the Ship.
10 GENERAL UNDERTAKINGS
10.1 The Borrower undertakes with the Lender and the Security Trustee to
comply with the following provisions of this Clause 10 at all times during
the Security Period, except as the Lender may otherwise permit.
10.2 The Borrower will hold the legal title to, and own the entire
beneficial interest in the Ship, her Insurances and her Earnings, free from all
Security Interests and other interests and rights of every kind, except for
those created by the Finance Documents and the effect of assignments contained
in the Finance Documents.
10.3 The Borrower will not transfer, lease or otherwise dispose of:
(a) all or a substantial part of its assets, whether by one
transaction or a number of transactions, whether related or not;
or
(b) any debt payable to it or any other right (present, future or
contingent right) to receive a payment, including any right to
damages or compensation.
10.4 The Borrower will not incur any liabilities or obligations except:-
(a) those existing at the date of this Agreement;
(b) those arising under the MOA and the Finance Documents;
(c) those incurred in the ordinary course of managing, operating and
chartering any vessel
<PAGE> 23
owned, managed or chartered by the Borrower;
(d) those incurred in ordering and acquiring one ME High Sided Design
vessel; or
(e) in addition to those covered by paragraphs (c) to (d) above,
those not exceeding Pound Sterling 500,000 in aggregate at any
time.
10.5 All financial and other information which is provided in writing by or
on behalf of the Borrower under or in connection with any Finance Document will
be true and not misleading and will not omit any material fact or
consideration.
10.6 The Borrower will send to the Lender:
(a) as soon as possible, but in no event later than 150 days after
the end of each financial year of the Borrower, the audited
accounts of the Borrower;
(b) as soon as possible, but in no event later than 45 days after
the end of each quarter in each financial year of the Borrower:
(i) unaudited accounts of the Borrower prepared in accordance
with accounting principles generally accepted in England,
consistently applied and certified as to their
correctness by a director of the Borrower; and
(ii) management accounts in a format approved by the Lender
which show the results of the operation of the Ship
during the preceding financial quarter and which are
certified as to their correctness by a director of the
Borrower;
(iii) a budget for the next 12 month period in a format
approved by the Lender which shows the Budgeted
Financial Expenses and Budgeting Operating Profit of the
Borrower for such period (and that budget will be subject
to the approval of the
<PAGE> 24
Lender for the purposes of Clause 11.4(d)); and
(iv) a compliance certificate in the form set out in Schedule
4 signed by a director of the Borrower.
10.7 All accounts (audited and unaudited) delivered under Clause 10.6 will:
(a) be prepared in accordance with all applicable laws and accounting
principles generally accepted in England consistently applied;
(b) give a true and fair view of the state of affairs of the Borrower
at the date of those accounts and of its profit for the period
to which those accounts relate; and
(c) fully disclose or provide for all significant liabilities of the
Borrower.
10.8 The Borrower will send to the Lender, at the same time as they are
despatched, copies of all communications which are despatched to the Borrower's
shareholders or creditors or any class of them (other than communications to a
specific creditor under the terms of any agreement with that creditor).
10.9 The Borrower will maintain in force and promptly obtain or renew, and
will promptly send certified copies to the Lender of, all official consents
required:
(a) for the Borrower to perform its obligations under any Finance
Document;
(b) for the validity or enforceability of any Finance Document;
(c) for the Borrower to continue to own and operate the Ship;
and the Borrower will comply with the terms of all such official consents.
10.10 The Borrower will promptly register, file, record or
<PAGE> 25
enrol any Finance Document with any court or authority in England, Bermuda or
Panama, pay any stamp, registration or similar tax in England, Bermuda or
Panama in respect of any Finance Document, give any notice or take any other
step which may be or become necessary or desirable for any Finance Document to
be valid, enforceable or admissible in evidence or to ensure or protect the
priority of any Security Interest which it creates.
10.11 The Borrower will provide the Lender with details of any legal or
administrative action involving the Borrower, any Security Party, the Ship or
the Collateral Ship, their respective Earnings or Insurances as soon as such
action is instituted or it becomes apparent to the Borrower that it is likely
to be instituted, unless it is clear that the legal or administrative action
cannot be considered material in the context of any Finance Document.
10.12 The Borrower will not agree to any material amendment or supplement to,
or waive or fail to enforce, the MOA or any of its provisions.
10.13 The Borrower will maintain its registered office, and keep its
corporate documents and records, at the address stated at the commencement of
this Agreement.
10.14 The Borrower will, within two Business Days after service by the Lender
of a written request, serve on the Lender a notice which is signed by two
directors of the Borrower and which:
(a) states that no Event of Default or Potential Event of Default
has occurred; or
(b) states that no Event of Default or Potential Event of Default
has occurred, except for a specified event or matter, of which
all material details are given.
10.15 The Borrower will notify the Lender as soon as the Borrower becomes
aware of:
(a) the occurrence of an Event of Default or a Potential Event of
Default; or
(b) any matter which indicates that an Event of
<PAGE> 26
Default or a Potential Event of Default may have occurred;
and will thereafter keep the Lender fully up-to-date with all
developments.
10.16 The Borrower will, as soon as practicable after receiving the request,
provide the Lender with any additional financial or other information relating:
(a) to the Borrower, the Ship, the Collateral Ship, their respective
Insurances or Earnings; or
(b) to any other matter relevant to, or to any provision of, a
Finance Document;
which may reasonably be requested by the Lender at any
time.
11 CORPORATE UNDERTAKINGS
11.1 The Borrower also undertakes with the Lender and the Security Trustee
to comply with the following provisions of this Clause 11 at all times during
the Security Period except as the Lender may otherwise permit (such permission
not to be unreasonably withheld in relation to Clause 11.3(g)).
11.2 The Borrower will maintain its separate corporate existence under the
laws of England.
11.3 The Borrower will not:
(a) make any material change in the nature of its business as
conducted at the date of this Agreement; or
(b) repay any principal of or interest on a loan owing to any such
person or company as is referred to in Clause 11.3(c) below or
pay any dividend or make any other form of distribution or
effect any form of redemption, purchase or return of share
capital unless, after doing so, the aggregate of the net working
capital of the Borrower and of each Guarantor exceeds Pound
Sterling 4,000,000; or
<PAGE> 27
(c) provide any form of credit or financial assistance to:
(i) a person who is directly or indirectly interested in
the Borrower's share or loan capital; or
(ii) any company in or with which such a person is directly
or indirectly interested or connected;
or enter into any transaction with or involving such a person or
company on terms which are, in any respect, less favorable to the
Borrower than those which it could obtain in a bargain made at arms'
length;
(d) assign or otherwise dispose of any book debt;
(e) issue, allot or grant any person a right to any shares in its
capital or repurchase or reduce its issued share capital;
(f) acquire any shares or other securities other than government
issued bills and bonds, certificates of deposit issued by
prime banks and marketable securities quoted on a recognized
stock exchange, or enter into any transaction in a derivative
(other than an interest rate or currency hedge entered into in
the ordinary course of business); or
(g) enter into any form of amalgamation, merger or de-merger or any
form of reconstruction or reorganization.
11.4 The Borrower will:
(a) at all times retain Liquid Assets of at least Pound Sterling
500,000;
(b) ensure that the Borrower's Value Adjusted Equity is at least
Pound Sterling 12,000,000,
(c) ensure that the Borrower's Value Adjusted Equity is at least
40 per cent of the Borrower's Value
<PAGE> 28
Adjusted Total Assets;
(d) ensure that, at the end of each quarter of each financial year
of the Borrower, the ratio of Budgeted Operating Profit of the
Borrower to Budgeted Financial Expenses of the Borrower for
the next 12 months is at least 1:1.
12 SECURITY COVER
12.1 The Borrower undertakes with the Lender and the Security Trustee that,
if the Lender notifies the Borrower that:
(a) the aggregate of the market values (determined as provided
below) of the Ship and the Collateral Ship; plus
(b) the net realizable value of any additional security previously
provided under this Clause 12;
is below 140 per cent. of the Loan, the Borrower will, within one month
after the date on which the Lender's notice is served, either:
(i) provide, or ensure that a third party provides,
additional security which, in the reasonable opinion
of the Lender, has a net realizable value at least
equal to the shortfall and which, if it consists
of or includes a Security Interest, covers such asset
or assets and is documented in such terms as the Lender
may reasonably approve or require; or
(ii) prepay in accordance with Clause 7 such part (at least)
of the Loan as will eliminate the shortfall.
12.2 In Clause 12.1 "security" means a Security Interest over an asset or
assets (whether securing the Borrower's liabilities under the Finance Documents
or a guarantee in respect of those liabilities), or a guarantee, letter of
credit or other security in respect of the Borrower's liabilities under the
Finance Documents.
<PAGE> 29
12.3 The Borrower shall not be deemed to have complied with Clause 12.1 (i)
above until the Lender has received in connection with the additional security
certified copies of documents of the kinds referred to in paragraphs 3, 4 and 5
of Schedule 2 below and such legal opinions in terms reasonably acceptable to
the Lender from such lawyers as it may select.
12.4 The market value of the Ship and of the Collateral Ship at any date is
the arithmetic mean of the values shown by valuations prepared:
(a) as at a date not more than 14 days previously;
(b) by 2 independent sale and purchase shipbrokers which the
Borrower has appointed and the Lender has approved or (if the
Borrower has not appointed 2 such shipbrokers promptly after a
request from the Lender to do so) which the Lender has
appointed for the purpose;
(c) with or without physical inspection of the Ship (as the Lender
may require);
(d) on the basis of a sale for prompt delivery for cash on normal
arm's length commercial terms as between a willing seller and
a willing buyer, free of any existing charter or other contract
of employment;
(e) after deducting the estimated amount of the usual and
reasonable expenses which would be incurred in connection with
the sale.
12.5 The net realizable value of any additional security which is provided
under Clause 12.1 and which consists of a Security Interest over a vessel shall
be that shown by a valuation complying with the requirements of Clause 12.4.
12.6 Any valuation under Clause 12.1(i), 12.4 or 12.5 shall be binding and
conclusive as regards the Borrower, as shall be any valuation which the Lender
makes of a security which does not consist of or include a Security Interest.
12.7 The Borrower shall promptly provide the Lender and any
<PAGE> 30
shipbroker or expert acting under Clause 12.4 or 12.5 with any information
which the Lender or the shipbroker or expert may request for the purposes of
the valuation; and, if the Borrower fails to provide the information by the
date specified in the request, the valuation may be made on any basis and
assumptions which the shipbroker or the Lender (or the expert appointed by it)
considers prudent.
12.8 The Borrower shall, on demand, pay the Lender the amount of the fees
and expenses of any shipbroker or expert instructed by the Lender under this
Clause (but not more often than twice in any calendar year) and all legal and
other expenses incurred by the Lender in connection with any matter arising out
of this Clause.
13 PAYMENTS AND CALCULATIONS
13.1 All payments to be made by the Borrower to the Lender or the Security
Trustee under a Finance Document shall be made to the Lender (or to the
Security Trustee, in the case of an amount payable to it):
(i) by not later than 11.00 a.m. (London time) on the due
date;
(ii) in same day Sterling funds settled in such manner as
the Lender shall specify as being customary at the
time for the settlement of international transactions
of the type contemplated by this Agreement);
(iii) in the case of an amount payable to the Lender, to
such account of the Lender with such bank as the
Lender may from time to time notify to the Borrower;
and
(iv) in the case of an amount payable to the Security
Trustee, to such account of the Security Trustee with
such bank as the Security Trustee may from time to time
notify to the Borrower.
13.2 If any payment by the Borrower under a Finance Document would otherwise
fall due on a day which is not a Business Day:
<PAGE> 31
(a) the due date shall be extended to the next succeeding Business
Day; or
(b) if the next succeeding Business Day falls in the next calendar
month, the due date shall be brought forward to the immediately
preceding Business Day;
and interest shall be payable during any extension under paragraph (a)
at the rate payable on the original due date.
13.3 All interest and commitment fee and any other payments under any
Finance Document which are of an annual or periodic nature shall accrue from
day to day and shall be calculated on the basis of the actual number of days
elapsed and a 365 day year.
13.4 The Lender shall maintain an account showing the amounts advanced by
the Lender and all other sums owing to the Lender from the Borrower and each
Security Party under the Finance Documents and all payments in respect of those
amounts made by the Borrower and any Security Party.
13.5 If the account maintained under Clauses 13.4 shows an amount to be
owing by the Borrower or a Security Party to the Lender, that account shall be
prima facie evidence that amount is owing to the Lender.
14 APPLICATION OF RECEIPTS
14.1 Except as any Finance Document may otherwise provide, any sums which
are received or recovered by the Lender or the Security Trustee under or by
virtue of any Finance Document shall be applied:-
FIRST: in or towards satisfaction of any amounts then due
and payable under the Finance Documents (or any of them)
in such order of application and/or such proportions as
the Lender may specify by notice to the Borrower, the
Security Parties and the Security Trustee;
SECONDLY: in retention of an amount equal to any amount
<PAGE> 32
not then due and payable under any Finance Document but
which the Lender, by notice to the Borrower, the Security
Parties and the Security Trustee, states in its opinion
will or may become due and payable in the future and,
upon those amounts becoming due and payable, in or
towards satisfaction of them in accordance with the
foregoing provisions of this Clause; and
THIRDLY: any surplus shall be paid to the Borrower or to
any other person appearing to be entitled to it.
14.2 The Lender may, by notice to the Borrower, the Security Parties and the
Security Trustee, provide for a different manner of application from that set
out in Clause 14.1 either as regards a specified sum or sums or as regards sums
in a specified category or categories.
14.3 The Lender may give notices under Clause 14.2 from time to time; and
such a notice may be stated to apply not only to sums which may be received or
recovered in the future, but also to any sum which has been received or
recovered on or after the third Business Day before the date on which the
notice is served.
14.4 This Clause 14 and any notice which the Lender gives under Clause 14.2
shall override any right of appropriation possessed, and any appropriation
made, by the Borrower or any Security Party.
15 APPLICATION OF EARNINGS
15.1 The Borrower undertakes with the Lender to ensure that, throughout the
Security Period (and subject only to the provisions of the Deed of Covenant),
all the Earnings of the Ship are paid to the Earnings Account.
15.2 Until such time after an Event of Default occurs as the Lender directs
to the contrary, sums standing to the credit of the Earnings Account shall be
at the disposal of the Borrower for any purpose not inconsistent with the terms
of the Finance Documents.
15.3 The Lender shall be entitled (but not obliged) from time to time to
debit the Earnings Account without prior notice in order to discharge any
amount due and payable to it under Clause 17 or 18 or payment of which it or
the Security Trustee has
<PAGE> 33
become entitled to demand under Clause 17 or 18.
16 EVENTS OF DEFAULT
16.1 An Event of Default occurs if:
(a) the Borrower or any Security Party fails to pay when due or
(if so payable) on demand any sum payable under a Finance
Document or under any document relating to a Finance Document;
or
(b) any breach occurs of Clause 8.2, 10.2, 10.3, 11.2, 11.3, 11.4
or 12.1; or
(c) any breach by the Borrower or any Security Party occurs of any
provision of a Finance Document (other than a breach covered by
paragraph (a) or (b) above) unless the breach is capable of
remedy and within 14 Business Days (or such other remedy
period as may be specified by the relevant provision of the
Finance Documents) after the Lender serves on the Borrower a
notice requiring the breach to be remedied, the Lender notifies
the Borrower in writing that the breach has been remedied to
its satisfaction; or
(d) any representation, warranty or statement made by, or by an
officer of, the Borrower or a Security Party in a Finance
Document or in the Drawdown, Notice or any other notice or
document relating to a Finance Document is untrue or
misleading when it is made; or
(e) any of the following occurs in relation to any Financial
Indebtedness of, or aggregating, Pound Sterling 50,000 or
more or the equivalent in another currency of a Relevant
Person (as defined in Clause 16.7) unless such occurrence is
being contested by bona fide proceedings diligently pursued:
(i) any such Financial Indebtedness is not paid when due
or, if so payable, on demand; or
<PAGE> 34
(ii) any such Financial Indebtedness becomes due and payable
or capable of being declared due and payable prior to
its stated maturity date as a consequence of any event
of default; or
(iii) a lease, hire purchase agreement or charter creating
any such Financial Indebtedness is terminated by the
lessor or owner or becomes capable of being
terminated as a consequence of any termination event; or
(iv) any overdraft, loan, note issuance, acceptance credit,
letter of credit, guarantee, foreign exchange or other
facility, or any swap or other derivative contract or
transaction, relating to any such Financial
Indebtedness ceases to be available or becomes capable
of being terminated as a result of any event of
default, or cash cover is required, or becomes capable
of being required, in respect of such a facility as a
result of any event of default; or
(v) any Security Interest securing any such Financial
Indebtedness becomes enforceable; or
(f) any of the following occurs in relation to a Relevant Person:
(i) a Relevant Person becomes, in the reasonable opinion
of the Lender, unable to pay its debts as they fall
due; or
(ii) any assets of a Relevant Person are subject of any form
of execution, attachment, arrest, sequestration or
distress in respect of a sum of, or sums aggregating,
Pound Sterling 50,000 or more or the equivalent in
another currency unless such event is being contested
by bona fide proceedings
<PAGE> 35
diligently pursued; or
(iii) any administrative or other receiver is appointed over
any asset of a Relevant Person; or
(iv) a Relevant Person makes any formal declaration of
bankruptcy or any formal statement to the effect that
it is insolvent or likely to become insolvent, or a
winding up or administration order is made in relation
to a Relevant Person, or the members or directors of a
Relevant Person pass a resolution to the effect that it
should be wound up, placed in administration or cease
to carry on business, save that this paragraph does
not apply to a fully solvent winding up a Relevant
Person other than the Borrower or a Guarantor which is,
or is to be, effected for the purposes of an
amalgamation or reconstruction previously approved by
the Lender and effected not later than 3 months after
the commencement of the winding up; or
(v) a petition is presented in any Pertinent Jurisdiction
for the winding up or administration, or the
appointment of a provisional liquidator, of a Relevant
Person unless the petition is being contested in good
faith and on substantial grounds and is dismissed or
withdrawn within 30 days of the presentation of the
petition; or
(vi) a Relevant Person petitions a court, or presents any
proposal for, any form of judicial or non-judicial
suspension or deferral of payments, reorganization of
its debt (or certain of its debt) or arrangement with
all or a substantial proportion (by number or value) of
its creditors or of any class of them or any such
suspension or deferral of payments,
<PAGE> 36
reorganization or arrangement is effected by court
order, contract or otherwise; or
(vii) any meeting of the members or directors of a Relevant
Person is summoned for the purpose of considering a
resolution or proposal to authorize or take any action
of a type described in paragraphs (iii), (iv), (v) or
(vi) above; or
(viii) in a Pertinent Jurisdiction other than England, any
event occurs or any procedure is commenced which, in the
opinion of the Lender, is similar to any of the
foregoing; or
(g) the Borrower ceases or suspends carrying on its business or a
part of its business which, in the opinion of the Lender, is
material in the context of this Agreement; or
(h) it becomes unlawful in any Pertinent Jurisdiction or impossible
(i) for the Borrower or any Security Party to discharge any
liability under a Finance Document or to comply with any other
obligation which the Lender considers material under a Finance
Document or (ii) for the Lender or the Security Trustee to
exercise or enforce any right under, or to enforce any Security
Interest created by, a Finance Document; or
(i) any official consent necessary to enable the Borrower or GOMI
(as the case may be) to own, operate or charter the Ship or the
Collateral Ship or to enable the Borrower or any Security
Party to comply with any provision which the Lender considers
material of a Finance Document or the MOA is not granted,
expires without being renewed, is revoked or becomes liable to
revocation or any condition of such a consent is not fulfilled;
or
(j) it appears to the Lender that, without its prior consent, a
material change has occurred or probably has occurred in the
ultimate beneficial ownership of any of the shares in the
Borrower or
<PAGE> 37
either Guarantor or in the ultimate control of the voting
rights attaching to any of those shares; or
(k) any provision which the Lender considers material of a Finance
Document proves to have been or becomes invalid or
unenforceable, or a Security Interest created by a Finance
Document proves to have been or becomes invalid or
unenforceable or such a Security Interest proves to have ranked
after, or loses its priority to, another Security Interest or
any other third party claim or interest; or
(1) the security constituted by a Finance Document is in any way
imperilled or in jeopardy; or
(m) there occurs any material (in the opinion of the Lender)
adverse change in the financial position of the Borrower or
either Guarantor in the light of which the Lender considers
that there is a significant risk that the Borrower or either
Guarantor is, or will later become, unable to discharge its
liabilities under the Finance Documents to which it is a party
as they fall due.
16.2 On, or at any time after, the occurrence of an Event of Default:
(a) the Lender may;
(i) serve on the Borrower a notice stating that all
obligations of the Lender to the Borrower under this
Agreement are terminated; and/or
(ii) serve on the Borrower a notice stating that the Loan,
all accrued interest and all other amounts accrued or
owing under this Agreement are immediately due and
payable; and/or
(iii) take any other action which, as a result of the Event
of Default or any notice
<PAGE> 38
served under paragraph (i) or (ii) above,
the Lender is entitled to take under any
Finance Document or any applicable law;
and/or
(b) the Security Trustee may take any action which, as a result of
the Event of Default or any notice served under paragraph (a)
(i) or (ii) above, the Security Trustee and/or the Lender is
entitled to take under any Finance Document or any applicable
law.
16.3 On the service of a notice under paragraph (a)(i) of Clause 16.2, all
the obligations of the Lender to the Borrower under this Agreement shall
terminate.
16.4 On the service of a notice under paragraph (a)(ii) of Clause 16.2, the
Loan, all accrued interest and all other amounts accrued or owing from the
Borrower or any Security Party under this Agreement and every other Finance
Document shall become immediately due and payable.
16.5 The Lender may serve notices under paragraphs (a) (i) and (ii) of
Clause 16.2 simultaneously or on different dates and it may take any action
referred to in that Clause if no such notice is served or simultaneously with
or at any time after the service of both or either of such notices.
16.6 Neither the Lender nor the Security Trustee nor any receiver or manager
appointed by the Lender or the Security Trustee, shall have any liability to
the Borrower or a Security Party:
(a) for any loss caused by an exercise of rights under, or
enforcement of a Security Interest created by , a Finance
Document or by any failure or delay to exercise such a right or
to enforce such a Security Interest; or
(b) as mortgagee in possession or otherwise, for any income or
principal amount which might have been produced by or realized
from any asset comprised in such a Security Interest or for any
reduction (however caused) in the value of such an asset;
<PAGE> 39
except that this does not exempt the Lender, the Security Trustee or a
receiver or manager from liability for losses shown to have been
caused mainly and directly by the gross and culpable negligence or the
dishonesty of the Lender's or the Security Trustee's own officers and
employees or (as the case may be) such receiver's or manager's own
partners or employees.
16.7 In this Clause 16 "a Relevant Person" means the Borrower, each Security
Party and any company which is a subsidiary or a fellow-subsidiary of the
Borrower or a Security Party or of which the Borrower or a Security Party is a
subsidiary; but excluding any company which is dormant and the value of whose
gross assets is Pound Sterling 50,000 or less.
16.8 In Clause 16.1(e) references to an event of default or a termination
event include any event, howsoever described, which is similar to an event of
default in a facility agreement or a termination event in a finance lease; and
in Clause 16.1(f) "petition" includes an application.
17 FEES AND EXPENSES
17.1 The Borrower shall pay to the Lender:
(a) on the earlier of the first Drawdown Date and the date falling
one month after the date of this Agreement, an arrangement fee
of Pound Sterling 18,338; and
(b) on the earlier of the Drawdown Date and 31st January, 1996, for
the period from (and including) 6th December, 1995 to the
earlier of (i) the Drawdown Date and (ii) 31st January, 1996
a commitment fee at the rate of 5/8 per cent. per annum on the
undrawn amount of the Loan.
17.2 The Borrower shall pay to the Lender or the Security Trustee on its
demand the amount of all expenses (including travel expenses) incurred by the
Lender or the Security Trustee in connection with the negotiation, preparation,
execution or registration of any Finance Document or any related document or
with any transaction contemplated by a Finance Document or a related document.
<PAGE> 40
17.3 The Borrower shall pay to the Lender or the Security Trustee, on its
demand, the amount of all expenses (including travel expenses) incurred by the
Lender or the Security Trustee in connection with:
(a) any amendment or supplement to a Finance Document, or any
proposal for such an amendment to be made;
(b) any consent or waiver by the Lender or the Security Trustee
concerned under or in connection with a Finance Document, or
any request for such a consent or waiver;
(c) the valuation of any security provided or offered under Clause
12 or any other matter relating to such security; or
(d) any step taken by the Lender or the Security Trustee with a
view to the protection, exercise or enforcement of any right
or Security Interest created by a Finance Document or for any
similar purpose.
There shall be recoverable under paragraph (d) the full amount of all legal
expenses, whether or not such as would be allowed under rules of court or any
taxation or other procedure carried out under such rules.
17.4 The Borrower shall promptly pay any tax payable on or by reference to
any Finance Document, and shall, on the Lender's demand, fully indemnify the
Lender and the Security Trustee against any liabilities and expenses resulting
from any failure or delay by the Borrower to pay such a tax.
17.5 A notice which is signed by two officers of the Lender or the Security
Trustee, which states that a specified amount, or aggregate amount, is due to
the Lender or the Security Trustee (as the case may be) under this Clause 17
and which indicates (without necessarily specifying a detailed breakdown) the
matters in respect of which the amount, or aggregate amount, is due shall be
prima facie evidence that the amount, or aggregate amount, is due.
18 INDEMNITIES
<PAGE> 41
18.1 The Borrower shall fully indemnify the Lender and the Security Trustee
on its demand in respect of all expenses, liabilities and losses which are
incurred by the Lender or the Security Trustee, or which the Lender or the
Security Trustee reasonably and with due diligence estimates that it will
incur, as a result of or in connection with:
(a) the Loan not being borrowed on the date specified in the
Drawdown Notice for any reason other than a default by the
Lender or the Security Trustee;
(b) the receipt or recovery of all or any part of the Loan or an
overdue sum otherwise than on the last day of an Interest
Period or other relevant period;
(c) any failure (for whatever reason) by the Borrower to make
payment of any amount due under a Finance Document on the due
date or, if so payable, on demand (after giving credit for any
default interest paid by the Borrower on the amount concerned
under Clause 6);
(d) the occurrence and/or continuance of an Event of Default or a
Potential Event of Default and/or the acceleration of repayment
of the Loan under Clause 16;
and in respect of any tax (other than tax on its overall net income) for
which the Lender or the Security Trustee is liable in connection with
any amount paid or payable to the Lender (whether for its own account or
otherwise) under any Finance Document.
18.2 Without limiting its generality, Clause 18.1 covers any liability,
expense or loss, including a loss of a prospective profit, incurred by the
Lender or the Security Trustee:
(a) in liquidating or employing deposits from third parties
acquired or arranged to fund or maintain all or any part of
the Loan and/or any overdue amount (or an aggregate amount
which includes the Loan or any overdue amount); and
(b) in terminating, or otherwise in connection with, any interest
and/or currency swap or any other
<PAGE> 42
transaction entered into (whether with another legal entity or
with another office or department of the Lender or the Security
Trustee) to hedge any exposure arising under this Agreement or a
number of transactions of which this Agreement is one.
18.3 The Borrower shall fully indemnify the Lender and the Security Trustee
on its demand in respect of all claims, demands, proceedings, liabilities,
taxes, losses and expenses of every kind ("liability items") which may be made
or brought against, or incurred by, the Lender or the Security Trustee, in any
country, in relation to:
(a) any action taken, or omitted or neglected to be taken, under
or in connection with any Finance Document by the Lender or
the Security Trustee or by any receiver appointed under a
Finance Document;
(b) any other event, matter or question which occurs or arises at
any time during the Security Period and which has any
connection with, or any bearing on, any Finance Document, any
payment or other transaction relating to a Finance Document or
any asset covered (or previously covered) by a Security
Interest created (or intended to be created) by a Finance
Document;
other than liability items which are shown to have been caused mainly
and directly by the gross and culpable negligence or the dishonesty of
the Lender's or the Security Trustee's own officers or employees.
