3,600,000 SHARES
[LOGO] CAL DIVE INTERNATIONAL, INC.
COMMON STOCK
(WITHOUT PAR VALUE)
Of the 3,600,000 shares of Common Stock, no par value per share (the
"Common Stock"), of Cal Dive International, Inc. (the "Company" or "Cal
Dive"), offered hereby, 2,500,000 shares are being sold by the Company and
1,100,000 shares are being sold by the Selling Shareholders. See "Principal and
Selling Shareholders." Prior to this offering (this "Offering"), there has
been no public market for the Common Stock of the Company. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price.
The Company has been approved for quotation of its Common Stock on the
Nasdaq National Market under the symbol "CDIS."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $15.00 $1.05 $13.95 $13.95
- ------------------------------------------------------------------------------------------------------------------
Total(3).................. $54,000,000 $3,780,000 $34,875,000 $15,345,000
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting expenses payable by the Company estimated to be $560,000.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to an additional 375,000 and 165,000 shares of
Common Stock, respectively, solely to cover over-allotments, if any. If this
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholders will be $62,100,000, $4,347,000, $40,106,250 and $17,646,750,
respectively. The Company will not receive any proceeds from the shares of
Common Stock sold by the Selling Shareholders. See "Underwriting" and
"Principal and Selling Shareholders."
The shares of Common Stock offered hereby are offered by the several
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters, and subject to their right to reject any order in whole or in
part. It is expected that the Common Stock will be available for delivery on or
about July 7, 1997 at the offices of Schroder & Co. Inc., New York, New York.
SCHRODER & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
SIMMONS & COMPANY
INTERNATIONAL
July 1, 1997
<PAGE>
[GRAPHIC OMITTED]
The UNCLE JOHN is a twin hull DP 254-foot semi-submersible, multi-purpose
support vessel ("MSV") capable of providing well intervention services and
supporting full field development activities in the Deepwater Gulf of Mexico.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
-------------------------------------
[Schematic depicting the expanse of
services
provided by the Company at various
water depths]
-------------------------------------
FREQUENTLY USED TERMS:
DEEPWATER. Water depths of greater than 1,000 feet.
DIVING SUPPORT VESSELS ("DSVS"). Subsea services are typically performed
with the use of specially constructed DSVs, which provide an above water
platform that functions as an operational base for divers, ROVs and specialized
equipment.
DYNAMIC POSITIONING ("DP"). A DP system allows a vessel to stay in
position without the use of anchors. Satellite based differential global
positioning systems ensure the proper counteraction to wind, current and wave
forces to maintain position.
REMOTELY OPERATED VEHICLES ("ROVS"). ROVs are robotic vehicles used to
complement, support and increase the efficiency of diving and subsea operations
and for tasks at depths where the use of divers is impossible.
SATURATION DIVING ("SAT DIVING"). SAT diving, required at water depths
greater than 300 feet, involves divers working from special chambers for
extended periods at a pressure equivalent to the depth of the work site.
FOR FURTHER INFORMATION ON COMMONLY USED TERMINOLOGY IN THE COMPANY'S
INDUSTRY, SEE "BUSINESS -- THE INDUSTRY."
<PAGE>
-------------------------------------
[Schematic Continued]
-------------------------------------
- ------------------------------------- ----------------------------------------
The BALMORAL SEA is a 259-foot VERMILION BLOCKS 21/22 are two of 15
dynamically positioned DSV that has natural gas and oil leases acquired by
SAT diving and ROV capabilities for Energy Resource Technology, Inc.,
subsea construction projects at any providing a back- log of future
water depth. salvage projects for the Company.
- ------------------------------------- ----------------------------------------
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED AND HAS BEEN ADJUSTED TO GIVE EFFECT TO THE ISSUANCE OF 528,541 SHARES
TO COFLEXIP, A FRENCH CORPORATION ("COFLEXIP"). UNLESS THE CONTEXT INDICATES
OTHERWISE, ANY REFERENCE IN THIS PROSPECTUS TO "CAL DIVE" OR THE "COMPANY"
REFERS TO CAL DIVE INTERNATIONAL, INC. AND ITS PREDECESSORS, TOGETHER WITH ITS
WHOLLY OWNED SUBSIDIARY, ENERGY RESOURCE TECHNOLOGY, INC. ("ERT").
THE COMPANY
GENERAL
Cal Dive is a leading provider of subsea construction, maintenance and
salvage services to the offshore natural gas and oil industry in the U.S. Gulf
of Mexico (the "Gulf of Mexico" or the "Gulf"). Its services are primarily
performed in support of offshore infrastructure construction projects involving
pipelines, production platforms and risers and subsea production systems.
Through ERT, Cal Dive acquires and operates mature offshore properties producing
natural gas and oil, providing customers a cost effective alternative to the
decommissioning process. The Company's customers include major and independent
natural gas and oil producers, pipeline transmission companies and offshore
engineering and construction firms.
The Company owns a diversified fleet of nine vessels servicing the offshore
natural gas and oil industry, principally in the Gulf of Mexico. This market is
experiencing strong exploration and development activity levels, including rapid
growth for services in the Deepwater Gulf. Beginning in 1995, Cal Dive acted to
fill a market void by assembling a fleet of dynamically positioned vessels which
serve as work platforms for Deepwater projects. The vessels acquired include a
semi-submersible multi-service vessel (UNCLE JOHN) and two mono-hull DP vessels
(WITCH QUEEN and BALMORAL SEA). Management believes that the limited number of
competing DP vessels in the Gulf affords Cal Dive a key strategic advantage,
which has led to rising utilization for its vessels. In addition, interest in
the Cal Dive fleet has increased among potential customers and alliance partners
evaluating a "fast track" approach to field development.
In the last twelve months, the Company has positioned itself to work on
full field development projects by entering into a number of strategic
alliances. See "Business -- Strategic Alliances." As part of this strategy, in
April 1997, Cal Dive and certain shareholders sold 32% of its Common Stock to
Coflexip. The companies agreed to form a joint venture to pursue large Deepwater
construction projects in the Gulf (the "Business Cooperation Agreement"). Each
company expects to contribute its expertise to the alliance, with Coflexip
performing engineering, design, and manufacturing of flexible pipe and Cal Dive
providing subsea construction, installation, life of field well services,
abandonment and salvage services. See "-- Recent Developments."
The Company traces its origins to California Divers Inc., which pioneered
the use of mixed gas diving in the early 1960s when oilfield exploration off the
Santa Barbara coast moved to water depths beyond 250 feet. Cal Dive commenced
operations in the Gulf of Mexico in 1975. Since that time, the Company's growth
strategy has consisted of three basic elements: (i) identifying niche markets
that are underserviced or where no service exists, (ii) developing the technical
expertise to provide the service and (iii) acquiring assets or seeking business
alliances which fill the market gap.
1
<PAGE>
This growth strategy has frequently involved expanding beyond the Company's
main contracting base and developing innovative service capabilities to meet
customer needs, including the following significant milestones:
o 1984 -- SATURATION VESSELS: Custom designed the first DSVs with
moonpool deployed SAT diving systems dedicated for use in
the Gulf of Mexico.
o 1986 -- TURNKEY CONTRACTING: Began providing subsea construction
work on a fixed price basis enabling customers to better
control project costs.
o 1989 -- SALVAGE OPERATIONS: Chartered, and later acquired, the CAL
DIVE BARGE I ("BARGE I ") for shallow water salvage
operations, a business synergistic with the Company's
traditional diving services.
o 1992 -- NATURAL GAS PRODUCTION: Formed a natural gas production
company, ERT, to expand customer options for decommissioning
and remediation of mature offshore properties and to expand
off-season salvage activity.
o 1993 -- WELL SERVICING: Added a new upstream service, well servicing
and plugging and abandoning ("P&A"), as a complement to
the Company's salvage services and to exploit the value of
ERT properties through enhanced recovery techniques.
o 1994 -- DYNAMIC POSITIONING: Chartered a DP DSV for use in the Gulf
of Mexico, enabling the Company to work through the winter
months and in deeper water. This vessel, the BALMORAL SEA,
was subsequently acquired in August 1996.
o 1995 -- DP DSV: Acquired and enhanced a DP DSV, the WITCH QUEEN, to
expand the Company's marine construction and subsea services
to include flexible pipelay, umbilical lay, coiled line pipe
installation, subsea P&A and ROV support.
o 1996 -- MULTI-SERVICE VESSEL: Acquired and enhanced a
semi-submersible MSV, the UNCLE JOHN, as the cornerstone of
the Company's Deepwater strategy, thereby expanding its
product line to include geotechnical investigation, laying
of infield flowlines, installation of flexible and hard
jumpers, platform risers and turnkey field development.
o 1997 -- STRATEGIC ALLIANCES: Formed an alliance with Coflexip which
complements other formal alliance agreements with a team of
specialty contractors to provide the Company with access to
advanced resources and a full range of services for
Deepwater construction projects.
COMPANY STRENGTHS
DIVERSIFIED FLEET OF VESSELS
Cal Dive has focused on owning and operating a diversified fleet which
provides a full complement of subsea construction, maintenance, and salvage
project capabilities. This fleet enables the Company to operate in all Gulf of
Mexico water depths where development is currently contemplated. The services
provided by these vessels both overlap and are complementary in a number of
market segments, enabling the Company to deploy its DSVs to areas of highest
utility and margin potential.
2
<PAGE>
EXPERIENCED PERSONNEL AND TURNKEY CONTRACTING
The Company believes its highly qualified personnel enable it to compete
effectively in the Gulf's unique "spot market" for offshore construction in
which projects are generally of a short duration and of a turnkey nature. The
Company's personnel have the technical and operational experience to manage
turnkey projects and deliver bids which are priced to achieve targeted
profitability. The Company believes these factors position it well to capitalize
on the trend in the oil and gas industry towards outsourcing additional
responsibility to contractors.
DEEPWATER TECHNICAL SERVICES
The Company believes that it has established a unique niche by assembling
the specialized assets, technical personnel and exclusive alliance agreements
that provide a cost effective solution to the rising demand for Deepwater
services. As a result, the Company is able to meet the fast track requirements
of Deepwater development projects.
MAJOR PROVIDER OF SATURATION DIVING SERVICES
Cal Dive owns and operates over 50% of the U.S. based SAT DSVs currently
operating in the Gulf of Mexico. In recent years there has been an increasing
level of activity as development of recently discovered Deepwater fields
commences and new Deepwater production is tied into the existing Gulf
infrastructure. Management believes that this trend will result in increasing
demand for SAT diving services.
LEADER IN SHALLOW WATER SALVAGE OPERATIONS
Since 1989, the Company has established a leading position in the
decommissioning and remediation of facilities in the shallow water Gulf of
Mexico. The Company expects the demand for this service to increase due to the
significant number of platforms which must be removed in accordance with
government regulations.
MANAGEMENT OF MATURE NATURAL GAS AND OIL PROPERTIES
Management believes that Cal Dive is the only company acquiring mature
properties in the Gulf of Mexico with the combined attributes of financial
strength, reservoir engineering and operations expertise and the availability of
company-owned salvage assets, resulting in significant strategic and cost
advantages. The Company has personnel experienced in geology, reservoir and
production engineering and facilities management to support ERT operations,
exploit the value of acquired properties and oversee full field development
projects.
GROWTH STRATEGY
FOCUS ON THE GULF OF MEXICO
Cal Dive intends to maintain its current focus on the Gulf of Mexico where
the Company is well positioned to respond to rising market demand for services
in all water depths, including Deepwater. Recent Gulf of Mexico lease sales by
the Minerals Management Service of the Department of the Interior ("MMS")
attracted record bidding levels both in terms of the number of leases bid and
the amount of capital exposed, including a record level of interest in Deepwater
blocks. This has led to new market opportunities as well as increased demand for
the Company's traditional services, as reflected in both higher vessel
utilization rates and operating margins.
CAPTURE A SIGNIFICANT SHARE OF THE DEEPWATER MARKET
As Gulf of Mexico Deepwater developments have created a need for new
applications of subsea technology, there is a corresponding need for a new
generation of subsea contractor to develop and deploy that technology.
Management, through its Deepwater Technical Services Group, has targeted a
market niche in which the Company functions as a focal point in the
3
<PAGE>
assembly and delivery of the technology required for Deepwater projects. In
particular, the Company believes that well completion, subsea installation and
infield connection services have become more critical in an era of limited
availability of Deepwater drilling equipment and hardware. The Company's MSV has
the capacity to undertake certain well completion activities, thereby reducing
cost to the operator and freeing-up more expensive drilling rig time. Cal Dive
has also negotiated alliance agreements with a number of specialized contractors
to provide a full range of services necessary to Deepwater subsea construction
projects. The objective of this strategy is to increase the proportion of the
Deepwater field development expenditures captured by Cal Dive while reducing the
project duration and overall cost to the operator.
CAPITALIZE ON SYNERGIES WITH COFLEXIP
Cal Dive entered into a strategic alliance with Coflexip to strengthen its
position in the Deepwater Gulf and to respond to the trend toward full field
development services. Management believes that Coflexip and Cal Dive together
offer complementary products and services which significantly expand Cal Dive's
ability to provide full field development and life of field services. Coflexip
is a world leader in the design and manufacture of flexible pipe and umbilicals
and is one of the leading subsea construction contractors. Headquartered in
Paris, France, Coflexip employs approximately 3,500 employees spread over five
continents. In 1996, Coflexip had sales of $945 million and total assets of $1.1
billion at year-end.
OFFER FULL FIELD DEVELOPMENT SERVICES
Management believes that the significant number of new leases, the number
of Deepwater leases due to expire by 2000 and shortages of well completion
equipment, drilling rigs and production infrastructure will create demand for
fast track, full field development solutions. Cal Dive's recent asset
acquisitions and its personnel and technical expertise, combined with strategic
alliances, put the Company in a strong competitive position to respond to this
market need. In addition, the Company intends to apply the technologies and
capabilities developed for the Deepwater to the "midwater" Gulf (500 to 1,000
feet) as a cost effective alternative to fixed platforms.
EXPAND THE COMPANY'S NATURAL GAS AND OIL PRODUCTION
Management believes Cal Dive's reputation in the industry and its
experience in decommissioning and remediation work make the Company a preferred
buyer of mature natural gas and oil properties. The Company intends to exploit
its recent experience managing heavy lift salvage to expand the number of mature
offshore properties for which the Company will bid. In addition, the Company
will continue, on a selective basis, to acquire non-operated working interests
in fields where there is the potential of Cal Dive being awarded the salvage
work.
RECENT DEVELOPMENTS
PURCHASE OF STOCK BY COFLEXIP AND BUSINESS COOPERATION AGREEMENT
In April 1997, certain members of management, other shareholders and the
Company sold an equity interest of approximately 32% of Company Common Stock to
Coflexip for $35 million. As part of this transaction, the Company also acquired
two heavy work class construction ROVs manufactured by Coflexip's Perry Tritech
subsidiary, thereby re-establishing ROVs in Cal Dive's product line. Coflexip
and Cal Dive also entered into the Business Cooperation Agreement for combined
services to be offered on Gulf projects involving engineering, procurement,
installation and commissioning services ("EPIC") exceeding $25 million in
value and meeting certain other criteria. The entity contemplated by the
Business Cooperation Agreement is expected to be formed in the third quarter of
1997. See "Business -- Coflexip Strategic Alliance."
4
<PAGE>
THE OFFERING
Common Stock offered:
By the Company.................. 2,500,000 shares(1)
By the Selling Shareholders..... 1,100,000 shares(1)
Total...................... 3,600,000 shares(1)
Common Stock outstanding after the
Offering........................... 14,127,801 shares(1)(2)
Use of proceeds...................... To repay indebtedness incurred in
connection with the purchases of the UNCLE
JOHN and the BALMORAL SEA, to fund capital
improvements to the UNCLE JOHN and other
vessels and for the purchase of natural
gas and oil properties. Any remaining
proceeds will be used for general
corporate purposes, including the possible
pur- chase of additional vessels. The
Company will not receive any proceeds from
the sale of Common Stock by the Selling
Shareholders. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. CDIS
- ------------
(1) Does not include 540,000 shares which may be sold by the Company and Selling
Shareholders pursuant to the Underwriters' over-allotment option. See
"Principal and Selling Shareholders" and "Underwriting."
(2) Does not include 911,500 shares issuable upon exercise of outstanding
options. See "Management -- Compensation Pursuant to Plans."
5
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following summary financial and operating data is qualified in its
entirety by the more detailed information appearing in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Financial Statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Subsea and salvage............ $ 35,718 $ 32,748 $ 63,870 $ 8,715 $ 13,588
Natural gas and oil
production................. 2,314 4,777 12,252 2,470 4,856
Total revenue................. 38,032 37,525 76,122 11,185 18,444
Gross profit....................... 10,961 8,849 22,086 3,148 5,423
Operating income................... 6,304 3,917 13,795 1,701 3,207
Income before taxes................ 5,807 3,721 13,014 1,626 2,876
Net income......................... 4,034 2,674 8,435 1,157 1,885
========== ========== ========== ========== ==========
Net income per share............... $ 0.46 $ 0.24 $ 0.75 $ 0.10 $ 0.17
========== ========== ========== ========== ==========
OTHER DATA:
Net cash provided by (used in):
Operating activities.......... $ 857 $ 11,995 $ 7,645 $ (677) $ 10,054
Investing activities.......... (3,049) (19,584) (27,300) (674) (3,148)
Financing activities.......... 291 7,475 19,700 1,300 (6,000)
EBITDA(1).......................... 8,252 6,650 19,017 2,635 5,039
Depreciation and amortization...... 2,017 2,795 5,257 944 1,845
Capital expenditures............... 1,397 16,857 27,290 592 3,017
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of Vessels (at end of
period):
DP MSV........................ 0 0 1 0 1
DP DSVs....................... 1 2 2 2 2
DSVs.......................... 5 5 5 5 5
Derrick barge................. 1 1 1 1 1
---------- ---------- ---------- ---------- ----------
Total Vessels............ 7 8 9 8 9
Natural Gas and Oil Properties:
Producing properties
acquired................... 2 7 5 0 0
Total properties.............. 2 9 14 9 14
Natural Gas and Oil Production:
Gas (MMcf).................... 1,250 2,382 4,310 970 1,519
Oil (MBbls)................... 29 33 38 16 10
</TABLE>
- ------------
(1) As used herein, EBITDA represents earnings before net interest expense,
taxes, depreciation and amortization. EBITDA is frequently used by security
analysts and is presented here to provide additional information about the
Company's operations. EBITDA should not be considered as an alternative to
net income as an indicator of the Company's operating performance or as an
alternative to cash flow as a better measure of liquidity.
6
<PAGE>
AS OF
MARCH 31, 1997
-------------------------
AS
ACTUAL ADJUSTED(1)
-------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 1,109 $ 16,424
Working capital.................... 8,575 23,890
Total assets....................... 76,735 97,050
Long-term debt..................... 19,000 --
Shareholders' equity............... 32,728 72,043
- ------------
(1) Adjusted to give effect to (i) the Coflexip transaction and (ii) the
issuance of the Common Stock offered hereby and the application of the net
proceeds to the Company therefrom. See "Use of Proceeds."
SUMMARY NATURAL GAS AND OIL RESERVE DATA
The following table sets forth summary data with respect to the Company's
estimated proved natural gas and oil reserves and related estimated future net
revenue at December 31, 1996, and is based upon the report of Miller & Lents,
Ltd. ("Miller & Lents"), independent petroleum engineers. For additional
information relating to the Company's natural gas and oil reserves, see "Risk
Factors -- Uncertainty of Estimates of Oil and Gas Reserves" and
"Business -- Natural Gas and Oil Operations" and the Supplemental Information
on Oil and Gas Exploration and Producing Activities included in Note 11 of the
notes to Financial Statements included elsewhere in this Prospectus.
TOTAL PROVED(1)
----------------------
(DOLLARS IN THOUSANDS)
Estimated Proved Reserves:
Natural Gas (MMcf) .................................... 24,596
Oil and Condensate (MBbls) ............................ 124
Future net cash flows before income taxes ............... $ 58,781
Present value of estimated future net cash flows
before income taxes ................................... $ 48,703
Standardized measure of discounted future net cash
flows (2) ............................................. $ 33,805
- ------------
(1) In May 1997, ERT sold two properties which represented approximately 5% of
the Estimated Proved Reserves at December 31, 1996.
(2) The standardized measure of discounted future net cash flows attributable to
the Company's reserves was prepared using constant prices as of the
calculation date, discounted at 10% per annum.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.
INDUSTRY VOLATILITY
The Company's subsea and abandonment activities depend on offshore natural
gas and oil exploration, development and production expenditures, which are
dependent on natural gas and oil prices. The level of exploration and
development activity has traditionally been volatile as a result of fluctuations
in natural gas and oil prices and their uncertainty in the future. A significant
or prolonged reduction in natural gas or oil prices in the future would likely
depress offshore drilling and development activity, reduce the demand for the
Company's services and could have a material adverse effect on the Company's
financial condition and results of operations. See "Business -- The Industry"
and "Business -- Natural Gas and Oil Operations."
VESSEL OPERATING RISKS AND LIMITATION OF INSURANCE COVERAGE
Marine construction involves a high degree of operational risk. Hazards,
such as vessels sinking, grounding, colliding and sustaining damage from severe
weather conditions are inherent in marine operations. These hazards can cause
personal injury or loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension of operations.
Litigation arising from such an occurrence may result in lawsuits asserting
large claims. The Company maintains such insurance protection as it deems
prudent, including hull insurance on its vessels. There can be no assurance that
any such insurance will be sufficient or effective under all circumstances or
against all hazards to which the Company may be subject. A successful claim for
which the Company is not fully insured could have a material adverse effect on
the Company. Moreover, no assurance can be given that the Company will be able
to maintain adequate insurance in the future at rates that it considers
reasonable. See "Business -- Insurance and Litigation."
SEASONALITY AND ADVERSE WEATHER RISKS
Marine operations conducted in the Gulf of Mexico are seasonal and depend,
in part, on weather conditions. Historically, Cal Dive has enjoyed its highest
vessel utilization rates during the third and fourth quarters of the year when
weather conditions are favorable for offshore exploration, development and
construction activities and has experienced its lowest utilization rates in the
first quarter. Between April 15 and October 15, the Company typically bears the
risk of delays caused by adverse weather conditions other than those resulting
from named tropical storms. Accordingly, the results of any one quarter are not
necessarily indicative of annual results or continuing trends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTRACT BIDDING AND ALLIANCE RISKS
A majority of the Company's projects are currently performed on a qualified
turnkey basis. The revenue, costs and gross profit realized on a contract can
vary from the estimated amount because of changes in offshore job conditions,
variations in labor and equipment productivity from the original estimates and
performance of others such as alliance partners. These variations and risks
inherent in the marine construction industry may result in the Company
experiencing reduced profitability or losses on projects. Although the Company
has entered into a number of strategic alliances, there can be no assurance that
these alliances will be successful or that contracts resulting from these
alliances will not result in unforeseen operational difficulties. In addition,
the Company intends to enter into a joint venture with Coflexip. Since the
proposed joint venture is in
8
<PAGE>
its early stages, the number of projects, if any, and the benefits to the
Company's business prospects and financial condition from the joint venture are
uncertain.
UNCERTAINTY OF ESTIMATES OF NATURAL GAS AND OIL RESERVES
This Prospectus contains an estimate of the Company's proved natural gas
and oil reserves and the estimated future net cash flows therefrom based upon a
report prepared as of December 31, 1996 by Miller & Lents that relies upon
various assumptions, including assumptions required by the Securities and
Exchange Commission (the "Commission") as to natural gas and oil prices,
drilling and operating expenses, capital expenditures, taxes and availability of
funds. The process of estimating natural gas and oil reserves is complex,
requiring significant decisions and assumptions in the evaluation of available
geological, geophysical, engineering and economic data for each reservoir. As a
result, such estimates are inherently imprecise. Actual future production, cash
flows, development expenditures, operating expenses and quantities of
recoverable natural gas and oil reserves may vary substantially from those
estimated in the report. Any significant variance in these assumptions could
materially affect the estimated quantity and value of reserves set forth in this
Prospectus. See "Business -- Natural Gas and Oil Operations."
NATURAL GAS AND OIL OPERATING RISKS
The Company's natural gas and oil operations are subject to the usual risks
incident to the operation of natural gas and oil wells, including with respect
to offshore properties, the additional hazards relating to, or loss from, severe
weather. In accordance with industry practice, the Company maintains insurance
against some, but not all, of the risks described above. See
"Business -- Insurance and Litigation."
COMPETITION
The business in which the Company operates is highly competitive. Several
of the Company's competitors are companies that are substantially larger and
have greater financial and other resources than the Company. If other
international companies relocate vessels to the Gulf of Mexico, levels of
competition may increase and the Company's business could be adversely affected.
See "Business -- Competition."
CUSTOMER CONCENTRATION
The Company's customers consist primarily of major, well-established oil
and pipeline companies and independent oil and gas producers. During 1996, the
Company derived approximately 24% of its contract revenue from one customer.
During the three months ended March 31, 1997, that same customer accounted for
7% of the Company's consolidated revenue. While the Company currently has a good
relationship with its customers, the loss of any one of its largest customers,
or a sustained decrease in demand, could result in a substantial loss of
revenues and could have a material adverse effect on the Company's operating
performance. See "Business -- Customers."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on the continued active participation of key
management personnel. The loss of key people could adversely affect the
Company's operations. The Company has two-year employment and non-compete
agreements with each of Messrs. Owen Kratz, Gerald G. Reuhl and S. James Nelson
and six of its senior officers. The Company has also obtained and is the sole
beneficiary under key person life insurance policies with Messrs. Kratz and
Reuhl, each in the amount of $6 million. The Company believes that its success
is also dependent upon its ability to employ and retain skilled personnel. See
"Management."
9
<PAGE>
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's subsea construction, inspection, maintenance, salvage, and
abandonment operations and its natural gas and oil production from offshore
properties are subject to and affected by various types of government
regulation, including numerous federal, state and local environmental protection
laws and regulations. These laws and regulations are becoming increasingly
complex, stringent and expensive and there can be no assurance that continued
compliance with existing or future laws or regulations will not adversely affect
the operations of the Company. Significant fines and penalties may be imposed
for non-compliance. See "Business -- Government Regulation" and
"Business -- Environmental Regulations."
ABSENCE OF A PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF MARKET PRICE;
DILUTION
Prior to this Offering, there has been no public market for the Common
Stock. Although the Company has applied for quotation of the shares of Common
Stock offered hereby on the Nasdaq National Market, there can be no assurance
that an active public market will develop or be maintained for the Common Stock.
The initial public offering price will be determined by negotiations among the
Company, the Selling Shareholders and the Underwriters. For the factors
considered in such negotiations, see "Underwriting." There can be no assurance
that future market prices will equal or exceed the initial public offering price
set forth on the cover page of this Prospectus. Following this Offering, the
market price of the Common Stock may fluctuate depending on various factors,
including the general economy, stock market conditions, general trends in the
oilfield services industry, announcements by the Company or its competitors and
variations in the Company's quarterly and annual operating results. Purchasers
of the Common Stock offered hereby will experience an immediate and substantial
dilution in the net tangible book value of their shares of $9.93 per share. In
addition, to the extent equity financing is pursued by the Company in connection
with the acquisition or building of additional vessels, dilution may occur to
investors. See "Dilution."
VOTING CONTROL BY PRINCIPAL SHAREHOLDERS
After giving effect to this Offering, the current shareholders of the
Company will own approximately 74.5% of the outstanding Common Stock (71.5% if
the Underwriters' over-allotment option is exercised in full). The current
shareholders are parties to a shareholders agreement which, among other things,
provides for the election of directors. As a result, the current shareholders
may be able to control the outcome of certain matters requiring a shareholder
vote, including the election of directors. See "Business -- Coflexip Strategic
Alliance," "Certain Relationships and Related Transactions" and "Principal
and Selling Shareholders."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and intends
for the foreseeable future to retain any earnings otherwise available for
dividends for the future operation and growth of the Company's business. In
addition, the Company's financing arrangements prohibit the payment of cash
dividends on its capital stock. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the current shareholders, directors and
officers of the Company will beneficially own 10,527,801 shares of the Common
Stock, which will represent approximately 74.5% of the then issued and
outstanding shares (71.5% if the Underwriters' over-allotment option is
exercised in full). The Company, Gerald G. Reuhl, Owen Kratz and S. James
Nelson, the directors, the Selling Shareholders, and Coflexip have agreed with
the Underwriters not to offer, sell or otherwise dispose of any shares of Common
Stock for 180 days from the date of this Prospectus without the prior consent of
the Representatives of the Underwriters. After the expiration of such agreement,
however, such shareholders may sell shares pursuant to Rule 144
10
<PAGE>
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise. In addition, the current shareholders, including Coflexip, have been
granted demand and "piggyback" registration rights by the Company with respect
to all of the shares of Common Stock owned by them. Although the Company cannot
predict the timing or amount of future sales of Common Stock or the effect that
the availability of such shares for sale will have on the market price
prevailing from time to time, sales of substantial amounts of Common Stock in
the public market following this Offering could adversely affect the market
price of the Common Stock. See "Principal and Selling Shareholders,"
"Description of Capital Stock -- Registration Rights" and "Shares Eligible
for Future Sale."
ANTI-TAKEOVER CONSIDERATIONS
The Board of Directors of the Company has the authority, without any action
by the shareholders, to fix the rights and preferences on up to 5,000,000 shares
of undesignated preferred stock, including dividend, liquidation and voting
rights. In addition, the Company's Articles of Incorporation divide the
Company's Board of Directors into three classes. Except for a transaction
involving Coflexip (which is specifically excluded), the Company also is subject
to certain anti-takeover provisions of the Minnesota Business Corporations Act
("MBCA"). In addition, the Company is a party to a Shareholders Agreement that
provides Coflexip with a right of first refusal in connection with certain
acquisition proposals for the Company. Any or all of the provisions or factors
described above may have the effect of discouraging a takeover proposal or
tender offer not approved by management and the Board of Directors of the
Company, and could result in shareholders who may wish to participate in such a
proposal or tender offer receiving less for their shares than otherwise might be
available in the event of a takeover attempt. See "Description of Capital
Stock -- Certain Anti-Takeover Provisions" and "Certain Relationships and
Related Transactions."
11
<PAGE>
THE COMPANY
Cal Dive is a leading provider of subsea construction, maintenance and
salvage services to the offshore natural gas and oil industry in the Gulf of
Mexico. In July 1990, the Company was purchased by a group of investors
including current management and key employees. In September 1992, Cal Dive
formed ERT as a wholly owned subsidiary, to purchase producing offshore natural
gas and oil properties which are in the later stages of their economic lives. In
January 1995, First Reserve Corporation ("First Reserve"), and certain of the
investment funds it manages, together acquired 50% of the Company's Common
Stock. In April 1997, Coflexip purchased approximately 32% of the Company's
Common Stock. Most of the Company's senior and middle operations management have
been actively involved with Cal Dive since the mid-1980s.
The Company was organized under the laws of Minnesota in June 1990. The
principal executive offices of the Company are located at 13430 Northwest
Freeway, Suite 350, Houston, Texas 77040, and its telephone number is (713)
690-1818.
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered by the
Company will be approximately $34.3 million ($39.5 million if the Underwriters'
over-allotment option is exercised in full). Of such net proceeds, the Company
intends to repay indebtedness incurred in connection with the purchase of the
UNCLE JOHN and the BALMORAL SEA ($19,000,000), to fund capital improvements to
the UNCLE JOHN and other vessels ($3,500,000) and for the purchase of natural
gas and oil properties ($4,300,000). Any remaining net proceeds will be used for
other general corporate purposes and the possible purchase of additional
vessels. Pending such uses, the Company intends to invest the net proceeds of
this Offering in short-term investment grade, interest bearing securities. As of
March 31, 1997, borrowings under the Company's Amended Loan and Security
Agreement with Fleet Capital Corporation (the "Revolving Credit Agreement")
which matures in December 2000, had an aggregate outstanding principal balance
of $19 million, bearing interest at the rate of 7.44% (Eurodollar option). In
April 1997, the Company and Fleet Capital Corporation amended the Revolving
Credit Agreement to, among other things, (i) increase the credit line to $40
million, (ii) reduce the interest rate, (iii) release liens on ERT properties,
(iv) reduce the financial covenants from four to one (a fixed charge coverage
ratio) and (v) limit total debt to $60 million. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Shareholders. See "Principal and Selling Shareholders" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
intend to pay cash dividends in the foreseeable future. The Company currently
intends to retain earnings, if any, for the future operation and growth of its
business. In addition, the Company's financing arrangements prohibit the payment
of cash dividends on its capital stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
12
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1997, was
$32,298,000 or $2.91 per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing the tangible net worth (total
tangible assets less total liabilities) of the Company by the 11,099,260 shares
of Common Stock outstanding prior to the consummation of this Offering and the
Coflexip transaction. After giving effect to the sale of Common Stock by the
Company in the Coflexip transaction and in this Offering (assuming no exercise
of the Underwriters' over-allotment option and net proceeds to the Company of
$34,315,000), the pro forma net tangible book value of the Company at March 31,
1997, would have been approximately $71,613,000 or $5.07 per share of Common
Stock. This represents an immediate increase in net tangible book value of $2.16
per share of Common Stock to present holders of Common Stock and an immediate
dilution of approximately $9.93 per share to new investors purchasing shares in
this Offering. The following table illustrates this per share dilution to new
investors:
Assumed initial public offering price
per share............................. $ 15.00
Net tangible book value per share
before the Offering.............. $ 2.91
Increase per share attributable to
new investors.................... 2.16
Pro forma net tangible book value per
share after the Offering.............. 5.07
---------
Dilution per share to new investors..... $ 9.93
=========
The following table sets forth, as of March 31, 1997, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing shareholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONTRIBUTION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)...... 11,627,801 82.3 $ 10,037,509 21.1 $ .86
New investors................. 2,500,000 17.7 37,500,000 78.9 $ 15.00
----------- ------- ------------ -------
Total.................... 14,127,801 100.0 $ 47,537,509 100.0
=========== ======= ============ =======
</TABLE>
- ------------
(1) Includes the issuance of 528,541 shares of Common Stock to Coflexip at a
value of $9.46 per share on April 11, 1997.
The above computations do not give effect to the 911,500 shares issuable
pursuant to outstanding stock options, all of which are exercisable at exercise
prices ranging from $4.50 to $9.50 per share. To the extent any options are
exercised in the future at an exercise price less than the initial public
offering price, there will be further dilution to new investors. See
"Management -- Compensation Pursuant to Plans."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1997, and (ii) as adjusted to give effect to the sale by the Company
of the 2,500,000 shares of Common Stock offered hereby at an offering price of
$15.00 per share and the application of the net proceeds to the Company
therefrom as described in "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Financial Statements and notes
thereto included elsewhere in this Prospectus.
MARCH 31, 1997
-----------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(DOLLARS IN THOUSANDS)
Short-term debt:
Current maturities of long-term
debt.............................. $ -- $ --
======== ===========
Long-term debt.......................... 19,000 --
Shareholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized; none
issued and outstanding............ -- --
Common Stock, no par value,
20,000,000 shares authorized(1);
18,448,010 shares issued and
outstanding; 20,948,010 shares
issued and outstanding, as
adjusted(2)....................... 9,093 48,104
Additional paid-in capital......... -- --
Retained earnings.................. 27,691 27,691
Treasury Stock, 7,348,750 shares
and 6,820,209 shares.............. (4,056) (3,752)
-------- -----------
Total shareholders' equity.... 32,728 72,043
-------- -----------
Total capitalization.................... $ 51,728 $ 72,043
======== ===========
Total debt to total capitalization
(%)................................... 37% 0%
- ------------
(1) In April 1997, the Company amended its Articles of Incorporation to, among
other things, increase the number of authorized shares of Common Stock to
60,000,000 shares.
(2) Gives effect to the application of the (i) issuance of 528,541 shares of
Common Stock to Coflexip at a value of $9.46 per share on April 11, 1997 and
(ii) net proceeds of this Offering, but does not include an aggregate of
911,500 shares of Common Stock issuable upon exercise of outstanding stock
options. See "Management -- Compensation Pursuant to Plans."
14
<PAGE>
SELECTED FINANCIAL DATA
The historical financial data presented in the table below for and at the
end of each of the years in the five-year period ended December 31, 1996 are
derived from the consolidated financial statements of the Company audited by
Arthur Andersen LLP, independent public accountants. The historical financial
data presented in the table below for and at the end of each of the three-month
periods ended March 31, 1997 and March 31, 1996 are derived from the unaudited
consolidated condensed financial statements of the Company. In the opinion of
management of the Company, such unaudited consolidated condensed financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the fiancial data for such periods. The
results for the three months ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be achieved for the full year. The data should be
read in conjunction with the Company's Financial Statements and the notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Subsea and salvage.................. $ 21,309 $ 35,365 $ 35,718 $ 32,748 $ 63,870 $ 8,715 $ 13,588
Natural gas and oil production...... -- 1,807 2,314 4,777 12,252 2,470 4,856
--------- --------- --------- --------- --------- --------- -----------
Total revenue....................... 21,309 37,172 38,032 37,525 76,122 11,185 18,444
--------- --------- --------- --------- --------- --------- -----------
Cost of sales:
Subsea and salvage.................. 16,973 26,208 25,477 25,568 46,766 6,636 10,780
Natural gas and oil................. -- 587 1,594 3,108 7,270 1,401 2,241
--------- --------- --------- --------- --------- --------- -----------
Gross profit............................ 4,336 10,377 10,961 8,849 22,086 3,148 5,423
Selling and administrative expenses.. 3,136 4,075 4,657 4,932 8,291 1,447 2,216
--------- --------- --------- --------- --------- --------- -----------
Operating income........................ 1,200 6,302 6,304 3,917 13,795 1,701 3,207
Other income and expenses:
Interest expense, net............... 344 395 428 135 745 65 318
Other (income) expense, net......... (159) 148 69 61 36 10 13
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes.............. 1,015 5,759 5,807 3,721 13,014 1,626 2,876
Provision for income taxes.......... 324 1,811 1,773 1,047 4,579 469 991
--------- --------- --------- --------- --------- --------- -----------
Net income.............................. $ 691 $ 3,948 $ 4,034 $ 2,674 $ 8,435 $ 1,157 $ 1,885
========= ========= ========= ========= ========= ========= ===========
Net income per share.................... $ 0.04 $ 0.30 $ 0.46 $ 0.24 $ 0.75 $ 0.10 $ 0.17
========= ========= ========= ========= ========= ========= ===========
Weighted average number of shares
outstanding........................... 16,603 13,014 8,836 11,016 11,286 11,279 11,272
OTHER FINANCIAL DATA:
Net cash provided by (used in):
Operating activities................ $ 2,073 $ 4,944 $ 857 $ 11,995 $ 7,645 $ (677) $ 10,054
Investing activities................ (75) (1,803) (3,049) (19,584) (27,300) (674) (3,148)
Financing activities................ (1,516) (2,283) 291 7,475 19,700 1,300 (6,000)
EBITDA(1)............................... 2,597 7,637 8,252 6,650 19,017 2,635 5,039
Depreciation and amortization........... 1,238 1,483 2,017 2,795 5,257 944 1,845
Capital expenditures.................... 460 1,203 1,397 16,857 27,290 592 3,017
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ 4,178 $ 5,309 $ 6,052 $ 4,033 $ 13,409 $ 8,575
Total assets........................ 20,251 22,798 28,633 44,859 83,056 76,735
Long-term debt...................... 2,922 5,141 3,766 5,300 25,000 19,000
Shareholders' equity................ 7,436 6,360 10,394 22,408 30,844 32,728
</TABLE>
- ------------
(1) As used herein, EBITDA represents earnings before net interest expense,
taxes, depreciation and amortization. EBITDA is frequently used by security
analysts and is presented here to provide additional information about the
Company's operations. EBITDA should not be considered as an alternative to
net income as an indicator of the Company's operating performance or as an
alternative to cash flow as a better measure of liquidity.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Natural gas and oil prices, the offshore mobile rig count and Gulf of
Mexico lease activity are three of the primary indicators management uses to
predict the level of the Company's business. Cal Dive's construction services
generally follow successful drilling activities by six to eighteen months. The
level of drilling activity is related to both short and long-term trends in
natural gas and oil prices. A decline in natural gas and oil prices generally
leads to a reduction in offshore drilling activity which can lower demand for
construction services. Recently, this relationship has been less pronounced due
to a number of industry trends, including advances in technology that have
increased drilling success rates and efficiency, and a worldwide growth in the
demand for both natural gas and oil. The number of offshore rigs working in the
Gulf of Mexico has averaged close to practical full utilization since mid-1995
which management expects will lead to increased construction activity over the
next several years. Given worldwide shortages of drilling rigs, subsea hardware
and experienced personnel, efforts to drill Gulf of Mexico leases on a timely
basis have accelerated demand for the Company's subsea services resulting in
improved pricing.
Product prices impact the Company's natural gas and oil operations in
several respects. The Company seeks to acquire producing natural gas and oil
properties that are generally in the later stages of their economic life. These
properties typically have few, if any, unexplored drilling locations, so the
potential abandonment liability is a significant consideration with respect to
the offshore properties which the Company has purchased to date. Although higher
natural gas prices tended to reduce the number of mature properties available
for sale, these higher prices contributed to improved operating results for the
Company in 1996 and in the first quarter of 1997.
Salvage operations consist of platform decommissioning, removal and
abandonment, P&A services performed by the Company's stiff-leg derrick barge and
well servicing equipment. In addition, salvage related support, such as debris
removal and preparation of platform legs for removal, is often provided by the
Company's surface diving vessels. In 1989, management targeted platform removal
and salvage operations as a regulatory driven activity which offers a partial
hedge against fluctuations in the commodity price of natural gas. In particular,
MMS regulations require removal of platforms within one year from the date
production ceases and also require remediation of the seabed at the well site to
its original state. In 1996, the Company contracted and managed, on a turnkey
basis, all aspects of the decommissioning and abandonment of certain fields for
two major oil companies using third party heavy lift derrick barges, a service
the Company intends to expand in the future.
16
<PAGE>
The following table sets forth for the periods presented (i) average U.S.
natural gas prices, (ii) the Company's natural gas production, (iii) the average
number of offshore rigs under contract in the Gulf of Mexico, (iv) the number of
platforms installed and removed in the Gulf of Mexico and (v) the vessel
utilization rates for each of the major categories of the Company's fleet.
<TABLE>
<CAPTION>
1994 1995
------------------------------------------ ------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Natural Gas Prices(1)........... $ 2.27 $ 1.89 $ 1.67 $ 1.54 $ 1.46 $ 1.57 $ 1.47 $ 1.98
ERT Gas Production (MMcf)............ 138 352 409 351 241 481 865 795
Rigs Under Contract in the Gulf of
Mexico(2).......................... 125 131 134 141 119 131 143 148
Platform Installations(3)............ 12 23 39 50 12 17 26 22
Platform Removals(3)................. 18 28 43 32 14 36 23 10
Average Company Vessel Utilization
Rate(4)............................
Dynamic Positioned............... -- -- 80% 99% 77% -- -- 90%
Saturation DSV................... 37% 57% 82% 89% 38% 53% 88% 88%
Surface Diving................... 57% 68% 78% 66% 45% 63% 77% 74%
Derrick Barge.................... 14% 70% 60% 55% 21% 46% 63% 32%
</TABLE>
<TABLE>
<CAPTION>
1996 1997
------------------------------------------ ---------
Q1 Q2 Q3 Q4 Q1
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
U.S. Natural Gas Prices(1)........... $ 3.16 $ 2.37 $ 2.15 $ 2.81 $ 2.67
ERT Gas Production (MMcf)............ 970 918 1,169 1,253 1,519
Rigs Under Contract in the Gulf of
Mexico(2).......................... 149 156 161 164 165
Platform Installations(3)............ 12 35 31 30 16
Platform Removals(3)................. 11 11 25 30 3
Average Company Vessel Utilization
Rate(4)............................