18.4 Without prejudice to its generality, Clause 18.3 covers
any liability items which arise, or are asserted, under or in connection with
any law relating to safety at sea, pollution or the protection of the
environment.
18.5 If any sum due from the Borrower or any Security Party to the Lender
or the Security Trustee under a Finance Document or under any order or judgment
relating to a Finance Document has to be converted from the currency in which
the Finance Document provided for the sum to be paid (the "Contractual
Currency") into another currency (the "Payment Currency") for the purpose of:
<PAGE> 43
(a) making or lodging any claim or proof against the Borrower or
any Security Party, whether in its liquidation, any
arrangement involving it or otherwise; or
(b) obtaining an order or judgment from any court or other
tribunal; or
(c) enforcing any such order or judgment;
the Borrower shall indemnify the Lender against the loss arising when
the amount of the payment actually received by the Lender is converted
at the available rate of exchange into the Contractual Currency.
Here the Available rate of exchange" means the rate at which the Lender
is able at the opening of business (London time) on the Business Day
after it receives the sum concerned to purchase the Contractual
Currency with the Payment Currency.
18.6 Clause 18.5 creates a separate liability of the Borrower which is
distinct from its other liabilities under the Finance Documents and which
shall not be merged in any judgment or order relating to those other
liabilities.
18.7 A notice which is signed by two officers of the Lender, which states
that a specified amount, or aggregate amount, is due to the Lender under this
Clause 18 and which indicates (without necessarily specifying a detailed
breakdown) the matters in respect of which the amount, or aggregate amount, is
due shall be prima facie evidence that the amount, or aggregate amount, is due.
19 NO SET-OFF OR TAX DEDUCTION
19.1 All amounts due from the Borrower under a Finance Document shall be
paid.
(a) without any form of set-off, cross-claim or condition; and
(b) free and clear of any tax deduction except a tax deduction
which the Borrower is required by law to make.
<PAGE> 44
19.2 If the Borrower is required by law to make a tax deduction from any
payment:
(a) the Borrower shall notify the Lender as soon as it becomes
aware of the requirement;
(b) the Borrower shall pay the tax deducted to the appropriate
taxation authority promptly, and in any event before any fine
or penalty arises;
(c) the amount due in respect of the payment shall be increased by
the amount necessary to ensure that the Lender and the Security
Trustee receives and retains (free from any liability relating
to the tax deduction) a net amount which, after the tax
deduction, is equal to the full amount which it would otherwise
have received.
19.3 Within one month after making any tax deduction, the Borrower shall
deliver to the Lender documentary evidence satisfactory to the Lender that the
tax had been paid to the appropriate taxation authority.
19.4 In this Clause 19 "tax deduction" means any deduction or withholding
for or on account of any present or future tax except tax on the Lender's or
Security Trustee's overall net income.
20 ILLEGALITY, ETC
20.1 This Clause 20 applies if the Lender notifies the Borrower that it has
become, or will with effect from a specified date, become:
(a) unlawful or prohibited as a result of the introduction of a
new law, an amendment to an existing law or a change in the
manner in which an existing law is or will be interpreted or
applied; or
(b) contrary to, or inconsistent with, an official requirement,
for the Lender to maintain or give effect to any of its obligations
under this Agreement in the manner contemplated by this Agreement.
<PAGE> 45
20.2 On the Lender so notifying the Borrower, the Lender's obligation to
make the Loan shall terminate; and thereupon or, if later, on the date
specified in the Lender's notice as the date on which the notified event would
become effective the Borrower shall prepay the Loan in full in accordance with
Clause 7.
21 INCREASED COSTS
21.1 This Clause 21 applies if the Lender notifies the Borrower that it
considers that as a result of:
(a) the introduction or alteration after the date of this Agreement
of a law or an official requirement or an alteration after the
date of this Agreement in the manner in which a law is
interpreted or applied (disregarding any effect which relates
to the application to payments under this Agreement of a tax
on the Lender's overall net income); or
(b) the effect of complying with any official requirement
(including any which relates to capital adequacy or liquidity
controls or which affects the manner in which the Lender
allocates capital resources to its obligations under this
Agreement) which is introduced, or altered, or the
interpretation or application of which is altered, after the
date of this Agreement,
is that the Lender (or a parent company of it) has incurred or will
incur an "increased cost", that is to say,:
(i) an additional or increased cost incurred as a result
of, or in connection with, the Lender having entered
into, or being a party to, this Agreement or having
taken an assignment of rights under this Agreement, of
funding or maintaining the Loan or performing its
obligations under this Agreement, or of having
outstanding all or any part of the Loan or other
unpaid sums; or
(ii) a reduction in the amount of any payment to the Lender
under this Agreement or in
<PAGE> 46
the effective return which such a payment represents
to the Lender or on its capital;
(iii) an additional or increased cost of funding all or
maintaining all or any of the advances comprised in a
class of advances formed by or including the Loan
or (as the case may require) the proportion of that
cost attributable to the Loan; or
(iv) a liability to make a payment, or a return foregone,
which is calculated by reference to any amounts
received or receivable by the Lender under this
Agreement;
but not an item attributable to a chance in the rate of
tax on the overall net income of the Lender (or a parent
company of it) or an item covered by the indemnity for
tax in Clause 18.1 or by Clause 19.
21.2 The Borrower shall pay to the Lender, on its demand, the amounts which
the Lender from time to time notifies the Borrower that it has specified to be
necessary to compensate it for the increased cost.
21.3 If the Borrower is not willing to continue to compensate the Lender for
the increased cost under Clause 21.2, the Borrower may give the Lender not less
than 14 days' notice of its intention to prepay the Loan at the end of an
Interest Period.
21.4 That notice shall be irrevocable; and on the date specified in its
notice of intended prepayment, the Borrower shall prepay (without premium or
penalty) the Loan, together with accrued interest thereon at the applicable
rate plus the Margin.
21.5 Clause 7 shall apply in relation to the prepayment.
22 CHANGES IN CIRCUMSTANCES
22.1 This Clause 22 applies if by reason of circumstances affecting the
London Interbank Market the Lender is unable to determine LIBOR in accordance
with Clause 4.3 or is unable to
<PAGE> 47
obtain Sterling in the London Interbank Market in order to fund the Loan (or
any part of it) during any Interest Period.
22.2 The Lender shall promptly notify the Borrower stating the circumstances
which have caused its notice to be given.
22.3 If the Lender's notice is served on the Borrower before the Loan is
advanced, the Lender's obligation to advance the Loan shall be suspended while
the circumstances referred to in the Lender's notice continue.
22.4 The Borrower and the Lender shall use reasonable endeavors to agree,
within the 30 days after the date on which the Lender serves its notice under
Clause 22.2 (the "Negotiation Period"), an alternative interest rate or (as the
case may be) an alternative basis for the Lender to fund or continue to fund
the Loan during the Interest Period concerned.
22.5 Any alternative interest rate or an alternative basis which is agreed
during the Negotiation Period shall take effect in accordance with the terms
agreed.
22.6 However, if an alternative interest rate or alternative basis is not
agreed within the Negotiation Period, and the relevant circumstances are
continuing at the end of the Negotiation Period, then the Lender shall set an
interest period and interest rate representing the cost of funding of the
Lender in Sterling or in any available currency of the Loan plus the Margin;
and the procedure provided for by this Clause 22.6 shall be repeated if the
relevant circumstances are continuing at the end of the interest period so set
by the Lender.
22.7 If the Borrower does not agree with an interest rate set by the Lender
under Clause 22.6, the Borrower may give the Lender not less than 15 Business
Days' notice of its intention to prepay at the end of the interest period set
by the Lender.
22.8 That notice shall be irrevocable; and on the last Business Day of the
interest period set by the Lender, the Borrower shall prepay (without premium
or penalty) the Loan, together with accrued interest thereon at the applicable
rate plus the Margin.
22.9 Clause 7 shall apply in relation to the prepayment.
<PAGE> 48
23 SET-OFF
23.1 The Lender and the Security Trustee may without prior notice:
(a) apply any balance (whether or not then due) which at any time
stands to the credit of any account in the name of the
Borrower at any office in any country of the Lender or the
Security Trustee in or towards satisfaction of any sum then due
from the Borrower to the Lender or the Security Trustee under
any of the Finance Documents; and
(b) for that purpose:
(i) break, or alter the maturity of, all or any part of a
deposit of the Borrower;
(ii) convert or translate all or any part of a deposit or
other credit balance into Sterling;
(iii) enter into any other transaction or make any entry
with regard to the credit balance which the Lender or
the Security Trustee considers appropriate.
23.2 Neither the Lender nor the Security Trustee shall be obliged to
exercise any of its rights under Clause 23.1; and those rights shall be without
prejudice and in addition to any right of set-off, combination of accounts,
charge, lien or other right or remedy to which the Lender or the Security
Trustee is entitled (whether under the general law or any document).
24 TRANSFERS AND CHANGES IN LENDING OFFICES
24.1 The Borrower may not, without the consent of the Lender:
(a) transfer any of its rights or obligations under any Finance
Document; or
(b) enter into any merger, de-merger or other reorganization, or
carry out any other act, as a result of which any of its rights
or liabilities would vest in, or pass to, another person,
<PAGE> 49
24.2 Subject to Clauses 24.4, a Lender (the "Transferor Lender") may at any
time at its sole cost and expense, with the consent of the Borrower (such
consent not to be unreasonably withheld and not to be required in the case of a
transfer to a subsidiary or the parent company of the Transferor Lender or to
another subsidiary of its parent company), cause:
(a) its rights in respect of all or part of the Loan;
or
(b) its obligations to advance all or part of the Loan;
or
(c) a combination of (a) and (b);
to be (in the case of its rights) transferred to, or (in the case of
its obligations) assumed by, another bank or financial institution (a
"Transferee Lender") by delivering to the Security Trustee a completed
certificate in the form set out in Schedule 3 with any modifications
approved or required by the Security Trustee (a "Transfer Certificate")
executed by the Transferor Lender and the Transferee Lender.
24.3 As soon as reasonably practicable after a Transfer Certificate is
delivered to the Security Trustee, it shall (unless it has reason to believe
that the Transfer Certificate may be defective):
(a) sign the Transfer Certificate on behalf of itself, the
Borrower and each Security Party;
(b) on behalf of the Transferee Lender, send to the Borrower and
each Security Party letters or faxes notifying them of the
Transfer Certificate and attaching a copy of it;
(c) send to the Transferee Lender copies of the letters or faxes
sent under paragraph (b) above.
24.4 A Transfer Certificate becomes effective on the date, if any, specified
in the Transfer Certificate as its effective date, provided that it is signed
by the Security Trustee under Clause 24.3 on or before that date.
<PAGE> 50
24.5 No assignment or transfer of any right or obligation of a Lender under
any Finance Document is binding on, or effective in relation to, the Borrower,
any Security Party or the Security Trustee unless it is effected, evidenced or
perfected by a Transfer Certificate.
24.6 However, if a Lender enters into any merger, de-merger or other
reorganization as a result of which all its rights or obligations vest in
another person (the "successor"), the Security Trustee may, if it sees fit, by
notice to the successor and the Borrower waive the need for the execution and
delivery of a Transfer Certificate; and, upon service of the Security Trustee's
notice, the successor shall become a Lender with the same obligations and
rights as were held by the predecessor Lender.
24.7 A Transfer Certificate takes effect in accordance with English law as
follows:-
(a) to the extent specified in the Transfer Certificate, all rights
and interests (present, future or contingent) which the
Transferor Lender has under or by virtue of the Finance
Documents are assigned to the Transferee Lender absolutely,
free of any defects in the Transferor Lender's title and of any
rights or equities which the Borrower or any Security Party had
against the Transferor Lender;
(b) the Transferor Lender's obligations are discharged to the
extent specified in the Transfer Certificate;
(c) the Transferee Lender becomes a Lender with the obligations
previously held by the Transferor Lender specified in the
Transfer Certificate;
(d) the Transferee Lender becomes bound by all the provisions of
the Finance Documents which are applicable to the Lenders
generally, including those about the exclusion of liability on
the part of, and the indemnification of, the Security
Trustee and, to the extent that the Transferee Lender becomes
bound by those provisions (other
<PAGE> 51
than those relating to exclusion of liability), the Transferor
Lender ceases to be bound by them;
(e) an Advance or part of an Advance which the Transferee Lender
makes after the Transfer Certificate's effective date ranks in
point of priority and security in the same way as it would
have ranked had it been made by the transferor, assuming that
any defects in the transferor's title and any rights or
equities of the Borrower or any Security Party against the
Transferor Lender had not existed; and
(f) the Transferee Lender becomes entitled to all the rights under
the Finance Documents which are applicable to the Lenders
generally and to the extent that the Transferee Lender becomes
entitled to such rights, the Transferor Lender ceases to be
entitled to them.
The rights and equities of the Borrower or any Security Party referred
to above include, but are not limited to, any right of set off and any
other kind of cross-claim.
24.8 The Borrower irrevocably authorizes the Security Trustee to sign
Transfer Certificates on its behalf.
24.9 The Lender may sub-participate all or any part of its rights and/or
obligations under or in connection with the Finance Documents without the
consent of, or any notice to, the Borrower, any Security Party or the Security
Trustee.
24.10 The Lender may disclose to a potential transferee or sub-participant
any information which the Lender has received in relation to the Borrower, any
Security Party or their affairs under or in connection with any Finance
Document, unless the information is clearly of a confidential nature.
24.11 The Lender may change its lending office by giving notice to the
Borrower and the change shall become effective on the later of:
(a) the date on which the Borrower receives the notice; and
<PAGE> 52
(b) the date, if any, specified in the notice as the date on which
the change will come into effect.
24.12 If at the time of any transfer or chance of lending office by the
Lender, circumstances exist which would oblige the Borrower to pay to the
Transferee Lender or the Lender under Clauses 19, 20 or 21 any sum in excess of
the sum (if any) which it would have been obliged to pay to the Lender under
the relevant Clause in the absence of that transfer or change of lending office
the Borrower shall not be obliged to pay that excess.
25 VARIATIONS AND WAIVERS
25.1 A document shall be effective to vary, waive, suspend or limit any
provision of a Finance Document, or the Lender's or the Security Trustee's
rights or remedies under such a provision or the general law, only if the
document is signed, or specifically agreed to by fax or telex, by the Borrower,
the Security Trustee and the Lender and, if the document relates to a Finance
Document to which a Security Party is party, by that Security Party.
25.2 Except for a document which satisfies the requirements of Clauses 25.1,
no document, and no act, course of conduct, failure or neglect to act, delay or
acquiescence on the part of the Lender or the Security Trustee (or any person
acting on its behalf) shall result in the Lender or the Security Trustee (or
any person acting on its behalf being taken to have varied, waived, suspended
or limited, or being precluded (permanently or temporarily) from enforcing,
relying on or exercising:
(a) a provision of this Agreement or another Finance Document; or
(b) an Event of Default; or
(c) a breach by the Borrower or a Security Party of an obligation
under a Finance Document or the general law; or
(d) any right or remedy conferred by any Finance Document or by
the general law;
and there shall not be implied into any Finance Document any term or
condition requiring any such provision to be
<PAGE> 53
enforced, or such right or remedy to be exercised, within
a certain time.
26 NOTICES
26.1 Unless otherwise specifically provided, any notice under or in
connection with any Finance Document shall be given by letter, fax or telex;
and references in the Finance Documents to written notices, notices in writing
and notices signed by particular persons shall be construed accordingly.
26.2 A notice shall be sent:
(a) to the Borrower: 10 Charlotte Road
London SW13 9QJ
Fax No: 0181 748 568
with a copy to:
201 Energy Centre Parkway
Suite 200
Lafayette
Louisiana 70508
Fax No: 318 235 2584
and
5 Post Oak Park
Suite 1170
Houston
Texas 77027
Fax No: 713 963 9796
(b) to the Lender or the
Security Trustee: P.O. Box 1166 Sentrum
0107 Oslo
Fax No: 22 48 47 51
(att: International
Loans Admin.)
or to such other address as the relevant party may notify the other.
26.3 Subject to Clauses 26.4 and 26.5:
(a) a notice which is delivered personally or posted shall be
deemed to be served, and shall take effect, at the time when
it is delivered;
<PAGE> 54
(b) a notice which is sent by telex or fax shall be deemed to be
served, and shall take effect, 2 hours after its transmission
is completed.
26.4 However, if under Clause 26.3 a notice would be deemed to be served:
(a) on a day which is not a business day in the place of receipt; or
(b) on such a business day, but after 5 p.m. local time;
the notice shall (subject to Clause 26.5) be deemed to be served, and
shall take effect, at 9 a.m. on the next day which is such a business
day.
26.5 Clauses 26.3 and 26.4 do not apply if the recipient of a notice
notifies the sender within 2 hours after the time at which the notice would
otherwise be deemed to be served that the notice has been received in a form
which is illegible in a material respect.
26.6 Any notice under or in connection with a Finance Document shall be in
English.
26.7 In this Clause "notice" includes any demand, consent, authorization,
approval, instruction, waiver or other communication.
27 THE SECURITY TRUSTEE
27.1 In this Clause the "Trust Property" means:
(a) all Security Interests and all rights granted to, or held or
exercisable by, the Security Trustee under or by virtue of the
Finance Documents, except rights clearly intended for the sole
benefit or protection of the Security Trustee;
(b) all moneys which are received or recovered by or on behalf of
the Security Trustee under or by virtue of any Security
Interest or right covered by paragraph (a) above, including any
moneys
<PAGE> 55
which are received or recovered by it as a result of
the enforcement or exercise by it of such a Security Interest
or right;
(c) all moneys and other assets which may accrue in respect of, or
be derived from, any moneys covered by paragraph (b) above; and
(d) any rights or other assets which the Security Trustee, by
notice to the Lender, states shall be deemed to form part of
the Trust Property;
except any moneys which the Security Trustee has transferred to the
Lender or (being entitled to do so) has retained in accordance with the
following provisions of this Clause.
27.2 The Security Trustee shall:
(a) hold the Trust Property on trust for the Lender and the
Security Trustee; and
(b) deal with the Trust Property;
in accordance with this Clause and the other provisions of the Finance
Documents.
27.3 Except as expressly stated to the contrary in any Finance
Document, any moneys which the Security Trustee receives or recovers and which
are Trust Property shall (without prejudice to the rights of the Security
Trustee under any Finance Document to credit any moneys received or recovered
by it to any suspense account) be transferred to the Lender for application in
accordance with Clauses 13 and 14.
27.4 However, before transferring such moneys to the Lender, the Security
Trustee may deduct any sum then due and payable under this Agreement or any
other Finance Document to the Security Trustee or any receiver, agent or other
person appointed by it and retain that sum for itself or, as the case may
require, pay it to the other person to whom it is then due and payable; for
this purpose if the Security Trustee has become entitled to require a sum to be
paid to it on demand, that sum shall be treated as due and payable, even if no
demand has yet been served.
<PAGE> 56
27.5 In addition to its rights under or by virtue of this Agreement and the
Finance Documents, the Security Trustee shall have all of the rights conferred
on a trustee by the Trustee Act 1925 and any other applicable law for the time
being in force.
27.6 The duties of the Security Trustee are limited to those expressly set
out in this Agreement and the Finance Documents; and the Lender waives any
additional or more extensive fiduciary or other obligation which the Security
Trustee might otherwise have by virtue of its position or its designation as
trustee.
27.7 Subject to the provisions of the Finance Documents:
(a) the Security Trustee shall act in connection with the Finance
Documents in accordance with the written instructions of the
Lender; but
(b) in the absence of any such instructions, the Security Trustee
shall not be obliged to act.
27.8 The Security Trustee shall not have any obligation to request the
Lender to give it any instructions or to make any determination.
27.9 The Security Trustee cannot be required by the Lender:
(a) to commence, join in or defend any form of legal proceeding or
to take or participate in any other action which it considers
will or may expose it to any liability (whether for expenses or
otherwise) unless it has first received a letter of credit in
such amount and terms and from such a bank as it may require; or
(b) to take or participate in any action which the Security
Trustee considers is or may be contrary to any Finance Document
or unlawful or contrary to or inconsistent with any official
requirement or the policy of any authority which regulates or
supervises any activity of the Security Trustee or the Lender.
27.10 Any action which the Security Trustee takes or purports to take on
behalf of the Lender at a time when it had not been authorized to do so shall,
if subsequently ratified, be as valid
<PAGE> 57
as regards the Borrower, the Security Parties and the Lender as if the Security
Trustee had been expressly authorized in advance.
27.11 The Security Trustee shall not have or incur any obligation or
responsibility to the Lender, the Borrower or any Security Party except those
expressly specified in the Finance Documents; and no term shall be implied into
any Finance Document to the effect that the Security Trustee has such an
obligation or responsibility.
27.12 The Security Trustee shall not be liable to the Borrower, any Security
Party or the Lender for any loss or expense attributable to any action taken or
omitted to be taken by the Security Trustee, or any of its officers, employees
or agents under or in connection with any Finance Document unless the loss or
expense is shown to have been caused directly and mainly by the gross and
culpable negligence or the dishonesty of the Security Trustee's own officers or
employees; and neither the Borrower, nor any Security Party nor the Lender
shall make any claim against an officer, employee or agent of the Security
Trustee in respect of such a loss or expense unless he is shown to have acted
dishonestly.
27.13 The Security Trustee shall have no responsibility to keep under review
or to report to the Lender about:
(a) the financial position or the affairs of the Borrower, any
Security Party or any other person; or
(b) the accuracy of any representation, warranty or
statement made (or deemed to be repeated), or any information
provided (whether before the date of this Agreement or
otherwise), by the Borrower or any Security Party in or in
connection with any Finance Document; or
(c) the title, value or any other matter relating to,
any asset covered or proposed to be covered by
Security Interest created by a Finance Document;
or
(d) whether any Event of Default or Potential Event
of Default has occurred.
27.14 The Security Trustee shall not be treated as having
<PAGE> 58
knowledge, or any form of notice, of:
(a) an Event of Default or a Potential Event of Default; or
(b) any other event or matter which is relevant to any Finance
Document;
until the Event of Default or Potential Event of Default or (as the
case may require) the other event or matter concerned has been
specifically brought to the attention of the officers of the Security
Trustee who have direct responsibility for the carrying out of the
Security Trustee's functions under the Finance Documents and so brought
to their attention specifically for the purposes of the Finance
Documents.
27.15 The Security Trustee shall not be responsible to the Lender for:
(a) any breach by the Borrower or a Security Party of any Finance
Document; or
(b) the business merits of the terms of any Finance Document; or
(c) ensuring and preserving the validity or enforceability of any
Finance Document or the validity, enforceability or priority of
any Security Interest created or purportedly created by a
Finance Document.
27.16 The Security Trustee may:
(a) engage lawyers, accountants and other experts, and rely on
their advice;
(b) rely on any communication or document, including any Transfer
Certificate, which it believes to be genuine and correct and
to have been communicated, sent or signed by (or with the
authority of) the person by whom (or on whose behalf) it
purports to be communicated, sent or signed; and
<PAGE> 59
(c) perform all or any of its functions under this Agreement and
the other Finance Documents through any office or branch of
the Security Trustee which it may from time to time select
and notify to the other parties or through any kind of
agent and, in particular, by power of attorney or otherwise
delegate the exercise of any of its powers and discretions
under the Finance Documents to any person on such terms (as to
duration, sub-delegation, remuneration, exoneration and
otherwise) as the Security Trustee may consider appropriate.
27.17 The Security Trustee shall be fully entitled, without liability to
account or disclose to the Lender, to enter into:
(a) banking, investment and/or other transactions of every kind with
the Borrower or any Security Party (including, but not limited
to, any interest or currency swap or other transaction, whether
related to this Agreement or not, and acting as syndicate
agent and/or security trustee for, and/or participating in,
other facilities to the Borrower or a Security Party), and
(b) transactions relating, or dealings in, to any securities issued
or to be issued by the Borrower or any Security Party;
as though the Security Trustee were not a trustee of the
Lender; and, in particular, the Security Trustee:
(i) shall have no obligation to make available to the
Lender any information which it acquires in connection
with any such transaction or to use such information
for the benefit of the Lender or for the purposes of
any Finance Document; and
(ii) shall be fully entitled to act or refrain from acting
in relation to any such transaction having exclusive
regard to its own best interests.
<PAGE> 60
27.18 At the end of the Security Period, the Security Trustee shall release,
without any covenants for title or other recourse whatsoever, all the Security
Interests created by the Finance Documents, whereupon the Security Trustee
shall be discharged from all liabilities and obligations which it has under
this Agreement and the other Finance Documents.
27.19 The trusts hereby constituted are governed by English law, and the
applicable perpetuity period is 75 years commencing on the date of this
Agreement.
27.20 In this Clause "right" includes any power, discretion or remedy.
28 SUPPLEMENTAL
28.1 The rights and remedies which the Finance Documents give to the Lender
and the Security Trustee are:
(a) cumulative;
(b) may be exercised as often as appears expedient; and
(c) shall not, unless a Finance Document explicitly and
specifically states so, be taken to exclude or limit any right
or remedy conferred by any law.
28.2 If any provision of a Finance Document is or subsequently becomes void,
unenforceable or illegal, that shall not affect the validity, enforceability or
legality of the other provisions of that Finance Document or of the provisions
of any other Finance Document.
28.3 A Finance Document may be executed in any number of counterparts.
29 LAW AND JURISDICTION
29.1 This Agreement is governed by English law.
29.2 Without prejudice to Clause 29.3, the courts of England shall have
jurisdiction to settle any disputes which may arise out of or in connection
with this Agreement.
<PAGE> 61
29.3 However, Clause 29.2 is for the exclusive benefit of the Lender, which
reserves the right to bring proceedings in respect of any matter which arises
out of or in connection with this Agreement in the courts of any country which
have or claim jurisdiction in relation to that matter.
29.4 The Borrower waives any objection on the ground of inconvenient forum
to any proceedings which relate to this Agreement being brought:
(a) in the courts of England; and
(b) in any other courts by virtue of Clause 29.3.
29.5 Nothing in this Clause 29 shall exclude or limit any right which the
Lender may have (whether under the law of any country, an international
convention or otherwise) with regard to the bringing of proceedings, the
service of process, the recognition or enforcement of a judgment or any similar
or related matter in any jurisdiction,
29.6 If the Lender commences proceedings in connection with a Finance
Document, that shall not preclude it from commencing proceedings (whether
concurrently or not) with respect to that or any other Finance Document in
another jurisdiction.
AS WITNESS the hands of the duly authorized officers or attorneys
==========
of the parties the day and year first before written.
<PAGE> 62
SCHEDULE 1
==========
DRAWDOWN NOTICE
===============
To: Christiania Bank og Kreditkasse
P.O. Box 1166 Sentrum
0107 Oslo
Attention: Loans Administration [ ], 1995
DRAWDOWN NOTICE
===============
1. We refer to the loan agreement (the "Loan Agreement") dated __________
1995 and made between ourselves, as Borrower, and yourselves, as Lender
and Security Trustee, in connection with a facility of up to Pound
Sterling 4,890,000. Terms defined in the Loan Agreement have their
defined meanings when used in this Drawdown Notice.
2. We request to borrow as follows:-
(a) Amount: Pound Sterling [ ]
(b) Drawdown Date: [ ];
(c) Duration of the first Interest Period shall be
[ ] months;
(d) Payment instructions: account in our name and
numbered [ ] with [ ]
of [ ].