Dynamic Positioned............... 81% 71% 82% 92% 60%
Saturation DSV................... 55% 73% 82% 88% 58%
Surface Diving................... 62% 77% 85% 74% 53%
Derrick Barge.................... 16% 57% 91% 65% 22%
</TABLE>
- ------------
(1) Average of the monthly Henry Hub cash prices in $ per MMBtu, as reported in
Natural Gas Week.
(2) Average weekly number of rigs contracted, as reported by Offshore Data
Services.
(3) Source: Offshore Data Services; installation and removal of platforms with
two or more piles in the Gulf of Mexico.
(4) Average vessel utilization rate is calculated by dividing the total number
of days the vessels in this category generated revenues by the total number
of days in each quarter.
Vessel utilization is historically lower during the first quarter due to
winter weather conditions in the Gulf of Mexico. Accordingly, the Company plans
its drydock inspections and other routine and preventive maintenance programs
during this period. During the first quarter, a substantial number of the
Company's customers finalize capital budgets and solicit bids for construction
projects. The bid and award process during the first two quarters leads to the
commencement of construction activities during the second and third quarters. As
a result, the Company has historically generated approximately 60 to 65% of its
consolidated revenues in the last six months of the year. The Company's
operations can also be severely impacted by weather during the fourth quarter.
The Company's salvage barge, which has a shallow draft, is particularly
sensitive to adverse weather conditions, and its utilization rate will be lower
during such periods. To minimize the impact of weather conditions on the
Company's operations and financial condition, Cal Dive began operating DP
vessels and expanded into the acquisition of mature offshore properties. The
unique station-keeping ability offered by dynamic positioning enables these
vessels to operate throughout the winter months and in rough seas. Operation of
natural gas and oil properties tends to offset the impact of weather since the
first and fourth quarters are typically periods of high demand for natural gas
and of strong natural gas prices.
17
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUES. During the three months ended March 31, 1997, the Company's
revenues increased 65% to $18.4 million compared to $11.2 million for the three
months ended March 31, 1996, primarily due to the addition of new DP vessels and
five new offshore properties. The additions of the BALMORAL SEA and UNCLE JOHN
and improved pricing increased revenues from the DP vessels to $8.2 million for
the three months ended March 31, 1997, from $3.6 million for the comparable
period last year. Stronger market conditions in 1997 for the DP vessels, surface
air diving and the supply boats, offset the fact that six vessels were out of
service a combined 35 weeks during the first quarter of 1997 for regulatory
inspections, preventive maintenance and/or vessel upgrades. Specifically, the
CAL DIVER II, CAL DIVER III, CAL DIVER V and BARGE I underwent major U.S. Coast
Guard drydock inspections; Det Norske Veritas conducted an inspection of the
BALMORAL SEA while an engine was rebuilt; and the UNCLE JOHN completed a major
upgrade program (including installation of a derrick). As a result of this
significant 1997 maintenance, program utilization of the vessel fleet was
generally lower than the first quarter of 1996.
Natural gas and oil production from 14 offshore properties owned at March
31, 1997, was $4.9 million for the three months ended March 31, 1997, as
compared to $2.5 million for the same period last year. This increase of $2.4
million, or 96%, was a result of production increasing 71% due to the five
blocks acquired subsequent to March 31, 1996, and the Company's 1996 well
enhancement efforts. Most of the increase in production came in January and
February when ERT prices averaged $3.50/Mcf.
GROSS PROFIT. Gross profit increased by $2.3 million, or 74%, from $3.1
million for the three months ended March 31, 1996, to $5.4 million for the
comparable period this year. The two new DP vessels (BALMORAL SEA and UNCLE
JOHN) and the improved rates on the WITCH QUEEN contributed the majority of the
increase with the balance resulting primarily from the improved natural gas and
oil production. Subsea and salvage margins decreased from 24% in the three
months ended March 31, 1996, to 21% for the comparable period during 1997. This
decline was caused by the Company having six vessels undergoing inspection or
repairs and upgrades during the first quarter 1997 as compared to only one
during the same period in the prior year. As a result, subsea and salvage repair
costs were $1.6 million compared to $700,000 in the first quarter of 1996. The
addition of two vessels and a stronger market reduced the impact of the repair
costs on gross margins.
Natural gas and oil production gross profit was $2.6 million for the three
months ended March 31, 1997, as compared to $1.1 million during the same period
in the prior year, with the $1.5 million or 136% increase resulting from the
improved production levels and higher prices early in the year.
SELLING & ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 53% in the first quarter of 1997 to $2.2 million from $1.4 million
during the comparable period last year. The increase is due to the addition of a
number of experienced technical personnel to support the new Deepwater Technical
Services Group. The remainder of the increase is due to the ERT incentive
compensation whereby key management personnel share in the improved earnings of
the natural gas and oil production segment.
NET INTEREST. Net interest expense increased by $253,000 from $65,000 in
the first quarter of 1996 to $318,000 for the first quarter of 1997 due to
borrowings incurred in conjunction with the acquisitions of the BALMORAL SEA and
UNCLE JOHN and offshore properties added during the second half of 1996.
Borrowings under the Revolving Credit Agreement averaged $21 million during the
first quarter of 1997 as compared to $6 million for the first quarter of 1996.
INCOME TAXES. Income taxes of $991,000 for the three months ended March
31, 1997, compares to $469,000 for the comparable period in the prior year as a
result of increased margins
18
<PAGE>
and profitability. The effective tax rate increased significantly from 29% to
34% because the Company no longer qualifies for the "Small Producer" benefit
of percentage depletion.
NET INCOME. Net income of $1.9 million for the three months ended March
31, 1997 was $728,000, or 63%, more than the comparable period in 1996 as a
result of factors described above.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Consolidated revenues of $76.1 million in 1996 were more than
double the $37.5 million reported in the prior year due primarily to the
addition of new DP vessels and to higher commodities prices and increased
production from natural gas and oil properties. A full year of operations from
the WITCH QUEEN (placed in service in November 1995) and the additions of the
BALMORAL SEA and UNCLE JOHN increased revenues from the DP vessels to 33% of
consolidated 1996 revenues compared to 10% in 1995. This trend is expected to
continue in 1997 because the Company will have full year operations from the
BALMORAL SEA and UNCLE JOHN, which were only in service for eight and two
months, respectively, in 1996. The establishment of a new management team
resulted in improved performance in the operation of the salvage assets (BARGE I
and well servicing equipment) which included the removal of four large
structures by subcontracting heavy lift barges. Natural gas and oil production
from 14 offshore blocks owned at year-end 1996 was $12.3 million compared to
$4.8 million in 1995. This increase of $7.5 million, or 156%, was a result of
natural gas prices increasing by approximately 58% and to production from the
five properties acquired in 1996 as well as the full year contributions of the
Company's other properties.
GROSS PROFIT. Gross profit increased by $13.2 million in 1996, from $8.8
million in 1995 to $22.1 million in 1996. Improved rates and performance on
turnkey contracts resulted in subsea and salvage margins increasing from 22% in
1995 to 27% in 1996. This increase reflects in part the benefit of operating
five specialized SAT vessels. Gross profit from salvage assets was $2.2 million
in 1996 or 13% of that generated by subsea and salvage operations in contrast to
"break-even" results for the prior year. Natural gas and oil production gross
profit was $5.0 million in 1996 compared to $1.7 million in the prior year, with
the $3.3 million increase resulting from higher natural gas prices and greater
production levels.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 68% in 1996 to $8.3 million from $4.9 million in 1995. Payments of
$2.3 million were made to 223 offshore, supervisory and management personnel
under 1996 incentive plans (an increase of $2.0 million over 1995). The balance
of the increase reflects higher sales and administrative costs necessary to
support the 103% increase in 1996 revenues.
NET INTEREST. Net interest expense increased by $610,000 (from $135,000 in
1995 to $745,000 in 1996) due to the borrowings incurred in conjunction with the
acquisition of the BALMORAL SEA and UNCLE JOHN. Borrowings under the Revolving
Credit Agreement averaged $13 million in 1996 compared to $6 million in 1995.
INCOME TAXES. Income taxes of $4.6 million compares to $1.0 million in
1995 as a result of significant increases in 1996 margins and profitability. The
effective tax rate increased significantly, from 28% to 35%, because the Company
no longer qualified for the "Small Producer" tax benefit of percentage
depletion. Higher depreciation related to the new DP vessels had the result of
reducing the amount of cash taxes paid. In 1996, cash payments for Federal
income taxes were $2.2 million or 48% of the total $4.6 million tax provision.
NET INCOME. In 1996, net income of $8.4 million increased $5.8 million, or
215%, from 1995 as a result of the factors described above.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
REVENUES. During 1995, the Company's revenues decreased $500,000 to $37.5
million compared to $38 million in 1994. A $2.5 million increase in natural gas
and oil revenues offset
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decreases in subsea services, particularly derrick barge and well servicing
revenues, which together decreased $1.3 million. The increase in natural gas and
oil revenues was due to the Company's acquisition of seven offshore properties
in 1995. The Company's subsea revenues in 1995 were negatively impacted by
Hurricanes ROXANNE and OPAL. While dealing with adverse weather in the Gulf of
Mexico is an accepted risk in the marine contracting business, these storms were
unusual in that while little damage was incurred in the Gulf of Mexico, the
Company's vessels were unable to leave the dock for 20 days during what are
generally the two busiest months of the year (September and October). In
addition, the number of platforms with two or more piles removed in the Gulf of
Mexico decreased by almost 30% for the year which included a 50% reduction
during the last six months, primarily as a result of contractors shifting assets
to higher margin construction projects. The Company's revenues in 1995 were also
negatively impacted by operating difficulties with the BARGE I which have been
resolved.
GROSS PROFIT. Gross profit decreased by $2.2 million in 1995 as compared
to 1994, from $11 million to $8.8 million. Approximately $1.0 million of the
decrease was due to vessel drydockings during 1995 with the balance related to
the down time caused by two hurricanes and operational difficulties with respect
to BARGE I. Three of the Company's vessels, CAL DIVER II, CAL DIVER V and BARGE
I, underwent major U.S. Coast Guard ("USCG") drydock inspections during 1995.
In addition to the work required to maintain the USCG Certificates of
Inspection, the Company completed a major capital upgrade program. As a result,
these three vessels were out of service for a combined aggregate of ten months
during 1995. Natural gas and oil operations contributed 19% of consolidated
gross profit in 1995 as compared to 7% for 1994 due to the increase in the
number of properties owned at December 31, 1995.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 6% to $4.9 million in 1995 compared to $4.7 million in 1994. This
increase was due primarily to improved results in the Company's natural gas and
oil business resulting in an additional $200,000 of incentive compensation
earned by ERT personnel.
NET INTEREST. During 1995, net interest expense declined 69% to $135,000
as compared to $428,000 in 1994. Interest income generated by the cash deposits
set aside to fund abandonment liabilities was $202,000 in 1995, an increase of
$100,000 from 1994.
INCOME TAXES. Income taxes of $1 million reflect an effective tax rate of
28% in 1995 compared to 31% in 1994. The decrease in tax rate was due to the
impact of percentage depletion of natural gas and oil operations comprising a
larger percentage of the Company's 1995 income.
NET INCOME. Net income decreased to $2.7 million from $4 million in 1994
as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company has historically funded its operating
activities principally from internally generated cash flow, even in an
industry-depressed year such as 1992. Management purchased the Company in July
1990, in a leveraged buyout funded with $10.7 million in debt and $1 million in
equity. By July 1993, cash flow from operating activities enabled the Company to
reduce total debt to $3.5 million while increasing equity to $9 million. In
August 1993, management acquired all of the Common Stock of the Company held by
the two financial institutions that financed the buyout, a transaction which
increased the Company's debt to $8.2 million and reduced equity to $5.1 million.
The 1995 equity infusion from First Reserve and its investment funds, together
with internally generated cash flow, enabled the Company to formulate and
implement its expansion strategy.
Net cash provided by operating activities was $10.1 million in the three
months ended March 31, 1997, as compared to net cash used by operating
activities of $677,000 in the three months ended March 31, 1996. The increase is
mainly due to significant collections of accounts receivable during the three
months ended March 31, 1997, a seasonal pattern which typically
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occurs in the first quarter each year given the slowdown in offshore activity
during the slower winter season when the Company's vessels may also be in
drydock for maintenance. These factors provide the Company with the personnel to
complete project invoicing and collections related to the peak fall season.
Specifically, project engineers for each project, who have technical knowledge
of the services performed, review the technical aspects of the work involved so
that the client understands the basis for invoicing. This procedure is an
effective method for maintaining good relationships with the Company's clients.
Accordingly, for the three months ended March 31, 1997, the Company's trade
receivables decreased by $9.2 million.
This pattern did not occur in the first quarter of 1996 as operation of a
DP vessel and purchase of offshore properties resulted in an increase in sales
and accounts receivable. As a result, the Company was able to reduce borrowing
on the Revolving Credit Agreement by $6 million during the first quarter of 1997
while a year ago $1.3 million of additional borrowings were required.
Depreciation and amortization, which is included in cost of subsea and salvage
sales, also increased by $901,000 or 95% in the first quarter of 1997 due to the
new vessel additions.
Net cash provided by operating activities was $7.6 million in 1996 compared
to $12.0 million in 1995 with the decrease principally a result of $15.3 million
necessary to fund an increase in accounts receivable. Accounts receivable
increased 140% over the prior year, a level greater than the 103% increase in
revenues due to the significant increase in revenues from offshore activity at
the end of the Company's fiscal year which led to a much higher accounts
receivable balance at December 31, 1996. This increase in activity and revenues
also resulted in a significant increase in the revenue allowance on gross
amounts billed for the reasons described above. Depreciation and amortization
also increased by $2.5 million as a result of the new vessel additions. However,
as noted previously, overall subsea and salvage margins increased from 22% in
1995 to 27% in 1996 notwithstanding higher depreciation charges. The additional
depreciation increased the provision for deferred income taxes which was $2.1
million in 1996 compared to $600,000 in the prior year.
CAPITAL EXPENDITURES. Capital expenditures consisted principally of
strategic asset acquisitions including the WITCH QUEEN, BALMORAL SEA and UNCLE
JOHN, improvements to existing vessels and the acquisition of offshore natural
gas and oil properties. During the three months ended March 31, 1997, the
Company had six vessels out of service for either regulatory inspection or
upgrade programs compared to only one during the three months ended March 31,
1996. The Company's policy is to charge all drydock related repairs to
operations except for the cost of new steel and new equipment added to a vessel.
Capital expenditures of $3 million in the first quarter of 1997 compares to
$592,000, as compared to the similar period last year, with $2.1 million of the
increase related to the installation of a derrick on the UNCLE JOHN. Since 1993,
the Company has invested $17 million to acquire 15 offshore natural gas and oil
properties in seven separate transactions. The Company records the amount of
cash paid together with the abandonment liability assumed at the time such
properties are acquired. Only the cash paid at closing is reflected in the
Company's statement of cash flows together with bond and escrow deposits
required in connection with these purchases. The MMS requires an operator bond,
and certain of the purchase and sale agreements have required the Company to
fund portions of the estimated decommissioning liability. Accordingly, the
Company's balance sheet as of March 31, 1997 includes $5.4 million of cash
deposits restricted for abandonment obligations which aggregated $6.1 million on
that date. In addition the Company had also issued letters of credit totaling
$2.8 million at March 31, 1997 in lieu of cash deposits in connection with
property acquisitions.
FINANCING ACTIVITIES. The Company has financed seasonal operating
requirements and capital expenditures with internally generated funds,
borrowings under credit facilities, and the sale of Common Stock described
above. Since 1993, Fleet Capital Corporation has provided all debt funding
pursuant to a Revolving Credit Agreement which initially was $15 million and
which, as amended in April 1997, is currently $40 million. The Revolving Credit
Agreement, which terminates in December 2000, is secured by trade receivables
and mortgages on the Company's vessels. The
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Revolving Credit Agreement prohibits the payment of dividends on the Company's
capital stock and contains, among other restrictions, certain financial
covenants. During 1995, 1996 and the first quarter of 1997 those covenants
typically required the Company to (i) maintain income from operations at
specified levels, (ii) limit leverage, as defined, to no more than a specified
ratio of net worth, (iii) maintain certain interest coverage and debt service
ratios, as defined, and (iv) maintain a minimum ratio of current assets to
current liabilities. The Company was in compliance with, or obtained waivers of
default from, the covenants under the Revolving Credit Agreement during 1995,
1996 and the first quarter of 1997. The Revolving Credit Agreement, as amended,
contains only one financial covenant (a fixed charge coverage ratio) and a
limitation that debt not exceed $60 million. The interest rate during 1996 and
the first quarter of 1997 was equal to the lender's floating prime rate plus
.5%, or the Eurodollar Base Rate plus 2.25% for borrowings less than $10
million, and 2% if borrowings exceed $10 million. Pursuant to these terms,
borrowings at December 31, 1996 included $22 million at 7.37% (Eurodollar
option) and $3 million at 8.75% (prime option) which borrowings at March 31,
1997 consisted of $19 million at 7.44% (Eurodollar option). The Revolving Credit
Agreement, as amended, reduces these rates to LIBOR plus 1.75% in 1997 with
incentive pricing thereafter pursuant to a formula based upon EBDIT (as defined
therein). Letters of credit are also available under the Revolving Credit
Agreement which the Company typically uses if performance bonds are required or,
in certain cases, in lieu of purchasing U.S. Treasury Bonds in conjunction with
gas and oil property acquisitions.
CAPITAL COMMITMENTS. The Company does not have any material commitments
for capital expenditures for next year. However, in connection with its business
strategy, management expects the Company to acquire or build additional vessels,
acquire other assets such as the ROV purchase from Coflexip, as well as seeking
to buy additional natural gas and oil properties. Depending upon the size of any
future acquisitions, the Company may require additional debt financing, possibly
in excess of the Revolving Credit Agreement, as amended, or additional equity
financing. If the Company seeks equity financing in connection with such
acquisitions, investors in this Offering may experience dilution. Other than
potential asset acquisitions, management believes the net cash generated from
operations and available borrowing capacity under the Revolving Credit Agreement
will be adequate to meet funding requirements for the next year.
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BUSINESS
GENERAL
Cal Dive is a leading provider of subsea construction, maintenance and
salvage services to the offshore natural gas and oil industry in the Gulf of
Mexico. Its services are primarily performed in support of offshore
infrastructure construction projects involving pipelines, production platforms
and risers and subsea production systems. Through ERT, Cal Dive acquires and
operates mature offshore properties producing natural gas and oil, providing
customers a cost effective alternative to the decomissioning process. The
Company's customers include major and independent natural gas and oil producers,
pipeline transmission companies and offshore engineering and construction firms.
See Note 10 of the notes to Financial Statements for financial information with
respect to the Company's business segments.
The Company owns a diversified fleet of nine vessels servicing offshore
natural gas and oil industry, principally in the Gulf of Mexico. This market is
experiencing strong exploration and development activity levels, including rapid
growth in Deepwater. Beginning in 1995, the Company acted to fill a market void
by assembling a fleet of dynamically positioned vessels which serve as work
platforms for Deepwater projects. The vessels acquired include a
semi-submersible multi-service vessel (UNCLE JOHN) and two mono-hull DP vessels
(WITCH QUEEN and BALMORAL SEA). Management believes that the limited number of
competing DP vessels in the Gulf affords the Company a key strategic advantage
which has led to rising vessel utilization for its vessels. In addition,
interest in the Cal Dive fleet has increased among potential customers and
alliance partners evaluating a fast track approach to field development.
Management believes that strong worldwide demand for DP vessels will cause this
trend to continue.
In the last twelve months, the Company has positioned itself to work on
full field development projects by entering into a number of strategic
alliances. See "-- Strategic Alliances." As part of this strategy, in April
1997, certain shareholders and Cal Dive sold 32% of its Common Stock to Coflexip
and executed the Business Cooperation Agreement. Each company expects to
contribute its separate expertise to the alliance as follows:
COFLEXIP SERVICES CAL DIVE SERVICES
Flexible lay operations in excess ROV operation
of alliance vessel capabilities
(including risers) Diving
Product sales, manufacture and
supply of Coiled Tubing
-- Umbilicals
-- Flex hose Flexible lay operations with deck
-- Flex pipe load requirements up to 600
ROV manufacture and sale metric tons
EPIC project design and engineering
and project management Riser installation
Reeled hard pipe lay (including
risers installed in connection Well servicing
with lay operations, excluding
coiled tubing) DP DSV's and related services
DP construction vessels in excess
of Company and alliance vessel Four Point DSV's (when applicable)
capabilities
The Company traces its origins to California Divers Inc., which pioneered
the use of mixed gas diving in the early 1960s when oilfield exploration off the
Santa Barbara coast moved to water depths beyond 250 feet. Cal Dive commenced
operations in the Gulf of Mexico in 1975. Since that time, the Company's growth
strategy has consisted of three basic elements: (i) identifying niche markets
that are underserviced or where no service exists, (ii) developing the technical
expertise to provide the service and (iii) acquiring assets or seeking business
alliances which fill the market gap.
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COMPANY STRENGTHS
DIVERSIFIED FLEET OF VESSELS
Cal Dive has focused on owning and operating a diversified fleet which
provides a full complement of subsea construction, maintenance, and salvage
project capabilities. The Company operates a fleet of one semi-submersible DP
MSV (the UNCLE JOHN), two DP DSV's (the WITCH QUEEN and BALMORAL SEA), two
four-point moored saturation DSVs (the CAL DIVER I and II), three other DSVs,
two work class ROVs and a salvage barge. This fleet enables the Company to
operate in all Gulf water depths where development is currently contemplated.