3. We represent and warrant that:
(a) the representations and warranties in Clause 9 of
the Loan Agreement would remain true and not
misleading if repeated on the date of this notice
with reference to the circumstances now existing;
<PAGE> 63
(b) no Event of Default or Potential Event of Default
has occurred or will result from the borrowing of
the Loan.
[Name of Signatory]
Director
for and on behalf of
Gulf Offshore N.S. Limited
<PAGE> 64
SCHEDULE 2
==========
CONDITION PRECEDENT DOCUMENTS
=============================
The following are the documents referred to in Clause 8.1 in relation to the
Loan.
1. A duly executed original of each Finance Document and of
each document required to be delivered by each such
Finance Document, including (but without limitation) all
notices of assignment, acknowledgments and letters of
undertaking required by the Deed of Covenant or the
Collateral General Assignment.
2. Copies of the certificate of incorporation and
constitutional documents of the Borrower and each Security
Party.
3. Copies of resolutions of the directors of the Borrower and
each Security Party authorizing the execution of each of
the Finance Documents to which the Borrower or that
Security Party is a party and, in the case of the
Borrower, authorizing named officers to give the Drawdown
Notice and other notices under this Agreement and
ratifying the execution of the MOA.
4. The original of any power of attorney under which any
Finance Document is executed on behalf of the Borrower or
a Security Party.
5. Copies of all official consents which the Borrower or any
Security Party requires to enter into, or make any payment
under, any Finance Document or the MOA.
6. The originals of any mandates or other documents required in
connection with the opening or operation of the
Earnings Account.
7. A copy of the MOA.
8. Documentary evidence that the Ship, and the Collateral
Ship:
<PAGE> 65
(a) is definitively and permanently registered in the
name of the Borrower or GOMI (as the case may
be) under British flag, in the case of the Ship,
and Panamanian flag, in the case of the Collateral
Ship.
(b) is in the absolute and unencumbered ownership of
the Borrower or GOMI (as the case may be) save as
contemplated by the Finance Documents;
(c) maintains the class + 1A1 with Det norske Veritas
or +Al with American Bureau of Shipping (as the
case may be) free of all recommendations and
qualifications of such Classification Society;
(d) the Mortgage or the Collateral Mortgage has been
duly registered as a valid first priority ship
mortgage in accordance with the laws of Bermuda or
Panama, as the case may be; and
(e) is insured in accordance with the provisions of the
Deed of Covenant or the Collateral General
Assignment and all requirements therein in respect
of insurances have been complied with.
9. Favorable legal opinions from lawyers appointed by the
Lender on such matters concerning the laws of Bermuda,
Panama and such other relevant jurisdictions as the Lender
may require.
Each of the documents specified in paragraphs 2, 3, 5 and 7 above and every
other copy document delivered under this Schedule shall be certified as a true
and up to date copy by a director or the secretary (or equivalent officer) of
the Borrower.
<PAGE> 66
SCHEDULE 3
==========
TRANSFER CERTIFICATE
====================
The Transferor and the Transferee accept exclusive responsibility
================================================================
for ensuring that this Certificate and the transaction to which
===============================================================
it relates comply with all legal and regulatory requirements
============================================================
applicable to them respectively.
===============================
To: Christiania Bank og Kreditkasse for itself, as Security Trustee, and for
and on behalf of the Borrower and each Security Party as defined in the Loan
Agreement referred to below.
[ ], 1995
1. This Certificate relates to a Loan Agreement ("the
"Agreement") dated [ ], 1995 and made between (1) Gulf Offshore
N.S. Limited (the "Borrower") and (2) Christiania Bank og Kreditkasse as
Lender and Security Trustee for a loan facility of; Pound Sterling
4,890,000.
2. In this Certificate:
"the Relevant Parties" means the Borrower, each Security Party, the
Security Trustee and [the] [each] Lender;
"the Transferor" means (full name) of (lending office);
"the Transferee" means (full name) of (lending office).
Terms defined in the Loan Agreement shall, unless the contrary intention
appears, have the same meanings when used in this Certificate.
<PAGE> 67
3. The effective date of this Certificate is ________, 19__,
provided that this Certificate shall not come into effect
unless it is signed by the Security Trustee on or before
that date.
4. The Transferor assigns to the Transferee absolutely all
rights and interests (present, future or contingent) which
the Transferor has as Lender under or by virtue of the Loan
Agreement and every other Finance Document [in relation to
[ ] per cent. of the Loan].
5. By virtue of this Transfer Certificate and Clause 27 of the
Loan Agreement, the Transferor is discharged [entirely from
its obligations under the Loan Agreement] [from [ ]
per cent. of its obligations under the Loan Agreement, which
percentage represents Pound Sterling [ ].
6. The Transferee undertakes with the Transferor and each of
the Relevant Parties that the Transferee will observe and
perform all the obligations under the Finance Documents
which Clause 27 of the Loan Agreement provides will become
binding on it upon this Certificate taking effect,
7. The Security Trustee, at the request of the Transferee
(which request is hereby made) accepts, for the Security
Trustee itself and for and on behalf of every other
Relevant Party, this Certificate as a Transfer Certificate
taking effect in accordance with Clause 27 of the Loan
Agreement.
8. The Transferor:
(a) warrants to the Transferee and each Relevant Party
(i) that the Transferor has full capacity to enter
into this transaction and has taken all corporate
action and obtained all official consents which are
in connection with this transaction; and (ii) that
this Certificate is valid and binding as regards the
Transferor;
(b) warrants to the Transferee that the Transferor is
absolutely entitled, free of encumbrances, to all
the rights and interests covered by the assignment
in paragraph 2 above;
<PAGE> 68
(b) undertakes with the Transferee that the Transferor
will, at its own expense, execute any documents
which the Transferee reasonably requests for
perfecting in any relevant jurisdiction the
Transferee's title under this Transfer Certificate
or for a similar purpose.
9. The Transferee:
(a) confirms that it has received a copy of the Loan
Agreement;
(b) agrees that it will have no rights of recourse on
any ground against either the Transferor, the
Security Trustee or (the) (any) Lender in the event
that (i) the Finance Documents prove to be invalid
or ineffective, (ii) the Borrower or any Security
Party fails to observe or perform its obligations,
or to discharge its liabilities, under the Finance
Documents (iii) it proves impossible to realize any
asset covered by a Security Interest created by a
Finance Document, or the proceeds of such assets are
insufficient to discharge the liabilities of the
Borrower or any Security Party under the Finance
Documents;
(c) agrees that it will have no rights of recourse on
any ground against the Security Trustee or (the)
(any) Lender in the event that this Certificate
proves to be invalid or ineffective;
(d) warrants to the Transferor and each Relevant Party
(i) that it has full capacity to enter into this
transaction and has taken all corporate action and
obtained all official consents which it needs to
take or obtain in connection with this transaction;
and (ii) that this Certificate is valid and binding
as regards the Transferee; ,and
(e) confirms the accuracy of the administrative details
set out below regarding the Transferee.
10. The Transferor and the Transferee each undertake with the
Security Trustee severally, on demand, fully to indemnify
the Security Trustee in respect of any claim, proceeding,
<PAGE> 69
liability or expense (including all legal expenses) which
it may incur in connection with this Certificate or any
matter arising out of it, except such as are shown to have
been mainly and directly caused by the gross and culpable
negligence or dishonesty of the Security Trustee's own
officers or employees.
[Name of Transferor] [Name of Transferee]
By: By:
Date: Date:
Security Agent
==============
Signed for itself and for and on behalf of itself
as Security Trustee and for every other Relevant Party
Christiania Bank og Kreditkasse
By:
Date:
Administrative Details of Transferee
====================================
Name of Transferee:
Lending Office:
Contact Person
(Loan Administration Department):
Telephone:
Telex:
Fax:
Contact Person
<PAGE> 70
(Credit Administration Department):
Telephone:
Telex:
Fax:
Account for payments:
Note: This Transfer Certificate alone may not be sufficient to
=====
transfer a proportionate share of the Transferor's interest in the security
constituted by the Finance Documents in the Transferor's or Transferee's
jurisdiction. It is the responsibility of each Lender to ascertain whether any
other documents are required for this purpose.
<PAGE> 71
SCHEDULE 4
==========
COMPLIANCE CERTIFICATE
======================
Christiania Bank og Kreditkasse Date _____________,1995
P.O. Box 1166 Sentrum
0107 Oslo
Norway
Att: E. Marianne Aalby
COMPLIANCE CERTIFICATE
Please accept this letter as certification that as of (date)*, Gulf Offshore
N.S. Limited was in compliance with all of the covenants stipulated in Clause
11.4 of the loan agreement dated [ ] 1995 between ourselves and
Christiania Bank og Kreditkasse. With regards to the covenants in Clause 11.4:-
1. The Company had Pound Sterling [ ] in Liquid Assets
as of [ ]*;
2. The Company's Value Adjusted Equity as of [ ]* was
Pound Sterling [ ]
3. The Company's Value Adjusted Total Assets as of
[ ] was Pound Sterling [ ], (based on the
following vessel valuations):- [ ]
4. The ratio of the Company's Budgeted Operating Profit to
Budgeted Financial Expenses as of [ ]* was
[ :1],
5. The Book Equity of Gulf Offshore Marine International, Inc.
as of [ ] was USD [ ].
Regards,
Gulf Offshore N.S. Limited
* The quarter end for which compliance is being certified.
<PAGE> 72
EXECUTION PAGE(S)
=================
SIGNED by )
/David William Dare/ )
for and on behalf of ) /David Dare/
GULF OFFSHORE N.S. )
LIMITED in the presence of:- )
Jaiaman Campbell
Solicitor
London EC2
SIGNED by )
/Oivind Haraldsen/ )
for and on behalf of )
CHRISTIANIA BANK OG ) /Oivind Haraldsen/
KREDITKASSE as Lender and )
Security Trustee in the )
presence of:- )
Jaiaman Campbell
Solicitor
London EC2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF GULFMARK INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Name of Subsidiary or Organization State or Country of Incorporation
---------------------------------- ---------------------------------
<S> <C>
Ercon Development Co. Texas
Gulf Offshore N.S. Ltd. United Kingdom
GulfMark North Sea Ltd. United Kingdom
Dianne Operating Ltd. United Kingdom
Gulf Marine Far East PTE, Ltd. Singapore
Gulf Offshore Marine International, Inc. Panama
Gulf Offshore Far East Inc. Panama
SeaMark, Ltd. Panama
Gulf Marine do Brazil, Ltd. Brazil
Semaring Logistics (M) Sdn. Bhd. Malaysia
Chalvoyage (M) Sdn. Bhd. Malaysia
Energy Ventures, Inc. Delaware
</TABLE>
41
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GulfMark International, Inc.:
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-36740 and File No.
33-79212.
ARTHUR ANDERSEN LLP
Houston, Texas
March 20, 1996
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SETS FORTH CERTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GULFMARK INTERNATIONAL, INC. AS OF
DECEMBER 31, 1995, AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,163
<SECURITIES> 0
<RECEIVABLES> 6,148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,710
<PP&E> 76,541
<DEPRECIATION> 14,959
<TOTAL-ASSETS> 110,935
<CURRENT-LIABILITIES> 7,654
<BONDS> 0
<COMMON> 26,837
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 110,935
<SALES> 36,077
<TOTAL-REVENUES> 36,077
<CGS> 26,568
<TOTAL-COSTS> 32,627
<OTHER-EXPENSES> 74
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,801
<INCOME-PRETAX> 1,778
<INCOME-TAX> 3,680
<INCOME-CONTINUING> (1,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,902)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-7265
ENERGY VENTURES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2515019
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (713) 297-8400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange in which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
</TABLE>
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 1, 1996, was $335,864,880, based upon the closing
price on the New York Stock Exchange as of such date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Title of Class Outstanding at March 1, 1996
-------------- ----------------------------
<S> <C>
Common Stock, $1.00 Par Value 18,428,582
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13, will be
included in the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A and is incorporated herein by reference.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Energy Ventures, Inc., a Delaware corporation (together with its
subsidiaries, the "Company"), is an international manufacturer and supplier of
oilfield equipment and contract drilling services. The Company operates
through two business segments: oilfield equipment and contract drilling. The
oilfield equipment segment manufactures high performance tubulars and a
complete line of artificial lift equipment as well as completion tools. The
Company's contract drilling segment consists primarily of barge rigs used by
major and large independent oil and gas companies for the exploration and
development of natural gas primarily in the U.S. Gulf Coast area. The
Company's tubular products and contract drilling operating divisions provide
products and services used primarily for natural gas exploration and
production. The artificial lift and completion tool product lines are related
to the maturation of oil producing formations.
Tubular products are provided through the Company's Grant Prideco tubular
products division ("Grant Prideco"). Tubular products are manufactured at nine
locations throughout the world, and distribution is effected through a
worldwide sales and service support system. This division's products consist
of proprietary drill pipe (H-Series(TM)), heavyweight drill pipe, casing and
premium tubulars (Atlas Bradford(TM)). As part of its premium tubular
business, Grant Prideco also designs, manufactures and markets Atlas Bradford
proprietary premium threaded connections for tubing and casing used in oil and
gas wells. Grant Prideco's products are designed and engineered for high
performance applications. Drill pipe serves as the principal mechanical
drilling tool needed to drill an oil or natural gas well. Drill pipe is
designed and manufactured to provide a reliable connection from the drilling
rig to the drill bit thousands of feet below the surface. Grant Prideco is the
largest manufacturer and supplier of drill pipe in the world and is one of the
two largest manufacturers of premium tubulars in North America. Grant Prideco
is also one of the two largest manufacturers of drill collars and heavyweight
drill pipe in the Americas.
The Company's EVI Oil Tools division manufactures artificial lift
equipment and completion tools used for the production of crude oil. EVI Oil
Tools was created in early 1996 through the consolidation of the operations of
the Company's Highland and Production Oil Tools divisions. The consolidation
was implemented to provide marketing advantages and manufacturing economies.
In conjunction with the consolidation, the Company sold Highland's United
States retail distribution network to Continental Emsco Company ("Continental
Emsco"). This disposition has allowed the Company to reduce its workforce by
over 170 employees and focus the operations of this division on manufacturing.
EVI Oil Tools provides a wide variety of proprietary and patented
products, including the RotaFlex(R) pumping unit, the Corod(R) continuous
sucker rod (through the Company's Corod unit ("Corod")), progressive cavity
pumps, Fluid Packed(TM) pumps, EL(R) sucker rods, Production Oil Tools packers,
Engemaq completion tools and Vitex flow control equipment. EVI Oil Tools is
one of the two largest manufacturers of rod lift equipment in the world and
provides the only integrated product line in this class of lift from the above
ground equipment to the tools submersed in the producing reservoir.
The Company's contract drilling operations are conducted through its
Mallard drilling and workover services division ("Mallard"). Mallard's
domestic operations are concentrated in the area of barge drilling and workover
in the shallow coastal and inland waters of the U.S. Gulf Coast where
conventional jack-up rigs cannot operate. The Company is the second largest
operator of barge rigs in this market. The Company's domestic barge rig fleet
consists of 16 drilling rigs and 19 workover rigs. The Company also has a
fleet of six platform rigs in the Gulf of Mexico. Internationally, Mallard
operates one barge rig in Nigeria, two platform rigs in Peru and four land rigs
in Argentina. The Company also owns a 49% interest in a joint venture that
owns two land rigs in Peru.
The Company made various acquisitions in 1995 designed to strengthen its
existing product lines and operations in each of its core businesses. The most
significant of the Company's acquisitions was the acquisition of Prideco, Inc.
("Prideco"). The Prideco acquisition enhanced the Company's tubular product
line by adding drill collars, heavyweight drill pipe and premium casing to its
already extensive line of tubular products. Prideco was the second largest
manufacturer of drill pipe in the U.S. and one of the two largest manufacturers
of drill collars and heavyweight drill pipe in the Americas. The Company is
currently seeking to expand internationally the market for Grant Prideco's
drill collars and heavyweight drill pipe. The Company has also begun to market
Grant Prideco's premium casing with the Company's previously introduced
TC-II(TM) line of premium casing connectors. The
1
<PAGE> 3
Company intends to substantially increase production of this product during
1996.
The Company's acquisition of Prideco has further strengthened the
Company's position as the leader in the worldwide drill pipe market. The
acquisition is also expected to increase the profitability of the Company's
tubular business by providing it with greater manufacturing and marketing
efficiencies through a consolidation of overhead and a rationalization of
manufacturing operations. The Company is currently in the process of
consolidating the manufacturing of drill pipe and other tubular products to the
most efficient manufacturing locations for those products and is actively
marketing the acquired Prideco product lines internationally through the
Company's existing international sales force and distribution system.
In July 1995, the Company acquired Engemaq S.A., ("Engemaq") a
manufacturer of completion tools. Engemaq manufactures and markets packers in
South America. The business of Engemaq has been incorporated into EVI Oil
Tools.
From the Company's inception in 1972 through early 1986, the Company was
primarily an oil and gas exploration and production company. In January 1986,
the Company disposed of substantially all of its oil and gas properties other
than a minority interest in a joint venture ("COLEVE") with Columbia Gas
Development Corporation ("Columbia"). In 1990, the Company dissolved COLEVE
and in 1992, the Company sold its remaining oil and gas properties (other than
an overriding royalty interest and certain related rights with respect to the
properties received on dissolution of COLEVE) and discontinued its exploration
and production segment.
In 1993, the Company disposed of its Eastman Cherrington environmental
services group. The results of Eastman Cherrington are reflected in the
Company's Consolidated Statements of Income as a discontinued operation. See
discussion in Note 5 to Consolidated Financial Statements for further
information. Financial information with respect to revenues, operating profit
and identifiable assets for each segment is contained in Note 14 to
Consolidated Financial Statements.
The Company was incorporated in 1972 as a Massachusetts Corporation and
was reincorporated in Delaware in 1980. The Company's corporate office is
located at 5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415, and its
telephone number is 713/297-8400.
OILFIELD EQUIPMENT
The Company's oilfield equipment segment manufactures and markets tubular
products and services through Grant Prideco and manufactures and markets
artificial lift and completion tool equipment and services through EVI Oil
Tools.
TUBULAR PRODUCTS
Grant Prideco manufactures and markets two tubular product lines: (i)
drill pipe and related products and (ii) the Atlas Bradford and Prideco lines
of premium tubulars and premium connections. Grant Prideco operates through
nine manufacturing facilities of which seven are located in the U.S., one in
India and one in Mexico. Grant Prideco also has over 90 worldwide licensed
manufacturing and repair locations. Grant Prideco markets its product lines
through ten technical support sales offices and a worldwide network of agents
and suppliers. Grant Prideco tubular products are either used for drilling and
completion of oil and gas wells or for production of oil and natural gas.
Grant Prideco's drilling products include drill pipe, drill collars,
heavyweight drill pipe and kellys. These products constitute all components of
the drill stem used to drill a well from the rig to the drill bit. Grant
Prideco's production tubulars are primarily premium tubing, casing and
connections.
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with Oil Country Tubular, Ltd. ("OCTL"), an India-based
manufacturer of drill pipe and premium tubulars. The OCTL facility was built
in 1990 under the direction of personnel who are currently employed by Grant
Prideco and is the most modern tubular fabricating facility in the world. The
facility will be used by the Company to pursue a strategic expansion of its
sales and operations in the Eastern Hemisphere. The Company believes that the
combination of Grant Prideco's product line coupled with OCTL's low
manufacturing costs and proximity to major Eastern Hemisphere markets will
accomplish this objective. This expansion is intended to substantially
increase the Company's sales into the growing Eastern Hemisphere markets, which
over the last few years have represented less than 5% of the Company's total
revenues. Manufacturing operations on behalf of the Company are expected to
commence during the second quarter of 1996.
2
<PAGE> 4
Under the terms of the OCTL agreement, the Company has a right to
terminate the agreement on an annual basis. The agreement is for an initial
five-year term renewable for successive five-year terms. The agreement may be
terminated by OCTL only under certain limited circumstances, including,
beginning December 31, 2000, if certain minimum orders have not been placed
through OCTL and minimum payments have not been made by the Company. Under the
terms of the agreement with OCTL, the Company made a one-time payment of $8
million for the exclusive right to have Grant Prideco's products manufactured
at the facility. The Company is also required to pay all direct operating
expenses relating to the facility, including the cost of inventory and raw
materials used for the manufacture of the Company's products.
Drill Pipe
Drill pipe is manufactured within specific metallurgical and engineering
guidelines to meet stringent requirements necessary for its use in the drilling
of oil and natural gas wells. Oil and gas companies consider drill pipe to be
a material portion of their overall drilling costs. Accordingly, purchasing
decisions are sensitive to price, quality, operational needs and fluctuations
in oil and gas prices.
Grant Prideco's drill pipe product line consists primarily of specialty
pipe that is marketed under the H-Series trade name. The H-Series product line
combines the proprietary and patented technology of the Hughes Tool Joint drill
pipe fabrication system (acquired from Baker Hughes, Incorporated ("Baker
Hughes") in 1990) with the Company's original drill pipe manufacturing
capabilities. Grant Prideco owns a number of patents on tool joint design and
drill pipe manufacturing processes and has licensed a number of foreign drill
pipe manufacturers for the use of Grant Prideco's H-Series patents,
technologies and hardware.
Drill Collars and Heavyweights
Drill collars are the component of the drill stem generally located
directly above the drill bit in a vertical well. A drill collar is machined
from a solid steel bar and is used to provide weight on the drill bit. Grant
Prideco's heavyweight drill pipe is a seamless tubular product that is less
rigid than a drill collar and provides a transitional zone between the drill
collar in a vertical well and the more flexible drill pipe. Heavyweight drill
pipe also serves to apply weight to the drill bit in a directional well. The
Company's drill collar and heavyweight drill pipe product lines were acquired
through the acquisition of Prideco.
Premium Tubulars and Connections
Grant Prideco's premium tubular product line consists of premium tubing,
casing and premium connections. The product line is marketed under the trade
name Atlas Bradford and utilizes a number of proprietary and patented processes
for threading and manufacturing premium tubulars. Atlas Bradford was a pioneer
in the development of high performance connections for premium tubulars.
Premium tubulars, like the lower performance variety known as API tubulars, are
made up of casing and tubing, products that respectively line the walls of a
wellbore and serve as a conduit for hydrocarbons up the wellbore. Grant
Prideco's casing products consist of larger outside diameter, thinner walled,
seamless tubular products previously manufactured by Prideco. Casing is used
to line and maintain the integrity of a wellbore. The term "premium" refers to
high alloy, seamless tubulars with specific molecular structure and highly
engineered connections. Such tubulars, whether casing or tubing, are designed
and engineered to withstand deep, high pressure, high temperature and highly
corrosive well environments. Premium tubulars are generally used in deep
natural gas and offshore wells.
In 1994, the Company introduced a new line of premium connections by
Atlas Bradford known as the TC-II line. The TC-II line is a highly engineered
and technologically advanced line of premium connections. The product line is
the result of two and a half years of product development and testing. The
TC-II product line was developed to provide the worldwide oil and gas industry
with the premium performance and design incorporating economical threading
using high alloy materials. The significance in developing and introducing the
TC-II line was to enhance Grant Prideco's ability to better compete in
international markets, which currently represents three times the volume of the
domestic market. Before the introduction of the TC-II line, Grant Prideco's
primary market for its premium tubulars was in the U.S. and Canada. Although
TC-II testing will continue through 1996, this product line is now being
marketed for selected commercial applications. The Company intends to market
its TC-II line in conjunction with Grant Prideco's casing product line in order
to provide its customers with a uniform casing product.
3
<PAGE> 5
Sales and Backlog
Total sales of drill pipe and tubular products for years ended December
31, 1995, 1994 and 1993 were $157.8 million, $97.2 million and $74.6 million,
respectively, representing approximately 45%, 39% and 30% of the Company's
total sales. The sales backlog for drill pipe and other tubular products at
December 31, 1995, totaled approximately $78.4 million, compared to
approximately $35.2 million at December 31, 1994. The increase in the 1995
backlog was primarily due to a large increase in demand for drill pipe during
1995 and the effects of the Prideco acquisition. The Company anticipates that
all of the backlog existing at December 31, 1995, will be shipped during 1996.
The Company is currently taking action to reduce its backlog of drill pipe by
increasing its current production rates at its facilities. Production at the
OCTL facility is also expected to reduce the backlog.
Competition
Grant Prideco is the largest manufacturer and supplier of drill pipe in
the world and the second largest manufacturer of premium tubulars in North
America. Grant Prideco is one of the two largest manufacturers of drill
collars and heavyweight drill pipe in the Western Hemisphere.
Grant Prideco operates in a highly competitive industry that has
experienced depressed demand, overcapacity and excess supplies for the past
several years. Competition is based on price, quality and service. The market
for the Company's drill pipe is essentially worldwide and the Company competes
with four large international and domestic manufacturers, some of whom are
licensees of the Company, as well as manufacturing operations in China and the
Commonwealth of Independent States ("CIS"). Other large domestic and
international manufacturers not currently in the market also have the ability
of competing with the Company. Market conditions for drill pipe in recent
years have been highly competitive. During 1995, prices for drill pipe began
to improve with the decline in excess inventories of used pipe and the
associated increase in demand for new drill pipe.
In the United States, the Company competes with approximately four
manufacturers of premium tubular products. Competitors include large domestic
and foreign corporations and small specialty manufacturers. Internationally,
the Company competes with five manufacturers of premium tubing. Many of the
Company's competitors have greater financial resources than the Company. The
Company continues to expand its market for premium tubulars outside the U.S.
through the opening of new sales and service centers.
The market for casing is limited to some extent by transportation costs.
As a result, the Company's current market for these products is primarily in
North and South America. The Company competes with over four other
manufacturers of these products in these locations. Casing is currently
manufactured by over five large manufacturing companies.
Raw Materials
The Company uses plain end "green" steel tubing stock as raw material in
the manufacture of drill pipe, casing and premium tubing. The primary raw
material for drill collars is solid steel bars. Heavyweight drill pipe is
manufactured from heavy wall tubular products. The Company's suppliers are
major domestic and international steel mills. The Company has established
relations with several domestic and foreign mill sources that provide a
competitive availability of "green" tubing stock supplies. Prices for "green"
tubing have recently increased. The Company, however, has been able, to date,
to pass through these increased costs to its customers.
Facilities
The Company's drill pipe and premium tubulars are manufactured
domestically at seven locations in Texas, one location in Mexico and one
location in India. The Company continues to focus on product development and
manufacturing efficiencies. The Company also has sales offices in Houston and
Dallas, Texas; New Orleans, Louisiana; Abu Dhabi, United Arab Emirates;
Aberdeen, Scotland; Moscow, Russia; Caracas, Venezuela; The Hague, The
Netherlands; Kuala Lumpur, Malaysia and Shanghai, China.
Customers and Markets
The customers for the Company's tubular products include both domestic
and international oil and gas companies and distributors of oilfield supplies.
Because the Company's tubular products are designed primarily for drilling and
production in deep wells and harsh environments, they are generally used in
connection with the
4
<PAGE> 6
exploration and production of natural gas and international exploration.
Accordingly, sales of these products are sensitive to fluctuations in the price
outlook for natural gas and related levels of exploration activity.
ARTIFICIAL LIFT AND COMPLETION TOOL EQUIPMENT
Artificial lift products and completion systems are manufactured by EVI
Oil Tools. EVI Oil Tools represents a combination of the Company's Highland
and Production Oil Tools divisions. EVI Oil Tools' products are used in the
production segment of the oil and gas industry, with an emphasis on the
production of oil. Products manufactured by the EVI Oil Tools division include
a complete line of artificial lift equipment and parts and a line of high
performance packers and related downhole tools for use by service companies.