The services provided by these vessels both overlap and are complementary in a
number of market segments, enabling the Company to deploy its vessels to areas
of highest utility and margin potential. The vessels serve as work platforms for
activities performed by divers in water depths of less than 1,000 feet and by
ROVs for projects at all depths. The Company intends to continue to expand the
capabilities of its diversified fleet through the acquisition of additional
vessels and assets.
EXPERIENCED PERSONNEL AND TURNKEY CONTRACTING
The shortage of experienced personnel has resulted in a trend in the oil
and gas industry of transferring more responsibility to contractors and
suppliers. The Gulf of Mexico spot market is unique in the world in that
projects are typically of short duration and generally of a turnkey nature.
Management believes that a key element of its growth strategy and success has
been its pioneering role in providing turnkey contracting and its ability to
attract and retain experienced industry personnel. The Company personnel have
the technical expertise and operational experience to effectively manage turnkey
projects and thereby deliver bids which are priced to achieve targeted
profitability. Because of its experience with turnkey contracting and its
people, the Company believes it is well positioned as to capitalize on the trend
in the natural gas and oil industry towards outsourcing additional
responsibility to contractors.
DEEPWATER TECHNICAL SERVICES
The Company believes that it has established a unique niche in the
Deepwater Gulf by assembling the specialized assets, technical personnel and
exclusive alliance agreements that represent a cost effective solution to the
rising demand for Deepwater services. The Company's mono-hulled DP vessels
provide a flexible work platform to launch ROVs and support subsea construction
in most weather conditions. Likewise, the Company's MSV, the UNCLE JOHN, has
demonstrated its ability to perform certain well completion tasks previously
undertaken using more expensive drilling equipment. These vessels in combination
with the ROVs acquired from Coflexip allow the Company to control key assets
involved in Deepwater subsea construction and field development. Over the last
two years, the Company has employed personnel with experience in Deepwater
subsea construction and ROV operation. Further, the Company has entered into
alliance agreements with a team of specialized contractors that provide access
to necessary equipment, technology and services to meet the fast track
requirements of Deepwater development activities.
MAJOR PROVIDER OF SATURATION DIVING SERVICES
Cal Dive owns and operates over 50% of the U.S. based SAT DSVs currently
operating in the Gulf of Mexico. Saturation diving is required for subsea
operations in water depths beyond 300 feet. In recent years there has been an
increasing level of construction activity, a trend which is expected to
accelerate as development of recently discovered Deepwater fields commences and
new Deepwater production is tied into the existing Gulf infrastructure.
Management believes that this trend will result in increasing demand for SAT
diving services.
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LEADER IN SHALLOW WATER SALVAGE OPERATIONS
Since 1989, the Company has established a leading position in the
decommissioning and abandonment of facilities in the shallow water Gulf of
Mexico. The Company expects the demand for salvage and P&A services to increase.
Over 75% of the 3,800 platforms in the Gulf of Mexico are over ten years old and
there are approximately 15,000 wells that must ultimately be plugged and
abandoned in accordance with government regulations related to the
decommissioning of offshore production facilities. During 1996, the Company
contracted for and managed, on a turnkey basis, all aspects of the
decommissioning and abandonment of several fields for two major oil companies
utilizing third party heavy lift derrick barges. These projects involved larger
platforms than Cal Dive had historically decomissioned, and represent a service
that management expects to expand in the future.
MANAGEMENT OF MATURE NATURAL GAS AND OIL PROPERTIES
The Company formed ERT in 1992 to exploit a market opportunity to provide a
more efficient solution to the abandonment of offshore properties, to expand Cal
Dive's off season salvage and decommissioning activity and to support full field
development projects. The Company has assembled a management team of personnel
experienced in geology, reservoir and production engineering, facilities
management and lease operations. The Company has acquired interests in 15 mature
producing leases in the last four years, one of which has been plugged and
abandoned and two of which were sold in May 1997. Mature properties are
generally those properties where decommissioning and abandonment costs are
significant relative to the value of remaining natural gas and oil reserves. Cal
Dive seeks to acquire properties that it can operate to enhance remaining
production, control operating expenses and manage the cost and timing of the
decommissioning and abandonment of such properties. Management believes that Cal
Dive is the only company acquiring mature properties in the Gulf of Mexico which
combines financial strength, reservoir engineering and operations expertise with
the availability of company-owned salvage assets, resulting in significant
strategic and cost advantages. Since acquiring its initial property in late
1992, the Company has increased estimated proved reserves to approximately 25.3
Bcfe of natural gas and oil at December 31, 1996. In May 1997, ERT sold two
properties which represented approximately 5% of the estimated proved reserves
at December 31, 1996.
GROWTH STRATEGY
FOCUS ON THE GULF OF MEXICO
Cal Dive intends to maintain its primary focus on the Gulf of Mexico where
the Company is well positioned to respond to rising market demand for services
in all water depths, and increasingly to address Deepwater demand. Natural gas
and oil exploration, development and production activity levels in the Gulf of
Mexico have increased significantly as a result of several factors, including:
(i) improvements in exploration technologies such as computer aided exploration
and 3D seismic, which have enhanced reservoir mapping, increased drilling
success rates and led to entirely new prospects such as the "Subsalt" play;
(ii) improvements in subsea completion and production technologies, which have
resulted in increased Deepwater drilling and development; (iii) expansion of the
region's production infrastructure, which has improved the economics of
developing both Deepwater and smaller natural gas and oil fields; and (iv) the
short reserve life characteristic of Gulf of Mexico natural gas production,
which requires continuous drilling to replace reserves and maintain production.
Recent lease sales by the MMS of Gulf of Mexico properties attracted record
bidding levels both in terms of the number of leases bid and the amount of
capital exposed, including a record level of interest in Deepwater blocks. This
has led to new market opportunities as well as increased demand for the
Company's traditional marine services, as reflected in both higher vessel
utilization rates and operating margins.
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CAPTURE A SIGNIFICANT SHARE OF THE DEEPWATER MARKET
As Gulf of Mexico Deepwater developments have created a need for new
applications of subsea technology, there is a corresponding need for a new
generation of subsea contractor to develop and deploy that technology.
Management, through its Deepwater Technical Services Group, has targeted a
market niche in which the Company functions as a focal point in the assembly and
delivery of technology required for Deepwater projects. In particular, well
completions, subsea installation and infield connection services are more
critical in an era of limited availability of Deepwater drilling equipment and
hardware. The Company's MSV has the capacity to undertake certain well
completion activities, thereby reducing cost to the operator and freeing-up more
expensive drilling rig time for drilling operations. Cal Dive has negotiated
formal alliance agreements with a number of specialized contractors to provide a
full range of services necessary to Deepwater construction projects. These
strategic alliances include the recent Coflexip transaction and agreements with
Schlumberger, Shell Offshore, Inc., Reading & Bates Development Co.,
Fugro-McClelland Marine GeoSciences, Inc., Sonat, Inc. and Quality Tubing, Inc.
Cal Dive is also a preferred installation contractor to Total Offshore
Productions Systems ("TOPS"), a company formed by Reading & Bates Development
Co. and Intec Engineering, Inc. to conduct Deepwater full field development
projects. The objective of Cal Dive's strategy is to increase the proportion of
Deepwater field development expenditures captured by Cal Dive while reducing
overall costs and project duration for the operator.
CAPITALIZE ON SYNERGIES WITH COFLEXIP
Cal Dive entered into a strategic alliance with Coflexip to strengthen its
position in the Deepwater Gulf and to respond to the trend toward full field
development services. Management believes that Coflexip and Cal Dive together
offer complementary products and services which significantly expand Cal Dive's
ability to provide full field development and life of field services. Coflexip
is a world leader in the design and manufacture of offshore flexible pipe and
umbilicals and is one of the leading subsea construction contractors.
Headquartered in Paris, France, Coflexip employs approximately 3,500 employees
spread over five continents. In 1996, Coflexip had sales of $945 million and
total assets of $1.1 billion at the end of the year.
OFFER FULL FIELD DEVELOPMENT SERVICES
Management believes the significant number of new leases, the number of
Deepwater leases due to expire by 2000 and shortages of well completion
equipment, drilling rigs and production infrastructure will create a demand for
fast track, full field development solutions. Cal Dive's recent acquisitions of
assets and its personnel and technical expertise, combined with strategic
alliances, put the Company in a strong competitive position to respond to this
market need. In addition, the Company intends to apply the technologies and
capabilities developed for Deepwater to "midwater" Gulf (500 to 1,000 feet) as
a cost effective alternative to fixed platforms.
EXPAND THE COMPANY'S NATURAL GAS AND OIL PRODUCTION
Management believes Cal Dive's reputation in the industry and its size and
experience in salvage and remediation work make the Company a preferred buyer of
mature natural gas and oil properties. Specifically, customers can sell an
offshore property at a reasonable price with the assurance that the offshore
property will be decommissioned and abandoned in accordance with regulatory
requirements. The Company intends to exploit its recent experience contracting
and managing heavy lift salvage to expand the number of mature offshore
properties for which the Company will bid. In addition, the Company will
continue, on a selective basis, to acquire non-operated working interests in
fields where there is the potential of Cal Dive being awarded decommissioning or
development work. These fields expand the universe of potential ERT property
acquisitions.
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THE INDUSTRY
BACKGROUND
The subsea services industry in the Gulf of Mexico originated in the early
1960s to assist natural gas and oil companies with their offshore operations.
The industry has grown significantly since the early 1970s as these companies
have increasingly relied upon offshore fields for production. Subsea services
are required throughout the economic life of an offshore field and include at
various phases the following services, among others:
o EXPLORATION. Pre-installation survey; rig positioning and
installation assistance; drilling inspection; subsea equipment
maintenance; search and recovery operations.
o DEVELOPMENT. Installation of production platforms; installation of
subsea production systems; pipelay support including connecting
pipelines to risers and subsea assemblies; pipeline stabilization,
testing and inspection; cable and umbilical lay and connection.
o PRODUCTION. Inspection, maintenance and repair of production
structures, risers and pipelines and subsea equipment.
o DECOMMISSIONING. Decommissioning and remediation services; plugging
and abandonment services; platform salvage and removal; pipeline
abandonment; site inspections.
The industry has grown principally due to the economic benefits of new and
advanced technologies and custom designed equipment and recently has focused
more on Deepwater projects and the integrated "full field development" service
concept described below.
FULL FIELD DEVELOPMENT
The Company and its alliance partners can offer oil and gas companies a
range of services from subcontracting to complete field development solutions.
In offering field development services, Cal Dive and its partners intend to
provide a full range of subsea systems and services, from procurement and
installation of flowlines, wellheads, control systems, umbilicals and manifolds
to installation and commissioning of the complete production system.
Many oil and gas companies prefer to contract with a consortium capable of
undertaking major portions or all of an entire field development project.
Contracting for engineering, procurement, installation and commissioning
("EPIC") services can relieve a customer of substantially all of the burdens
of management of field development and thereby avoid many of the risks inherent
in traditional contracting strategies. Field development partnerships can also
allow oil and gas companies to increase outsourcing of development work. EPIC
contracting for field development projects requires that contractors offer a
full range of services to customers. The Company's strategic alliances provide
Cal Dive with the necessary capabilities to pursue field development contracts.
OPERATIONS AND EQUIPMENT
SUBSEA CONSTRUCTION VESSELS. Subsea services are typically performed with
the use of specialized subsea construction vessels which provide an above water
platform that functions as an operational base for divers in water depths up to
1,000 feet and ROVs at all water depths. Distinguishing characteristics of
subsea construction vessels include DP systems, SAT diving capabilities, deck
space, deck load, craneage and moonpool launching. Deck space, deck load and
craneage are important features of the vessel's ability to transport and
fabricate hardware, supplies and equipment necessary to complete subsea
projects. Vessels with greater deck space and load capacities have the
flexibility to service more complex projects in deeper water. A moonpool is a
structure built into the center of the vessel, which enables safe and efficient
launching of ROVs and SAT diving systems in harsh weather conditions. These
characteristics will generally dictate the types of jobs undertaken and the
conditions and water depths in which the vessel is capable of working.
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DYNAMIC POSITIONING. DP systems allow a vessel to maintain position
without the use of anchors, and therefore enhance productivity in extreme
weather conditions and are preferred for Deepwater applications. Computer
controlled thrusters mounted on the vessel's hull ensure the proper
counteraction to wind, current and wave forces to maintain position. Since no
anchors are required, risks associated with objects snagging on pipelines or
other underwater structures are minimized. The capabilities provided by the
Company's DP vessels have allowed Cal Dive to penetrate new markets and provide
additional services to the Deepwater market such as flexible pipelay, well
servicing, coring and general field support.
REMOTELY OPERATED VEHICLES. ROVs are robotic vehicles used to complement,
support and increase the efficiency of diving and subsea operations and at
depths for tasks where the use of divers is uncompetitive or impossible. One of
the ROVs acquired from Coflexip will be permanently installed on the UNCLE JOHN.
The second ROV will be a mobile system working on the other Cal Dive vessels.
The Company believes that purchasing ROVs will enable it to better control the
quality and cost of its services, replacing the need to rely upon third party
equipment and personnel for critical path operations.
SATURATION DIVING. Subsea operations are conducted by manned or unmanned
intervention. SAT diving, required at water depths greater than 300 feet,
involves divers working from special chambers for extended periods at a pressure
equivalent to the depth of the work site. The divers are transferred from the
surface to the work site by a diving bell. After completion of the work, the
bell is lifted back to the DSV and the divers return to the chamber to be
replaced by a new group of divers who are lowered to the job site to continue
the work. SAT diving systems allow for continuous operations to be conducted 24
hours a day. The primary advantage of SAT diving is that divers can remain under
pressure and make repeated dives for extended periods before beginning
decompression. Overall productivity and safety is therefore enhanced due to
fewer decompressions, diver continuity and a lower likelihood of delays caused
by adverse weather conditions.
SURFACE DIVING. Surface diving is the primary diving technique performed
in water depths less than 300 feet. Divers are linked to the surface by a diving
umbilical containing compressed air lines and communications equipment. The
diver enters the water directly and descends to the work site, accomplishes the
prescribed tasks and begins to decompress in the water during a gradual ascent
to the surface. The length of time a diver is able to remain at the work site
depends upon, and is limited by, the water depth.
The following table summarizes the equipment and techniques primarily used
in providing subsea services by water depth:
EQUIPMENT/ WATER DEPTH
TECHNIQUE USED (IN FEET)
- ---------------------------------------- -----------------
Surface Diving.......................... 0 to 300
SAT Diving.............................. 300 to 1,000
ROVs.................................... All depths
DSVs.................................... 0 to 1,000
DP Vessels.............................. Greater than 300
MARINE VESSELS AND EQUIPMENT
The Company owns a fleet of nine vessels. The size of the Company's fleet
and its capabilities have increased in recent years with the addition of the
WITCH QUEEN, the BALMORAL SEA and the UNCLE JOHN.
Management believes that the Gulf of Mexico market increasingly will
require specially designed or equipped vessels to deliver the necessary subsea
construction services, especially in the Deepwater. Five of the Company's
vessels have been modified to provide saturation diving
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<PAGE>
services. Three of these vessels were specifically upgraded to respond to the
emerging Deepwater market.
The table set forth below provides information regarding the strategic
features of the Company's vessels.
<TABLE>
<CAPTION>
MOONPOOL
DATE CLEAR DECK LAUNCH/
PLACED IN LENGTH SPACE DECK LOAD ACCOM- SATURATION CLASSIFI-
VESSEL SERVICE (FEET) (SQ. FEET) (TONS) MODATIONS DIVING CRANE CATION(1)
- --------------------------- ----------- ------ ---------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DP MSV:
Uncle John................. 11/96 254 11,834 460 102 3 2x 100-ton DNV
DP DSVS:
Balmoral Sea(2)............ 9/94 259 3,443 250 60 3 30-ton DNV
Witch Queen................ 11/95 278 5,600 500 62 3 50-ton DNV
DSVS:
Cal Diver I................ 7/84 196 2,400 220 40 3 20-ton ABS
Cal Diver II............... 6/85 166 2,816 300 32 3 A-Frame ABS
Cal Diver III.............. 8/87 115 1,320 105 18 ABS
Cal Diver IV............... 10/90 100 1,035 46 16 ABS
Cal Diver V................ 9/91 168 2,324 490 30 A-Frame ABS
DERRICK BARGE:
Cal Dive Barge I........... 8/90 150 NA 200 26 200-ton ABS
</TABLE>
- ------------
(1) The Company's DSVs also meet standards for seaworthiness and safety set by
the USCG.
(2) This vessel has been operated by the Company under charters from September
1994 to February 1995 and from April 1996 to August 8, 1996, at which time
it was acquired by the Company.
Under government regulations and the Company's insurance policies, the
Company is required to maintain its vessels in accordance with standards of
seaworthiness and safety set by government regulations and classification
organizations. The Company maintains its fleet to the standards for
seaworthiness, safety and health set by both the American Bureau of Shipping
("ABS"), Det Norske Veritas ("DNV") and the USCG. The ABS is one of several
classification societies used by ship owners to certify that their vessels meet
certain structural, mechanical and safety equipment standards, including Lloyd's
Register, Bureau Veritas and DNV among others.
The Company incurs routine drydock inspection, maintenance and repair costs
under USCG Regulations and to maintain ABS or DNV classification for its
vessels. In addition to complying with these requirements, the Company has its
own vessel maintenance program which management believes permits Cal Dive to
continue to provide its customers with well maintained, reliable vessels. In
1995 and 1996, the Company incurred approximately $2.4 million and $3.7 million,
respectively, in drydocking, marine inspection and general repair and
maintenance costs. See "-- Government Regulation."
In the normal course of its operations, the Company also charters other
vessels on a short-term basis, such as tugboats, cargo barges, utility boats and
dive support vessels. All of the Company's vessels are subject to ship
mortgages. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
COFLEXIP STRATEGIC ALLIANCE
BACKGROUND
As part of the Company's strategy in the Gulf of Mexico Deepwater and to
respond to the growing trend towards integrated contracting of packages for
field development services, Cal Dive entered into a strategic alliance with
Coflexip in April 1997. Coflexip is the worldwide leader in the design and
manufacture of flexible pipe and umbilicals and is a leading integrated subsea
contractor to the offshore oil and gas industry. Deepwater field developments
have shifted toward
29
<PAGE>
greater use of subsea and floating production systems and away from conventional
fixed production platform development systems. As a result, the services and
products offered by Companies such as Cal Dive and Coflexip are increasingly
required.
The alliance was formed by Coflexip acquiring approximately 32% of the
Common Stock of the Company, pursuant to a purchase agreement dated as of April
11, 1997 (the "Purchase Agreement") and entering into the Business Cooperation
Agreement. See "Certain Relationships and Related Transactions." In connection
with the closing under the Purchase Agreement, Coflexip and the Company entered
into certain related agreements, including two-year employment agreements with
the Company's nine senior executives, a registration rights agreement,
shareholders agreement and amended the Company's Articles of Incorporation and
By-Laws. See "Management" and "Description of Capital Stock."
THE BUSINESS COOPERATION AGREEMENT
As part of the transaction, the companies entered into the Business
Cooperation Agreement which provides that the parties will form a new entity in
the third quarter of 1997 to which cash will initially be contributed by both
parties. This new entity will be owned by Cal Dive and Coflexip in the relative
percentages of 51% and 49%, respectively. The parties do not anticipate
contributing any material assets to the new entity initially. The management of
the new entity is under discussion between the parties. Cal Dive intends to
consolidate financial results from the joint venture into its financial
statements. Cal Dive and Coflexip will bid each project as a subcontractor to
the venture for their respective services. In Cal Dive's case, the assets and
services will include ROV operation, diving, coiled tubing, flexible lay
operations with deck load requirements up to 600 metric tons, riser
installation, well servicing, DP DSV's and related services and Four Point DSV's
(when applicable). In Coflexip's case, the assets and services will include
flexible lay operations in excess of alliance vessel capabilities (including
risers), product sales, manufacture and supply of umbilicals/flex hose/flex
pipe, ROV manufacture and sale, EPIC project design and engineering and project
management, reeled hard pipe lay (including risers), installed in connection
with lay operations, excluding coiled tubing and construction vessels in excess
of Company and alliance capabilities. The joint venture will pursue Gulf of
Mexico and Caribbean EPIC projects that require at least one Cal Dive service
and one Coflexip service, where the aggregate contract value of the combined
services involved in the project is at least $25 million, and any such other
projects as the parties may agree as being within the intended scope of the
joint venture.
COMPLEMENTARY PRODUCTS AND SERVICES
Management believes that Coflexip and Cal Dive offer highly complementary
products and services and that the strategic alliance with Coflexip
significantly expands Cal Dive's ability to provide full field development and
life of field services. The table below illustrates some of the individual
strengths, products and services offered by Coflexip and Cal Dive that combined
permit them to offer a new approach for Deepwater Gulf Subsea contracting
activities:
CAL DIVE COFLEXIP
o Significant Gulf market o Worldwide presence
presence
o Deepwater expertise and
o Deepwater position in the Gulf credibility
o DP vessels o Large DP construction vessels
o Spot market turnkey expertise o Large project EPIC contractor
o Flexible pipe installation o Umbilical and flexible pipe
manufacturer/installer
o ROV operation and marketing
o ROV manufacturer
o Engineering utilization and
marketing o Significant subsea engineering
group
o Well servicing capability:
alliance with Schlumberger in o Well servicing capability:
the Gulf alliance with Schlumberger in
the North Sea
30
<PAGE>
INFORMATION ON COFLEXIP
Coflexip is a world leader in the design and manufacture of flexible pipe
and umbilicals, and one of the leading subsea contractors to the offshore oil
and gas industry, providing integrated subsea services on large subsea projects
throughout the world. Coflexip was established in 1971 to manufacture and market
flexible pipe designed by the Institute Francais du Petrole, a French research
and development organization that holds a controlling interest in one of
Coflexip's principal shareholders. In December 1994, Coflexip acquired Stena
Offshore N.V., a contractor providing subsea services to the oil and gas
industry, from Stena International B.V. ("Stena International"), and Stena
International became a significant shareholder of Coflexip.
Coflexip targets the subsea production systems segment of the subsea
oilfield services industry involving the installation of a wellhead on the
seabed rather than on a platform. Subsea productions systems generally require
flowlines that are less than 12 inches in internal diameter and less than 20
kilometers in length. This segment corresponds with the Company's technological
capabilities and represents its key market.
Coflexip designs and manufactures offshore flexible pipe, a number of
products that apply similar technology including umbilicals, and ROVs. Coflexip
also performs project management and engineering services in connection with
large subsea contracts, installs rigid and flexible pipes, umbilicals and
floating production storage and offloading facilities, performs inspection,
repair and maintenance and provides a number of related services such as
lifting, diving and testing. Its fleet of vessels and equipment is one of the
largest and most advanced technologically in the industry.
Coflexip has manufacturing and assembly facilities in five countries and
markets its integrated services worldwide. Its principal markets are the North
Sea, (UK and Norwegian sectors), offshore Brazil, the Asia-Pacific region and
other markets including North America and North and West Africa. Coflexip
employs approximately 3,500 employees in five continents and has subsidiaries in
France, the United Kingdom, Brazil, Norway, the United States, Australia and
India.
STRATEGIC ALLIANCES
Cal Dive has entered into a number of strategic alliances in order to
enhance its ability to offer a full range of subsea full field development
services including those described below.
<TABLE>
<CAPTION>
ALLIANCE TYPE OF AGREEMENT PRODUCTS AND SERVICES
- ------------------------ ---------------------------- --------------------------------
<S> <C> <C>
TOPS Preferred Provider Agreement Deepwater projects in the Gulf
Reading & Bates Alliance Agreement MSV technology and feasibility
Development Co. study of a new build MSV
Schlumberger Alliance Agreement Well servicing and testing
utilizing DP vessels
Fugro-McClelland Marine Performance Contract Geoscience services and coring
Geoscience, Inc. work
Quality Tubing, Inc. Preferred Provider Agreement Installation of coiled line pipe
Shell Offshore, Inc. Performance Contracts Subsea well intervention and
research and development of
J-lay procedures
Sonat, Inc. Preferred Provider Agreement Traditional marine services
</TABLE>
With respect to alliances with Schlumberger, Fugro-McClelland Marine
Geoscience, Inc. and Quality Tubing, Inc., Cal Dive provides vessels and related
operating services and the respective alliance partner provides the specialized
products and services listed in the table above. In the alliances with Shell
Offshore, Inc., Sonat, Inc. and TOPS, Cal Dive provides marine contracting
31
<PAGE>
services in a full field development setting to the alliance partner. In the
alliance with Reading & Bates Development Co., Cal Dive and the alliance partner
are cooperating on the design and testing of the feasibility of a new build MSV.
DEEPWATER TECHNICAL SERVICES GROUP
The Deepwater Technical Services Group was formed in early 1996 to serve
the emerging Deepwater market. It is intended to be a focal point to assemble
and deliver the varied technological disciplines required for Deepwater
projects. The limited availability of Deepwater rigs makes well completions,
subsea installations and infield connection services take on a more critical
role. Cal Dive acted to fill a market void by assembling a fleet of proven,
dynamically positioned vessels -- a key asset common to the application of
Deepwater technologies. The Company's alliances are also managed through this
group. Services covered by Cal Dive's Deepwater Technical Services Group include
geotechnical investigation, turnkey field development, umbilical, controls and
flexible pipe installations, well servicing, P&A, subsea wellhead installations
and pipeline repair systems and risers.
NATURAL GAS AND OIL OPERATIONS
ERT was formed in 1992 in response to a market opportunity to provide a
more efficient solution to offshore abandonment liability and Cal Dive's desire
to expand its off-season salvage and decommissioning activity. Within ERT, the
Company has assembled experienced personnel with proven track records in
geology, reservoir and production engineering as well as offshore facilities
management. Cal Dive generates numerous opportunities to acquire mature
properties through its established contacts in the industry. The Company's
property analysis utilizes both the expertise of its executives and Cal Dive's
years of experience in performing turnkey contracts for decommissioning work.
Production is generally sold at prevailing spot market prices in the Gulf of
Mexico. In 1994, 1995, 1996 and for the three months ended March 31, 1997,
revenue from natural gas and oil production accounted for 6.1%, 12.7%, 16.1% and
26.3%, respectively, of the Company's total revenues.
The Company's natural gas and oil business has also been successful because
of the magnitude and complexity of decommissioning projects as well as
regulatory requirements applicable to offshore natural gas and oil fields in
federal waters. Property owners are required to bond and/or fund the MMS'
estimate of the abandonment liability. The Company believes its financial
ability to meet the MMS' requirements and its ownership of the required
equipment provides it with a competitive advantage over smaller competitors.
To maximize the economic value of its properties, Cal Dive uses its
operating expertise to reduce operating costs, maximize production from the
properties and minimize the costs of decommissioning and abandonment. This
technical expertise would enable Cal Dive to take an equity (reserve) position
in conjunction with turnkey field development projects. The Company has acquired
interests in 15 mature producing leases in the last five years, fourteen of
which were in production at March 31, 1997 and one of which had been plugged and
abandoned. Based on the Miller & Lents report, the remaining average useful life
of the current properties is approximately 5.6 years based on 1996 production.
32
<PAGE>
The table below sets forth information, as of December 31, 1996, with
respect to the Company's estimated net proved reserves and the present value of
estimated future net cash flows at such date, as estimated by Miller & Lents.
Also see "Risk Factors -- Uncertainty of Estimates of Natural Gas and Oil
Reserves."
TOTAL PROVED
------------
(DOLLARS IN
THOUSANDS)
Estimated Proved Reserves:
Natural Gas (MMcf) ......................................... 24,596
------------
Oil and Condensate (Mbbls) ................................. 124
------------
Future net cash flows before income taxes ....................... $ 58,781
------------
Present value of future net cash flows before income taxes ...... $ 48,703
------------
Standardized measure of discounted future net cash flows(1) ..... $ 33,805
------------
- ------------
(1) The standardized measure of discounted future net cash flows attributable to
the Company's reserves was prepared using constant prices as of the
calculation date, discounted at 10% per annum.
As of December 31, 1996, the Company owned an interest in 49 gross (38.1
net) natural gas wells and one gross (0.5 net) oil well located in federal
offshore waters in the Gulf of Mexico. In May 1997, ERT sold two properties
which represented approximately 5% of the estimated proved reserves at December
31, 1996. The Company is responsible for the payment of abandonment costs on the
natural gas and oil properties pro rata to its working interest. The Company
accrues its estimated share of the future abandonment liabilities on the date
the applicable property was purchased. As of March 31, 1997, the recorded
abandonment liability was approximately $6.1 million. Estimates of abandonment
costs and their timing may change due to many factors including inflation rates,
and changes in environmental laws and regulations.
CUSTOMERS
The Company's customers are primarily major and independent oil and gas
exploration, transportation and marine construction companies operating in the
Gulf of Mexico. The level of construction services required by any particular
customer depends on the size of that customer's capital expenditure budget
devoted to construction plans in a particular year. Consequently, customers that
account for a significant portion of contract revenues in one fiscal year may
represent an immaterial portion of contract revenues in subsequent fiscal years.
The Company estimates that in 1996 it provided subsea services to approximately
100 customers. For the years ended December 31, 1995 and 1996, and the three
months ended March 31, 1997, approximately 21%, 24% and 7%, respectively, of the
Company's total revenues were attributable to J. Ray McDermott, S.A. The
Company's projects are typically of short duration and are generally awarded
shortly before remobilization. Accordingly, backlog is not a meaningful
indicator of future activities.
MARKETING
Contracts for work in the Gulf of Mexico are typically awarded on a
competitive bid basis with customers usually requesting bids on projects several
months prior to commencement. The Company maintains a focused marketing effort
through a 12-person direct sales force operating from Houston, Texas together
with sales offices in Lafayette and New Orleans, Louisiana. Most contracts are
awarded on a turnkey basis, but the Company also performs work on a cost-plus or
day rate basis, or on a combination of such bases. Under a qualified turnkey
project, Cal Dive agrees to provide a portion of services for a fixed price
(regardless of the time and materials actually required) and other services on a
day rate basis. For projects involving day rates, Cal Dive charges are per day
rate based upon a rate schedule for the services provided.
33
<PAGE>
The Company sells substantially all of its natural gas under short-term
contracts (maximum of one year in duration) at pricing based on spot market
indexes. Cal Dive has not engaged in hedging transactions.
COMPETITION
The subsea services industry is highly competitive. Competition for subsea
construction work in the Gulf of Mexico has historically been based on the
location and type of equipment available, ability to deploy such equipment, the
safety and quality of service in recent years and price. While price has been an
important factor in obtaining contracts, the ability to acquire specialized
vessels, to attract and retain skilled personnel, and to demonstrate a good
safety record have also been important competitive factors. The Company's
competitors for shallow water projects include American Oilfield Divers, Inc.
Subsea International, Global Industries Ltd., Oceaneering International, Inc. as
well as a number of smaller companies, some of which only operate a single
vessel, that often compete solely on price. For Deepwater projects, Cal Dive's
principal U.S. based competitors include Oceaneering International, Inc., Global
Industries, Ltd., Subsea International, and J. Ray McDermott, S.A. Other large
foreign based subsea contractors, including Stolt Comex Seaway, S.A. have
announced their intention to perform services in the Gulf. The Company generally
has fewer competitors in Deepwater projects given the more sophisticated vessels
and technology required. The Company believes that its ability to provide a full
range of services and advanced vessels will generally result in less price
competition, higher margins and will enable it to compete effectively,
particularly in water depths greater than 300 feet.
The Company also encounters significant competition for the acquisition of
producing natural gas and oil properties. Many of the Company's competitors are
well-established companies with substantially larger operating staffs and
greater capital resources than the Company which, in many instances, have been
engaged in the energy business for a much longer time than the Company. The
Company's ability to acquire additional properties will depend upon its ability
to evaluate and select suitable properties and to consummate transactions in a
highly competitive environment.
TRAINING AND QUALITY ASSURANCE
The Company maintains a stringent safety and quality assurance program. In
1994, the Company devised and instituted a comprehensive revision to its safety
program which emphasizes team building by assembling a core group of personnel
specifically for each vessel to promote offshore efficiency and safety.
Assembling core groups of personnel specifically assigned to each vessel has
also reduced recorded incidents. As a result, management believes that the
Company's safety programs are among the best in the industry.
FACILITIES
Cal Dive is headquartered at 13430 Northwest Freeway in Houston, Texas. The
Company's subsea and marine services operations are based in Morgan City,
Louisiana. All of Cal Dive's facilities are leased.
PROPERTY AND FACILITIES SUMMARY
FUNCTION SIZE
--------------------------------- --------------------
Houston, Texas Corporate and ERT Headquarters 23,700 square feet
Project Engineering
Account Management
Sales Office
Morgan City, Louisiana Operations/Docking 3.5 acres
Warehouse/Offices 10,000 square feet
4,500 square feet
34
<PAGE>
The Company expects shortly to move to a larger and more modern operating
facility near its current facility in Morgan City. The new facility will provide
many advantages when compared to the present location including, more room (28.5
acres), more office space (30,000 square feet), more bulkhead (over 1000 feet)
for vessel repair and maintenance, new warehouses and mechanics buildings and
more parking. This facility is important to enable Cal Dive to manage operations
effectively as it continues to grow. The Company also has sales offices in
Lafayette and New Orleans, Louisiana.
The Company also expects to move to a new and more modern headquarters in
Houston in July 1997. The facility will have over 30,000 square feet and parking
to house administrative, project engineering, account management, sales and ERT
personnel.
GOVERNMENT REGULATION
Many aspects of the offshore marine construction industry are subject to
extensive governmental regulation. The Company is subject to the jurisdiction of
the USCG, the Environmental Protection Agency, MMS and the U.S. Customs Service,
as well as private industry organizations such as the American Bureau of
Shipping.
The Company also supports and voluntarily complies with The Association of
American Diving Contractor Standards. The USCG sets safety standards and is
authorized to investigate vessel and during accidents and recommend improved
safety standards, and the U.S. Customs Service is authorized to inspect vessels
at will. As the Company expands its operations to foreign waters, it will also
be subject to regulation by other governments.
The Company is required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The Company believes that it has obtained or can obtain all
permits, licenses and certificates necessary to the conduct of its business. The
Company is subject to regulation by the Maritime Administration, USCG and U.S.
Customs Services.
In addition, the Company depends on the demand for its services from the
oil and gas industry and, therefore, the Company's business is affected by laws
and regulations, as well as changing taxes and policies relating to the oil and
gas industry generally. In particular, the development and operation of natural
gas and oil properties located on the Outer Continental Shelf ("OCS") of the
United States is regulated primarily by the MMS.
The MMS requires lessees of OCS properties to post bonds in connection with
the plugging and abandonment of wells located offshore and the removal of all
production facilities. Operators in the OCS waters of the Gulf of Mexico are
currently required to post an area wide bond of $3 million or $500,000 per
producing lease. The Company currently has bonded its offshore leases as
required by the MMS. Under certain circumstances, the MMS has the authority to
suspend or terminate operations on federal leases for failure to comply with
applicable bonding requirements or other regulations applicable to plugging and
abandonment. Any such suspensions or terminations of the Company's operations
could have a material adverse effect on the Company's financial condition and
results of operations.
The Company acquires production rights to offshore mature oil and gas
properties under federal oil and gas leases, which the MMS administers. These
leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the Outer Continental Shelf
Lands Act ("OCSLA") (which are subject to change by the MMS). The MMS has
promulgated regulations requiring offshore production facilities located on the
OCS to meet stringent engineering and construction specifications, and proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. These latter regulations
were withdrawn pending further discussions among interested federal agencies.
The MMS also has issued regulations restricting the flaring or venting of
natural gas, and has recently proposed to amend such regulations to prohibit the
flaring of liquid
35
<PAGE>
hydrocarbons and oil without prior authorization. Similarly, the MMS has
promulgated other regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities. Finally, under
certain circumstances, the MMS may require any operations on federal leases to
be suspended or terminated. Any such suspension or termination could materially
and adversely affect the Company's financial condition and operations.
The MMS has also issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and the
valuation of crude oil produced from federal leases. The proposed rule would
modify the valuation procedures for both arm's length and non-arm's length crude
oil transactions to decrease reliance on oil posted prices and assign a value to
crude oil that better reflects market value, establish a new MMS form for
collecting value differential data, and amend the valuation procedure for the
sale of federal royalty oil. The Company cannot predict at this stage of the
rulemaking proceeding how it might be affected by this amendment to the MMS'
regulations.
In April 1997, after two years of study, the MMS withdrew proposed changes
to the way it values natural gas for royalty payments that would have
established an alternative market-based method to calculate royalties on certain
natural gas sold to affiliates or pursuant to non-arm's length sales contracts.
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 (the "NGPA"), and the regulations
promulgated thereunder by the Federal Energy Regulatory Commission (the
"FERC"). In the past, the federal government has regulated the prices at which
gas and oil could be sold. While sales by producers of natural gas, and all
sales of crude oil, condensate, and natural gas liquids can currently be made at
uncontrolled market prices, Congress could reenact price controls in the future.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was
enacted. This act amended the NGPA to remove both price and non-price controls
from natural gas sold in "first sales" as of January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B and
636-C (collectively, "Order No. 636"), which, among other things, require
interstate pipelines to "restructure" to provide open-access transportation
separate or "unbundled" from the pipelines' sales of gas. Order No. 636
further requires pipelines to provide open-access transportation on a basis that
is equal for all gas supplies. Order No. 636 could subject the Company to more
restrictive pipeline imbalance tolerances and greater penalties for violations
of those tolerances. The Company does not believe, however, that it will be
affected by Order No. 636 materially differently than other natural gas
producers, gatherers and marketers with which it competes.
In July 1996, the United States Court of Appeals for the District of
Columbia Circuit largely upheld Order No. 636. Certain issues as well as
individual pipeline restructuring proceedings are still subject to judicial
review, and upon judicial review, the FERC's orders may be remanded or reversed
in whole or part. Consequently, it is difficult to predict Order No. 636's
ultimate effects.
Additional proposals and proceedings before various federal and state
regulatory agencies and the courts could affect the oil and gas industry. The
Company cannot predict when or whether any such proposals may become effective.
In the past, the natural gas industry has been heavily regulated. There is no
assurance that the regulatory approach currently pursued by the FERC will
continue indefinitely. Notwithstanding the foregoing, the Company does not
anticipate that compliance with existing federal, state and local laws, rules,
and regulations will have a material effect upon the capital expenditures,
earnings, or competitive position of the Company.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a variety of federal, state and
local laws and regulations governing the discharge of materials into the
environment or otherwise relating to
36
<PAGE>
environmental protection. Numerous governmental departments issue rules and
regulations to implement and enforce such laws which are often difficult and
costly to comply with and which carry substantial penalties for failure to
comply. For example, state and federal agencies have issued rules and
regulations pursuant to environmental laws that regulate environmental and
safety matters, including restrictions on the types, quantities, and
concentration of various substances that can be released into the environment in
connection with production and abandonment activities and remedial measures to
prevent pollution from current and former operations. Federal environmental laws
include, without limitation, the Clean Water Act, the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), OCSLA and the Oil Pollution Act of 1990
("OPA"). See "Risk Factors -- Government Regulation."
The Clean Water Act imposes strict controls on the discharge of pollutants
into the navigable waters of the U.S., and imposes potential liability for the
costs of remediating releases of petroleum and other substances. The Clean Water
Act provides for civil, criminal and administrative penalties for any
unauthorized discharge of oil and other hazardous substances in reportable
quantities and imposes substantial potential liability for the costs of removal,
remediation and damages. Many states have laws which are analogous to the Clean
Water Act and also require remediation of accidental releases of petroleum in
reportable quantities in state waters. The Company's vessels routinely transport
diesel fuel to offshore rigs and platforms, and also carry diesel fuel for their
own use. The Company's supply boats transport bulk chemical materials used in
drilling activities, and also transport liquid mud which contains oil and oil
by-products. In addition, offshore facilities and vessels operated by the
Company have facility and vessel response plans to deal with potential spills of
oil or its derivatives.
RCRA regulates the generation, transportation, storage and disposal of
hazardous and non-hazardous wastes, and requires states to develop programs to
ensure the safe disposal of wastes. The Company generates non-hazardous wastes
and small quantities of hazardous wastes in connection with routine operations,
and while certain of its onshore waste handling practices may require upgrading,
management believes that the wastes it generates are generally handled in
substantial compliance with RCRA and analogous state statutes.
CERCLA contains provisions dealing with remediation of releases of
hazardous substances into the environment and imposes liability without regard
to fault or the legality of the original conduct, on certain classes of persons
including owners and operators of contaminated sites where the release occurred
and those companies who transport, dispose of or who arrange for disposal of
hazardous substances released at the sites. Under CERCLA, such persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources and for the costs of certain health studies. In addition,
companies that incur CERCLA liability frequently also confront third party
claims because it is not uncommon for third parties to file claims for personal
injury and property damage allegedly caused by the release of hazardous
substances. Although the Company handles hazardous substances in the ordinary
course of business, the Company is not aware of any hazardous substance
contamination for which it may be liable.
OCSLA provides the federal government with broad discretion in regulating
the release of offshore resources of natural gas and oil production as well as
regulating safety and environmental protection applicable to lessees and
permittees operating in the OCS. Specific design and operational standards may
apply to OCS vessels, rigs, platforms, vehicles and structures. Violations of
lease conditions or regulations issued pursuant to OCSLA can result in
substantial civil and criminal penalties, as well as potential court injunctions
curtailing operations and cancellation of leases. Because the Company's
operations rely on offshore oil and gas exploration and production, if the
government were to exercise its authority under OCSLA to restrict the
availability of offshore oil and gas leases, such an action could have a
material adverse effect on the Company's
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financial condition and the results of operations. As of this date, the Company
is not the subject of any civil or criminal enforcement actions under OCSLA.
OPA imposes a variety of requirements on "responsible parties" related to
the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. 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. OPA assigns liability to each
responsible party for oil spill removal costs and a variety of public and
private damages from oil spills. While liability limits apply in some
circumstances, a party cannot take advantage of liability limits if the spill is
caused by gross negligence or willful misconduct, if the spill resulted from
violation of a federal safety, construction, or operating regulation, or if a
party fails to report a spill or to cooperate fully in the cleanup. Few defenses
exist to the liability imposed under OPA for oil spills. The failure to comply
with these requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions. Management of the
Company is currently unaware of any oil spills for which the Company has been
designated as a responsible party under OPA and that will have a material
adverse impact on the Company or its operations. OPA also imposes ongoing
requirements on facility operators, such as the preparation of an oil spill
contingency plan. The Company is in the process of updating such plans.
OPA, as recently amended in 1996, requires the lessee or permittee of the
offshore area in which an oil or natural gas facility is located and which has a
"worst case" oil spill discharge potential of more than 1,000 barrels of oil
to establish and maintain evidence of financial responsibility in amounts
ranging from $10.0 million in specified state waters to $35.0 million in federal
OCS waters to cover liabilities related to an oil spill for which such person is
statutorily responsible. Higher amounts of financial responsibility, up to
$150.0 million, will be required in certain limited circumstances where the MMS
believes such a level is justified by the risks posed by the quantity or quality
of oil that is handled by the facility. On March 25, 1997, the MMS proposed
regulations to implement these financial responsibility requirements. Under the
proposed regulations, the amount of financial responsibility required for a
facility would depend on the worst case oil spill discharge volume calculated
for the facility. For an offshore facility in OCS waters, worst case discharge
volumes of up to 35,000 barrels will require a financial responsibility
demonstration of $35.0 million, while worst case discharge volumes in excess of
35,000 barrels will require demonstrations ranging from $70.0 million to $150.0
million, depending on the worst case volume. Similarly, for an offshore facility
in specified state waters, volumes of up to 10,000 barrels require a financial
responsibility demonstration of $10.0 million, while worst case discharge
volumes in excess of 10,000 barrels but not more than 35,000 barrels will
require demonstrations of $35.0 million, and worst case discharge volumes in
excess of 35,000 barrels will require demonstrations ranging from $70.0 million
to $150.0 million, depending on the worst case volume. The Company cannot
predict whether these financial responsibility requirements under the OPA
amendment or proposed rule will result in the imposition of substantial
additional annual costs to the Company in the future or otherwise materially
adversely affect the Company, but the impact is not expected to be any more
burdensome to the Company than it will be to other similar situated companies
involved in oil and gas explorations and production in the Gulf of Mexico.