The Company's artificial lift equipment emphasizes rod lift products and
utilizes various proprietary and patented technology. Rod lift is one of four
artificial lift technologies currently used for recovering oil from maturing
fields, which lack sufficient pressure to flow under their own power. These
methods and related equipment are designed to sustain the flow of oil
production from such fields. Artificial lift technologies include electrical
submersible lift, gas lift and hydraulic lift. Rod lift is a form of
artificial lift technology in which oil is recovered through a suction process
utilizing an above ground drive system connected by sucker rods to a downhole
pump placed in the reservoir. Rod lift is particularly suited for older oil
wells with depths of up to 10,000 feet and with production rates of up to 1,000
barrels per day. The Company estimates that rod lift represents approximately
50% of the total artificial lift market in the world, with electrical
submersible lift having the next largest share at approximately 40%.
EVI Oil Tools' packers and downhole tools include cement retainers,
remedial service tools, production packers and flow control equipment.
Downhole packers are used in the completion and production of oil and gas
wells. Packers maintain the separation between productive zones and seal off
the space between the tubing and casing.
EVI Oil Tools distinguishes itself from its competitors in that it has a
fully integrated product line and utilizes new technologies for the production
of oil using artificial lift. EVI Oil Tools' integrated product line offers
all artificial lift equipment from the wellhead to the reservoir. To the
Company's knowledge, none of its competitors has as broad a product line. EVI
Oil Tools' principal products include: (i) RotaFlex pumping units, (ii) Corod
continuous sucker rods and EL sucker rods, (iii) progressive cavity pump
systems, (iv) Fluid Packed pumps, (v) Production Oil Tools packers, (vi)
Engemaq completion tools and (vii) Vitex flow control equipment.
EVI Oil Tools' products have traditionally been principally marketed in
the oil producing regions of North America through its own extensive U.S. store
system. Recently, the Company made a strategic decision to dispose of that
system to Continental Emsco, and in connection with that disposition, entered
into a supply agreement under which the Company's products will be sold through
the more extensive Continental Emsco distribution network in the U.S. The
Company believes that this arrangement, together with arrangements that the
Company has with other major distributors, will permit a broader distribution
of the Company's products while saving the Company the overhead cost of
maintaining its own retail distribution network. The Company has retained its
Canadian distribution system that is used to service and support its Corod and
other product lines. With the opening of the world oil markets in China, the
CIS and South America, EVI Oil Tools has been taking steps to introduce its
products into these markets where modern artificial lift equipment and
completion tools are both needed and actively sought. The Company believes
that these markets should provide significant opportunities for the Company.
EVI Oil Tools' products are focused on the production side of the oil and
gas industry, which the Company believes is less volatile than the exploration
segment of the industry. The Company further believes that the crude oil
production side of the industry is a growing market for artificial lift
products in that there is an increasing need for artificial lift to aid
production as oil fields mature worldwide. Thus, although domestic exploration
for crude oil has declined in recent years, this decline is not expected to
materially affect the demand for EVI Oil Tools' products. However, declines in
prices of oil may reduce demand for EVI Oil Tools' products due to reduced
capital expenditures by customers and decisions by customers not to pursue
additional work on marginal wells.
RotaFlex "Pumping Unit"
RotaFlex is a 100% mechanical, long-stroke surface drive pump unit used
to artificially lift oil from deep or high-volume wells as opposed to
low-volume stripper wells. The unique patented design is greater than 20% more
5
<PAGE> 7
efficient than the conventional pump drive unit that has been in use for over
50 years. The Company has actively marketed the RotaFlex system for
approximately three years with increasing market acceptance. The Company also
markets the RotaFlex system in the Canadian, South American and Chinese
markets.
The Company's RotaFlex line is marketed in the United States on an
exclusive basis through Continental Emsco. International sales are made
through the Company's own sales force and third party distributors.
Progressive Cavity Pumps and Fluid Packed Pumps
Downhole pumps in rod lift come in one of two forms: progressive cavity
pumps and rod pumps. Progressive cavity pumps lift by using a rotating motion
and elastomer lined cavities. Rod pumps lift by using a vertical motion and a
set of mechanical valves. Both are connected to the prime mover above ground
by either traditional coupled rods or Corod continuous rods. The Company
produces and distributes a complete line of progressive cavity pump systems
using proprietary hydraulic gear boxes and patented vertical electric drives.
The Company's progressive cavity pump is particularly suited for shallow to
medium depth wells with high volumes of produced water, low gravity crude or
sandy conditions. The Company believes that the progressive cavity pump
provides a desirable alternative to the traditional rod pump and electric
submersible pumps in these applications. The rotor and stator components of
the Company's progressive cavity pump are currently manufactured for the
Company by Robbins & Myers, Inc. ("Robbins & Myers"). As a result of the
Company's disposition of its U.S. store distribution network to Continental
Emsco, the Company and Robbins & Myers are in the process of negotiating a new
supply arrangement under which Robbins & Myers would provide the Company with
rotors and stators.
In 1994, the Company added the Fluid Packed line of rod pumps, parts and
accessories and the EL sucker rod business, previously owned by
National-Oilwell, to EVI Oil Tools' product line. As part of this addition,
the Company acquired leased and owned manufacturing facilities in Woodward,
Oklahoma and Santa Teresa, New Mexico, respectively. The Fluid Packed line
offers a wide variety of API pumps, specialty rod pumps and unique accessories.
The Fluid Packed line of specialty rod pumps is designed for pumping
applications to meet special well conditions. The sucker rod business includes
both API grades and the premium Electra(R) Series EL line.
Corod "Continuous Sucker Rods"
The Company manufactures the only continuous sucker rod available in the
industry through its Corod unit located in Canada. A sucker rod is an integral
part of any sucker rod pumping system and is used to connect the surface drive
unit of an oil well, such as the RotaFlex system or a traditional drive system,
to a subsurface pump. The typical sucker rod requires a coupling every
twenty-five to thirty feet. Corod's semi-elliptical smooth and continuous
sucker rod does not have such couplings, which reduces wear and torque and
produces a more efficient and economical form of artificial lift. The
manufacturing process of Corod is proprietary and the servicing process is
patented. The Company continues to market Corod's products in foreign markets
such as Venezuela and China.
Production Oil Tools and Engemaq Completion Equipment and Vitex Flow
Control Equipment
The Company manufactures downhole packers and completion equipment
through its Production Oil Tools and Engemaq product lines. Downhole packers
and flow control equipment are used in the completion and production process of
oil and gas wells. Packers maintain the separation between productive zones in
oil and gas wells and seal off the space between the tubing and casing to
protect the casing from reservoir pressures and corrosive formation fluids.
The Production Oil Tools and Engemaq downhole packers are compatible with
the packers manufactured by Baker Hughes which is the largest manufacturer of
packers in the industry. The Company believes that Production Oil Tools and
Engemaq packers are the only ones in the industry that have such compatibility
characteristics. The Company considers this compatibility as an important
competitive attribute in that much of the packer business is in the repair or
replacement of existing installations and over half of the existing packers are
believed to be Baker Hughes products. The Company believes that its packers
provide its customers with a viable cost effective alternative to those
manufactured by Baker Hughes.
The Company manufactures packers at its facilities in Powell, Wyoming;
Arlington, Texas and Caxias do Sul, Brazil. Distribution is effected through
sales directly to the customer and through third party distributors. The
Company is currently reviewing opportunities to expand this product line
internationally.
6
<PAGE> 8
Other Products and Repair Services
Through its Leamco(TM) division, EVI Oil Tools also manufactures and
installs pumping unit replacement parts, primarily bearings and gearboxes, for
both EVI Oil Tools' products and products sold by competitors. Among the
products provided by Leamco is a proprietary line of self-lubricating Teflon(R)
bearings. The Leamco unit repairs, installs and services oilfield pumping
units at 15 locations in Texas, Oklahoma and New Mexico. The market for repair
of pumping units is very fragmented in North America. The Company, however,
believes Leamco is the largest domestic provider of these services. EVI Oil
Tools produces a full line of motor and control units used in connection with
oilfield pumping units. These units include the Sargent(TM) line of ultra
high-slip electric motors and controls that maximize the lift capacity of beam
pumping units while reducing unit load.
Product Sales
Total sales for the Company's subsurface pump group for the years ended
December 31, 1995, 1994 and 1993 were $83 million, $59 million and $56 million,
respectively, representing 24%, 24% and 23% of the Company's total sales during
such periods.
Competition
The market for artificial lift and completion tool equipment, equipment
parts and repair is very competitive. Competition is based on product design
and quality, ability to meet delivery requirements and pricing. The RotaFlex
system competes with conventional pumping units, which are manufactured by
Lufkin Industries. Corod's continuous sucker rods compete with conventional
sucker rods, which are manufactured and sold by both EVI Oil Tools and three
major competitors. The Company's progressive cavity pumps compete with five
major competitors. EVI Oil Tools has identified in the industry six large
competitors that individually have significant shares of the entire artificial
lift equipment market (inclusive of all other forms of lift). The Company
believes that it currently has the second or third largest market share in the
world, although its market share varies depending on the type of product.
Customers and Markets
EVI Oil Tools' products and services are designed primarily for oil
production from maturing fields. Demand is, therefore, not significantly
affected by short-term changes in exploration and drilling activity. As the
average age of oil wells worldwide increases, the market for the Company's
artificial lift equipment is expected to increase. Currently, most of the
Company's artificial lift equipment is sold in the United States and Canada.
However, the Company believes that significant opportunities exist for its
products in other areas with maturing fields such as South America, the CIS and
China. In recognition of this opportunity, the Company has taken extensive
efforts to expand EVI Oil Tools' products internationally. Approximately 8% of
the Company's revenues from the sale of artificial lift equipment for 1995,
1994 and 1993 were derived from sales of equipment provided outside the United
States and Canada.
Facilities
EVI Oil Tools' products are manufactured at seven locations in the United
States, one location in Canada and one in Brazil.
Backlog
Backlog of artificial lift equipment is generally not considered to be a
meaningful indication of future sales or results due to the nature of the
business.
CONTRACT DRILLING
The Company's contract drilling segment in the United States is
primarily concentrated in the area of barge drilling and workover in the
shallow coastal and inland waters of the U.S. Gulf Coast where conventional
jack-up rigs cannot operate. Mallard is the second largest operator of barge
rigs in this market. Mallard's domestic barge rig fleet consists of 16
drilling rigs and 19 workover rigs. Mallard also has a fleet of six platform
rigs in the Gulf of Mexico.
7
<PAGE> 9
The domestic barge rig market has for more than a decade been
characterized by overcapacity and a heavy dependence on natural gas drilling.
These market conditions, combined with depressed and volatile natural gas
prices, created an operating environment that was characterized by low day
rates and rig utilization, and precipitated a consolidation in the industry.
Since the early 1980's, the number of rigs in existence has declined from over
200 to less than 100, and the number of contractors has declined from over 20
to less than five. As one of the two major surviving contractors, Mallard has
begun to benefit from these conditions through increased revenues and rig
utilization. These market improvements have occurred notwithstanding continued
low natural gas prices and a low domestic rig count. The Company expects
domestic results to continue to benefit from these conditions as well as from
increased demand in the U.S. Gulf Coast. These changes in demand stem from an
increase in three-dimensional seismic survey activity, resulting in the
identification of attractive deep natural gas prospects in the inland and
coastal water of Louisiana, and increased lease activity in these areas
following the 1994 settlement of a production royalty dispute between the State
of Louisiana and Texaco, Inc. ("Texaco"), Mallard's largest barge rig customer.
Internationally, Mallard operates three rigs in the coastal and offshore
waters of Nigeria and Peru and four land rigs in Argentina. International
drilling contracts are generally for longer periods than domestic contracts and
at more favorable rates. International drilling operations represented
approximately 31% and 25% of the revenue and operating income, respectively,
for this segment during 1995.
Mallard owns all of its rigs and has a 49% interest in a joint venture
that owns two land rigs in Peru. From its inception in 1987, Mallard has
devoted substantial efforts toward establishing itself as a leader in quality
by upgrading and refurbishing its rigs.
The Company's fleet of barge and other rigs was acquired through a number
of acquisitions affected during the last ten years. These acquisitions were
concentrated on barge rigs that could be easily integrated into Mallard's
fleet. Because most of the purchases were made at a time during which there
existed substantial overcapacity and low demand in the barge drilling market
and from companies desiring to leave the market, the rigs were acquired at what
the Company believes to be favorable prices substantially below replacement
cost.
FLEET
As of December 31, 1995, Mallard's fleet consisted of the following
general types of rigs located in the following regions:
<TABLE>
<CAPTION>
TOTAL
FLEET
-----
<S> <C>
Inland Barge:
Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Platform:
Gulf of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Land:
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Peru* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
==
</TABLE>
*The Company has a 49% interest in two land rigs in Peru.
8
<PAGE> 10
More detailed information with respect to Mallard's fleet of drilling rigs,
as of December 31, 1995, is set forth in the following table:
<TABLE>
<CAPTION>
YEAR BUILT MAXIMUM
OR LAST DRILLING
HORSEPOWER REFURBISHED DEPTH (FEET)
---------- ----------- ------------
<S> <C> <C> <C>
Inland Barge:
Deep Drilling
Rig No. 50 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 25,000
Rig No. 51 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 25,000
Rig No. 52 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 25,000
Rig No. 53 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1995 20,000
Rig No. 54 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1995 30,000
Rig No. 55 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1993 30,000
Rig No. 56 . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1992 30,000
Rig No. 57 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1980 30,000
Rig No. 58 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1982 30,000
Rig No. 59 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1972 30,000
Rig No. 60 . . . . . . . . . . . . . . . . . . . . . . . . 3,000 1981 30,000
Rig No. 71(a) . . . . . . . . . . . . . . . . . . . . . . 3,000 1994 30,000
Intermediate Drilling
Rig No. 8 . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1995 15,000
Rig No. 11 . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1994 15,000
Rig No. 12 . . . . . . . . . . . . . . . . . . . . . . . . 1,200 1990 14,000
Rig No. 17 . . . . . . . . . . . . . . . . . . . . . . . . 1,200 1993 13,000
Rig No. 21 . . . . . . . . . . . . . . . . . . . . . . . . 1,200 1995 14,000
Heavy Workover and Shallow Drilling
Rig No. 15 . . . . . . . . . . . . . . . . . . . . . . . . 800 1991 11,500
Rig No. 16 . . . . . . . . . . . . . . . . . . . . . . . . 800 1994 11,500
Rig No. 18 . . . . . . . . . . . . . . . . . . . . . . . . 800 1993 11,500
Rig No. 19 . . . . . . . . . . . . . . . . . . . . . . . . 800 1993 11,500
Rig No. 20 . . . . . . . . . . . . . . . . . . . . . . . . 800 1995 11,500
Rig No. 23 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1993 13,000
Rig No. 24 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1992 13,000
Rig No. 25 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1993 13,000
Rig No. 26 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1981 13,000
Workover and Other
Rig No. 1 . . . . . . . . . . . . . . . . . . . . . . . . 1,100 1980 --
Rig No. 3 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1980 --
Rig No. 4 . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1990 --
Rig No. 5 . . . . . . . . . . . . . . . . . . . . . . . . 800 1991 --
Rig No. 6 . . . . . . . . . . . . . . . . . . . . . . . . 800 1995 --
Rig No. 7 . . . . . . . . . . . . . . . . . . . . . . . . 800 1995 --
Rig No. 9 . . . . . . . . . . . . . . . . . . . . . . . . 800 1992 --
Rig No. 10 . . . . . . . . . . . . . . . . . . . . . . . . 800 1978 --
Rig No. 27 . . . . . . . . . . . . . . . . . . . . . . . . 800 1987 11,500
Rig No. 28 . . . . . . . . . . . . . . . . . . . . . . . . 800 1987 11,500
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
YEAR BUILT MAXIMUM
OR LAST DRILLING
HORSEPOWER REFURBISHED DEPTH (FEET)
---------- ----------- ------------
<S> <C> <C> <C>
Platform:
Rig No. 36 . . . . . . . . . . . . . . . . . . . . . . . . 500 1977 --
Rig No. 41 . . . . . . . . . . . . . . . . . . . . . . . . 950 1993 11,000
Rig No. 42 . . . . . . . . . . . . . . . . . . . . . . . . 950 1993 11,000
Rig No. 43 . . . . . . . . . . . . . . . . . . . . . . . . 650 1994 --
Rig No. 46 . . . . . . . . . . . . . . . . . . . . . . . . 650 1988 --
Rig No. 47 . . . . . . . . . . . . . . . . . . . . . . . . 750 1993 --
Rig No. 40(b) . . . . . . . . . . . . . . . . . . . . . . 950 1992 11,000
Rig No. 48(b) . . . . . . . . . . . . . . . . . . . . . . 950 1992 11,000
Land:
Rig No. 301(c) . . . . . . . . . . . . . . . . . . . . . . 800 1995 10,000
Rig No. 302(c) . . . . . . . . . . . . . . . . . . . . . . 800 1995 10,000
Rig No. 303(c) . . . . . . . . . . . . . . . . . . . . . . 1,300 1995 11,500
Rig No. 305(c) . . . . . . . . . . . . . . . . . . . . . . 1,300 1995 11,500
Rig No. 8(d) . . . . . . . . . . . . . . . . . . . . . . . 750 1983 12,000
Rig No. 9(d) . . . . . . . . . . . . . . . . . . . . . . . 750 1983 12,000
Total Rigs . . . . . . . . . . . . . . . . . . . . . . 50
- --------------------- ==
</TABLE>
(a) Located in Nigeria.
(b) Located in Peru.
(c) Located in Argentina.
(d) Located in Peru. The Company has a 49% interest in a joint venture that
owns these rigs.
Mallard's domestic operations are primarily conducted in the coastal
(bays, swamps and canals) and offshore waters of Louisiana, Texas and Alabama.
Mallard's business is directly dependent upon the level of oil and gas
exploration, development and workover activity in these geographic markets.
Because most of the current exploration and development activity in the Gulf
Coast area is concentrated on the exploration for and production of natural
gas, Mallard's operations are materially affected by market conditions for
natural gas.
The U.S. natural gas market has in recent periods been extremely
volatile. In 1994 and through the first half of 1995, natural gas prices
declined significantly. However, beginning in the middle of 1995, prices
showed a marked increase. These increases have resulted in increased
exploration and workover activity in the Gulf of Mexico, which in turn has
resulted in increased demand for barge drilling and workover services.
Increased demand, combined with an overall shrinkage in fleets and a
consolidation in the industry, has improved day rates and margins. Prices for
oil and natural gas continue to be extremely volatile and any material decline
in the prevailing price of natural gas could result in reduced exploration and
development activity and related day rates.
Mallard's domestic rigs are primarily barge rigs that are capable of
performing medium and deep drilling operations. Barge rigs are mobile drilling
platforms that are submersible and are built to work in eight to 20 feet of
water. These rigs are towed by tug boats to the drill site with the derrick
laid down. The lower hull is then submerged by flooding until it rests on the
sea floor. The derrick is then raised and drilling and workover operations are
conducted with the barge in this position. There are two basic forms of barge
rigs: "posted" and "conventional". A posted barge is identical to a
conventional barge except that the hull and super structure are separated by 12
to 14 foot columns, which increases the water depth capabilities of the rig.
Internationally, Mallard currently operates one 3,000 HP barge drilling
rig with a Varco TDS-3S Top Drive in the inland waters of Nigeria and two
platform drilling rigs in the offshore waters of Peru. Mallard's rig in
Nigeria is currently under contract to Chevron Nigeria Limited. This contract
was recently renewed through August 1996.
10
<PAGE> 12
Mallard's platform rigs in Peru are currently under a one-year contract
expiring in January 1997. These rigs were placed on standby status in July
1995 by the Company's customer to reduce costs. Since such time, one rig has
returned to operation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations". The Company's
operations in Peru are conducted through a partnership. Under the terms of the
agreements relating to this partnership, Mallard is entitled to approximately
two-thirds of the income from the partnership's operations.
LAND DRILLING AND WORKOVER RIGS
Mallard currently owns four land rigs. These rigs are under a two-year
drilling contract with Yacimientos Petroliferos Fiscales Sociedad Anonima
("YPF") in Argentina. Drilling operations commenced in June 1995 and are
expected to benefit future results.
In 1994, Mallard acquired a 49% interest in a joint venture that owns two
land rigs in Peru. This venture is actively pursuing land drilling
opportunities in Peru.
COMPETITION AND CUSTOMERS
Drilling in the U.S. Gulf Coast area serviced by Mallard ranges from
shallow wells (up to 12,000 feet) to deep wells (up to 30,000 feet). The
shallow wells generally take up to 20 days to drill and complete. Deeper wells
generally take disproportionately longer to drill than shallow wells due
primarily to more varied and difficult subsurface conditions and the frequent
need to run protective casing.
The Company's drilling rigs are generally operated under individual day
rate contracts between the Company and its customers. Drilling contracts
generally cover either the drilling of a specified well or wells or a stated
term. Historically, most domestic contracts have been on a well-to-well basis
while contracts in the international markets typically are offered on a term
basis. The Company, from time to time, operates under turnkey contracts. The
Company maintains redrill insurance to insure against certain costs in the
event the Company was required to redrill under a turnkey contract.
The Company obtains most of its contracts through competitive bidding
against other contractors in response to solicitations of bids by oil and gas
companies. Under the Company's day rate drilling contracts, it receives a
fixed amount per day for providing the rig, certain related equipment and the
rig operating crew, which works under the direction of a representative of the
customer who is in charge of drilling operations. The customer pays all other
costs of drilling the well. Under most such contracts, the customer also pays,
at a reduced day rate, for periods of travel or when operations are interrupted
or restricted by equipment breakdowns, adverse weather or water conditions or
other conditions beyond the control of the Company. The Company also makes
available the services of its fleet of approximately 55 crew boats as an extra
cost option. Mallard primarily competes with one other barge competitor in the
Gulf of Mexico, Falcon Drilling Company, Inc., although there exists a number
of smaller companies. Mallard also competes with other types of rigs. The
Company estimates that its share of the barge drilling and workover market in
coastal and inland waters in the Gulf Coast area is approximately 40%.
Mallard's customer base consists of independent and major oil companies.
For 1995, Texaco, Petro-Tech Peruana S.A. and Chevron U.S.A., Inc. accounted
for 25%, 13% and 11%, respectively, of Mallard's revenues. For 1994, Texaco
and Oryx Energy Company accounted for 15% and 11%, respectively, of Mallard's
revenues. For 1993, Texaco accounted for 19% of Mallard's revenues.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The U.S. Gulf Coast market, and particularly the shallow-water areas
where the Company's contract drilling service operations are concentrated, are
ecologically sensitive. As a result, environmental issues have led to higher
drilling costs, a more difficult and lengthy well permitting process and, in
general, have adversely affected decisions of the oil companies to drill in
these areas. U.S. laws and regulations applicable to the Company's operations
include those controlling the discharge of materials into the environment,
requiring removal and cleanup of materials that may harm the environment, or
otherwise relating to the protection of the environment. The Company, as an
operator of drilling rigs in navigable U.S. waters and certain offshore areas,
may be liable for damages and costs incurred in connection with oil spills for
which it is held responsible, subject to certain limitations. An oil spill in
a wetland or inland waterway could produce substantial damage to the
environment, including wildlife and ground water. Laws and regulations
protecting the environment have become more stringent in recent years, and
11
<PAGE> 13
may, in certain circumstances, impose "strict liability", rendering a person
liable for environmental damage without regard to negligence or fault on the
part of such person. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company which were in compliance with all applicable laws at the time such acts
were performed. The application of these requirements or the adoption of the
new requirements could have a material adverse effect on the Company.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of domestic offshore facilities, may be liable for the costs of
removal and damages arising out of a pollution incident to the extent set forth
in the Federal Water Pollution Control Act, as amended by the Oil Pollution Act
of 1990 ("OPA") and the Outer Continental Shelf Lands Act. In addition, the
Company may also be subject to applicable state law and other civil claims
arising out of any such incident. Certain of the Company's facilities are also
subject to regulations of the Environmental Protection Agency ("EPA") that
require the preparation and implementation of spill prevention, control and
countermeasure plans relating to possible discharge of oil into navigable
waters. Other regulations of the EPA may require certain precautions in
storing, handling and transporting hazardous wastes. State statutory
provisions relating to oil and natural gas generally include requirements as to
well spacing, waste prevention, production limitations, pollution prevention
and cleanup, obtaining drilling and dredging permits and similar matters. The
Company believes that it is in compliance in all material respects with such
laws, rules and regulations.
The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills. A "responsible party"
includes the owner or operator of a facility or vessel, or the lessee or
permittee of the area in which an offshore facility is located. The OPA
assigns liability to each responsible party of oil removal costs and a variety
of public and private damages. While liability limits apply in some
circumstances, a responsible party for an Outer Continental Shelf facility must
pay all spill removal costs incurred by a federal, state or local government.
The OPA establishes liability limits (subject to indexing) for offshore
drilling rigs. If functioning as an offshore facility, the offshore drilling
rigs are considered "tank vessels" for spills of oil on or above the water
surface, with liability limits of $1,200 per gross ton or $10 million. To the
extent damages and removal costs exceed this amount, the offshore drilling rigs
will be treated as an offshore facility and the offshore lessee will be
responsible up to higher liability limits for all removal costs plus $75
million. A party cannot take advantage of liability limits if the spill was
caused by gross negligence or willful misconduct or resulted from violation of
a federal safety, construction or operating regulation. If the party fails to
report a spill or to cooperate fully in the cleanup, liability limits likewise
do not apply. Few defenses exist to the liability imposed by the OPA. The OPA
also imposes ongoing requirements on a responsible party. These include proof
of financial responsibility (to cover at least some costs in a potential spill)
and preparation of an oil spill contingency plan. A failure to comply with
ongoing requirements or inadequate cooperation in a spill may even subject a
responsible party to civil or criminal enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of environmental-related lease
conditions or regulations issued pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
The drilling industry is dependent on the demand for services from the
oil and gas exploration and development industry and, accordingly, is affected
by changing tax laws, price controls and other laws relating to the energy
business. The Company's business is affected generally by political
developments and by federal, state, local and foreign laws and regulations that
may relate directly to the oil and gas industry. The adoption of laws and
regulations, both domestic and foreign, that curtail exploration and
development drilling for oil and gas for economic, environmental and other
policy reasons may adversely affect the Company's operations by limiting
available drilling opportunities.
The Company believes it is in material compliance with applicable
federal, state, local and foreign legislation and regulations relating to
environmental controls. In this regard, all of Mallard's operating domestic
drilling rigs have zero discharge capabilities as required by law. In
addition, in recognition of environmental concerns regarding dredging of inland
waters and permitting requirements, Mallard conducts minimal dredging
operations and approximately two-thirds of Mallard's drilling contracts involve
directional drilling, which minimizes the need for dredging. However, the
existence of such laws and regulations has had and will continue to have a
restrictive effect
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<PAGE> 14
on the Company and its customers.
SEASONALITY
The Contract drilling business is subject to seasonal variation.
Historically, the first two quarters of the calendar year are less active,
while the last two quarters usually have a higher level of activity.
FACILITIES
Mallard is headquartered in New Iberia, Louisiana where it operates a
yard and docking facility at the Port of Iberia. Mallard owns the facility and
leases the land on which it is located under a long-term lease, subject to
extensions, that will expire in 2018.
BACKLOG
Other than Mallard's foreign contracts, which are long-term in nature,
drilling and workover servicing contracts have typically been for short-terms,
usually the time required to drill one well.
RAW MATERIALS
The Company purchases a variety of raw materials for its manufacturing
operations, including plain end "green" tubing stock, steel bars and a variety
of parts and components fabricated by other manufacturers and suppliers. With
the exception of Robbins & Myers, which acts as the exclusive manufacturer of
two material components of EVI Oil Tools' progressive cavity pumps, the
Company is not dependent on any single source of supply for any of its raw
materials and components. The Company is currently engaged in discussions with
Robbins & Myers regarding the terms under which the products manufactured by it
for the Company will be provided. A loss of one or more of the Company's
suppliers could disrupt production.