OPA also requires owners and operators of vessels over 300 gross tons to
provide the U.S. Coast Guard with evidence of financial responsibility to cover
the cost of cleaning up oil spills from such vessels. The Company currently owns
and operates five vessels over 300 gross tons. Satisfactory evidence of
financial responsibility has been provided to the U.S. Coast Guard for all of
the Company's vessels.
While certain of its onshore waste handling practices may require
upgrading, management believes the Company is in compliance in all material
respects with all applicable environmental laws and regulations to which it is
subject. The Company does not anticipate that compliance with
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existing environmental laws and regulations will have a material effect upon the
capital expenditures, earnings or competitive position of the Company.
INSURANCE AND LITIGATION
The Company's operations are subject to the inherent risks of offshore
marine activity including accidents resulting in personal injury and the loss of
life or property, environmental mishaps, mechanical failures and collisions. The
Company insures against these risks at levels consistent with industry
standards. The Company believes its insurance is adequate to protect it against,
among other things, the cost of replacing the total or constructive total loss
of its vessels. The Company also carries workers' compensation, maritime
employer's liability, general liability and other insurance customary in its
business. All insurance is carried at levels of coverage and deductibles that
the Company considers financially prudent.
The Company's services are provided in hazardous environments where
accidents involving catastrophic damage or loss of life could result, and
litigation arising from such an event may result in the Company being named a
defendant in lawsuits asserting large claims. To date, the Company has been
involved in no such catastrophic lawsuit. Although there can be no assurance
that the amount of insurance carried by Cal Dive is sufficient to protect it
fully in all events, management believes that its insurance protection is
adequate for the Company's business operations. A successful liability claim for
which the Company is underinsured or uninsured could have a material adverse
effect on the Company.
The Company is involved in various legal proceedings primarily involving
claims for personal injury under the General Maritime Laws of the United States
and the Jones Act as a result of alleged negligence. The Company believes that
the outcome of all such proceedings, even if determined adversely, would not
have a material adverse effect on its business or financial condition.
EMPLOYEES
Cal Dive relies on the quality and skill of its workforce and has
successfully hired, trained, and retained highly skilled managers and divers. As
of March 31, 1997, the Company had 385 employees, 93 of which were salaried.
None of the Company's employees belong to a union or are employed pursuant to
any collective bargaining agreement or any similar arrangement. Management
believes that the Company's relationship with its employees is excellent. Of the
Company's employees, 19 persons own shares of the Company's Common Stock and 34
other employees hold options to acquire Common Stock under the Company's 1995
Long Term Incentive Plan.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information as of the date of this
Prospectus with respect to the executive officers, directors and certain other
senior officers of the Company:
NAME AGE POSITION WITH THE COMPANY
- -------------------------- --- -----------------------------------------------
Gerald G. Reuhl........... 46 Chairman and Director
Owen E. Kratz............. 44 President, Chief Executive Officer and Director
S. James Nelson........... 55 Executive Vice President, Chief Financial
Officer and Director
Andrew C. Becher.......... 51 Senior Vice President and General Counsel
Louis L. Tapscott......... 59 Senior Vice President -- Business Development
Jon M. Buck............... 39 Vice President -- Sales
Randall W. Drewry......... 50 Vice President -- Bids and Proposals
Kenneth Duell............. 46 Vice President -- Special Projects
Michael P. Middleton...... 40 Vice President -- Operations
A. Wade Pursell........... 32 Vice President -- Finance
Terrell W. (Jack) Reedy... 55 Vice President -- Safety
Lyle K. Kuntz............. 45 President, ERT
Gordon F. Ahalt........... 68 Director
Thomas M. Ehret........... 45 Director
Jean-Bernard Fay.......... 51 Director
Gerald M. Hage............ 49 Director
Kenneth Hulls............. 53 Director
David H. Kennedy.......... 47 Director
William E. Macaulay....... 51 Director
EXECUTIVE AND OTHER SENIOR OFFICERS
GERALD G. REUHL has served as the Company's Chairman of the Board since
1990 and Chief Executive Officer from 1988 until April of 1997. From 1986 to
1988, Mr. Reuhl managed the Company's Domestic Diving Division, and from 1980 to
1986, he held a variety of management positions within both the domestic and
international divisions of the Company. Mr. Reuhl joined the Company as a diver
in 1975.
OWEN KRATZ has served as the Company's Chief Executive Officer since April
1997, President since 1993 and Chief Operating Officer and director since 1990.
He joined the Company in 1984 and has held various offshore positions, including
SAT diving supervisor, and management responsibility for client relations,
marketing and estimating. From 1982 to 1983, Mr. Kratz was the owner of an
independent marine construction company operating in the Bay of Campeche. Prior
to 1982, he was a supervisor for various international diving companies and a
SAT diver in the North Sea.
S. JAMES NELSON, JR., has served as Executive Vice President, Chief
Financial Officer and a director of the Company since 1990. From 1985 to 1988,
Mr. Nelson was the Senior Vice President and Chief Financial Officer of
Diversified Energies, Inc., the former parent of Cal Dive, at which time he had
corporate responsibility for the Company. From 1980 to 1985, Mr. Nelson served
as Chief Financial Officer of Apache Corporation, an oil and gas exploration and
production company. From 1966 to 1980, Mr. Nelson was employed with Arthur
Andersen & Co., and from 1976 to 1980, he was a partner serving on the firm's
worldwide oil and gas industry team. Mr. Nelson received his undergraduate
degree from Holy Cross College (B.S.) in 1964 and a masters in business
administration (M.B.A.) from Harvard University in 1966.
ANDREW C. BECHER has served as Senior Vice President and General Counsel of
the Company since January 1996. Mr. Becher served as outside general counsel for
the Company from 1990 to 1996, while a partner with Robins, Kaplan, Miller &
Ciresi. From 1987 to 1990, Mr. Becher served
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as Senior Vice President of Dain Bosworth, Inc., a Minneapolis-based investment
banking firm. From 1976 to 1987, he was a partner specializing in mergers and
acquisitions with the law firm of Briggs and Morgan. Mr. Becher received his
undergraduate degree from Purdue University (B.S.) in 1968 and his law degree
from the University of Illinois in 1971.
LOUIS L. TAPSCOTT joined the Company as Senior Vice President of Business
Development in August 1996. From 1992 to 1996, he was a Senior Vice President
for Sonsub International, Inc., a company which operates a deepwater fleet of
ROVs. From 1984 to 1988, he was a director and Chief Operating Officer of
Oceaneering International, Inc. Mr. Tapscott has over thirty years of executive
management and operational experience working with subsea contractors and subsea
technology organizations in the United States and internationally.
JON M. BUCK has served as the Company's Vice President of Sales since
August 1996 and as Sales Coordinator since 1994. From 1987 to 1994, Mr. Buck
served as one of the Company's Account Managers. Prior to 1987, he held various
positions in the hyperbaric welding and sales groups of SubSea International,
Inc.
RANDALL W. DREWRY has served as the Company's Vice President of Bids and
Proposals since 1992. He has held a number of management positions since joining
the Company in 1980 and was responsible for custom designing the CAL DIVER I in
1984. Mr. Drewry has 24 years of experience in the industry as a diver, project
manager, marine manager and sales coordinator and is a specialist in pipeline
construction and saturation project specifications.
KENNETH DUELL joined Cal Dive in November of 1994 and was appointed Vice
President -- Special Projects in November 1996. From 1989 to 1994, he was
employed by ABB Soimi, Milan, Italy, in connection with a modular refining
systems development in Central Asia. From 1974 to 1988, he held various
positions with Santa Fe International, including the ROV and diving division.
Mr. Duell has over 22 years of worldwide experience in all aspects of the
onshore and offshore construction and diving industry.
MICHAEL P. MIDDLETON has served as the Company's Vice President of
Operations since 1991. Since joining the Company in 1981, Mr. Middleton has held
a number of offshore and management positions, including dive tender, diver,
diving superintendent, diving personnel manager, marine operations manager and
general manager.
A. WADE PURSELL joined the Company in May 1997 as Vice President -- Finance
and Chief Accounting Officer. From 1988 through 1997 he was with Arthur Andersen
LLP, most recently as an Experienced Manager specializing in the offshore
services industry. Mr. Pursell is a Certified Public Accountant.
TERRELL W. (JACK) REEDY has been the Company's Vice President of Safety
since 1991, becoming Vice President of Safety and Training in 1994. Prior to
joining the Company in 1990, Mr. Reedy worked for McDermott International, Inc.
as a diving supervisor and in offshore operations and the safety area. Prior
thereto, he served in the United States Navy as a SAT diver, a diving medical
technician and a member of the Experimental Diving Unit.
LYLE K. KUNTZ has served as President of the Company's subsidiary, Energy
Resource Technology, Inc., since its inception in 1992. Prior to forming ERT,
Mr. Kuntz spent 17 years with ARCO Oil and Gas Co. in a broad range of senior
engineering and management positions.
GORDON F. AHALT has served on the Company's Board of Directors since July
1990 and has extensive experience in the oil and gas industry. Since 1982, Mr.
Ahalt has been the President of GFA, Inc., a petroleum industry management and
financial consulting firm. From 1979 to 1982, he served as Senior Vice President
and Chief Financial Officer of Ashland Oil Company. Prior thereto, Mr. Ahalt
spent a number of years in executive positions with Chase Manhattan Bank.
WILLIAM E. MACAULAY has served on the Company's Board of Directors since
January 1995. Since 1983, Mr. Macaulay has served as President and Chief
Executive Officer of First Reserve Corporation, a corporate manager of private
investments focusing on the energy and energy-related sectors. Mr. Macaulay
serves as a director of Weatherford Enterra, Inc., an oilfield service
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company, Maverick Tube Corporation, a manufacturer of steel pipe and casing,
Transmontaigne Oil Company, an oil products distribution and refining company,
Hugoton Energy Corporation, an independent oil and gas exploration and product
company and National-Oilwell Inc., a manufacturer and distributor of oil field
equipment.
DAVID H. KENNEDY has served on the Company's Board of Directors since
January 1995 and has more than 20 years of experience in the oil and gas
industry. Since 1981, Mr. Kennedy has served as Managing Director of First
Reserve Corporation. From 1971 to 1981, he was with Price Waterhouse & Co. where
his responsibilities included tax and audit services for major energy companies.
Mr. Kennedy is a director of Maverick Tube Corporation, a manufacturer of steel
pipe and casing and of Berkley Petroleum Corporation, Pursuit Resources
Corporation and Burner Exploration Ltd., three Canadian exploration and
production companies.
GERALD M. HAGE has served on the Company's Board of Directors since January
1995. Since 1995, Mr. Hage has served as President and Chief Executive Officer
of Phoenix Energy Services, Inc., and from 1993 to 1994, he was President and
Chief Executive Officer of Total Energy Services, Inc., which was later merged
into Enterra Corporation. From 1991 to 1993, Mr. Hage served as President and
Chief Executive Officer of First Reserve Energy Services Co. From 1981 to 1991,
he held a number of senior management positions with Baker Hughes, Incorporated.
including President and Chief Executive Officer of Baker Oil Tools and
President, Chief Executive Officer, Vice President of Manufacturing and Vice
President of Operations for Baker Tubular Services.
THOMAS M. EHRET has served on the Company's Board of Directors since April
1997. Mr. Ehret has been the Senior Executive Vice President of Coflexip since
1996 and Chief Operating Officer and director since 1995. From 1989 through
1994, Mr. Ehret served as Chief Executive Officer with Stena Offshore Group
based in Aberdeen, Scotland.
JEAN-BERNARD FAY has served on the Company's Board of Directors since April
1997. Mr. Fay has been Chief Financial Officer of Coflexip since 1997, and from
1990 to 1996 was Group Vice President -- Finance and Administration. From 1986
to 1990, he was a Managing Director with SCOR, a French reinsurance group.
KENNETH HULLS has served on the Company's Board of Directors since May
1997. Mr. Hulls has served as President and Chief Executive Officer of Coflexip
Stena Offshore, Inc., the North American subsidiary of Coflexip since May 1997,
and has held various positions in the Coflexip Stena Offshore Group from 1991 to
May 1997. From 1977 to 1991, Mr. Hulls held various international positions in
the offshore construction industry.
The Company's Bylaws provide for the Board of Directors to be divided into
three classes of directors with each class to be as nearly equal in number of
directors as possible, serving staggered three-year terms. The terms of the
Class I directors, Owen Kratz, Gerald M. Hage and Thomas M. Ehret, will expire
in 1998. The terms of the Class II directors, William E. Macaulay, Gerald G.
Reuhl, Gordon F. Ahalt and Jean-Bernard Fay will expire in 1999. The terms of
the Class III directors, David H. Kennedy, S. James Nelson and Kenneth Hulls
will expire in 2000. Each director serves until the end of his term or until his
successor is elected and qualified. See "Description of Capital
Stock -- Certain Anti-Takeover Provisions."
COMMITTEES
As authorized by the Company's By-Laws (and as provided in the Shareholders
Agreement (defined below)) the Board has established the following four
committees: (i) a five-member Executive Committee comprised of one First Reserve
director, one Coflexip director, one independent director and two directors
appointed by management (one of whom shall be the Chairman of the Board) which,
when the Board is not in session, shall exercise such power and authority of the
Board in the management of the business of the Company pursuant to the unanimous
vote of such Committee as the Board may from time to time authorize, (ii) a
four-member Audit Committee comprised of one First Reserve director, one
Coflexip director and two independent directors,
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which shall consult with the independent public auditors of the Company in
connection with such auditors' audit and review of the financial statements of
the Company and shall consult with the Company's Chief Financial Officer and
staff in connection with the preparation of the Company's financial statements,
subject to such limitations as the Board may from time to time impose; (iii) a
five-member Compensation Committee comprised of one First Reserve director, one
Coflexip director, one director appointed by management and two independent
directors, which shall administer awards under any Stock Option Plan and shall
evaluate and make recommendations with respect to the compensation arrangements
of executive officers of the Company, subject to such limitations as the Board
may from time to time impose; and (iv) a three-member Nominating Committee
comprised of one First Reserve director, one Coflexip director and one director
appointed by management, which shall be responsible for searching for and
selecting nominees to serve as independent directors from a list of acceptable
potential nominees prepared by the First Reserve director and Coflexip director
with the advice of the director appointed by management, from which list the
director appointed by management shall select a nominee.
COMPENSATION OF DIRECTORS
The Company has agreed to pay its independent directors each an annual
retainer which totals $20,000. All directors are reimbursed for reasonable
out-of-pocket expenses incurred to attend Board and committee meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash compensation paid or accrued for
services rendered in all capacities to the Company in 1996, to the Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
1996 ANNUAL COMPENSATION COMPENSATION
------------------------------------------- AWARDS
OTHER ANNUAL ------------
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) OPTIONS
- ---------------------------------------- ----------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Lyle K. Kuntz........................... $ 102,920 $ 408,586 $ 3,750 --
President, ERT
Gerald G. Reuhl......................... 146,000 146,000 3,650 --
Chairman and Chief Executive Officer,
Cal Dive
Owen Kratz (2).......................... 163,200 163,200 3,750 --
President and Chief Operating Officer,
Cal Dive
S. James Nelson......................... 128,300 128,300 3,208 --
Executive Vice President and Chief
Financial Officer, Cal Dive
Randall W. Drewry....................... 101,750 67,581 2,544 --
Vice President -- Bids and Proposals,
Cal Dive
</TABLE>
- ------------
(1) Represents the Company's matching contribution to the Company's 401(k) Plan.
(2) Owen Kratz became Chief Executive Officer in April 1997.
Except as indicated above, no stock options were granted to the Named
Executives during 1996 and none of these individuals exercised a stock option
during 1996.
Each of the Company's three principal executive officers, Gerald G. Reuhl,
Owen Kratz and S. James Nelson has entered into a two-year employment agreements
with the Company. These agreements provide, among other things, that until the
later of April 11, 2002 or the first or second anniversary date of termination
of the executive's employment with the Company (depending on the event of
termination), the executive shall not, directly or indirectly either for himself
or any other
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individual or entity, participate in any business which engages or which
proposes to engage in the business of providing diving services in the Gulf of
Mexico or any other business actively engaged in by the Company on the date of
termination of employment, so long as the Company continues to make payments to
such executive, including his base salary and insurance benefits received by
senior executives of the Company. In connection with the Coflexip transaction,
the Company also entered into employment agreements with six of the Company's
other senior officers substantially similar to the above agreements.
COMPENSATION PURSUANT TO PLANS
BONUS PLAN
Cal Dive has established three types of bonus compensation plans, each of
which is based on the Company's performance. The first bonus plan applies to the
three principal executive officers and is determined by the Compensation
Committee. The second bonus plan applies to subsea operating and administrative
personnel. This plan affords covered project management and sales personnel the
ability to participate in a bonus pool division if gross profits exceeds
specified targets and allows operating and administrative personnel to earn up
to 50% of their base salaries. The third plan is applicable to the three
principal employees of ERT and provides for a bonus of between 1% to 10% of net
income before taxes of ERT up to a maximum total of 15% of such net income.
PROFIT SHARING AND RETIREMENT PLAN
The Company's Retirement Plan (the "Retirement Plan") is a 401(k) savings
plan. The Retirement Plan permits each employee to become a participant in the
savings plan feature on January 1, April 1, July 1, or October 1 following the
employee's completion of 90 consecutive days of employment.
Under the Retirement Plan, each active participant may elect, subject to
certain limitations required by law, to defer payment of from 1% to 15% of his
or her compensation. Upon such an election, the Company contributes such
deferred amounts to the Retirement Plan on behalf of such participant. Such
contributions to the 401(k) savings plan are invested according to the
instructions of the participant in investment funds designated by the plan
administrator. Subject to reduction or elimination based on its financial
performance and needs as described in the Plan, the Company's contributions are
determined annually as 50% of each employee's contribution (up to a maximum of
5% of the employee's annual salary).
Employee contributions to the 401(k) savings plan and earnings thereon are
100% vested at all times. Contributions by the Company to the profit sharing
feature, and earnings thereon, vest based on the participant's years of service
with the Company, vesting 20% after two years of service, increasing to 50% with
three years of service, and becoming 100% vested following four years of
service. All contributions vest, regardless of years of service, upon
termination of employment by reason of death or disability, attainment of age 65
or the termination or discontinuance of the Retirement Plan. After termination
of employment, an employee is entitled to receive a lump-sum distribution of his
or her entire vested interest in the Retirement Plan.
STOCK OPTION PLAN
The Company's 1995 Long Term Incentive Plan, as amended (the "Stock Option
Plan") is administered by the Board and provides for grants of incentive and
nonqualified options as defined by the Internal Revenue Code of 1986, as
amended, to employees as determined by the Compensation Committee. The Stock
Option Plan provides that options for a maximum of 10% of the total shares of
Common Stock issued and outstanding may be granted. No options may be granted
under the Stock Option Plan after October 2005. Options granted to employees
under the Stock Option Plan have a maximum term of five years and, subject to
certain exceptions, are not transferable.
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The number and exercise price of options granted to employees will be
determined by the Compensation Committee; provided, however, that (i) the
exercise price of an incentive option may not be less than the fair market value
of the shares subject to the option on the date of the grant, and (ii) the
exercise price of a non-qualified option may not be less than 85% of the fair
market value of the shares subject to the option on the date of the grant. The
Stock Option Plan provides that, upon a change of control, the options
immediately vest and become exercisable.
To date, options to purchase approximately 911,500 shares of Common Stock
at exercise prices ranging from $4.50 to $9.50 have been granted to 34
employees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from 1991 to 1994, the Company loaned $150,000 to each of
S. James Nelson and Owen Kratz. These loans bore an interest rate of 1.5% above
the prime rate per annum and were repaid in full in July 1995. The Company
believes the terms of the loans with Messrs. Nelson and Kratz were at least as
favorable as could have been obtained from unaffiliated third parties.
Pursuant to Mr. Kratz's employment agreement, if he is terminated by the
Company during the term of his employment agreement without cause or voluntarily
resigns from the Company, Cal Dive shall be obligated to purchase a number of
shares from Mr. Kratz having a fair market value equal to $2.3 million.
DESCRIBED BELOW ARE CERTAIN RELATED AGREEMENTS. THE FOLLOWING DESCRIPTIONS
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
RELEVANT AGREEMENTS, COPIES OF WHICH ARE FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND ARE INCORPORATED BY REFERENCE
HEREIN.
PURCHASE AGREEMENT
On April 11, 1997, the Company, the Selling Shareholders, Messrs. Reuhl,
Kratz and Nelson and certain other shareholders of the Company entered into an
agreement with Coflexip pursuant to which (i) the Company sold to Coflexip
528,541 shares of Common Stock and (ii) certain shareholders of the Company,
including Messrs. Reuhl, Kratz and Nelson, sold to Coflexip 3,171,247 shares of
Common Stock, all at a purchase price of $9.46 per share for an aggregate price
of $35 million (the "Purchase Agreement"). For issuing Common Stock to
Coflexip, the Company received $5 million in consideration, consisting of two
heavy work class construction ROVs. Among other terms of the Purchase Agreement,
the Company was required to make a number of specific representations,
warranties and covenants about its business, capital structure, assets and
liabilities. Individual selling shareholders were required to make separate
representations. The Company and Coflexip also agreed to indemnify each other
against certain claims and liabilities arising in connection with the
transaction for a minimum of three years for up to the amount of consideration
transferred for shares, in the case of the Company, or for value assets
transferred, in the case of Coflexip.
SHAREHOLDERS AGREEMENT
COMPOSITION OF THE BOARD
Pursuant to the Shareholders Agreement, the Board will consist of 11
members. The Company will include, as nominees for the Board, nine directors,
three from Coflexip, three from First Reserve and three from the Company's
senior management. In addition, the Board will nominate two additional directors
by a majority vote of the entire Board, to serve in separate classes. The
Shareholders Agreement provides that the Company will nominate and use its best
efforts to take all necessary action to elect to the Board the individuals
required to be nominated for election as directors.
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RIGHT OF FIRST OFFER
The Shareholders Agreement provides that the Company will not enter into
any agreement (i) to sell the Company (ii) to retain an advisor to sell the
Company or (iii) to pursue any acquisition in excess of 50% of the Company's
market capitalization (based on the 30-day average trading value of the Common
Stock) without first notifying Coflexip in writing and providing Coflexip with
the right to acquire the Company without first notifying Coflexip in writing and
providing Coflexip (including its affiliates) the opportunity to consummate an
acquisition on terms substantially equivalent to any proposal. If Coflexip does
not notify the Company of its intent to pursue a transaction within 15 days of
the notice (the "Notice Period"), the Board will have the right to pursue the
transaction.
If Coflexip elects to pursue an acquisition of the Company, the Company
will take no further action with respect thereto for 120 days from the date of
Coflexip's notice. If Coflexip does not pursue an acquisition of the Company,
Coflexip has the right to acquire the Company's interest in the joint venture
formed pursuant to the Business Cooperation Agreement by providing notice within
the Notice Period. The purchase price for the joint venture shall be based on a
valuation prepared by an independent appraiser appointed by the Board. Coflexip
retains the foregoing rights to acquire the Company or the joint venture so long
as it owns at least five percent of the Company's Common Stock.
LIMITED PREEMPTIVE RIGHTS
The Shareholders Agreement provides that, except under limited
circumstances (including issuances of securities under stock option plans or in
connection with acquisitions), the Company shall provide preemptive rights to
acquire the Company's securities to each of Coflexip, First Reserve and the
Executive Directors. In the event of any public offering (other than this
Offering), Coflexip and First Reserve shall have the opportunity to acquire
their pro rata share unless the managing underwriters for such offering believe
it would materially and adversely affect the marketability of such offering.
LIMITATIONS ON TRANSFERS
The Shareholders Agreement contains certain customary transfer restrictions
that prohibit the parties from transferring any Common Stock, except for certain
permitted transfers.
BUSINESS COOPERATION AGREEMENT
In connection with the Purchase Agreement, the Company and Coflexip entered
into a Business Cooperation Agreement pursuant to which the parties intend to
form an entity to pursue EPIC projects in the offshore oil and gas industry in
the Gulf and the Caribbean exceeding $25 million in value and meeting certain
other criteria. For further information, see "Business -- Coflexip Strategic
Alliance."
REGISTRATION RIGHTS AGREEMENTS
In January 1995, the Company and certain shareholders entered into an
agreement pursuant to which they sold an aggregate of 5,549,630 shares of Common
Stock to the Selling Shareholders at a purchase price of $4.50 per share. In
connection with the purchases of such shares of Common Stock, each of the
Selling Shareholders entered into a registration rights agreement with the
Company and Gerald G. Reuhl, Owen Kratz, S. James Nelson and the other
shareholders of the Company providing for demand and "piggyback" registration
rights with respect to such shares. This registration rights agreement will be
amended after this Offering to provide these shareholders with similar rights as
provided in the 1997 Registration Rights Agreement with Coflexip described in
the next paragraph.
In connection with the Purchase Agreement, the Company and Coflexip entered
into a registration rights agreement providing for demand and "piggyback"
registration rights with respect to such shares (the "1997 Registration Rights
Agreement"). See "Description of Capital Stock -- Registration Rights."
46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of April 30, 1997,
with respect to the beneficial ownership of Common Stock by (i) each shareholder
of the Company who owns more than 5% of the outstanding stock, (ii) each
director of the Company, (iii) each of the Named Executives, (iv) all directors
and executive officers as a group and (v) each Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERING(1)(2)
---------------------- BEING ----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------- ------------ ------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
Gerald G. Reuhl(3)(4)...... 1,054,001 9.1% -- 1,054,001 7.5%
Owen Kratz(3)(4)........... 1,440,929 12.4 -- 1,440,929 10.2
S. James Nelson(3)......... 367,393 3.2 -- 367,393 2.6
Lyle K. Kuntz.............. -- * -- -- *
Randall W. Drewry.......... 65,803 * -- 65,803 *
Gordon F. Ahalt(5)......... 35,000 * -- 35,000 *
William E. Macaulay(6)..... 4,492,548 38.6 1,100,000 3,392,548 24.0
John A. Hill(6)............ 4,492,548 38.6 1,100,000 3,392,548 24.0
Gerald M. Hage(7).......... 22,000 * -- 22,000 *
Thomas M. Ehret............ -- * -- -- *
Jean-Bernard Fay........... -- * -- -- *
Kenneth Hulls.............. -- * -- -- *
First Reserve Fund VI(8)... 2,156,421 18.5 528,000 1,628,421 11.5
First Reserve Fund V(8).... 1,527,472 13.1 374,001 1,153,471 8.2
First Reserve Fund
V-2(8)................... 449,252 3.9 109,999 339,253 2.4
First Reserve Secured
Energy Assets Fund(8).... 359,403 3.1 88,000 271,403 1.9
Coflexip(9)................ 3,699,788 31.8 -- 3,699,788 26.2
All directors and executive
officers as a group (19
persons)(10)............. 7,477,674 67.2 1,100,000 6,377,674 45.1
</TABLE>
- ------------
* Less than 1%.
(1) Unless otherwise indicated, the persons listed in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) The number of shares of Common Stock deemed outstanding after this Offering
includes 2.5 million shares of Common Stock being offered for sale by the
Company in this Offering.
(3) The address of each executive officer is 13430 Northwest Freeway, Suite
350, Houston, Texas 77040.
(4) Messrs. Reuhl and Kratz are parties to an option agreement pursuant to
which Mr. Kratz can purchase up to 168,350 shares of Common Stock from Mr.
Reuhl. If such option were exercised in full, Messrs. Reuhl and Kratz would
own 885,651 and 1,609,279 shares of Common Stock, respectively, after the
Offering.
(5) Does not include 22,000 shares issuable upon exercise of options held by
Mr. Ahalt.
(6) The address of Messrs. Macaulay and Hill is c/o First Reserve Corporation,
475 Steamboat Rd., Greenwich, Connecticut 06830. The 4,492,548 shares
indicated as beneficially owned by Messrs. Macaulay and Hill are owned of
record by First Reserve Fund VI Limited Partnership, First Reserve Fund V,
Limited Partnership, First Reserve Fund V-2 Limited Partnership and First
Reserve Energy Assets Fund, Limited Partnership, of which First Reserve
Corporation is the sole general partner and as to which it possesses sole
voting and investment power. Through their ownership of common stock of
First Reserve Corporation, Messrs. Macaulay and Hill may be deemed to share
beneficial ownership of the shares shown as beneficially owned by First
Reserve Corporation. Messrs. Macaulay and Hill disclaim beneficial
ownership of such shares of Common Stock.
(7) Includes 22,000 shares issuable upon exercise of options held by Mr. Hage.
(8) The address of First Reserve Fund VI, First Reserve Fund V, First Reserve
Fund V-2 and First Reserve Secured Energy Assets Fund is c/o First Reserve
Corporation, 475 Steamboat Road, Greenwich, Connecticut 06830.
(9) The address of Coflexip is 23 Avenue de Neuilly, 75116 Paris, France.
(10) Includes shares issuable upon exercise of options to directors and
executive officers.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Cal Dive's Amended and Restated Articles of Incorporation (the "Articles
of Incorporation") provide for authorized capital stock of 60,000,000 shares of
Common Stock, no par value per share, of which 14,127,801 shares will be
outstanding upon completion of this Offering, and 5,000,000 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"), of which no shares will
be outstanding upon completion of this Offering. The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Articles of Incorporation and the Company's Amended and
Restated Bylaws (the "Bylaws"), a copy of each of which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted on by shareholders, and except as otherwise required by law or as
provided in any resolution adopted by the Board of Directors with respect to any
series of Preferred Stock, the holders of shares of Common Stock exclusively
possess all voting power.
Subject to any preferential rights of any outstanding series of Preferred
Stock created by the Board of Directors from time to time, the holders of Common
Stock are entitled to such dividends as may be declared from time to time by the
Board of Directors from funds available therefor, and upon liquidation will be
entitled to receive pro rata all assets of the Company available for
distribution to such holders. The Common Stock is not convertible or redeemable
and there are no sinking fund provisions therefor. Holders of the Common Stock
are not entitled to any preemptive rights except under the Shareholders
Agreement. See "Certain Relationships and Related Transactions."
PREFERRED STOCK
The Board of Directors of the Company, without any action by the
shareholders of the Company, is authorized to issue up to 5,000,000 shares of
Preferred Stock, in one or more series and to determine the voting rights,
preferences as to dividends and in liquidation and the conversion and other
rights of each such series. There are no shares of Preferred Stock outstanding.
See "-- Certain Anti-Takeover Provisions" with regard to the effect that the
issuance of Preferred Stock might have on attempts to take over the Company.
REGISTRATION RIGHTS
The Company has entered into both a First Amended and Restated 1995
Registration Rights Agreement and a 1997 Registration Rights Agreement with
certain of its current shareholders, the latter with Coflexip and the former
with Gerald G. Reuhl, Owen Kratz, S. James Nelson and the Selling Shareholders,
pursuant to which the holders are entitled to certain demand and "piggyback"
rights with respect to the registration of such shares under the Securities Act.
These registration rights agreements provide that if the Company proposes to
register any of its securities under the Securities Act, the holder is entitled
to include shares of Common Stock owned by such holder in such offering
provided, among other conditions, that the underwriters of any offering have the
right to limit the number of such shares included in such registration. Such
registration rights agreements further provide for registration upon the request
of holders of at least 5% of the shares of Common Stock subject to the
agreement. The Selling Shareholders, which collectively hold 4,492,548 shares of
Common Stock, are exercising their respective registration rights with respect
to a portion of the shares held by them in connection with this Offering. The
other shareholders, with the exception of the Selling Shareholders, have waived
their right to include shares of Common Stock owned by each of them in this
Offering.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Articles of Incorporation and Bylaws contain a number of provisions
that could make the acquisition of the Company by means of a tender or exchange
offer, a proxy contest or otherwise more difficult. The description of such
provisions set forth below is intended to be only a summary and is qualified in
its entirety by reference to the pertinent sections of the Articles of
Incorporation
48
<PAGE>
and the Bylaws, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The classification of
directors will have the effect of making it more difficult for shareholders to
change the composition of the Board of Directors. At least two annual meetings
of shareholders generally will be required to effect a change in a majority of
the Board of Directors. Such a delay may help ensure that the Company's
directors, if confronted by a shareholder attempting to force a proxy contest, a
tender or exchange offer or an extraordinary corporate transaction, would have
sufficient time to review the proposal as well as any available alternatives to
the proposal and to act in what they believe to be the best interest of the
shareholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
Board of Directors would be beneficial to the Company and its shareholders and
whether a majority of the Company's shareholders believes that such a change
would be desirable.
The Articles of Incorporation provide that directors of the Company may
only be removed by the affirmative vote of the holders of 68% of the voting
power of all of the then outstanding shares of stock entitled to vote generally
in the election of directors (the "Voting Stock").
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender or exchange offer
or otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its shareholders. These
provisions could thus increase the likelihood that incumbent directors will
retain their positions. In addition, the classification provisions may
discourage accumulations of large blocks of the Common Stock that are effected
for purposes of changing the composition of the Board of Directors. Accordingly,
shareholders could be deprived of certain opportunities to sell their shares of
Common Stock at a higher market price than might otherwise be the case.
PREFERRED STOCK. The Articles of Incorporation authorize the Board of
Directors to establish one or more series of Preferred Stock and to determine,
with respect to any series of Preferred Stock, the terms and rights of such
series, including (i) the designation of the series, (ii) the number of shares
of the series, which number the Board may thereafter (except where otherwise
provided in the certificate of designation) increase or decrease (but not below
the number of shares thereof then outstanding), (iii) whether dividends, if any,
will be cumulative or noncumulative and the dividend rate of the series, (iv)
the dates at which dividends, if any, will be payable, (v) the redemption rights
and price or prices, if any, for shares of the series, (vi) the terms and
amounts of any sinking fund provided for the purchase or redemption of shares of
the series, (vii) the amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, (viii) whether the shares of the series will be
convertible into shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion price or prices or
rate or rates, any adjustments thereof, the date or dates as of which such
shares shall be convertible and all other terms and conditions upon which such
conversion may be made, (ix) restrictions, if any, on the issuance of shares of
the same series or of any other class or series, and (x) voting rights, if any,
of the shareholders of such series, which may include the right of such
shareholders to vote separately as a class on any matter.
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility
in structuring possible future financing and acquisitions and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's shareholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that, depending on the
terms of such series, might impede the
49
<PAGE>
completion of a merger, tender offer or other takeover attempt. The Board of
Directors will make any determination to issue such shares based on its judgment
as to the best interests of the Company and its shareholders. The Board of
Directors, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt through which an acquiror may be otherwise
able to change the composition of the Board of Directors, including a tender or
exchange offer or other transaction that some, or a majority, of the Company's
shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then current
market price of such stock.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The Articles
of Incorporation and Bylaws provide that shareholder action can be taken only at
an annual or special meeting of shareholders and prohibit shareholder action by
written consent in lieu of a meeting. The Bylaws provide that special meetings
of shareholders can be called only upon a written request by the Chief Executive
Officer or a majority of the members of the Board of Directors. Shareholders are
not permitted to call a special meeting or to require that the Board call a
special meeting.
The provisions of the Articles of Incorporation and the Bylaws prohibiting
shareholder action by written consent may have the effect of delaying
consideration of a shareholder proposal, including a shareholder proposal that a
majority of shareholders believes to be in the best interest of the Company,
until the next annual meeting unless a special meeting is called. These
provisions would also prevent the holders of a majority of the voting stock from
unilaterally using the written consent procedure to take shareholder action.
Moreover, a shareholder could not force shareholder consideration of a proposal
over the opposition of the Board by calling a special meeting of shareholders
prior to the time a majority of the Board believes such consideration to be
appropriate.
Amendment of Certain Provisions of the Articles of Incorporation and
Bylaws. Under the MBCA, the shareholders have the right to adopt, amend or
repeal the Bylaws and, with the approval of the Board of Directors, the Articles
of Incorporation. The Articles of Incorporation provide that the affirmative
vote of the holders of at least 80% of the voting power of the then outstanding
shares of Voting Stock, voting together as a single class, and in addition to
any other vote required by the Articles of Incorporation or Bylaws, is required
to amend provisions of the Articles of Incorporation or Bylaws relating to: (i)
the prohibition of shareholder action without a meeting; (ii) the prohibition of
shareholders calling a special meeting; (iii) the number, election and term of
the Company's directors; (iv) the removal of directors or (v) fixing a quorum
for meetings of shareholders. The vote of the holders of a majority of the
voting power of the then outstanding shares of Voting Stock is required to amend
all other provisions of the Articles of Incorporation. The Bylaws further
provide that the Bylaws may be amended by the Board of Directors. These super-
majority voting requirements will have the effect of making more difficult any
amendment by shareholders of the Bylaws or of any of the provisions of the
Articles of Incorporation described above, even if a majority of the Company's
shareholders believes that such amendment would be in their best interests.
ANTI-TAKEOVER LEGISLATION. As a public corporation, the Company will be
governed by the provisions of Section 302A.673 of the MBCA. This anti-takeover
provision may eventually operate to deny shareholders the receipt of a premium
on their Common Stock and may also have a depressive effect on the market price
of the Company's Common Stock. Section 302A.673 prohibits a public corporation
(except Coflexip) from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved by a committee of all of the disinterested
members of the Board of Directors of the Company before the interested
shareholder's share acquisition date. A "business combination" includes
mergers, asset sales and other transactions. An "interested shareholder" is a
person who is the beneficial owner of 10% or more of the corporation's Voting
Stock. Reference is made to the detailed terms of Section 302A.673 of the MBCA.
50
<PAGE>
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation contain a provision that eliminates, to the
extent currently allowed under the MBCA, the personal monetary liability of a
director to the Company and its shareholders for breach of his fiduciary duty of
care as a director, except in certain circumstances. If a director were to
breach the duty of care in performing his duties as a director, neither the
Company nor its shareholders could recover monetary damages from the director,
and the only course of action available to the Company's shareholders would be
equitable remedies, such as an action to enjoin or rescind a transaction
involving a breach of the fiduciary duty of care. To the extent certain claims
against directors are limited to equitable remedies, this provision of the
Articles of Incorporation may reduce the likelihood of derivative litigation and
may discourage shareholders or management from initiating litigation against
directors for breach of their duty of care. Additionally, equitable remedies may
not be effective in many situations. If a shareholder's only remedy is to enjoin
the completion of the Board of Directors' action, this remedy would be
ineffective if the shareholder does not become aware of a transaction or event
until after it has been completed. In such a situation, such shareholder would
have not effective remedy against the directors.
All of the foregoing indemnification provisions include statements that
such provisions are not to be deemed exclusive of any other right to indemnity
to which a director or officer may be entitled under any by-law, agreement, vote
of shareholders or disinterested directors or otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 14,127,801 shares
of Common Stock outstanding. The 3,600,000 shares sold in this Offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely tradeable in the public market without restriction or
further registration under the Securities Act, except for any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144
promulgated under the Securities Act. The remaining 10,527,801 outstanding
shares of Common Stock (the "Restricted Shares"), are deemed to be
"restricted securities" within the meaning of Rule 144 and may be publicly
resold only if registered under the Securities Act or sold in accordance with an
eligible exemption from registration, such as Rule 144. Of the Restricted
Shares, 6,828,013 shares will be eligible for resale in the public market
immediately, and 3,699,788 shares will be eligible for resale commencing in
April 1998, subject in each case to certain volume and other restrictions under
Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of the
Company, who beneficially owns "restricted securities" acquired from the
Company or an affiliate of the Company at least one year prior to the sale is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock (141,278 shares based on the number of shares outstanding immediately
after completion of this Offering, assuming no exercise of the Underwriters'
over-allotment option), and (ii) the average weekly reported trading volume of
the Common Stock during the four calendar weeks immediately preceding the date
on which notice of such sale is filed with the Commission, provided certain
manner of sale and notice requirements and requirements as to the availability
of current public information concerning the Company are satisfied (which
requirements as to the availability of current public information are expected
to be satisfied commencing 90 days after the date of this Prospectus). Under
Rule 144(k), a person who has not been an affiliate of the Company for a period
of three months preceding a sale of securities by him, and who beneficially owns
such "restricted securities" acquired from the Company or an affiliate of the
Company at least two years prior to such sale, would be entitled to sell shares
without regard to volume limitations, manner of sale provisions,
51
<PAGE>
notification requirements or requirements as to the availability of current
public information concerning the Company. Shares held by persons who are deemed
to be affiliates of the Company, including any shares acquired by affiliates in
this Offering, are subject to such volume limitations, manner of sale
provisions, notification requirements and requirements as to availability of
current public information concerning the Company, regardless of how long the
shares have been owned or how they were acquired, and, in addition, the sale of
any "restricted securities" beneficially owned by affiliates is subject to the
one-year holding period requirement. As defined in Rule 144, an "affiliate" of
an issuer is a person that directly or indirectly through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer.
The Company, its directors, Messrs. Reuhl, Kratz and Nelson, the Selling
Shareholders and Coflexip have agreed that, for a period of 180 days after the
date of this Prospectus, they will not, directly or indirectly, offer, sell,
contract to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock, other than
options under the Stock Option Plan and upon exercise of options granted under
the Stock Option Plan) without prior written consent of the Representatives of
the Underwriters.
In connection with the purchase of Common Stock by First Reserve in January
1995 and the purchase of Common Stock by Coflexip in April 1997, the Company
entered into registration rights agreements which include certain demand and
"piggyback" registration rights, on customary terms and conditions, to the
Company's existing shareholders who currently hold an aggregate of 10,527,801
shares of Common Stock. Such registration rights are subject to certain notice
requirements, timing restrictions and volume limitations. See "Certain
Relationships and Related Transactions" and "Description of Capital
Stock -- Registration Rights."
The Company has granted options to purchase an aggregate of 911,500 shares
of Common Stock under the Stock Option Plan. See "Management -- Compensation
Pursuant to Plans." The Company intends to register under the Securities Act
the shares issuable upon exercise of options granted under the Stock Option Plan
and, upon such registration, such shares will be eligible for resale in the
public market, except that any such shares issued to affiliates are subject to
the volume limitations and other restrictions of Rule 144.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could adversely
affect prevailing market prices and the ability of the Company to raise equity
capital in the future. See "Underwriting."
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below, and each of the Underwriters for whom Schroder &
Co. Inc., Raymond James & Associates, Inc. and Simmons & Company International
are acting as Representatives (the "Representatives") has severally agreed to
purchase from the Company and the Selling Shareholders an aggregate of 3,600,000
shares of Common Stock at the price to public less the underwriting discounts
set forth on the cover page of this Prospectus, in the amounts set forth below
opposite their respective names.