PATENTS
The Company's oilfield equipment segment utilizes various patents and
proprietary technology in the manufacture of its products. Certain components
used in the progressive cavity pump utilize technology owned and licensed by
Robbins & Myers. Although the Company considers its patents important to the
operation of its business and a loss of one or more patents could adversely
affect a particular product, because of the proprietary processes that the
Company has developed in using its patents, and the nature of the business
conducted with the patents, it does not believe that any significant portion of
its business is materially dependent upon any single patent or group of patents
or generally upon patent protection.
INSURANCE COSTS
The Company has purchased Operators Extra Expense insurance to insure
itself against exposure to certain hazards unique to drilling and workover
operations and maintains redrill insurance with respect to its exposure
relating to turnkey contracts. There can be no assurance, however, that such
insurance will be sufficient to cover any future losses, or that such insurance
will continue to be available on commercially reasonable terms. The Company's
drilling and workover business is also subject to the usual hazards of oil and
gas drilling operations (including blowouts, fires, cratering, pollution and
environmental damages), plus the additional dangers incident to marine
operations in coastal and offshore waters (including capsizing, collision,
grounding and adverse weather). The Company maintains insurance coverage that
it believes to be customary in the industry against these hazards and whenever
possible obtains agreements from customers providing for indemnification
against liability to others. The Company also maintains political risk
insurance to insure against certain risks of doing business in foreign
countries. However, neither insurance nor indemnity agreements can provide
complete protection against casualty losses. In addition, the Company is
partially self-insured for marine workers' compensation claims.
The Company is required to carry workers' compensation insurance to
comply with state laws and customer requirements. Grant Prideco has elected to
opt out of the mandatory workers' compensation pools and secures its workers'
compensation through outside insurance. Although it has been able to reduce
insurance costs through this election, certain benefits provided under the
workers' compensation statutes may not be available to the Company. The cost
of insurance is subject to substantial fluctuation due to a variety of factors,
some of which are beyond the Company's control. Although the Company has
generally been able to obtain insurance on terms it considers to be
13
<PAGE> 15
reasonable, there can be no assurance that such insurance will continue to be
available on terms as favorable as those for its existing arrangements. The
Company is partially self-insured for employee health insurance claims and
certain workers' compensation claims.
Although the Company maintains product liability insurance with respect
to its products, such insurance is limited in coverage. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company with
respect to its products could have a material adverse effect on the Company.
REGULATION
The Company's business is affected by changes in public policy and by
federal, state and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental and other policy reasons
may adversely affect the Company's operations by limiting available drilling
and other opportunities in the energy service industry. The Company is also
subject to various health and safety regulation as established by the
Occupational Safety and Health Administration. For information concerning
regulation of the contract drilling services provided by Mallard, see
"-- Contract Drilling -- Government Regulation and Environmental Matters".
FOREIGN OPERATIONS
The Company's equipment and services are used in approximately 50
countries by U.S. customers operating abroad and by foreign customers. Sales
of equipment and services outside the U.S. accounted for approximately 38%, 36%
and 40% of total revenues for 1995, 1994 and 1993, respectively, based upon the
ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company. The distribution of the Company's
revenues by geographic region is shown below:
<TABLE>
<CAPTION>
WESTERN HEMISPHERE EASTERN HEMISPHERE
--------------------- --------------------
UNITED STATES OTHER MIDDLE EAST OTHER ELIMINATIONS TOTAL
------------- ----- ----------- ----- ------------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995
- ----
Operating revenues from
unaffiliated customers . . . $ 220,937 $ 61,293 $ -- $ 9,921 $ (3,567) $ 288,584
Export sales to unaffiliated
customers 63,003 -- -- -- -- 63,003
---------- --------- -------- -------- ---------- ---------
Total revenues . . . . . . . . 283,940 61,293 -- 9,921 (3,567) 351,587
1994
- ----
Operating revenues from
unaffiliated customers . . . . $ 162,344 $ 34,643 $ 5,801 $ 5,329 $ (3,304) $ 204,813
Export sales to unaffiliated
customers . . . . . . . . . . 43,724 -- -- -- -- 43,724
---------- --------- -------- -------- ---------- ---------
Total revenues . . . . . . . . . 206,068 34,643 5,801 5,329 (3,304) 248,537
1993
- ----
Operating revenues from
unaffiliated customers . . . . $ 150,729 $ 31,722 $ 7,967 $ 4,675 $ (1,983) $ 193,110
Export sales to unaffiliated
customers . . . . . . . . . . 52,847 -- -- -- 60 52,907
---------- --------- -------- -------- ---------- ---------
Total revenues . . . . . . . . . 203,576 31,722 7,967 4,675 (1,923) 246,017
</TABLE>
See Note 15 to the Consolidated Financial Statements of the Company for
additional financial information related to the Company's revenues by
geographic region.
Operations and sales in foreign markets are subject to substantial
competition from large multi-national corporations and government-owned
entities and to a variety of local laws and regulations requiring
qualifications, use of local labor, the provision of financial assurances or
other restrictions and conditions on operations. Foreign operations are also
subject to risks associated with doing business outside the U.S., including
risk of war, civil disturbances and governmental activities that may limit or
disrupt markets, restrict the movement of funds or result in the deprivation of
contract rights or the taking of property without fair compensation. Foreign
operations may also subject the Company to risks relating to fluctuations in
currency exchange rates. However, to date, currency fluctuations have not had
a material adverse impact on the Company.
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<PAGE> 16
The Company currently has material manufacturing operations in Canada,
Mexico, Brazil and India (through OCTL) and is operating rigs in Nigeria, Peru
and Argentina. The Company's operations in each of these countries are subject
to various political and economic conditions existing in them which could
disrupt operations. In this regard, there is currently pending before the U.S.
Congress various legislation that, if enacted, would restrict trade and
investment in Nigeria. To date, no legislation has been enacted. However, if
legislation were to be adopted that either restricted trade or investment in
Nigeria, the Company's Nigerian operations could be materially affected. The
Company generally seeks to obtain, where economical, insurance against certain
political risks and attempts to structure its contracts and arrangements in the
foreign countries in which it operates in a manner that would minimize the
exposure of its assets to losses in those countries. Such efforts include
structuring substantially all of its sales and service contracts to be in U.S.
dollars and utilizing lease arrangements and joint ventures for manufacturing
facilities so as not to require substantial investment of funds in fixed assets
in foreign countries. Although the Company believes that its exposure to
foreign risks is not materially greater than that of its competitors, there can
be no assurance that disruptions will not occur in the Company's foreign
operations or that any losses that do occur will be covered by insurance.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into or otherwise relating
to the protection of the environment. In recent years, laws and regulations
protecting the environment have generally become more stringent and have sought
to impose greater liability on a larger number of potentially responsible
parties. However, the Company is not currently aware of any situation or
condition that it believes is likely to have a material adverse effect on its
results of operations or financial condition. For information concerning
environmental matters with respect to the contract drilling services provided
by Mallard, see "-- Contract Drilling -- Governmental Regulation and
Environmental Matters".
The Company's expenditures in 1995 in order to comply with applicable
environmental laws and regulations were not material, and the Company expects
that the costs of compliance with such laws and regulations for 1996 will be
minimal. The Company maintains insurance coverage with respect to
environmental liabilities relating to its marine drilling operations. Although
the Company believes that such coverage is adequate for the risks involved,
there can be no assurance that the coverage limits would not be exceeded or
such insurance would apply to all such liabilities. The Company does not
believe that its costs for compliance with applicable environmental laws and
regulations is, on a relative basis, greater than that of its competitors.
EMPLOYEES
As of March 1, 1996, the Company employed approximately 3,800 employees.
The Company considers its relations with its employees to be generally
satisfactory.
ITEM 2. PROPERTIES
The Principal offices of the Company and facilities used by the Company
in its oilfield equipment and contract drilling segments are set forth in the
table below:
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C>
OILFIELD EQUIPMENT:
Navasota, Texas . . . . . . . . . 251,600 182.80 Owned Manufacture drill pipe, premium threaded
casing, liners and tubing
Vera Cruz, Mexico . . . . . . . . 214,000 42.00 Leased Manufacture drill pipe
Bastrop, Texas . . . . . . . . . 108,300 21.00 Owned Manufacture tool joints
Bryan, Texas . . . . . . . . . . 160,000 55.27 Owned Manufacture premium tubing
Houston, Texas . . . . . . . . . 12,400 -- Leased Principal offices of Grant Prideco
68,500 13.50 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
21,900 11.00 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
31,500 10.00 Owned Manufacture drill pipe, drill collars,
heavyweights and kellys
Channelview, Texas . . . . . . . 60,600 20.00 Owned Threading of premium casing
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
-------- --------- ------------ ------ -----------
<S> <C> <C> <C> <C>
Longview, Texas . . . . . . . . . 40,000 22.10 Owned Manufacture pump barrels and plungers
Odessa, Texas . . . . . . . . . . 97,000 7.20 Owned Manufacture of RotaFlex pumping units
58,000 6.70 Owned Manufacture couplings, tubing anchors and
gears
Oklahoma City, Oklahoma . . . . . 9,500 1.20 Leased Manufacture and repair pumping unit parts
Morgan City, Louisiana . . . . . 19,300 2.40 Leased Repair drill pipe, drill collars,
heavyweights and kellys
Arlington, Texas . . . . . . . . 60,000 2.50 Leased Manufacture of downhole packers and
completion systems
Powell, Wyoming . . . . . . . . . 16,000 1.80 Leased Manufacture of downhole packers and
completion systems
Midland, Texas . . . . . . . . . 30,000 5.60 Owned Manufacture and repair pumping unit parts
Woodward, Oklahoma . . . . . . . 148,800 53.02 Leased Manufacture sucker rod pump parts
Santa Teresa, New Mexico . . . . 43,000 7.50 Owned Manufacture sucker rods
Nisku, Alberta, Canada . . . . . 15,900 8.30 Owned Manufacture continuous rods
Caxias do Sul, Brazil . . . . . . 62,400 -- Leased Manufacture downhole packers and completion
systems
Macae, Brazil . . . . . . . . . . 10,200 -- Owned Repair facility
Natal, Brazil . . . . . . . . . . 2,600 -- Leased Repair facility
CONTRACT DRILLING:
Buenos Aires, Argentina . . . . . 2,500 -- Leased Principal offices of Argentina operations
Caleta Olivia, Argentina . . . . 7,500 5.00 Leased Operating base for Southern Argentina
Rincon de las Sauces, Argentina . 2,500 2.50 Leased Operating base for Western Argentina
Warri, Delta State, Nigeria . . . 5,750 0.50 Leased Equipment storage facility
New Iberia, Louisiana . . . . . . 54,600 -- Owned Principal offices of Mallard, warehouse and
repair shop
-- 14.00 Leased Docking facility
CORPORATE:
Houston, Texas . . . . . . . . . 14,500 -- Leased Principal offices of the Company
</TABLE>
In addition to the above facilities, the Company has an agreement with
OCTL pursuant to which OCTL's manufacturing facility in Narketpally, India is
to be dedicated by OCTL to the production of drill pipe and other tubular
products exclusively for the Company. This facility is owned by OCTL and
consists of 262,000 sq. ft. located on 60 acres.
ITEM 3. LEGAL PROCEEDINGS
In August of 1994, the Company received a letter from the United States
Internal Revenue Service ("IRS"), proposing to increase the gain recognized by
the Company upon the dissolution in October 1990 of COLEVE with Columbia. In
general, the IRS' proposal seeks payment of a tax liability of approximately
$14.1 million plus accrued interest thereon, and includes $3.4 million of taxes
relating to the proposed disallowance of certain interest deductions taken by
the Company with respect to COLEVE that was the subject of a similar letter
received by the Company in the fourth quarter of 1993. The tax liability with
respect to these matters has been previously provided for as a deferred tax
liability in the Company's financial statements. The Company disagrees with
the IRS' position and is currently pursuing its rights of administrative review
and appeal and intends to vigorously contest this matter.
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<PAGE> 18
Although the resolution of these remaining issues could affect the timing of
the payment of previously accrued tax liabilities, the Company does not believe
that the results of the audit or the ultimate resolution of the IRS' proposed
adjustments will have a material impact on its results of operations or
financial position.
The Company is aware of various other disputes and potential claims and
is a party in various litigation involving claims against the Company, some of
which are covered by insurance. Based on facts currently known to the Company,
it believes that the ultimate liability, if any, which may result from these
disputes, claims and litigation would not have a material adverse affect on the
Company's consolidated financial position or its results of operations. See
Note 10 to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1995, to a vote of shareholders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "EVI". The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock as reported on the
NYSE from June 1994 and on the NASDAQ-National Market System for the period
from January through May 1994.
<TABLE>
<CAPTION>
PRICE
------------------
HIGH LOW
------ -------
<S> <C> <C>
Year ending December 31, 1995
First Quarter . . . . . . . . . . . . . $14 5/8 $11 7/8
Second Quarter . . . . . . . . . . . . 20 5/8 13 1/4
Third Quarter . . . . . . . . . . . . . 24 17 3/8
Fourth Quarter . . . . . . . . . . . . . 25 1/4 18 3/8
Year ending December 31, 1994
First Quarter . . . . . . . . . . . . . $16 1/4 $12
Second Quarter . . . . . . . . . . . . . 14 3/4 11 1/4
Third Quarter . . . . . . . . . . . . . 15 1/4 12 5/8
Fourth Quarter . . . . . . . . . . . . . 14 3/4 11 1/4
</TABLE>
The Company has not paid any dividends on the Common Stock since 1984 and
currently anticipates that, for the foreseeable future, any earnings will be
retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock for the
foreseeable future. The declaration of all dividends is at the discretion of
the Company's Board of Directors. The Company's dividend policy will be
reviewed by the Board of Directors at such future time as may be appropriate in
light of relevant factors at the time; however, the Company and the Company's
principal operating subsidiaries are subject to certain prohibitions on the
declaration and payment of dividends under the terms of their existing credit
facilities. In addition, under the terms of the Company's 10 1/4% Senior Notes
due 2004 ("Senior Notes"), the Company is limited in the amount of funds it may
distribute as dividends or distributions to stockholders to an amount generally
equal to: (a) the sum of (i) its earnings subsequent to December 31, 1993, (ii)
the net consideration received from certain stock issuances since March 1994,
(iii) the value of certain investments in unrestricted subsidiaries
redesignated as restricted subsidiaries and (iv) $5 million, less (b) the
amount of dividends, distributions and other restricted payments made by the
Company since March 1994. As of December 31, 1995, the Company was limited in
the amount of dividends, distributions and other restricted payments that could
be made by it to approximately $137 million.
As of February 29, 1996, there were 1,072 stockholders of record. The
Common Stock is traded on the NYSE under the symbol EVI.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical
consolidated financial data of the Company and
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<PAGE> 19
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes thereto included elsewhere herein. The following
information may not be deemed indicative of future operating results of the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
-------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . $351,587 $248,537 $ 246,017 $ 190,458 $177,794
Operating Income . . . . . . . . . . . . . 32,440 19,469 18,555 4,612 9,832
Income from Continuing Operations . . . . . 11,311 4,642 7,947 281 5,829
Earnings Per Share from Continuing
Operations . . . . . . . . . . . . . . .77 .37 .66 .02 .51
Total Assets . . . . . . . . . . . . . . . 491,060 344,234 277,231 230,596 185,022
Long-term Debt . . . . . . . . . . . . . . 126,849 125,690 38,982 37,304 5,878
Stockholders' Investment . . . . . . . . . 228,066 110,913 107,736 101,156 101,123
Cash Dividends Per Share . . . . . . . . . -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company manufactures and markets drill pipe and premium tubular
products, artificial lift and completion systems through its oilfield equipment
segment and provides contract drilling and workover services through its
contract drilling segment for use in the exploration and production of oil and
natural gas. The level of exploration and production activity is influenced by
worldwide economic conditions, supply and demand and the political stability of
oil producing countries. However, natural gas and oil prices historically have
been the prevalent factor in determining the level of worldwide exploration and
production.
Income from continuing operations was $11,311,000, or $.77 per share, on
revenues of $351,587,000 for 1995 compared to income from continuing operations
of $4,642,000, or $.37 per share, on revenues of $248,537,000 for 1994.
Operating income for 1995 was $32,440,000 compared to $19,469,000 for 1994 which
represents a 67% increase for 1995 as compared to 1994. The increase in
operating income for 1995 primarily reflects improvements in the Company's
tubular products division coupled with the contribution of operating income
attributable to the acquisition of Prideco on June 30, 1995. Demand for the
Company's tubular products benefited during 1995 from a continuing reduction in
the worldwide inventory of used drill pipe. These trends have resulted in
increased drill pipe demand. The improved results for 1995 also reflected
generally improved industry conditions,the acquisition of the Fluid Packed pump
and sucker rod businesses from National-Oilwell in August 1994, higher
international revenues and the Company's internal cost saving efforts.
Early in the fourth quarter of 1995, the Company completed a public
offering of 3,450,000 shares of its Common Stock ("Public Offering"). The net
proceeds of this offering were approximately $72.6 million. The funds from the
offering were used to reduce the Company's outstanding debt under its revolving
lines of credit, to finance the expansion of the Company's domestic and
international tubular operations and for general and corporate purposes. The
offering resulted in a reduction in the Company's debt to total capitalization
ratio at December 31, 1995 to approximately 38%.
In December 1995, the Company made a strategic decision to dispose of its
Highland store distribution system in the United States which has been a part
of the artificial lift and completion tool equipment division. This decision
reflected the Company's desire to focus its efforts on manufacturing and to
eliminate the substantial cost associated with serving as a distributor in the
United States market. Early in 1996, the Company completed the sale of these
operations to Continental Emsco for approximately $3 million in cash, a $4
million vendor credit with Continental Emsco for future equipment needs of the
Company and a $0.5 million note receivable. The consideration received in the
sale approximated the net book value of the assets sold, resulting in no
material gain or loss.
The disposition by the Company of its U.S. store system provided the
Company with the ability to reduce its work force by over 170 employees,
eliminate the overhead cost of maintaining its own store distribution network
and reduce inventory costs in the U.S. In connection with the disposition,
Continental Emsco was appointed as a non-exclusive distributor in the U.S. for
most of the Company's artificial lift division U.S. manufactured products
18
<PAGE> 20
as well as an exclusive distributor of the Company's RotaFlex products in the
U.S. The Company believes that this distribution arrangement, together with
arrangements that the Company has with other major distributors, will permit a
broader distribution of the Company's products on a more cost effective basis.
The Company has retained its Canadian distribution system that is used to
service and support its Corod and other product lines.
The Company is currently focusing its efforts on assimilating its
acquisition of Prideco and improving its manufacturing efficiencies and
capabilities. The Company is also continuing to seek opportunities for
expansion of sales and manufacturing outside the U.S. The Company currently
expects that 1996 results will benefit from continuing strong tubular sales and
cost reductions at its oil tools division. Results, however, will be dependent
on market conditions, in particular the level of drilling activity in the U.S.
Gulf Coast and demand for drill pipe and other tubular products.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR 1995 WITH FISCAL YEAR 1994
Oilfield Equipment Segment
Revenues and operating income for the oilfield equipment segment were
$271.7 million and $23.1 million, respectively, for the year ended December 31,
1995 as compared to $185.3 million and $8.2 million, respectively, for the year
ended December 31, 1994. The increases in revenues and operating income were
primarily attributable to the contributions from increased drill pipe sales and
higher prices and margins. In addition, the Company's Canadian pump sales were
higher in 1995 as compared to 1994.
The increase in sales of tubulars products in 1995 was $60.6 million
compared to $22.6 million in 1994. The increase in sales for 1995 resulted
from the acquisition of Prideco on June 30, 1995, as well as an overall
increase in demand for drill pipe. Evidence of the improved demand for drill
pipe is the Company's tubular backlog at December 31, 1995, being $78.4 million
compared to $35.2 million at December 31, 1994. The Company anticipates that
all of the backlog existing at December 31, 1995 will be shipped during the
next twelve months. In addition, the Company implemented price increases in
the second half of 1995 which the Company will benefit from in 1996 as the
existing backlog turns.
Results in the oilfield equipment segment include a $0.75 million royalty
payment in the fourth quarter of 1995, which benefited operating income for
1995. The oilfield equipment segment also benefited from lower average
manufacturing costs for its tubulars associated with increased sales and higher
gross margins at the Company's Mexican facility, which has a lower cost base
than the United States facilities. The Company expects that as production at
the OCTL facility becomes fully operational, average manufacturing costs for
tubulars should decline further as a result of the lower labor costs at that
facility. However, the Company expects some initial production inefficiencies
associated with the OCTL facility.
In the third quarter of 1995, the Company experienced increases in its
cost of "green" tubing, the primary material used by it in the production of
its tubular goods. To date, the Company has generally been able to pass
through the additional costs of this raw material to its customers. However,
there can be no assurances that it will continue to be able to do so.
The Company's recent acquisition of Prideco is expected to further
benefit results in this segment through higher revenues and improved margins
from reductions in per unit costs for tubular goods. Although there can be no
assurance as to the ultimate savings that may be realized as a result of the
acquisition, the Company currently expects to realize annual savings in
overhead and distribution costs in excess of $6 million once the operations of
Prideco are fully integrated into those of the Company. The Company expects
this integration to be completed by the middle of 1996.
Revenues and operating income associated with the Company's artificial
lift division were $106.5 million and $8.0 million, respectively, for 1995
compared to $85.1 million and $5.3 million, respectively, for 1994. The
increases in revenues and operating income for 1995 were primarily attributable
to the Company's increases in Canadian progressive cavity pump and Corod sales.
The Company is currently in the process of effecting cost reductions at this
division and eliminating redundant administrative costs. The Company
anticipates that once this process is completed, operating results at this
division should improve. The disposition of the Company's United States
distribution system also provides the Company with the opportunity to focus on
its manufacturing and
19
<PAGE> 21
product design.
Contract Drilling Segment
Revenues and operating income for the contract drilling segment were
$79.9 million and $14.5 million, respectively, for 1995, compared to $63.3
million and $15.8 million respectively, for 1994. The increase in revenues for
1995 reflects the increase in international operations in Nigeria, Peru and
Argentina as new contracts in Nigeria and Peru did not take effect until late
in the third quarter of 1994. In July 1995, the Company's two Peru rigs were
placed on standby. Recently, one of such rigs was placed back into operation,
with the other rig remaining on standby. In June 1995, the Company's
operations commenced in Argentina covering four drilling rigs. The operations
in Nigeria, Peru and Argentina contributed $24.6 million in revenues for 1995.
Operating income for the international operations was $3.6 million in
1995 as compared to $5.2 million in 1994. Operating income in 1994 included
the insurance settlement with respect to the National Iranian Oil Company
("NIOC") contract which increased operating income by $4.8 million and was
reduced by operating losses of $2.6 million relating to the Iranian operations
for 1994. The Argentina operations produced an operating loss of $0.5 million
in 1995 attributable to certain initial start-up costs incurred. The Company
expects 1996 to benefit from the start-up operating costs incurred during 1995
and expects the operation in Argentina to have a favorable impact on 1996
operating results.
Operations in Nigeria are currently subject to various political risk.
In that regard, there is currently pending before the U.S. Congress various
legislation that, if enacted, would restrict trade and investment in Nigeria.
To date, no legislation has been enacted. However, if legislation were to be
adopted that either restricted trade or investment in Nigeria, the Company's
Nigerian operations could be materially affected.
Domestic revenues increased 5% in 1995 as compared to 1994 due to an
increase in domestic barge rig volume. Operating income in 1995 was $10.8
million as compared to $10.6 million in 1994. Mallard's 1995 operating income
was reduced by a fourth quarter increase in reserves for workers' compensation
claims on cases settled as well as unsettled claims. Such expenses were
partially offset by a gain on the sale of a rig. The net effect of these
reduced 1995 operating results by approximately $0.8 million.
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover drilling
contract with NIOC. Under the terms of the settlement with the Company's
insurance carriers, the Company received a net cash payment of $23 million and
retained all rights to any funds collected or recovered by the Company from
NIOC and to the rigs and equipment deployed in Iran. The Company has since
sold or redeployed to Argentina the rigs and equipment that were in Iran.
Although the Company has been receiving payments on the retained obligations
under a four year extended payment arrangement reached with the Central Bank of
Iran and other local banks, the timing and ultimate recovery is subject to
various risks relating to Iran, including the impact of the recently imposed
United States sanctions and restrictions on trade with an investment in Iran.
The net carrying value after reserves of these obligations as of December 31,
1995, was approximately $3.6 million.
Demand for the Company's domestic contract drilling and workover services
will continue to be materially dependent on levels of exploration and
development in the Gulf of Mexico and coastal and inland waters. The price of
natural gas will also be a material factor effecting that demand.
General
Selling, general and administrative expenses increased approximately 19%
to $56.9 million in 1995 from $47.9 million in 1994. The increase in 1995 was
attributable to the Prideco acquisition and to increased sales and
international expansion.
Interest expense increased during 1995 to $16.7 million from $13.7
million for 1994. The increase in interest expense is attributable to higher
levels of indebtedness during 1995 under the Company's working capital lines of
credit due to increases in the level of the Company's business. The Company's
interest expense declined in the fourth quarter of 1995 as a result of the
reduction in debt following the Public Offering.
The Company's effective tax rate for 1995 was approximately 31% compared
to 28% in 1994. The increase in such rate reflects the impact of certain tax
benefits occurring in 1994 associated with net operating loss
20
<PAGE> 22
carryforwards which was partially offset by foreign losses with no
corresponding tax benefit.
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations.
COMPARISON OF FISCAL YEAR 1994 WITH FISCAL YEAR 1993
For the year ended December 31, 1994, the Company reported net income and
income from continuing operations of $858,000, or $0.07 per share, and $4.6
million, or $0.37 per share, respectively, on revenues of $248.5 million,
compared with net income and income from continuing operations of $5.9 million,
or $0.49 per share, and $7.9 million, or $0.66 per share, respectively, on
revenues of $246.0 million for fiscal year 1993. In 1994, the Company
refinanced its outstanding indebtedness with the proceeds of a $120 million in
Senior Notes due 2004. As part of the transaction, the Company incurred a
first quarter extraordinary charge of approximately $3.8 million, net of taxes
of approximately $1.9 million, or $0.30 per share. The extraordinary charge
represented the difference between the reacquisition price and the net carrying
value of the Company's $34 million senior notes, including unamortized debt
issuance costs.
For the year ended December 31, 1994, the Company's operating income was
$19.5 million compared with $18.6 million for fiscal year 1993. For 1994,
operating income for the Company's oilfield equipment and contract drilling
segments was $8.2 million and $15.8 million, respectively. For 1993, operating
income for these segments was $10.8 million and $11.8 million, respectively.
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover contract
with the NIOC. The insurance settlement which increased operating income by
$4.8 million was reduced by operating losses of $2.6 million relating to the
Iranian operations for 1994. This benefit was more than offset by the
reduction in operating income in Nigeria and Peru.
Oilfield Equipment Segment
Revenues for the oilfield equipment segment increased by 8% to $185.3
million in 1994 compared to $171.6 million in 1993. The increase was due
primarily to increased sales of tubular products partially offset by reduced
procurement revenues from the operations of International Tool and Supply
Company ("ITS"), which was acquired on June 30, 1993, and sold on December 30,
1993. The increase in tubular products revenues was primarily due to a change
in the sales mix to larger diameter drill pipe.
Operating income for the oilfield equipment segment was $8.2 million in
1994, as compared to $10.8 million in 1993. The reduction in operating income
resulted from costs incurred by the Company in the consolidation of certain
plants and product lines resulting from the acquisition of the Fluid Packed
lines of sucker rod pumps and sucker rods from National-Oilwell. In addition
the Company experienced reduced margins on tubular products and artificial lift
equipment due to lower oil prices, the steep decline in natural gas prices in
the second half of 1994 and sluggish domestic and international development
activity. The Company, however, benefited from increased utilization of
certain facilities due to increased revenues.
Contract Drilling Segment
Revenues in the contract drilling segment decreased by approximately 15%
to $63.3 million for 1994 compared to $74.4 million for 1993. Domestic
revenues were slightly lower due to reduced drilling activity and international
revenues decreased primarily due to the termination of the land drilling
contract with NIOC in Iran. In addition, international revenues related to the
Company's operations in Peru and Nigeria were lower in 1994 as compared to 1993
as a result of the Company's rigs in Nigeria and Peru going off contract in the
middle of 1993. The Company's rigs in Peru and Nigeria began new contracts in
the second half of 1994.
The contract drilling segment's operating income was $15.8 million in
1994, as compared to $11.8 million in 1993. Domestic operating income
increased by 36% in 1994 as compared to 1993, while international operating
income increased by 31% in 1994 as compared to 1993. The increase in 1994 was
principally due to higher
21
<PAGE> 23
domestic day rates and the February 1994 acquisition of AWI Drilling &
Workover, Inc. ("AWI") and its 12 rigs. The AWI acquisition improved gross
profit in 1994 because prior to the acquisition, eight of the 12 rigs had been
under charter by the Company. The increase was partially offset by the lower
rig utilization during 1994 of 48% from 52% in 1993 due to reduced activity in
the U.S. Gulf Coast area.
The insurance settlement with respect to the NIOC contract increased
operating income by $4.8 million and was reduced by operating losses of $2.6
million relating to the Iranian operations for 1994. This benefit was more
than offset by the reduction in operating income in Nigeria and Peru.
In March 1995, the Company entered into a two-year land drilling contract
with YPF in Argentina. The contract covers four drilling rigs.
General
Selling, general and administrative expenses increased approximately 5%
to $47.9 million in 1994 from $45.7 million in 1993. The increase in 1994 was
primarily attributable to a full year of operations at the Company's Mexico,
Hungary and China facilities as well as a full year of operations from the
Production Oil Tools acquisition. These increases were partially offset by the
selling, general and administrative costs associated with ITS which was sold
December 30, 1993.
Interest expense increased from $7.6 million for the year ended December
31, 1993 to $13.7 million for 1994, reflecting the increased cost associated
with the Company's $120 million Senior Notes due 2004 issued in March 1994,
substantially all of which were subsequently exchanged for a new series of
Senior Notes due 2004 that were essentially identical to the old series. The
net proceeds from the $120 million Senior Notes were used to repay
substantially all of the Company's outstanding indebtedness and for working
capital purposes. The prepayment of the Company's prior indebtedness resulted
in an extraordinary charge, net of taxes, of $3,784,000, or $0.30 per share,
during the first quarter of 1994.
The Company's effective tax rate on income from continuing operations
decreased to 28% in 1994 from 38% in 1993. The favorable impact on the 1994
effective tax rate was obtained through the utilization of net operating loss
carryforwards and was partially offset by foreign losses with no corresponding
tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Early in the fourth quarter of 1995, the Company completed a public
offering of 3,450,000 shares of its Common Stock. The net proceeds of this
offering were approximately $72.6 million. The funds from the offering were
used to reduce the Company's outstanding debt under its revolving lines of
credit, to finance the expansion of the Company's domestic and international
tubular operations and for general and corporate purposes. The offering
resulted in a reduction in the Company's debt to total capitalization ratio at
December 31, 1995 to approximately 38%.
At December 31, 1995, the Company had cash and cash equivalents of
approximately $4.5 million compared to approximately $3.1 million at December
31, 1994. At December 31, 1995, the Company's working capital was
approximately $152 million compared to approximately $94 million at December
31, 1994. The increase in working capital was primarily the result of the
recent Public Offering.
At December 31, 1995 and December 31, 1994, the Company had in place
various working capital lines of credit secured by the inventory and
receivables of the Company's subsidiaries, providing for borrowings up to $65.5
million, subject to availability requirements. Borrowings under the Company's
lines of credit are generally based on the lender's determination of the
collateral value of the current assets securing the lines of credit. The lines
of credit bear interest at floating rates ranging from prime to prime plus 1
1/4% and are secured by substantially all of the borrowing subsidiary's
accounts receivable and inventory. The Company and its subsidiaries are
required to comply with various affirmative and negative covenants relating to
working capital, earnings and net worth. The facilities also impose certain
limitations on the use of funds by the Company and its subsidiaries for
acquisitions and capital expenditures, the incurrence of additional
indebtedness and other operational matters and certain expenditures, and
certain prohibitions on the declaration or payment of dividends by the Company.
At December 31, 1995 and December 31, 1994, $4.8 million and $17.3 million,
respectively, had been borrowed under the revolving lines of credit and $5.1
million and $1 million, respectively, had been used to support outstanding
letters of credit. At December 31, 1995 and December 31, 1994, $55.6 million
and $35.6 million, respectively, was
22
<PAGE> 24
available for additional borrowing under these credit facilities. The average
interest rate under these facilities was 8.8% for 1994 and 10.2% for 1995.
The Company currently has outstanding $120 million of Senior Notes with
semi-annual interest payments in March and September. The Senior Notes were
issued pursuant to the terms of an Indenture dated as of March 15, 1994.
Certain subsidiaries of the Company have unconditionally guaranteed the
Company's obligations under the Senior Notes. The Indenture relating to the
Senior Notes contains various customary affirmative and negative covenants
that, among other things, limit the ability of the Company and certain of its
subsidiaries to: (i) incur certain additional indebtedness unless the Company's
Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is at
least 2.0 to 1.0, (ii) make dividends, distributions and certain other
restricted payments, (iii) create certain liens, (iv) engage in certain
transitions with its affiliates, (v) engage in sale and leaseback transactions,
(vi) make certain asset dispositions and (vii) merge or consolidate with, or
transfer all or substantially all of its assets to another person. The
Indenture also limits the ability of the Company and certain of its
subsidiaries to issue preferred stock and creates restrictions on the ability
of certain of its subsidiaries to pay dividends and make other distributions.
In August 1994, the Company received a letter from the IRS proposing to
increase the gain recognized by the Company upon the dissolution in October
1990 of COLEVE with Columbia. In general, the IRS' proposal seeks payment of a
tax liability of approximately $14.1 million plus accrued interest thereon, and
includes $3.4 million of taxes relating to the proposed disallowance of certain
interest deductions taken by the Company with respect to COLEVE that was the
subject of a similar letter received by the Company in the fourth quarter of
1993. The tax liability with respect to these matters has been previously
provided for as a deferred tax liability in the Company's financial statements.
The Company disagrees with the IRS' position and is currently pursuing its
rights of administrative review and appeal and intends to vigorously contest
this matter. Although the resolution of these remaining issues could affect
the timing of the payment of previously accrued tax liabilities and require the
use of a portion of its available capital, the Company does not believe that
the results of the audit or the ultimate resolution of the IRS' proposed
adjustments will have a material impact on its results of operations or
financial position.
The demand for the Company's tubular products and contract drilling
services are particularly effected by the price of natural gas and the level of
oil and gas exploration activity while the demand for the Company's artificial
lift and completion tool equipment is directly dependent on oil production
activity. Although the Company's international contract drilling services are
effected by the level of exploration activity in the countries in which it
provides those services, its domestic drilling operations are materially
dependent on the level of exploration activity in the U.S. Gulf Coast and
domestic natural gas prices.
The Company's current sources of capital are cash generated from
operations and borrowings under its working capital lines of credit. The
Company believes that current reserves of cash and short-term investments,
access to existing credit lines and internally generated cash from operations
are sufficient to finance the projected cash requirements of its current and
future operations.
The Company is continually evaluating new acquisitions with a focus on
proprietary technology and under-utilized assets to enhance operations. Future
acquisitions may be funded through cash flow from operations, borrowings under
lines of credit and other facilities, and equity issuances if desirable.
CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS
On June 30, 1995, the Company acquired Prideco in a transaction which
involved the issuance of approximately 2.25 million shares of Common Stock.
The acquisition is expected to provide the Company with greater manufacturing
and marketing efficiencies by allowing for a consolidation of overhead, reduced
distribution and marketing costs and a rationalization of manufacturing
operations. Revenues and operating income of Prideco for its fiscal year ended
June 30, 1995, were $55.2 million and $4.2 million, respectively.
In July 1995, the Company acquired Engemaq S.A., a Brazilian completion
tool business, for $4 million.
The allocations of the purchase price to the fair market values of the
net assets acquired in the 1995 acquisitions are based on preliminary estimates
of the fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with OCTL, an
23
<PAGE> 25
India-based manufacturer of drill pipe and premium tubulars. The OCTL facility
was built in 1990 under the direction of personnel who are currently employed
by Grant Prideco and is the most modern tubular fabricating facility in the
world. The facility will be used by the Company to pursue a strategic
expansion of its sales and operations in the Eastern Hemisphere. The Company
believes that the combination of Grant Prideco's product line coupled with
OCTL's low manufacturing costs and proximity to major Eastern Hemisphere
markets will accomplish this objective. This expansion is intended to
substantially increase the Company's sales into the growing Eastern Hemisphere
markets, which over the last few years have represented less than 5% of the
Company's total revenues. Manufacturing operations on behalf of the Company
are expected to commence during the second quarter of 1996.
Under the terms of the OCTL agreement, the Company has a right to
terminate the agreement on an annual basis. The agreement is for an initial
five-year term renewable for successive five-year terms. The agreement may be
terminated by OCTL only under certain limited circumstances, including,
beginning December 31, 2000, if certain minimum orders have not been placed
through OCTL and payments have not been made by the Company. Under the terms
of the agreement with OCTL, the Company made a one-time payment of $8 million
for the exclusive right to have Grant Prideco's products manufactured at the
facility. The Company is also required to pay all direct operating expenses
relating to the facility, including the cost of inventory and raw materials
used in the manufacture of the Company's products.
The Company expects the OCTL facility to require a first-year investment
of between $20 million and $25 million, which includes the $8 million deposit
made in January 1996 and working capital requirements. Funds relating to the
OCTL facility are expected to be financed with existing cash and borrowings
under lines of credit and other facilities.
Early in 1996, the Company completed the sale of its store distribution
system in the United States for approximately $7.5 million. The Company
received $3 million in cash, a $4 million vendor credit with Continental Emsco
for future equipment needs of the Company and a $0.5 million note receivable.
The consideration received in the sale approximated the net book value of the
assets sold, resulting in no material gain or loss.
In addition to funds used to finance acquisitions, capital expenditures
by the Company during 1995 totaled approximately $32.7 million. During 1995,
capital expenditures included approximately $16 million relating to the
acquisition of a land rig deployed to Argentina, equipment additions to the
three existing land rigs in Argentina and three deep drilling barge rigs.
Ongoing routine capital expenditures for the next twelve months are
budgeted at approximately $21.9 million. Capital expenditures are expected to
be funded with available cash, cash flow from operations and borrowings under
lines of credit and other facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . 25
Consolidated Balance Sheets - December 31, 1995 and 1994 . . . . . . . . . . . 26
Consolidated Statements of Income, for each of the three years in the
period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Stockholders' Investment, for each of the three
years in the period ended December 31, 1995 . . . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows, for each of the three years in
the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 30
Financial Statement Schedule:
II. - Valuation and Qualifying Accounts and Allowances . . . . . . . . . . 56
</TABLE>
All other schedules are omitted because they are not required or because
the required information is included in the financial statements or notes
thereto.
24
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Energy Ventures, Inc.
We have audited the accompanying consolidated balance sheets of Energy
Ventures, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Energy Ventures, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Financial Statement
Schedule listed in Part II - Item 8 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The Financial Statement Schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 26, 1996
25
<PAGE> 27
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- ----------
ASSETS (IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . $ 4,517 $ 3,144
Accounts Receivable, Net of Allowance for Uncollectible Accounts of
$615,000 in 1995 and $564,000 in 1994 . . . . . . . . . . . . . . 102,763 72,790
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,936 74,938
Materials and Supplies . . . . . . . . . . . . . . . . . . . . . . . 10,042 7,687
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,907 3,751
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 10,409 2,493
--------- ----------
249,574 164,803
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property . . . . . . . . . . . . . . . . . 33,271 27,278
Rigs, Machinery and Equipment . . . . . . . . . . . . . . . . . . . 201,945 152,096
Furniture and Vehicles . . . . . . . . . . . . . . . . . . . . . . . 15,880 17,071
--------- ----------
251,096 196,445
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . . . 58,394 45,550
--------- ----------
192,702 150,895
--------- ----------
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE ASSETS
OF BUSINESSES ACQUIRED, NET . . . . . . . . . . . . . . . . . . . . 37,398 15,606
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,386 12,930
--------- ----------
$ 491,060 $ 344,234
========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit . . $ 4,826 $ 17,265
Current Maturities of Long-Term Debt . . . . . . . . . . . . . . . . 5,894 3,189
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . 53,703 30,741
Accrued Salaries and Benefits . . . . . . . . . . . . . . . . . . . 5,963 3,908
Other Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . 26,730 15,362
--------- ----------
97,116 70,465
--------- ----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,849 125,690
DEFERRED INCOME TAXES, NET . . . . . . . . . . . . . . . . . . . . . . . 32,926 30,785
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,103 6,381
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock, $1 Par Value, Authorized 20,000,000 Shares, Issued
18,522,183 Shares in 1995 and 12,754,249 Shares in 1994 . . . . . 18,522 12,754
Capital in Excess of Par Value . . . . . . . . . . . . . . . . . . . 157,953 55,142
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 60,167 48,856
Cumulative Foreign Currency Translation Adjustment . . . . . . . . . (6,915) (4,536)
Treasury Stock, at Cost . . . . . . . . . . . . . . . . . . . . . . (1,661) (1,303)
--------- ----------
228,066 110,913
--------- ----------
$ 491,060 $ 344,234
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . $ 351,587 $ 248,537 $ 246,017
------------- ------------ -----------
COSTS AND EXPENSES:
Cost of Sales . . . . . . . . . . . . . . . . . . . . 262,293 181,137 181,742
Selling, General and Administrative Attributable to
Segments . . . . . . . . . . . . . . . . . . . . 51,731 43,183 41,690
Corporate General and Administrative . . . . . . . . . 5,123 4,748 4,030
------------- ------------ -----------
319,147 229,068 227,462
------------- ------------ -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 32,440 19,469 18,555
------------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest Income . . . . . . . . . . . . . . . . . . . 118 210 366
Interest Expense, Net . . . . . . . . . . . . . . . . (16,723) (13,715) (7,575)
Other, Net . . . . . . . . . . . . . . . . . . . . . . 556 484 1,465
------------- ------------ -----------
(16,049) (13,021) (5,744)
------------- ------------ -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 16,391 6,448 12,811
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . 5,080 1,806 4,864
------------- ------------ -----------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . 11,311 4,642 7,947
DISCONTINUED OPERATION, NET OF TAXES . . . . . . . . . . . -- -- (2,057)
------------- ------------ -----------
INCOME BEFORE EXTRAORDINARY CHARGE . . . . . . . . . . . . 11,311 4,642 5,890
EXTRAORDINARY CHARGE, NET OF TAXES . . . . . . . . . . . . -- (3,784) --
------------- ------------ -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 11,311 $ 858 $ 5,890
============= ============ ===========
EARNINGS PER COMMON SHARE:
Continuing Operations . . . . . . . . . . . . . . . . $ .77 $ .37 $ .66
Discontinued Operation, Net of Taxes . . . . . . . . . -- -- (.17)
Extraordinary Charge, Net of Taxes . . . . . . . . . . -- (.30) --
------------- ------------ -----------
Net Income . . . . . . . . . . . . . . . . . . . . . . $ .77 $ .07 $ .49
============= ============ ===========
Weighted Average Common Shares Outstanding . . . . . . 14,724 12,629 12,067
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 29
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL FOREIGN
COMMON STOCK IN CURRENCY TREASURY STOCK TOTAL
--------------------- EXCESS RETAINED TRANSLATION ----------------- STOCKHOLDERS'
SHARES $1 PAR OF PAR EARNINGS ADJUSTMENT SHARES AMOUNT INVESTMENT
---------- -------- -------- -------- ---------- ------- ------- ------------
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 . . . 12,067,670 $ 12,068 $ 48,421 $ 42,108 $ (1,152) (23,891) $ (289) $ 101,156
Net Income . . . . . . . -- -- -- 5,890 -- -- -- 5,890
Shares Issued in
Connection with
Acquisition . . . . . 206,849 207 1,826 -- -- -- -- 2,033
Options Exercised . . . . 41,237 41 195 -- -- -- -- 236
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan . . -- -- -- -- -- (41,084) (620) (620)
Foreign Currency
Translation
Adjustment . . . . . -- -- -- -- (959) -- -- (959)
---------- -------- -------- -------- -------- ------- ------- ---------
Balance at
December 31, 1993 . . . 12,315,756 12,316 50,442 47,998 (2,111) (64,975) (909) 107,736
Net Income . . . . . . . . -- -- -- 858 -- -- -- 858
Shares Issued in
Connection with
Acquisition . . . . . . . 433,333 433 4,692 -- -- -- -- 5,125
Options Exercised . . . . . 5,160 5 8 -- -- -- -- 13
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan . . . . -- -- -- -- -- (29,234) (394) (394)
Foreign Currency
Translation
Adjustment . . . . . . . -- -- -- -- (2,425) -- -- (2,425)
---------- -------- -------- -------- -------- ------- ------- ---------
Balance at
December 31,1994 . . . . . 12,754,249 12,754 55,142 48,856 (4,536) (94,209) (1,303) 110,913
Net Income . . . . . . . . -- -- -- 11,311 -- -- -- 11,311
Shares Issued
Connection with
Acquisition . . . . . . . 2,255,198 2,255 33,020 -- -- -- -- 35,275
Options Exercised . . . . . 62,736 63 593 -- -- -- -- 656
Issuance of Common
Stock . . . . . . . . . . 3,450,000 3,450 69,198 -- -- -- -- 72,648
Purchase of Treasury
Stock, at Cost, for
Executive Deferred
Compensation Plan . . . . -- -- -- -- -- (19,392) (358) (358)
Foreign Currency
Translation
Adjustment . . . . . . . -- -- -- -- (2,379) -- -- (2,379)
---------- -------- -------- -------- -------- ------- ------- ---------
Balance at
December 31, 1995 . . . . 18,522,183 $ 18,522 $157,953 $ 60,167 $ (6,915) (113,601) $(1,661) $ 228,066
========== ======== ======== ======== ======== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
ENERGY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,311 $ 858 $ 5,890
Adjustments to Reconcile Net Income to Net Cash Provided
(Used) by Operations:
Depreciation and Amortization . . . . . . . . . . . . . . . 20,824 14,268 12,281
Deferred Income Tax Provision (Benefit) from Continuing
Operations . . . . . . . . . . . . . . . . . . . . . . . 1,980 (1,052) 96
Extraordinary Charge on Prepayment of Debt, Net . . . . . . -- 3,784 --
Insurance Settlement, Net . . . . . . . . . . . . . . . . . -- 23,000 --
Gain on Sale of Business and Disposal of Assets . . . . . . (1,424) (100) (1,962)
Provision for Uncollectible Accounts Receivable . . . . . . 492 158 204
Decrease to Carrying Value of Accounts Receivable . . . . . -- -- 369
Change in Assets and Liabilities, Net of Effects of Businesses
Acquired:
Accounts Receivable . . . . . . . . . . . . . . . . . . . (21,068) (19,718) (1,608)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (34,271) (6,686) (24,283)
Prepaid Expenses and Other . . . . . . . . . . . . . . . . (10,832) (1,126) 149
Accounts Payable . . . . . . . . . . . . . . . . . . . . . 18,018 (9,178) 9,926
Accrued Salaries and Benefits and Other . . . . . . . . . (6,899) (5,234) 156
Other Assets . . . . . . . . . . . . . . . . . . . . . . . (561) (6,013) (8,432)
Other Liabilities, Net . . . . . . . . . . . . . . . . . . 558 2,281 1,637
-------- -------- -------
Net Cash Used by Operations . . . . . . . . . . . . . . (21,872) (4,758) (5,577)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business . . . . . . . . . . . . . . . . -- -- 3,500
Proceeds from Sale of Assets . . . . . . . . . . . . . . . . . 3,369 3,131 754
Acquisition of Businesses, Net of Cash Acquired . . . . . . . (8,105) (17,076) (933)
Capital Expenditures for Property, Plant and Equipment . . . . (32,690) (19,607) (14,885)
-------- -------- -------
Net Cash Used by Investing Activities . . . . . . . . . . . (37,426) (33,552) (11,564)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net . . . . . . . . . . . . . . . . 72,648 -- --
Proceeds from Issuance of Long-Term Debt . . . . . . . . . . . -- 120,000 --
Penalty on Early Retirement of Debt . . . . . . . . . . . . . -- (4,872) --
Debt Issuance Costs . . . . . . . . . . . . . . . . . . . . . -- (4,155) --
Borrowings (Repayments) Under Revolving Lines of Credit, Net . (12,439) (28,940) 21,590
Borrowings of Term Debt . . . . . . . . . . . . . . . . . . . 4,536 2,284 3,571
Repayments on Term Debt . . . . . . . . . . . . . . . . . . . (4,453) (46,981) (6,409)
Stock Options Exercised, Purchase of Treasury Stock and
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . 298 (381) (384)
-------- -------- -------
Net Cash Provided by Financing Activities . . . . . . . . . 60,590 36,955 18,368
-------- -------- -------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH . . . . . . . . . . . . . 81 (300) (468)
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . 1,373 (1,655) 759
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . 3,144 4,799 4,040
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . $ 4,517 $ 3,144 $ 4,799
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 31
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Energy
Ventures, Inc. and all majority-owned subsidiaries and partnerships (the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS
The Company is an international manufacturer and supplier of oilfield
equipment and contract drilling services. The Company operates through two
business segments: oilfield equipment and contract drilling. The oilfield
equipment segment manufactures high performance tubulars and a complete line of
artificial lift equipment as well as completion tools. The Company's contract
drilling rig fleet consists primarily of barge rigs used by major and large
independent oil and gas companies for the exploration and development of
natural gas primarily in the U.S. Gulf Coast area. The Company's tubular
products and contract drilling operating divisions provide products and
services used primarily for natural gas exploration and production. The
artificial lift and completion tool product lines are tied to the maturation of
oil producing formations.
INVENTORIES
Inventories are valued using the first-in, first-out (FIFO) method and
are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Depreciation of
domestic property, plant and equipment is provided using the straight-line
method over the estimated useful lives for the respective categories. The
useful lives of the major classes of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Buildings . . . . . . . . . . . . . . . . . . . . . . . 15 - 40 years
Rigs, machinery and equipment . . . . . . . . . . . . . 5 - 20 years
Furniture and vehicles . . . . . . . . . . . . . . . . 3 - 7 years
</TABLE>
Due to differences between the international and U.S. rig contracting
markets, depreciation on international drilling rigs and related equipment is
provided using the units-of-production method. Under the units-of-production
method, depreciation is based on the utilization of the drilling rigs with a
minimum provision when the rigs are idle.
Interest costs related to major capital projects are capitalized as a
component of construction costs. Interest costs capitalized were $266,000,
$247,000 and $574,000 in 1995, 1994 and 1993, respectively. Maintenance and
repairs are expensed as incurred. The costs of renewals, replacements and
betterments are capitalized.
INTANGIBLE ASSETS AND AMORTIZATION
The excess of cost over the fair value of net tangible assets of
businesses acquired is being amortized on a straight-line basis over the lesser
of expected useful lives or 40 years. Other intangible assets, included in
other assets, are amortized over the years expected to be benefited.
Amortization expense for goodwill and other intangible assets was $2,781,000,
$996,000 and $1,578,000 for 1995, 1994 and 1993, respectively. Accumulated
amortization of goodwill at December 31, 1995 and 1994 was $1,979,000 and
$1,553,000, respectively.
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated using average exchange rates during
the period. Assets and liabilities of these foreign subsidiaries are
translated using the exchange rates in effect at the balance sheet date and the
resulting translation adjustments are
30
<PAGE> 32
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
included as a separate component of Stockholders' Investment. Currency
transaction gains and losses are reflected in income for the period. The
Company's Nigerian operations are in a "highly inflationary" economy and use
the U.S. dollar as the functional currency. Accordingly, the gains or losses
resulting from balance sheet translation are reflected in income for the
period.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 ("SFAS No. 109"). The adoption of SFAS No. 109
did not have a material effect on the Company's consolidated financial position
or results of operations. Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
WEIGHTED AVERAGE SHARES
Earnings per share has been computed based on the weighted average number
of common shares outstanding during the respective periods. Stock options
outstanding are excluded from the weighted average number of shares since the
dilutive effect is not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PLANNED ACCOUNTING CHANGES
As of January 1, 1996, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" will be
effective for the Company. The statement sets forth guidelines regarding when
to recognize an impairment of long-lived assets and how to measure such
impairment. Management believes that the adoption of SFAS No. 121 will not
have a significant effect on the Company's consolidated financial position or
results of operations.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation", will be effective for the Company. SFAS No. 123 permits, but
does not require, a fair value based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. The Company plans to continue the use of its current
intrinsic value based method of accounting for such plans.
RECLASSIFICATIONS
Certain reclassifications of prior year balances have been made to
conform such amounts to corresponding 1995 classifications.
2. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
31
<PAGE> 33
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. SUPPLEMENTAL CASH FLOW INFORMATION-(CONTINUED)
Cash paid during the years ended December 31, 1995, 1994, and 1993 for
interest (net of amounts capitalized) and income taxes (net of refunds) was as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid, net of amounts capitalized . . . . . $ 15,851 $13,487 $ 7,144
Income taxes paid, net of refunds . . . . . . . . . $ 3,088 $ 1,903 $(1,818)
</TABLE>
Refer to Note 4 for additional information concerning noncash investing
and financing activities.
3. INVENTORIES
Inventories by category are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components . . . . . . . . . . . . $ 61,578 $ 34,759
Work in process . . . . . . . . . . . . . . . . . . 17,167 12,861
Finished goods . . . . . . . . . . . . . . . . . . . 39,191 27,318
------ ------
$ 117,936 $ 74,938
========= ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
4. ACQUISITIONS AND DISPOSITIONS
In December 1995, the Company made a strategic decision to dispose of its
Highland store distribution system in the United States which has been a part
of the artificial lift and completion tool equipment division. This decision
reflected the Company's desire to focus its efforts on manufacturing and to
eliminate the substantial cost associated with serving as a distributor in the
United States market. Early in 1996, the Company completed the sale of its
store distribution system in the United States to Continental Emsco Company for
approximately $7.5 million. The Company received $3 million in cash, a $4
million vendor credit with Continental Emsco Company for future equipment needs
by the Company and a $0.5 million note receivable. The consideration received
in the sale approximated the net book value of the assets sold, resulting in no
material gain or loss.
In July 1995, the Company acquired Engemaq S.A., a Brazilian completion
tool business, for $4 million.
On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares of
Common Stock. The acquisition is expected to provide the Company with greater
manufacturing and marketing efficiencies by allowing for a consolidation of
overhead, reduced distribution and marketing costs and a rationalization of
manufacturing operations.
The allocations of the purchase price to the fair market values of the
net assets acquired in the 1995 acquisitions are based on preliminary estimate
of fair market value and may be revised when additional information concerning
asset and liability valuations is obtained.
On September 1, 1994, the Company completed the acquisition of the Fluid
Packed(TM) pumps line of rod pumps, parts and accessories, and the sucker rod
line from National-Oilwell for $13.5 million in cash. The acquired assets have
been integrated into the Company's artificial lift and completion tool
equipment division. Included in the acquisition are manufacturing facilities
and equipment in Woodward, Oklahoma and Santa Teresa, New Mexico and product
inventory.
32
<PAGE> 34
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
4. ACQUISITIONS AND DISPOSITIONS-(CONTINUED)
On July 29, 1994, the Company acquired a tubular finishing facility
located in Bryan, Texas ("Bryan facility"). The Company exchanged Eastman
Cherrington Environmental, Inc. ("Eastman Cherrington") including a cash
payment of approximately $2 million for the Bryan facility. The acquired
tubular finishing mill is a 160,000 square foot industrial facility located on
55 acres. The facility is being operated as part of the Company's Grant
Prideco drill pipe and tubular products division. The recorded net book value
of Eastman Cherrington, including operations to the date of disposition,
approximated the appraised value of the Bryan facility. As a result, there was
no material gain or loss realized on the exchange. See Note 5 for additional
information on Eastman Cherrington.
On February 9, 1994, the Company purchased all of the outstanding stock
of AWI Drilling & Workover, Inc. ("AWI"), for a purchase price of $1.5 million
cash, $5.0 million in notes payable and 433,333 shares of the Company's Common
Stock, $1.00 par value. The assets of AWI consist primarily of 12 barge
drilling rigs, eight of which were under charter to the Company at the time of
acquisition. Charter fees incurred by the Company were approximately $2.5
million in 1993.
In November 1993, the Company acquired Production Oil Tools, a
manufacturer of downhole packers and completion systems, for approximately $2.2
million, comprised of cash and shares of the Company's Common Stock.
On June 30, 1993, the Company acquired from Energy Service Company its
International Tool & Supply procurement division ("Procurement Division") and
tubular services division ("Tubular Services") for approximately $4.8 million
consisting of cash, notes payable and other obligations. Tubular Services has
a threading facility for oil country tubulars, specializing in premium tubulars
with large diameters. Tubular Services was integrated into Grant Prideco. On
December 30, 1993, the Company sold the Procurement Division, together with
certain other assets of the Company. Proceeds from the sale were used to repay
the remaining principal balance of notes payable incurred to finance the
acquisitions.
The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Statements of Income from the respective dates of acquisition.
The results of operations related to the acquisition of National-Oilwell's
Fluid Packed pump product lines and the Bryan facility are not material,
therefore, pro forma information is not presented.
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming the Prideco
acquisition and the sale of the 3,450,000 shares of Common Stock had occurred
on January 1, 1994. The pro forma information set forth below is not
necessarily indicative of the results that actually would have been achieved
had such transactions been consummated as of January 1, 1994, or that may be
achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $381,135 $ 299,191
Income before extraordinary charge . . . . . . 15,064 7,766
Net income . . . . . . . . . . . . . . . . . . 15,064 3,982
Earnings per share from continuing operations 0.82 0.42
Net income per share . . . . . . . . . . . . . 0.82 0.22
</TABLE>
33
<PAGE> 35
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. DISCONTINUED OPERATIONS
On July 29, 1994, the Company disposed of Eastman Cherrington, including
a cash payment of approximately $2 million, in exchange for a tubular finishing
facility located in Bryan, Texas. Revenues from the discontinued operation of
Eastman Cherrington for 1994 and 1993 were $1.4 million and $3.3 million,
respectively. The discontinued operation of Eastman Cherrington reflected a
net loss of $797,000 and $2.1 million for 1994 and 1993, respectively. The
recorded net book value of Eastman Cherrington, including operations to the
date of disposition, approximated the appraised value of the Bryan facility.
As a result, there was no material gain or loss realized on the exchange.
The results of operations for Eastman Cherrington are reflected in the
accompanying Consolidated Statements of Income as "Discontinued Operations, Net
of Taxes".
6. SHORT-TERM BORROWINGS AND LINES OF CREDIT
The Company's short-term borrowings at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C>
Payable to banks under lines of credit, interest at prime to prime plus
1 1/4% at December 31, 1995 and December 31, 1994; principal
and interest payable on demand . . . . . . . . . . . . . . . . . . $ 4,826 $17,265
Weighted average interest rate on notes outstanding during
the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2% 8.8%
Average borrowings during the year . . . . . . . . . . . . . . . . . $ 24,382 $22,026
Maximum outstanding during the year . . . . . . . . . . . . . . . . $ 43,189 $48,310
</TABLE>
At December 31, 1995, the Company had in place various working capital
lines of credit secured by the inventory and receivables of the Company's
subsidiaries providing for borrowings up to $65.5 million subject to
availability requirements. Borrowings under the Company's lines of credit are
generally based on the lender's determination of the collateral value of the
current assets securing the lines of credit. The Company and its subsidiaries
are required to maintain various affirmative and negative covenants relating
to working capital, earnings and net worth. The facilities also impose certain
limitations on the use of funds by the Company and its subsidiaries for
acquisitions and capital expenditures, the incurrence of additional
indebtedness and other operational matters and certain prohibitions on the
declaration or payment of dividends by the Company.
At December 31, 1995, approximately $4.8 million had been borrowed under
the revolving lines of credit and approximately $5.1 million had been used to
support outstanding letters of credit. Additional borrowings of approximately
$55.6 million were available based on collateral values at December 31, 1995.
7. LONG-TERM DEBT
The Company's long-term debt at December 31, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes due in 2004, interest at 10.25% . . . . . . . . . . . $ 120,000 $ 120,000
Capitalized lease obligations under various leases with various
installment amounts . . . . . . . . . . . . . . . . . . . . . . 5,073 4,530
Other notes payable at various rates . . . . . . . . . . . . . . . 7,670 4,349
--------- ---------
132,743 128,879
Less: current maturities of long-term debt . . . . . . . . . . . 5,894 3,189
--------- ---------
$ 126,849 $ 125,690
========= =========
</TABLE>
34
<PAGE> 36
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. LONG-TERM DEBT-(CONTINUED)
The following is a summary of scheduled debt maturities by year (in
thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,894
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,094
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,464
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . 120,000
---------
$ 132,743
=========
</TABLE>
On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25%
Senior Notes due 2004 with semi-annual interest payments in March and
September. Both issues of Senior Notes were issued pursuant to the terms of an
Indenture dated as of March 15, 1994. Certain subsidiaries of the Company have
unconditionally guaranteed the Company's obligations under the Senior Notes.
See Note 17. The Indenture relating to the Senior Notes contains various
customary affirmative and negative covenants that, among other things, limit
the ability of the Company and certain of its subsidiaries to: (i) incur
certain additional indebtedness unless the Company's Consolidated Fixed Charge
Coverage Ratio (as defined in the Indenture) is at least 2.0 to 1.0, (ii) make
dividends, distributions and certain other restricted payments, (iii) create
certain liens, (iv) engage in certain transactions with its affiliates, (v)
engage in sale and leaseback transactions, (vi) make certain asset dispositions
and (vii) merge or consolidate with, or transfer all or substantially all of
its assets to another person. The Indenture also limits the ability of the
Company and certain of its subsidiaries to issue preferred stock and creates
restrictions on the ability of certain of its subsidiaries to pay dividends and
make other distributions. As of December 31, 1995, the Company was limited in
the amount of dividends, distributions and other restricted payments that could
be made by it to approximately $137 million.
The carrying value of the $120 million Senior Notes approximates fair
value as of December 31, 1994. At December 31, 1995, the fair value of the
$120 million Senior Notes, using a rate currently available to the Company for
similar debt, approximates $125 million.
The placement of the $120 million Senior Notes provided the Company with
$116 million in net proceeds that were used to prepay the $34 million 12.25%
senior notes due 1997 and to repay substantially all of the Company's
outstanding indebtedness other than the Senior Notes. The remaining funds were
used for working capital and other general purposes. In connection with the
early retirement, the Company incurred a first quarter extraordinary charge of
approximately $3.8 million, net of taxes of approximately $1.9 million, or
$0.30 per share. The extraordinary charge represented the difference between
the reacquisition price and the net carrying value of the $34 million senior
notes, including unamortized debt issuance costs.
Accrued interest payable, which is included in Other Accrued Liabilities
in the consolidated financial statements, was approximately $3.8 million and
$3.7 million at December 31, 1995 and 1994, respectively.
8. STOCKHOLDERS' INVESTMENT
PUBLIC STOCK OFFERING
Early in the fourth quarter 1995, the Company completed a public offering
of 3,450,000 shares of its Common Stock ("Public Offering"). The net proceeds
of this offering were approximately $72.6 million.
35
<PAGE> 37
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT-(CONTINUED)
STOCK OPTION PLANS
In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non- qualified stock option plan. The plan
expired in May 1991. Under the Option Plan, options were provided to officers
and key employees of the Company (including directors who are also key
employees) and its subsidiaries to purchase up to an aggregate of 1,000,000
shares of Common Stock of the Company.
In May 1991, the Company's stockholders approved the Company's
Non-Employee Director Stock Option Plan ("Director Plan"), a non-qualified
stock option plan. Under the Director Plan, options to purchase up to an
aggregate of 500,000 shares of Common Stock of the Company may be granted to
non-employee directors of the Company. Options to purchase 15,000 shares of
Common Stock are automatically granted to each non-employee director on the
date of their initial election. At December 31, 1995, 365,000 shares were
available for the granting of options.
In May 1992, the Company's stockholders approved the Company's 1992
Employee Stock Option Plan ("ESO Plan"). Under the ESO Plan, options to
purchase up to an aggregate of 600,000 shares of Common Stock of the Company
may be granted to officers and key employees of the Company (including
directors who are also key employees) and its subsidiaries. At December 31,
1995, 136,000 shares were available for granting of such options.
Transactions under the above option plans are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPTION
OF PRICE/RANGE
SHARES PER SHARE
-------- ------------------
<S> <C> <C>
Options outstanding, December 31, 1992 . . . . . . . . . . . . 653,300 $ 2.69 - $23.88
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 11.75 - 16.13
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (41,237) 2.69 - 11.50
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . (40,000) 16.50 - 18.25
--------
Options outstanding, December 31, 1993 . . . . . . . . . . . . 667,063 2.69 - 23.88
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . 52,000 13.75
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (5,160) 2.69
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . (74,167) 11.50 - 18.25
--------
Options outstanding, December 31, 1994 . . . . . . . . . . . . 639,736 2.69 - 23.88
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . 127,000 13.75 - 18.00
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (62,736) 2.69 - 16.50
--------
Options outstanding, December 31, 1995 . . . . . . . . . . . . 704,000 9.38 - 23.88
========
Options exercisable as of December 31, 1995 . . . . . . . . . 537,333 9.38 - 23.88
========
</TABLE>
PROFIT SHARING PLANS
The Company and certain of its subsidiaries have adopted retirement plans
which qualify under Section 401(k) of the Internal Revenue Code. The plans
generally provide for 20% matching contributions by the Company, up to a
maximum liability of 1.2% of each participating employee's annual compensation.
The Company, under each plan, also has the right to make additional
discretionary matching contributions. Total contributions by the Company under
these plans were $306,000, $193,000 and $383,000 during 1995, 1994 and 1993,
respectively.
36
<PAGE> 38
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' INVESTMENT-(CONTINUED)
EXECUTIVE DEFERRED COMPENSATION PLAN
In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.
The Company has established a grantor trust to fund the benefits under
the EDC Plan. The funds provided to such trust are invested by a trustee
independent of the Company primarily in Common Stock of the Company which is
purchased by the trustee on the open market. The assets of the trust are
available to satisfy the claims of all general creditors of the Company in the
event of bankruptcy or insolvency. Accordingly, the Common Stock held by the
trust has been consolidated for accounting purposes and is included in the
accompanying Consolidated Statements of Stockholders' Investment as "Treasury
Stock, at Cost" and reflected as such on the Consolidated Balance Sheets. The
compensation expense related to this plan was not significant for any of the
three years in the period ended December 31, 1995.
9. INCOME TAXES
The domestic and foreign components of Income before Income Taxes from
Continuing Operations consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,865 $ 1,162 $ 6,155
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 8,526 5,286 6,656
-------- -------- --------
$ 16,391 $ 6,448 $ 12,811
======== ======== ========
</TABLE>
Total income tax provision (benefit) was recorded as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from Continuing Operations . . . . . . . . . . . . . $ 5,080 $ 1,806 $ 4,864
Discontinued Operations . . . . . . . . . . . . . . . . . . -- -- (1,185)
Extraordinary Charge . . . . . . . . . . . . . . . . . . . . -- (1,949) --
-------- -------- --------
$ 5,080 $ (143) $ 3,679
======== ======== ========
</TABLE>
The Company's provision for income taxes of continuing operations for the
three years ended December 31, 1995, consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . $ 250 $ 648 $ 1,654
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 2,090 1,985 3,017
State . . . . . . . . . . . . . . . . . . . . . . . . . . 760 225 97
-------- -------- --------
3,100 2,858 4,768
-------- -------- --------
Deferred
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . (184) (1,229) (454)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 2,126 177 202
State . . . . . . . . . . . . . . . . . . . . . . . . . . 38 -- 348
-------- -------- --------
1,980 (1,052) 96
-------- -------- --------
$ 5,080 $ 1,806 $ 4,864
======== ======== ========
</TABLE>
37
<PAGE> 39
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES-(CONTINUED)
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing
operations before income taxes for the three years ended December 31, 1995, in
the accompanying Consolidated Statements of Income is analyzed below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . . . . . . . 35.0% 34.0% 34.0%
Effect of state income tax, net . . . . . . . . . . . . . . 3.4 2.3 2.3
Effect of non-deductible expenses . . . . . . . . . . . . . 2.2 3.7 .9
Utilization of net operating loss carryforward . . . . . . . (5.4) (15.5) --
Effect of foreign income tax, net . . . . . . . . . . . . . .3 (.1) 2.6
Non-benefitable foreign losses . . . . . . . . . . . . . . . .9 6.2 --
Realization of tax assets . . . . . . . . . . . . . . . . . (6.3) -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 (2.6) (1.8)
---- ----- ----
31.0% 28.0% 38.0%
==== ===== ====
</TABLE>
The deferred income tax provisions for income before income taxes for the
three years ended December 31, 1995, primarily consisted of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Excess of tax over (under) financial deduction related
to depreciation . . . . . . . . . . . . . . . . . . . . . $ (541) $ 1,262 $1,082
Excess of tax over (under) financial deductions for reserves 1,623 1,379 (155)
Benefit provided on losses of subsidiaries not included in
consolidated return . . . . . . . . . . . . . . . . . . . -- -- (477)
Alternative minimum tax . . . . . . . . . . . . . . . . . . 257 (660) (461)
Book accruals (reversals) not currently deductible . . . . . 1,042 (775) (368)
State and foreign income taxes . . . . . . . . . . . . . . . 2,164 177 549
Utilization of net operating loss carryforward . . . . . . . (890) (997) --
Foreign tax credits, net . . . . . . . . . . . . . . . . . . (414) (1,281) --
Realization of tax assets . . . . . . . . . . . . . . . . . (1,025) -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (236) (157) (74)
-------- ------- ------
$ 1,980 $(1,052) $ 96
======== ======= ======
</TABLE>
The components of the net deferred tax liability at December 31, 1995
and December 31, 1994, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . $ 5,839 $ 5,433
Alternative minimum tax credit carryforward . . . . . . . . . . 864 1,121
Book accruals/other . . . . . . . . . . . . . . . . . . . . . . 8,458 2,927
Foreign tax credit carryforwards . . . . . . . . . . . . . . . . 5,973 3,074
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . (4,186) (6,101)
--------- ---------
Total deferred tax asset . . . . . . . . . . . . . . . . . 16,948 6,454
--------- ---------
Deferred tax liabilities:
COLEVE production payment . . . . . . . . . . . . . . . . . . . (14,907) (14,224)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (25,533) (20,105)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,434) (2,910)
--------- ---------
Total deferred tax liability . . . . . . . . . . . . . . . (49,874) (37,239)
--------- ---------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . $ (32,926) $ (30,785)
========= =========
</TABLE>
38
<PAGE> 40
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INCOME TAXES-(CONTINUED)
The amount of federal operating loss carryforwards for tax purposes
generated by certain subsidiaries prior to their acquisition is $17,060,000,
which includes $4,710,000 of federal operating loss carryforwards previously
benefited for book purposes, and if not utilized will expire between 2001 and
2007. The use of pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code. At December 31, 1995, the Company had
$860,000 of alternative minimum tax credit carryforwards, which may be used
indefinitely to reduce regular Federal income taxes. Additionally, at December
31, 1995, the Company, for U.S. Federal income tax purposes, had $760,000 of
foreign tax credit carryforwards, expiring principally between 1996 and 1999.
The realization of a portion of the deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of the carryforward
amounts. Although realization is not assured, management believes it is more
likely than not that the net deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
The Company has a valuation allowance to reflect the estimated amount of
deferred tax assets for which realization is uncertain. The net change in the
valuation allowance for the year ended December 31, 1995 was a decrease of
$1,915,000. The net change principally relates to a reduction in the valuation
allowance required for certain deferred tax assets which realization became
certain during 1995.
COLEVE TAX MATTER
In August of 1994, the Company received a letter from the United States
Internal Revenue Service ("IRS") proposing to increase the gain recognized by
the Company upon the dissolution in October 1990 of a joint venture ("COLEVE")
with Columbia Gas Development Corporation. In general, the IRS' proposal seeks
payment of a tax liability of approximately $14.1 million plus accrued interest
thereon, and includes $3.4 million of taxes relating to the proposed
disallowance of certain interest deductions taken by the Company with respect
to COLEVE that was the subject of a similar letter received by the Company in
the fourth quarter of 1993. The tax liability with respect to these matters
has been previously provided for as a deferred tax liability in the Company's
consolidated financial statements. The Company disagrees with the IRS'
position and is currently pursuing its rights of administrative review and
appeal and intends to vigorously contest this matter. Although the resolution
of these remaining issues could affect the timing of the payment of previously
accrued tax liabilities and require the use of a portion of its available
capital, the Company does not believe that the results of the audit or the
ultimate resolution of the IRS' proposed adjustments will have a material
impact on its consolidated results of operations or financial position.
10. DISPUTES, LITIGATION AND CONTINGENCIES
LITIGATION AND OTHER DISPUTES
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation would not have a material adverse effect on the
Company's consolidated financial position or its results of operations.
INSURANCE
The Company is partially self-insured for employee health insurance
claims and for workers' compensation for certain of its employees. Although
the Company believes that adequate reserves have been provided for expected
liabilities arising from its self-insured obligations, it is reasonably
possible that management's estimates of these liabilities will change over the
near term as circumstances develop.
39
<PAGE> 41
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. INSURANCE SETTLEMENT
On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover drilling
contract with the National Iranian Oil Company ("NIOC"). Under the terms of
the settlement with the Company's insurance carriers, the Company received a
net cash payment of $23 million for reimbursement of certain operating costs
incurred and amounts to be received in accordance with the terms of the
workover drilling contract. The Company also retained all rights to any funds
collected or recovered by the Company from NIOC and to the rigs and equipment
deployed in Iran. The rigs and the related equipment were moved out of Iran by
December 31, 1994.
In 1994, the Company adjusted the carrying value of the receivables, rigs
and equipment, and established reserves for demobilization, refurbishment and
contract settlement costs, all of which totaled approximately $18 million. The
insurance settlement which increased operating income by $4.8 million was
reduced by operating losses of $2.6 million relating to the Iranian operations
for 1994.
12. COMMITMENTS
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $5,124,000, $4,626,000
and $3,055,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Future minimum rental commitments under these operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . $ 4,367
1997 . . . . . . . . . . . . . . . . . . . . . . . . 3,620
1998 . . . . . . . . . . . . . . . . . . . . . . . . 3,161
1999 . . . . . . . . . . . . . . . . . . . . . . . . 1,055
2000 . . . . . . . . . . . . . . . . . . . . . . . . 542
Thereafter . . . . . . . . . . . . . . . . . . . . . 5,521
---------
$ 18,266
=========
</TABLE>
13. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $594,000, $748,000, and $582,000
during 1995, 1994 and 1993, respectively, with a law firm in which a director
of the Company is a partner.
The Company paid approximately $4,037,000 in 1995 and $3,300,000 in 1994
in underwriting fees associated with the Public Offering and the private
placement of the $120 million of 10.25% Senior Notes, respectively. The
underwriting group for each of these transactions included Lehman Brothers, an
affiliate of Lehman Brothers Holdings Inc., a major stockholder of the Company,
as well as several other unrelated underwriters. The fee arrangements
associated with these offerings were on terms standard in the underwriting
industry.
14. SUBSEQUENT EVENT
In January 1996, the Company entered into a long-term manufacturing and
sales agreement with Oil Country Tubular, Ltd. ("OCTL"), an India-based
manufacturer of drill pipe and premium tubulars. Manufacturing operations on
behalf of the Company are expected to commence during the second quarter of
1996. In January 1996, under the terms of the agreement with OCTL, the Company
made a one-time payment of $8 million for the exclusive right to have Grant
Prideco's product manufactured at the facility.
40
<PAGE> 42
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION
BUSINESS SEGMENTS
The Company operates through two business segments: oilfield equipment
and contract drilling. The oilfield equipment segment manufactures high
performance tubulars and a complete line of artificial lift and completion tool
equipment. The Company's tubular products are used primarily for natural gas
exploration and production. The Company's contract drilling segment consists
primarily of a fleet of barge rigs used by major and large independent oil and
gas companies primarily for the exploration and development of natural gas in
the U.S. Gulf Coast area. Internationally, the contract drilling segment is
currently operating one barge rig in Nigeria, two platform rigs in Peru and
four land rigs in Argentina.
Financial information by industry segment for each of the three years
ended December 31, 1995, is summarized below (in thousands). Identifiable
assets included in the Corporate and Other column includes the elimination of
intercompany transactions.
<TABLE>
<CAPTION>
CORPORATE
OILFIELD CONTRACT AND
EQUIPMENT DRILLING OTHER TOTAL
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated customers . . . $ 271,675 $ 79,912 $ -- $351,587
Operating income (loss) . . . . . . . 23,091 14,475 (5,126) 32,440
Identifiable assets . . . . . . . . . 350,697 151,538 (11,175) 491,060
Depreciation and amortization . . . . 12,357 8,378 89 20,824
Capital expenditures and acquisitions 33,217 22,898 18 56,133
1994
Sales to unaffiliated customers . . . $ 185,285 $ 63,252 $ -- $248,537
Operating income (loss) . . . . . . . 8,226 15,831 (4,588) 19,469
Identifiable assets . . . . . . . . . 230,592 125,927 (12,285) 344,234
Depreciation and amortization . . . . 9,302 4,870 96 14,268
Capital expenditures and acquisitions 32,533 33,938 91 66,562
1993
Sales to unaffiliated customers . . . $ 171,638 $ 74,379 $ -- $246,017
Operating income (loss) . . . . . . . 10,788 11,797 (4,030) 18,555
Identifiable assets . . . . . . . . . 180,862 86,385 9,984 277,231
Depreciation and amortization . . . . 7,826 4,381 74 12,281
Capital expenditures and acquisitions 13,119 4,468 2,091 19,678
</TABLE>
MAJOR CUSTOMERS AND CREDIT RISK
Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also
present various risks, including risks of war, civil disturbances and
governmental activities that may limit or disrupt markets, restrict the
movement of funds or result in the deprivation of contract rights or the taking
of property without fair consideration. Most of the Company's foreign sales,
however, are to large international companies or are secured by letter of
credit or similar arrangements.
In 1995, 1994 and 1993, there was no individual customer who accounted for
10% of consolidated revenues. With the exception of the contract drilling
segment, whose foreign rigs typically operate under long-term contracts, the
Company does not believe itself to be dependent to any material degree on any
single customer.
41
<PAGE> 43
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION-(CONTINUED)
FOREIGN OPERATIONS AND EXPORT SALES
The Company's equipment and services are used in approximately 50 countries
by U.S. customers operating abroad and by foreign customers. Sales of
equipment and services outside the United States accounted for 38%, 36%, and
40% of total revenues in 1995, 1994 and 1993, respectively, based upon the
ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company.
Summarized financial information for the three years ended December 31,
1995, by geographic area is as follows:
<TABLE>
<CAPTION>
WESTERN HEMISPHERE EASTERN HEMISPHERE
---------------------- -----------------------
UNITED STATES OTHER MIDDLE EAST OTHER ELIMINATIONS TOTAL
---------- ------- -------- -------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995
Operating revenues from
unaffiliated customers $ 220,937 $61,293 $ -- $ 9,921 $ (3,567) $288,584
Export sales to
unaffiliated customers 63,003 -- -- -- -- 63,003
---------- ------- -------- -------- ---------- --------
Total revenues . . . . . 283,940 61,293 -- 9,921 (3,567) 351,587
Operating income (loss) 17,518 13,733 (262) 2,148 (697) 32,440
Identifiable assets . . 359,696 88,772 4,295 38,297 -- 491,060
1994
Operating revenues from
unaffiliated customers $ 162,344 $34,643 $ 5,801 $ 5,329 $ (3,304) $204,813
Export sales to
unaffiliated customers 43,724 -- -- -- -- 43,724
---------- ------- -------- -------- ---------- --------
Total revenues . . . . . 206,068 34,643 5,801 5,329 (3,304) 248,537
Operating income (loss) 9,511 7,194 3,219 (170) (285) 19,469
Identifiable assets . . 263,192 41,413 12,866 26,763 -- 344,234
1993
Operating revenues from
unaffiliated customers $ 150,729 $31,722 $ 7,967 $ 4,675 $ (1,983) $193,110
Export sales to
unaffiliated customers 52,847 -- -- -- 60 52,907
---------- ------- -------- -------- ---------- --------
Total revenues . . . . . 203,576 31,722 7,967 4,675 (1,923) 246,017
Operating income . . . . 9,744 7,372 802 599 38 18,555
Identifiable assets . . 200,771 32,281 28,316 15,863 -- 277,231
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1995 and 1994.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
--------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1995
Revenues . . . . . . . . . . . . . . . . . . $ 72,660 $ 79,747 $ 93,797 $ 105,383 $ 351,587
Gross Profit . . . . . . . . . . . . . . . . 19,504 20,096 24,256 25,438 89,294
Income before Income Taxes . . . . . . . . . 2,630 2,743 4,685 6,333 16,391
Net Income . . . . . . . . . . . . . . . . . 1,631 1,753 3,556 4,371 11,311
Net Income Per Common Share . . . . . . . . .13 .14 .24 .24 .77 (1)
--
</TABLE>
42
<PAGE> 44
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)-(CONTINUED)
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
--------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . . . . $ 55,118 $ 50,566 $ 68,079 $ 74,774 $ 248,537
Gross Profit . . . . . . . . . . . . . . . . 14,927 14,874 18,689 18,910 67,400
Income before Income Taxes . . . . . . . . . 1,336 195 2,698 2,219 6,448
Income from Continuing Operations . . . . . 855 127 1,679 1,981 4,642
Extraordinary Charge, Net of Taxes . . . . . (3,784) -- -- -- (3,784)
Net Income (Loss) . . . . . . . . . . . . . (2,929) 127 1,679 1,981 858
Net Income (Loss) Per Common Share:
Continuing Operations . . . . . . . . . . $ .07 $ .01 $ .13 $ .16 $ .37
Extraordinary Charge, Net of Taxes . . . . ( .30) -- -- -- (.30)
--------- -------- -------- --------- ---------
Net Income (Loss) . . . . . . . . . . . . $ ( .23) $ .01 $ .13 $ .16 $ .07
========= ======== ======== ========= =========
</TABLE>
(1) Net Income Per Common Share for the year ended December 31, 1995, differs
from the summation of the individual quarters within that year due to the
impact of the Public Offering of Common Stock and shares issued in
connection with the Prideco acquisition.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The $120 million Senior Notes which are described in Note 7 are
unconditionally guaranteed on a joint and several basis, by certain
subsidiaries of the Company. Accordingly, the following condensed
consolidating balance sheets as of December 31, 1995 and 1994, and the related
condensed consolidating statements of income and cash flows for each of the
three years in the period ended December 31, 1995, have been provided. The
condensed consolidating financial statements herein are followed by notes which
are an integral part of these statements.
43
<PAGE> 45
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . $ 532 $ 2,985 $ 1,000 $ -- $ 4,517
Other Current Assets . . . . . . . 1,564 208,342 35,151 -- 245,057
-------- ---------- --------- ----------- ---------
2,096 211,327 36,151 -- 249,574
-------- ---------- --------- ----------- ---------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . . 159 177,945 14,598 -- 192,702
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . . 342,844 (169,154) 18,417 (192,107) --
OTHER ASSETS . . . . . . . . . . . . 4,969 47,079 (3,264) -- 48,784
-------- ---------- --------- ----------- ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= =========== =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . . $ -- $ 795 $ 4,031 $ -- $ 4,826
Current Maturities of Long-Term
Debt . . . . . . . . . . . . . -- 5,484 410 -- 5,894
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . . 4,055 72,451 9,890 -- 86,396
-------- ---------- --------- ----------- ---------
4,055 78,730 14,331 -- 97,116
-------- ---------- --------- ----------- ---------
LONG-TERM DEBT . . . . . . . . . . . 120,000 6,262 587 -- 126,849
OTHER LIABILITIES . . . . . . . . . . (2,053) 22,394 18,688 -- 39,029
-------- ---------- --------- ----------- ---------
STOCKHOLDERS' INVESTMENT . . . . . . 228,066 159,811 32,296 (192,107) 228,066
-------- ---------- --------- ----------- ---------
$350,068 $ 267,197 $ 65,902 $ (192,107) $ 491,060
======== ========== ========= =========== =========
</TABLE>
44
<PAGE> 46
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . $ 166 $ 1,593 $ 1,385 $ -- $ 3,144
Other Current Assets . . . . . . 1,549 135,170 24,940 -- 161,659
--------- ---------- ---------- ---------- --------
1,715 136,763 26,325 -- 164,803
--------- ---------- ---------- ---------- --------
PROPERTY, PLANT AND EQUIPMENT,
AT COST, NET OF ACCUMULATED
DEPRECIATION . . . . . . . . . . 230 140,024 10,641 -- 150,895
INTERCOMPANY AND INVESTMENT
IN SUBSIDIARIES, NET . . . . . . 229,873 (134,749) 18,058 (113,182) --
OTHER ASSETS . . . . . . . . . . . 4,124 23,496 916 -- 28,536
--------- ---------- ---------- ---------- --------
$ 235,942 $ 165,534 $ 55,940 $ (113,182) $344,234
========= ========== ========== ========== ========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings . . . . . $ -- $ 13,627 $ 3,638 $ -- $ 17,265
Current Maturities of Long-Term
Debt . . . . . . . . . . . . . -- 1,480 1,709 -- 3,189
Accounts Payable and Other Accrued
Liabilities . . . . . . . . . 5,291 37,748 6,972 -- 50,011
--------- ---------- ---------- ---------- --------
5,291 52,855 12,319 -- 70,465
--------- ---------- ---------- ---------- --------
LONG-TERM DEBT . . . . . . . . . . 120,062 4,605 1,023 -- 125,690
OTHER LIABILITIES . . . . . . . . (324) 21,829 15,661 -- 37,166
--------- ---------- ---------- ---------- --------
STOCKHOLDERS' INVESTMENT . . . . . 110,913 86,245 26,937 (113,182) 110,913
--------- ---------- ---------- ---------- --------
$ 235,942 $ 165,534 $ 55,940 $ (113,182) $344,234
========= ========== ========== ========== ========
</TABLE>
45
<PAGE> 47
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 289,246 $ 62,341 $ -- $ 351,587
COSTS AND EXPENSES . . . . . . . . . 5,123 264,111 49,913 -- 319,147
-------- ---------- ---------- ---------- ---------
OPERATING INCOME (LOSS) . . . . . . . (5,123) 25,135 12,428 -- 32,440
-------- ---------- ---------- ---------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . 2,539 (17,174) (1,970) -- (16,605)
Equity in Subsidiaries, Net of
Taxes . . . . . . . . . . . . . 11,179 -- -- (11,179) --
Other, Net . . . . . . . . . . . 360 1,317 (1,121) -- 556
-------- ---------- ---------- ---------- ---------
INCOME BEFORE INCOME TAXES . . . . . 8,955 9,278 9,337 (11,179) 16,391
PROVISION (BENEFIT) FOR INCOME TAXES (2,356) 4,046 3,390 -- 5,080
-------- ---------- ---------- ---------- ---------
NET INCOME . . . . . . . . . . . . . $ 11,311 $ 5,232 $ 5,947 $ (11,179) $ 11,311
======== ========== ========== ========== =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 211,052 $ 37,485 $ -- $ 248,537
COSTS AND EXPENSES . . . . . . . . . 4,775 190,924 33,369 -- 229,068
-------- ---------- ---------- ---------- ---------
OPERATING INCOME (LOSS) . . . . . . (4,775) 20,128 4,116 -- 19,469
-------- ---------- ---------- ---------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . (6,828) (6,187) (490) -- (13,505)
Equity in Subsidiaries, Net of
Taxes . . . . . . . . . . . . 11,343 -- -- (11,343) --
Other, Net . . . . . . . . . . . 35 459 (10) -- 484
-------- ---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . . (225) 14,400 3,616 (11,343) 6,448
PROVISION (BENEFIT) FOR INCOME TAXES (4,867) 4,558 2,115 -- 1,806
-------- ---------- ---------- ---------- ---------
INCOME FROM CONTINUING OPERATIONS . . 4,642 9,842 1,501 (11,343) 4,642
EXTRAORDINARY CHARGE, NET
OF TAXES . . . . . . . . . . . . . (3,784) -- -- -- (3,784)
-------- ---------- ---------- ---------- ---------
NET INCOME . . . . . . . . . . . . . $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
======== ========== ========== ========== =========
</TABLE>
46
<PAGE> 48
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . $ -- $ 205,278 $ 40,739 $ -- $ 246,017
COSTS AND EXPENSES . . . . . . . . . 4,226 186,863 36,373 -- 227,462
-------- ---------- --------- --------- ---------
OPERATING INCOME (LOSS) . . . . . . . (4,226) 18,415 4,366 -- 18,555
-------- ---------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net . . (2,334) (4,980) 105 -- (7,209)
Equity in Subsidiaries, Net of
Taxes . . . . . . . . . . . . . 11,565 -- -- (11,565) --
Other, Net . . . . . . . . . . . . 1,076 201 188 -- 1,465
-------- ---------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . . 6,081 13,636 4,659 (11,565) 12,811
PROVISION (BENEFIT) FOR INCOME TAXES (1,866) 5,213 1,517 -- 4,864
-------- ---------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS . . 7,947 8,423 3,142 (11,565) 7,947
DISCONTINUED OPERATIONS, NET
OF TAXES . . . . . . . . . . . . . (2,057) -- -- -- (2,057)
-------- ---------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . $ 5,890 $ 8,423 $ 3,142 $ (11,565) $ 5,890
======== ========== ========= ========= =========
</TABLE>
47
<PAGE> 49
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . . . . $ 11,311 $ 5,232 $ 5,947 $(11,179) $ 11,311
Equity in Earnings of
Subsidiaries . . . . . . . . . . (11,179) -- -- 11,179 --
Other Adjustments and Charges . . (3,808) (39,633) 10,258 -- (33,183)
-------- --------- -------- --------- --------
Net Cash Provided (Used) by
Operations . . . . . . . . . . . (3,676) (34,401) 16,205 -- (21,872)
-------- --------- -------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and
Assets . . . . . . . . . . . . . . -- 2,880 489 -- 3,369
Acquisition of Businesses . . . . . -- (4,007) (4,098) -- (8,105)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . (19) (28,689) (3,982) -- (32,690)
-------- --------- -------- --------- --------
Net Cash Used by Investing
Activities . . . . . . . . . . . (19) (29,816) (7,591) -- (37,426)
-------- --------- -------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock . . . . . . 73,304 -- (656) -- 72,648
Borrowings (Repayments) Under Revolving
Lines of Credit, Net . . . . . . . -- (12,832) 393 -- (12,439)
Borrowings Under Term Debt . . . . . -- 3,848 688 -- 4,536
Repayment on Term Debt . . . . . . . -- (3,412) (1,041) -- (4,453)
(Increase) Decrease in amounts Due to
and from Subsidiaries, Net . . . . (68,885) 78,005 (9,120) -- --
Other, Net . . . . . . . . . . . . . (358) -- 656 -- 298
-------- --------- -------- --------- --------
Net Cash Provided (Used) by Financing
Activities . . . . . . . . . . . 4,061 65,609 (9,080) -- 60,590
-------- --------- -------- --------- --------
Effect of Translation Adjustment on Cash -- -- 81 -- 81
-------- --------- -------- --------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . 366 1,392 (385) -- 1,373
Cash and Cash Equivalents at Beginning
of Year . . . . . . . . . . . . . . 166 1,593 1,385 -- 3,144
-------- --------- -------- --------- --------
Cash and Cash Equivalents at End
of Year . . . . . . . . . . . . . . $ 532 $ 2,985 $ 1,000 $ -- $ 4,517
======== ========= ======== ========= ========
</TABLE>
48
<PAGE> 50
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . $ 858 $ 9,842 $ 1,501 $ (11,343) $ 858
Insurance Settlement, Net . . . . . -- 23,000 -- -- 23,000
Equity in Earnings of Subsidiaries (11,343) -- -- 11,343 --
Other Adjustments and Changes . . . 11,329 (37,044) (2,901) -- (28,616)
-------- ---------- ---------- ---------- ----------
Net Cash Provided (Used) by
Operations . . . . . . . . . . . 844 (4,202) (1,400) -- (4,758)
-------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and Assets -- 3,103 28 -- 3,131
Acquisition of Businesses . . . . . -- (17,076) -- -- (17,076)
Capital Expenditures for Property, Plant
and Equipment . . . . . . . . . . (91) (16,441) (3,075) -- (19,607)
-------- ---------- ---------- ---------- ----------
Net Cash Used by Investing Activities (91) (30,414) (3,047) -- (33,552)
-------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Issuance of Long-Term Debt 120,000 -- -- -- 120,000
Short-Term Borrowings, Net . . . . -- (27,894) (1,046) -- (28,940)
Repayments on Term Debt, Net . . . (34,442) (8,188) (2,067) -- (44,697)
(Increase) Decrease in amounts Due to and
from Subsidiaries, Net . . . . . . (78,181) 70,091 8,090 -- --
Other, Net . . . . . . . . . . . . (9,408) -- -- -- (9,408)
-------- ---------- ---------- ---------- ----------
Net Cash Provided (Used) by Financing
Activities . . . . . . . . . . . . (2,031) 34,009 4,977 -- 36,955
-------- ---------- ---------- ---------- ----------
Effect of Translation Adjustment on
Cash . . . . . . . . . . . . . . . -- -- (300) -- (300)
-------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . (1,278) (607) 230 -- (1,655)
Cash and Cash Equivalents at Beginning
of Year . . . . . . . . . . . . . 1,444 2,200 1,155 -- 4,799
-------- ---------- ---------- ---------- ----------
Cash and Cash Equivalents at End of
Year . . . . . . . . . . . . . . . $ 166 $ 1,593 $ 1,385 $ -- $ 3,144
======== ========== ========== ========== ==========
</TABLE>
49
<PAGE> 51
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income . . . . . . . . . . . $ 5,890 $ 8,423 $ 3,142 $ (11,565) $ 5,890
Equity in Earnings of
Subsidiaries . . . . . . . . . (11,565) -- -- 11,565 --
Other Adjustments and Changes . (1,780) (1,037) (12,202) 3,552 (11,467)
-------- ---------- --------- --------- ----------
Net Cash Provided (Used) by
Operations . . . . . . . . . (7,455) 7,386 (9,060) 3,552 (5,577)
-------- ---------- --------- --------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from Sale of Business and
Assets . . . . . . . . . . . . . 3,500 447 307 -- 4,254
Acquisition of Businesses . . . . (633) 51 (351) -- (933)
Capital Expenditures for Property,
Plant and Equipment . . . . . . -- (9,615) (5,270) -- (14,885)
-------- ---------- --------- --------- ----------
Net Cash Provided (Used) by
Investing Activities . . . . . 2,867 (9,117) (5,314) -- (11,564)
-------- ---------- --------- --------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Short-Term Borrowings, Net . . . . -- 17,283 4,307 -- 21,590
(Repayments)/Borrowings of Term Debt (3,801) (1,795) 2,758 -- (2,838)
(Increase) Decrease in Amounts Due
to and from Subsidiaries, Net . 9,434 (14,344) 8,462 (3,552) --
Other, Net . . . . . . . . . . . . (384) -- -- -- (384)
-------- ---------- --------- --------- ----------
Net Cash Provided by Financing
Activities . . . . . . . . . . 5,249 1,144 15,527 (3,552) 18,368
-------- ---------- --------- --------- ----------
Effect of Translation Adjustment on
Cash . . . . . . . . . . . . . . . -- -- (468) -- (468)
-------- ---------- --------- --------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . 661 (587) 685 -- 759
Cash and Cash Equivalents at Beginning
of Year . . . . . . . . . . . . . 783 2,787 470 -- 4,040
-------- ---------- --------- --------- ----------
Cash and Cash Equivalents at End
of Year . . . . . . . . . . . . . $ 1,444 $ 2,200 $ 1,155 $ -- $ 4,799
======== ========== ========= ========= ==========
</TABLE>
50
<PAGE> 52
ENERGY VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
A. SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications of prior year balances have been made to conform
such amounts to corresponding 1995 classifications.
Elimination Entries
Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.
B. LONG-TERM DEBT
The Company's summary of scheduled debt maturities by year, description of
debt and other information is disclosed in Note 7.
C. COLEVE TAX MATTER
The Company received a letter from the IRS seeking payment of a tax
liability of approximately $14.1 million plus accrued interest thereon with
respect to COLEVE. See Note 9 for additional information regarding this tax
matter.
D. INSURANCE SETTLEMENT
On September 30, 1994, the Company received net proceeds of $23 million
from its insurance carriers as settlement for the termination of its workover
drilling contract with NIOC. See Note 11 for additional information regarding
this settlement.
E. OTHER
Notes 1 through 16 should be read in conjunction with the Condensed
Consolidating Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information on directors and executive
officers of the Registrant is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information on executive compensation
is incorporated by reference from the Registrant's Definitive Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information on security ownership of
certain beneficial owners and management is incorporated by reference from the
Registrant's Definitive Proxy Statement to be filed pursuant to
51
<PAGE> 53
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information on certain relationships
and related transactions is incorporated by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or incorporated
herein by reference:
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The consolidated financial statements and financial statement schedule of
the Company are listed on the index on page 24.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fourth quarter of 1995.
EXHIBITS
3.1 - Certificate of Incorporation of the Company, as amended
through May 22, 1991 (incorporated by reference to Exhibit
No. 4.1 to the Registration Statement on Form S-3;
Registration No. 33-40833).
3.2 - By-laws as amended (incorporated by reference to Exhibit No.
3.2 to Form 10-K, File 0-7265, filed March 1, 1994).
4.1 - Certificate of Incorporation of the Company, as amended
through May 22, 1991 (incorporated by reference to Exhibit
No. 4.1 to the Registration Statement on Form S-3;
Registration No. 33-40833).
4.2 - By-laws as amended (incorporated by reference to Exhibit No.
3.2 to Form 10-K, File 0-7265, filed March 1, 1994).
4.3 - Indenture dated March 15, 1994, among Energy Ventures, Inc.,
as Issuer, the Subsidiary Guarantors party thereto, as
Guarantors, and Chemical Bank, as Trustee (incorporated by
reference to Form 8-K, File 0-7265, filed April 5, 1994).
4.4 - Specimen 10 1/4% Senior Note due 2004 of Energy Ventures,
Inc. (incorporated by reference to Form 8-K, File 0-7265,
filed April 5, 1994).
4.5 - First Supplemental Indenture by and among Energy Ventures,
Inc., Prideco and Chemical Bank, as trustee, dated June 30,
1995 (incorporated by reference to Exhibit No. 4.4 to the
Registration Statement on Form S-3; Registration No.
33-61933).
10.1 - Letter Agreement dated September 24, 1990, among ENGY, Inc.,
Columbia Gas Transmission Corporation, and COLEVE, a joint
venture (incorporated by reference to Exhibit No. 10.32 to
the Registration Statement on Form S-2; Registration No.
33-36653).
10.2 - Letter Agreement dated September 24, 1990, between ENGY, Inc.
and Columbia Gas Transmission Corporation (incorporated by
reference to Exhibit No. 10.33 to the Registration Statement
on Form S-2; Registration No. 33-36653).
10.3 - Purchase and Sale Agreement between ENGY, Inc. and Columbia
Gas Development Corporation dated October 22, 1990 and
Exhibit A(1) thereto (incorporated by reference to Form 8-K,
File 0-7265, filed November 6, 1990).
10.4 - COLEVE Termination Agreement between Columbia Gas Development
Corporation, ENGY, Inc. and Energy Ventures, Inc. dated
October 22, 1990 (incorporated by reference to Form 8-K, File
0-7265, filed November 6, 1990).
10.5 - Dismissal Agreement between Columbia Gas Development
Corporation, ENGY, Inc. and COLEVE dated October 22, 1990
(incorporated by reference to Form 8-K, File 0-7265, filed
November 6, 1990).
10.6 - Amended and Restated Loan and Security Agreement among
EVI-Highland Pump Company, Grant TFW Inc., and Mallard
Drilling, Inc. as Borrowers, Energy Ventures, Inc., as
Guarantor, and Transamerica Business Credit Corporation, as
Lender, dated October 13, 1992 (incorporated by reference to
Form 10-Q, File 0-7265, filed November 16, 1992).
52
<PAGE> 54
10.7 - First Amendatory Agreement dated May 5, 1993 to Amended and
Restated Loan and Security Agreement dated October 13, 1992
by and among EVI-Highland Pump Company, Grant TFW Inc., and
Mallard Drilling, Inc., as Borrowers, Energy Ventures, Inc.,
as Guarantor, and Transamerica Business Credit Corporation,
as Lender (incorporated by reference to Form 10-K, File
0-7265, filed March 1, 1994).
10.8 - Second Amendatory Agreement dated August 12, 1993 to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.,
and Mallard Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit
Corporation, as Lender (incorporated by reference to Form
10-Q, File 0-7265, filed November 3, 1993).
10.9 - Third Amendatory Agreement dated October 12, 1993 to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.,
and Mallard Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit
Corporation, as Lender (incorporated by reference to Form
10-Q, File 0-7265, filed November 3, 1993).
10.10 - Fourth Amendatory Agreement dated February 21, 1994 to
Amended and Restated Loan and Security Agreement dated
October 13, 1992 by and among EVI-Highland Pump Company,
Grant TFW Inc., and Mallard Drilling, Inc., as Borrowers,
Energy Ventures, Inc., as Guarantor, and Transamerica
Business Credit Corporation, as Lender (incorporated by
reference to Form 10-Q, File 0-7265, filed May 11, 1994).
10.11 - Fifth Amendatory Agreement dated March 22, 1994 to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.,
and Mallard Drilling, Inc., as Borrowers, Energy Ventures,
Inc., as Guarantor, and Transamerica Business Credit
Corporation, as Lender (incorporated by reference to Form
10-Q, File 0-7265, filed May 11, 1994).
10.12 - Letter Agreement dated May 5, 1994 to Amended and Restated
Loan and Security Agreement dated October 13, 1992 by and
among EVI-Highland Pump Company, Grant TFW Inc., and Mallard
Drilling, Inc., as Borrowers, Energy Ventures, Inc., as
Guarantor, and Transamerica Business Credit Corporation, as
Lender (incorporated by reference to Form 10-Q, File 0-7265,
filed May 11, 1994).
**10.13 - Sixth Amendatory Agreement dated June 30, 1994, to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.
and Mallard Bay Drilling, Inc., as Borrowers, Energy
Ventures, Inc., as Guarantor, and Transamerica Business
Credit Corporation, as Lender.
**10.14 - Seventh Amendatory Agreement dated May 18, 1995, to Amended
and Restated Loan and Security Agreement dated October 13,
1992 by and among EVI-Highland Pump Company, Grant TFW Inc.
and Mallard Bay Drilling, Inc., as Borrowers, Energy
Ventures, Inc., as Guarantor, and Transamerica Business
Credit Corporation, as Lender.
**10.15 - Eighth Amendatory Agreement dated September 13, 1995, to
Amended and Restated Loan and Security Agreement dated
October 13, 1992 by and among EVI-Highland Pump Company,
Grant Prideco, Inc. and Mallard Bay Drilling, Inc., as
Borrowers, Energy Ventures, Inc., as Guarantor, and
Transamerica Business Credit Corporation, as Lender.
*10.16 - Executive Deferred Compensation Stock Ownership Plan and
related Trust Agreement (incorporated by reference to Form
10-Q, File 0-7265, filed November 16, 1992).
10.17 - First Amendment to Energy Ventures, Inc. Executive Deferred
Compensation Stock Ownership Plan dated June 28, 1993
(incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-8; Registration No.
33-65790).
*10.18 - Non-Employee Director Deferred Compensation Plan
(incorporated by reference to Form 10-Q, File 0-7265, Filed
November 16, 1992).
*10.19 - 1991 Non-Employee Director Stock Option Plan and Form of
Agreement (incorporated by reference to Form 10-Q, File
0-7265, filed August 8, 1991).
10.20 - 1992 Employee Stock Option Plan and Form Agreement
(incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-8; Registration No.
33-31662).
*10.21 - Energy Ventures, Inc. Employees Stock Option Plan
(incorporated by reference to Exhibit No. 4.1 to the
Registration Statement on Form S-8; Registration No.
33-31662).
*10.22 - Form of Stock Option Agreement under the Company's Employees'
Stock Option Plan (incorporated by reference to Exhibit No.
4.2 to the Registration Statement on Form S-8; Registration
No. 33-31662).
*10.23 - Amended and Restated Non-Employee Director Stock Option Plan
(incorporated by reference to Form 10-Q, File 0-7265, filed
August 12, 1995).
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<PAGE> 55
10.24 - Amended and Restated Promissory Note Agreement dated
September 29, 1993 between Energy Ventures, Inc., as Maker,
and ENSCO Tool and Supply Company, as Payee (incorporated by
reference to Form 10-Q, filed November 3, 1993).
10.25 - Term Loan Agreement dated December 17, 1992 between Energy
Ventures Mid East, Inc., as Borrower, and Emirates Bank
International, Limited, as Lender (incorporated by reference
to Form 10-Q, File 0-7265, filed November 3, 1993).
10.26 - Amendment to Term Loan Agreement dated December 17, 1992
between Energy Ventures Mid East, Inc., as Borrower, and
Emirates Bank International, Limited, as Lender, dated
September 2, 1993 (incorporated by reference to Form 10-Q,
File 0-7265, filed November 3, 1993).
10.27 - Agreement and Plan of Merger dated November 10, 1993, by and
among Production Oil Tools, Energy Ventures, Inc., and
Production Oil Tools Acquisition Co., (incorporated by
reference to Form 10-K, File 0-7265, filed March 1, 1994).
10.28 - Lease Agreement dated September 30, 1993, among T.F. de
Mexico, S.A. de C.V. as Lessor, Grant T.F. de Mexico, S.A. de
C.V., as Lessee, Energy Ventures, Inc. as Guarantor, and
Revemex, S.A. de C.V. as Owner of subleased assets
(incorporated by reference to Form 10-K, File 0-7265, filed
March 1, 1994).
10.29 - Stock Purchase Agreement dated February 9, 1994, between
Energy Ventures, Inc. and Shareholders of AWI Drilling &
Workover, Inc. (incorporated by reference to Form 8-K, File
0-7265, filed February 23, 1994).
10.30 - Registration Rights Agreement dated March 24, 1994, among
Energy Ventures, Inc., the Subsidiary Guarantors party
thereto, Lehman Brothers, Inc. and Kidder, Peabody & Co.
Incorporated (incorporated by reference to Form 8-K, File
0-7265, filed April 5, 1994).
10.31 - Registration Rights Agreement dated March 24, 1994, between
Energy Ventures, Inc. and Lehman Brothers Inc. (incorporated
by reference to Form 8-K, File 0-7265, filed April 5, 1994).
10.32 - The Woodward, Oklahoma Lease agreements as amended
(incorporated by reference to Form 10-K, File 0-7265, filed
March 23, 1995).
10.33 - Agreement and Plan of Merger dated as of May 22, 1995, as
amended by Amendment No. 1 dated as of June 30, 1995, by and
among Prideco, Inc., Christiana Companies, Inc., William
Chunn, Donald Morris, Sandra Hamilton, Energy Ventures, Inc.
and Grant Acquisition Company (incorporated by reference to
Exhibit No. 2.1 to Form 8-K, File 0-7265, filed July 12,
1995).
**10.34 - Manufacturing and Sales Agreement dated as of January 1,
1996, by and between Grant Prideco, S.A. and Oil Country
Tubular Limited.
**21.1 - Subsidiaries of Energy Ventures, Inc.
**23.1 - Consent of Arthur Andersen LLP.
*Management Compensation or Incentive Plan
**Filed herewith
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the
Company has not filed with this Annual Report on Form 10-K
certain instruments defining the rights of holder of
long-term debt of the Company and its subsidiaries because
the total amount of securities authorized under any of such
instruments does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to
the Securities and Exchange Commission upon request.
54
<PAGE> 56
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ENERGY VENTURES, INC.
BY: /s/ BERNARD J. DUROC-DANNER
----------------------------------
BERNARD J. DUROC-DANNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
AND DIRECTOR
Date: March 19, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
BY: /s/ BERNARD J. DUROC-DANNER President and Chief Executive Officer March 19, 1996
- ---------------------------------- (Principal Executive Officer)
BERNARD J. DUROC-DANNER and Director
BY: /s/ JAMES G. KILEY Vice President, Finance and Treasurer March 19, 1996
----------------------------------- (Principal Financial Officer)
JAMES G. KILEY
BY: /s/ FRANCES R. POWELL Vice President, Accounting and Controller March 19, 1996
----------------------------------- (Principal Accounting Officer)
FRANCES R. POWELL
BY: /s/ DAVID J. BUTTERS Director March 19, 1996
----------------------------------- and Chairman of the Board
DAVID J. BUTTERS
BY: /s/ URIEL E. DUTTON Director March 19, 1996
-----------------------------------
URIEL E. DUTTON
BY: /s/ ELIOT M. FRIED Director March, 19, 1996
-----------------------------------
ELIOT M. FRIED
BY: /s/ SHELDON S. GORDON Director March 19, 1996
-----------------------------------
SHELDON S. GORDON
BY: /s/ SHELDON B. LUBAR Director March 19, 1996
-----------------------------------
SHELDON B. LUBAR
BY: /s/ ROBERT B. MILLARD Director March 19, 1996
-----------------------------------
ROBERT B. MILLARD
BY: /s/ ROBERT A. RAYNE Director March 19, 1996
-----------------------------------
ROBERT A. RAYNE
</TABLE>
55
<PAGE> 57
SCHEDULE II
ENERGY VENTURES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
===============================================================================================================
ADDITIONS
-----------------------
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for uncollectible accounts
receivable . . . . . . . . . . . . . . $ 564 $ 492 $ 92 $ (533) $ 615
YEAR ENDED DECEMBER 31, 1994:
Allowance for uncollectible accounts
receivable . . . . . . . . . . . . . . $ 669 $ 158 $ 31 $ (294) $ 564
YEAR ENDED DECEMBER 31, 1993:
Allowance for uncollectible accounts
receivable . . . . . . . . . . . . . . $ 559 $ 204 $ 37 $ (131) $ 669
</TABLE>
56