NUMBER OF
SHARES TO
UNDERWRITERS BE PURCHASED
- --------------------------------------------------------------- ------------
Schroder & Co. Inc. ........................................... 763,334
Raymond James & Associates, Inc. .............................. 763,333
Simmons & Company International ............................... 763,333
Credit Suisse First Boston Corporation ........................ 75,000
Dillon, Read & Co. Inc. ....................................... 75,000
Donaldson, Lufkin & Jenrette Securities Corporation ........... 75,000
Lehman Brothers Inc. .......................................... 75,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated ............ 75,000
Morgan Stanley & Co. Incorporated ............................. 75,000
PaineWebber Incorporated ...................................... 75,000
Prudential Securities Incorporated ............................ 75,000
Salomon Brothers Inc. ......................................... 75,000
Smith Barney Inc. ............................................. 75,000
Robert W. Baird & Co. Incorporated ............................ 40,000
Brean Murray & Co., Inc. ...................................... 40,000
Dain Bosworth Incorporated .................................... 40,000
Hanifen, Imhoff Inc. .......................................... 40,000
Janney Montgomery Scott Inc. .................................. 40,000
Jefferies & Company ........................................... 40,000
Johnson Rice & Company L.L.C .................................. 40,000
Petrie Parkman & Co. .......................................... 40,000
Piper Jaffray Inc. ............................................ 40,000
Principal Financial Securities, Inc. .......................... 40,000
Rauscher Pierce Refsnes, Inc. ................................. 40,000
Sanders Morris Mundy Inc. ..................................... 40,000
Southcoast Capital Corp. ...................................... 40,000
Van Kasper & Company .......................................... 40,000
------------
Total .................................................... 3,600,000
============
The Underwriting Agreement provides that the Underwriters' obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased. The Underwriters have informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.
The Company has been advised by the Underwriters that they propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price, less a concession not in excess of $ 0.63 per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $0.10 per share
to certain other brokers and dealers. After the Offering, the public offering
price,
53
<PAGE>
the concession and reallowances to dealers and other selling terms may be
changed by the Underwriters.
The Company and the Selling Shareholders have granted to the Underwriters
an option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of 540,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share to be paid by the
Underwriters for the other shares of Common Stock offered hereby. If the
Underwriters purchase any such additional shares pursuant to the over-allotment
option, each Underwriter will be committed, subject to certain conditions, to
purchase a number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment.
The Company, its directors, Messrs. Reuhl, Kratz and Nelson, Coflexip and
the Selling Shareholders, who will beneficially own an aggregate of 9,989,659
shares of the Common Stock outstanding after the Offering have agreed with the
Representatives, for a period of 180 days after the date of this Prospectus, not
to issue, sell, offer to sell, grant any options for the sale of, or otherwise
dispose of any shares of Common Stock or any rights to purchase shares of Common
Stock (other than stock issued or options granted pursuant to the Company's
stock incentive plans), without the prior written consent of the
Representatives. See "Shares Eligible for Future Sale."
The Company and the Selling Shareholders have severally agreed to indemnify
the Underwriters against certain liabilities that may be incurred in connection
with the sale of the Common Stock, including liabilities arising under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make with respect thereto.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Representatives. Among other factors
considered in determining the public offering price will be prevailing market
and economic conditions, revenues and earnings of the Company, the state of the
Company's business operations, an assessment of the Company's management and
consideration of the above factors in relation to market valuation of companies
in related businesses and other factors deemed relevant. There can be no
assurance, however, that the prices at which the Common Stock will sell in the
public market after the Offering will not be lower than the public offering
price.
In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
In connection with the Coflexip transaction, Schroder & Co. Inc. provided
advisory services to Coflexip for which it has received customary compensation.
From time to time, Simmons & Company International has provided advisory
services to the Company and First Reserve for which it has received customary
compensation.
The Company has been approved for quotation of its Common Stock on the
Nasdaq National Market under the symbol "CDIS."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Robins, Kaplan, Miller & Ciresi L.L.P.,
Minneapolis, Minnesota. Certain
54
<PAGE>
legal matters will be passed upon for the Selling Shareholders by Simpson
Thacher & Bartlett (a partnership including professional corporations), New
York, New York. Vinson & Elkins L.L.P., Houston, Texas will pass upon certain
legal matters for the Underwriters.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, and the
consolidated statements of operations, cash flows and shareholders' equity for
the three years in the period ended December 31, 1996 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
The estimated reserve evaluations and related calculations of Miller &
Lents, Ltd. set forth in this Registration Statement have been included herein
in reliance upon the authority of said firm as an expert in petroleum
engineering.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Commission a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. The Registration Statement and
the exhibits and schedules thereto filed with the Commission may be inspected,
without charge, and copies may be obtained at prescribed rates, at the public
reference facilities maintained by the Commission at its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549 and the Commission's regional offices
or public reference facilities of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Registration
Statement and other information filed by the Company with the Commission are
also available at the web site of the Commission at http:www.sec.gov. For
further information pertaining to the Company and to the shares of Common Stock
offered hereby, reference is made to the Registration Statement including the
exhibits and schedules thereto. Any statements contained herein concerning
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each statement
is qualified in its entirety by such reference.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants following the end of each fiscal year, and quarterly reports
containing unaudited consolidated financial statements for the first three
quarters of each fiscal year following the end of each such fiscal quarter.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
-----
Report of Independent Public Accountants ................................ F-2
Consolidated Balance Sheets -- December 31, 1995 and
1996 and March 31, 1997 (unaudited) ................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and three months ended March 31, 1996 and
1997 (unaudited) ...................................................... F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1994, 1995 and 1996 and three months ended March
31, 1997 (unaudited) .................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and three months ended March 31, 1996 and
1997 (unaudited) ...................................................... F-6
Notes to Consolidated Financial Statements .............................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cal Dive International, Inc.:
We have audited the accompanying consolidated balance sheets of Cal Dive
International, Inc. (a Minnesota corporation), and subsidiary as of December 31,
1995 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cal Dive
International, Inc., and subsidiary as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
March 7, 1997 (except with respect
to the matters discussed in Note 13,
as to which the date is
April 30, 1997)
F-2
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
AND MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------- ------------
1995 1996 1997
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 159,310 $ 203,663 $ 1,108,893
Accounts receivable --
Trade, net of revenue
allowance on gross amounts
billed of $402,000,
$1,021,000 and $735,000
(unaudited)................ 5,143,247 18,848,837 9,851,640
Unbilled revenue.............. 5,782,410 7,363,631 7,146,228
Other current assets............... 2,260,937 2,754,609 3,439,587
--------------- --------------- ------------
Total current assets..... 13,345,904 29,170,740 21,546,348
--------------- --------------- ------------
PROPERTY AND EQUIPMENT.................. 34,584,088 61,466,303 64,483,144
Less- Accumulated depreciation..... (8,411,353) (13,259,914) (15,089,350)
--------------- --------------- ------------
26,172,735 48,206,389 49,393,794
--------------- --------------- ------------
OTHER ASSETS:
Cash deposits restricted for
salvage operations............... 4,978,720 5,233,509 5,365,049
Loan acquisition costs and other
assets, net...................... 361,537 445,673 429,708
--------------- --------------- ------------
$ 44,858,896 $ 83,056,311 $ 76,734,899
=============== =============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 5,219,215 $ 9,909,349 $ 8,738,247
Accrued liabilities................ 4,093,727 5,757,893 3,719,394
Income taxes payable............... -- 94,280 513,499
--------------- --------------- ------------
Total current
liabilities........... 9,312,942 15,761,522 12,971,140
LONG-TERM DEBT.......................... 5,300,000 25,000,000 19,000,000
DEFERRED INCOME TAXES................... 2,915,555 5,417,188 5,917,188
DECOMMISSIONING LIABILITIES............. 4,921,900 6,033,831 6,118,131
COMMITMENTS AND CONTINGENCIES...........
SHAREHOLDERS' EQUITY:
Common stock, no par, 20,000,000
shares authorized, 18,448,010
shares issued and outstanding.... 9,093,040 9,093,040 9,093,040
Retained earnings.................. 17,370,990 25,806,261 27,690,931
Treasury stock, 7,348,750 shares,
at cost.......................... (4,055,531) (4,055,531) (4,055,531)
--------------- --------------- ------------
Total shareholders'
equity................ 22,408,499 30,843,770 32,728,440
--------------- --------------- ------------
$ 44,858,896 $ 83,056,311 $ 76,734,899
=============== =============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Subsea and salvage revenues..... $ 35,717,882 $ 32,747,484 $ 63,870,190 $ 8,714,953 $ 13,587,946
Natural gas and oil
production.................... 2,314,219 4,777,122 12,252,187 2,470,351 4,856,532
--------------- --------------- --------------- --------------- ---------------
38,032,101 37,524,606 76,122,377 11,185,304 18,444,478
COST OF SALES:
Subsea and salvage.............. 25,476,808 25,568,063 46,765,933 6,636,388 10,780,836
Natural gas and oil
production.................... 1,594,450 3,107,203 7,269,966 1,400,495 2,240,953
--------------- --------------- --------------- --------------- ---------------
Gross profit............... 10,960,843 8,849,340 22,086,478 3,148,421 5,422,689
--------------- --------------- --------------- --------------- ---------------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling expenses................ 1,006,754 938,883 1,157,807 283,504 361,420
Administrative expenses......... 3,649,619 3,993,018 7,133,663 1,163,987 1,854,387
--------------- --------------- --------------- --------------- ---------------
Total selling and
administrative
expenses................ 4,656,373 4,931,901 8,291,470 1,447,491 2,215,807
--------------- --------------- --------------- --------------- ---------------
INCOME FROM
OPERATIONS......................... 6,304,470 3,917,439 13,795,008 1,700,930 3,206,882
OTHER INCOME AND EXPENSE:
Interest expense, net........... 428,324 134,743 745,182 64,499 318,129
Other (income) expense, net..... 69,399 61,525 35,608 10,455 12,943
--------------- --------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES........... 5,806,747 3,721,171 13,014,218 1,625,976 2,875,810
PROVISION FOR INCOME TAXES........... 1,773,090 1,047,428 4,578,947 468,964 991,140
--------------- --------------- --------------- --------------- ---------------
NET INCOME........................... $ 4,033,657 $ 2,673,743 $ 8,435,271 $ 1,157,012 $ 1,884,670
=============== =============== =============== =============== ===============
NET INCOME PER SHARE................. $ .46 $ .24 $ .75 $ .10 $ .17
=============== =============== =============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 8,836,077 11,015,953 11,286,117 11,278,826 11,272,029
=============== =============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------------------- RETAINED ----------------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. 18,388,010 $ 1,178,340 $ 10,663,590 (10,068,600) $ (5,481,945)
NET INCOME.............................. -- -- 4,033,657 -- --
----------- ----------- ------------ ------------ ------------
BALANCE, December 31, 1994.............. 18,388,010 1,178,340 14,697,247 (10,068,600) (5,481,945)
NET INCOME.............................. -- -- 2,673,743 -- --
EXERCISE OF WARRANTS AND STOCK
OPTIONS............................... 60,000 121,500 -- 500,000 150,000
SALE OF TREASURY STOCK.................. -- 8,723,586 -- 2,219,850 1,276,414
COSTS ASSOCIATED WITH SALE
OF TREASURY STOCK..................... -- (930,386) -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, December 31, 1995.............. 18,448,010 9,093,040 17,370,990 (7,348,750) (4,055,531)
NET INCOME.............................. -- -- 8,435,271 -- --
----------- ----------- ------------ ------------ ------------
BALANCE, December 31, 1996.............. 18,448,010 9,093,040 25,806,261 (7,348,750) (4,055,531)
NET INCOME (unaudited).................. -- -- 1,884,670 -- --
----------- ----------- ------------ ------------ ------------
BALANCE, March 31, 1997
(unaudited)........................... 18,448,010 $ 9,093,040 $ 27,690,931 (7,348,750) $ (4,055,531)
=========== =========== ============ ============ ============
</TABLE>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
BALANCE, December 31, 1993.............. $ 6,359,985
NET INCOME.............................. 4,033,657
-------------
BALANCE, December 31, 1994.............. 10,393,642
NET INCOME.............................. 2,673,743
EXERCISE OF WARRANTS AND STOCK
OPTIONS............................... 271,500
SALE OF TREASURY STOCK.................. 10,000,000
COSTS ASSOCIATED WITH SALE
OF TREASURY STOCK..................... (930,386 )
-------------
BALANCE, December 31, 1995.............. 22,408,499
NET INCOME.............................. 8,435,271
-------------
BALANCE, December 31, 1996.............. 30,843,770
NET INCOME (unaudited).................. 1,884,670
-------------
BALANCE, March 31, 1997
(unaudited)........................... $ 32,728,440
=============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THREE MONTHS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 4,033,657 $ 2,673,743 $ 8,435,271 $ 1,157,012 $ 1,884,670
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation and
amortization................. 2,017,015 2,794,506 5,257,255 944,281 1,845,401
Deferred income taxes.......... 203,378 634,729 2,122,094 -- 500,000
Changes in operating assets and
liabilities:
Accounts receivable, net....... (5,161,776) 2,591,866 (15,286,811) (788,638) 9,214,600
Other current assets........... 110,678 1,573,909 (299,433) (938,242) (684,978)
Accounts payable and accrued
liabilities.................. 703,517 1,639,616 6,354,300 (1,514,777) (3,209,601)
Income taxes
payable/receivable........... 37,712 (327,042) 279,580 468,964 419,219
Other noncurrent, net.......... (1,087,185) 414,146 782,436 (6,060) 84,300
-------------- -------------- -------------- ------------ -------------
Net cash provided by (used
in) operating
activities............... 856,996 11,995,473 7,644,692 (677,460) 10,053,611
-------------- -------------- -------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................ (1,396,995) (16,857,354) (27,289,754) (592,059) (3,016,841)
Purchase of deposits restricted for
salvage operations................ (1,652,257) (2,726,463) (254,789) (87,497) (131,540)
Proceeds from sale of property...... -- -- 244,204 5,500 --
-------------- -------------- -------------- ------------ -------------
Net cash used in investing
activities............... (3,049,252) (19,583,817) (27,300,339) (674,056) (3,148,381)
-------------- -------------- -------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of treasury stock.............. -- 10,000,000 -- -- --
Borrowings under term loan
facility.......................... -- 8,252,919 25,000,000 1,300,000 --
Exercise of stock warrants and
options........................... -- 271,500 -- -- --
Increase (decrease) in short-term
borrowing......................... 1,900,000 (1,900,000) -- -- --
Repayments of long-term debt........ (1,609,000) (8,218,919) (5,300,000) -- (6,000,000)
Costs associated with sale of
treasury
stock............................. -- (930,386) -- -- --
-------------- -------------- -------------- ------------ -------------
Net cash provided by (used
in) financing
activities............... 291,000 7,475,114 19,700,000 1,300,000 (6,000,000)
-------------- -------------- -------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (1,901,256) (113,230) 44,353 (51,516) 905,230
CASH AND CASH EQUIVALENTS:
Balance, beginning of year.......... 2,173,796 272,540 159,310 159,310 203,663
-------------- -------------- -------------- ------------ -------------
Balance, end of year................ $ 272,540 $ 159,310 $ 203,663 $ 107,794 $ 1,108,893
============== ============== ============== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Cal Dive International, Inc. (Cal Dive or the Company), headquartered in
Houston, Texas, owns, staffs and operates eight marine construction vessels and
a derrick barge in the Gulf of Mexico. The Company provides a full range of
services to offshore oil and gas exploration and production and pipeline
companies, including underwater construction, maintenance and repair of
pipelines and platforms, and salvage operations. The Company was purchased for
approximately $10.7 million by a group of investors including current management
and key employees in a transaction which was effective July 27, 1990. This
transaction, which resulted in a 100% change in ownership, was accounted for
using the purchase method of accounting.
In September 1992, Cal Dive formed a wholly owned subsidiary, Energy
Resource Technology, Inc. (ERT), to purchase producing offshore oil and gas
properties which are in the later stages of their economic lives. ERT is a fully
bonded offshore operator and, in conjunction with the acquisition of properties,
assumes the responsibility to abandon the property in full compliance with all
governmental regulations.
During 1995, First Reserve Corporation, on behalf of certain of the
investment funds it manages, acquired a 50 percent ownership position in the
Company by purchasing shares held by the employees and treasury shares held by
the Company (see Note 9).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary. All significant intercompany accounts and
transactions have been eliminated.
INTERIM FINANCIAL STATEMENTS
The unaudited financial information presented for the three-month periods
ended March 31, 1996 and 1997 reflects all adjustments (which were normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the consolidated balance sheets, results of operations, and
cash flows, as applicable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
primarily on the straight-line method over the estimated useful lives of the
assets.
NATURAL GAS AND OIL PROPERTIES
All of the Company's interests in its natural gas and oil properties are
located in the United States. Under the successful efforts method, the costs of
successful wells, and leases containing productive reserves are capitalized.
ERT offshore property acquisitions are recorded at the value exchanged at
closing together with an estimate of its proportionate share of the
decommissioning liability assumed in the purchase based upon its working
interest ownership percentage. In estimating the decommissioning liability to be
assumed in offshore property acquisitions, the Company performs very detailed
estimating procedures, including engineering studies. Any subsequent changes to
the estimated liability are reflected in net income. All capitalized costs are
amortized on a unit-of-production basis (UOP) based on the estimated remaining
oil and gas reserves. Properties are periodically assessed for impairment in
value, with any impairment charged to expense.
The Company recognizes gas and oil revenue from its interests in producing
wells as natural gas and oil is produced and sold from those wells.
F-7
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the components of property and equipment:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL LIFE 1995 1996 1997
----------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Vessels.............................. 15 $ 21,066,687 $ 40,403,400 $ 43,033,725
Offshore leases and equipment........ UOP 8,030,826 14,766,670 14,852,023
Machinery and equipment.............. 5 4,466,514 5,125,500 5,148,941
Furniture, software and computer
equipment............................ 5 885,325 1,060,510 1,201,625
Automobiles and trucks............... 3 134,736 110,223 246,830
--------------- --------------- ---------------
Total property and equipment.... $ 34,584,088 $ 61,466,303 $ 64,483,144
=============== =============== ===============
</TABLE>
The cost of repairs and maintenance of vessels and equipment is charged to
operations as incurred, while the cost of improvements is capitalized.
Drydocking costs (exclusive of the cost of new steel and new equipment added to
a vessel) are also charged to operations as incurred. Total repair and
maintenance charges were $1,518,000, $2,368,000 and $3,655,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. Upon the disposition of
property and equipment, the related cost and accumulated depreciation accounts
are relieved, and the resulting gain or loss is included in other income
(expense).
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," was issued. SFAS No. 121, which becomes effective for
fiscal years beginning after December 15, 1995, requires that certain long-lived
assets be reviewed for impairment whenever events indicate that the carrying
amount of an asset may not be recoverable and that an impairment loss be
recognized under certain circumstances in the amount by which the carrying value
exceeds the fair value of the asset. The Company adopted SFAS No. 121 in January
1996, as required, and the adoption had no effect on the Company's results of
operations or financial position.
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. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company earns the majority of its service revenues during the summer
and fall months. Revenues are derived from billings under contracts (which are
typically of short duration) that provide for either lump-sum turnkey charges or
specific time, material and equipment charges which are billed in accordance
with the terms of such contracts. The Company recognizes revenue as it is earned
at estimated collectible amounts. Revenue on significant turnkey contracts is
recognized on the percentage-of-completion method based on the ratio of costs
incurred to total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments are
reflected in the period in which such estimates are revised. Provisions for
estimated losses on such contracts are made in the period such losses are
determined. Unbilled revenue represents revenue attributable to work completed
prior to year-end
F-8
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which has not yet been invoiced. All amounts included in unbilled revenue at
December 31, 1995 and 1996, are expected to be billed and collected within one
year.
REVENUE ALLOWANCE ON GROSS AMOUNTS BILLED
The Company bills for work performed in accordance with the terms of the
applicable contract. The gross amount of revenue billed will include not only
the billing for the original amount quoted for a project but will also include
billings for services provided which the Company believes are outside the scope
of the original quote. The Company then establishes a Revenue Allowance for
these additional billings based on its collections history.
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The market for the Company's services is the offshore oil and gas industry,
and the Company's customers consist primarily of major, well-established oil and
pipeline companies and independent oil and gas producers. The Company performs
ongoing credit evaluations of its customers and provides allowances for probable
credit losses when necessary; however, such losses have historically been
insignificant.
Two customers which represented 26 percent and 10 percent, respectively, of
1994 revenues merged during 1995 and accounted for 21 percent and 24 percent of
consolidated revenues in the years 1995 and 1996, respectively.
INCOME TAXES
Deferred taxes are recognized for revenues and expenses reported in
different years for financial statement purposes and income tax purposes in
accordance with SFAS No. 109, "Accounting for Income Taxes." The statement
requires, among other things, the use of the liability method of computing
deferred income taxes. The liability method is based on the amount of current
and future taxes payable using tax rates and laws in effect at the balance sheet
date.
STATEMENT OF CASH FLOW INFORMATION
The Company defines cash and cash equivalents as cash and all highly liquid
financial instruments with original maturities of less than three months. During
the years ended December 31, 1994, 1995 and 1996, the Company's cash payments
for interest were approximately $559,000, $526,000 and $1,069,000, respectively,
and cash payments for federal income taxes were approximately $1,633,000,
$663,000 and $2,200,000, respectively. In connection with 1995 and 1996 offshore
property acquisitions, ERT assumed net abandonment liabilities estimated at
approximately $3,800,000 and $1,200,000, respectively (see Note 3).
INVESTMENTS
The Company follows SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS No. 115, debt securities, including
treasury bills and notes, that the Company has both the intent and ability to
hold to maturity, are carried at amortized cost and are included in cash
deposits restricted for salvage operations in the accompanying consolidated
balance sheets. As all of these securities as of December 31, 1996, are U.S.
Treasury securities and notes, the majority of which mature beyond one year, the
Company believes the recorded balance of these securities approximates their
fair market value.
RECLASSIFICATIONS
Certain reclassifications were made to previously reported amounts in the
consolidated financial statements and notes to make them consistent with the
current presentation format.
F-9
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. OFFSHORE PROPERTY ACQUISITIONS:
In 1992 and 1994, ERT acquired a 100 percent net working interest in three
offshore properties for value exchanged and for ERT assuming the liability to
plug the wells, abandon the platform and remediate the site. Upon depletion
during 1994, the property purchased in 1992 was salvaged and abandoned in full
compliance with all regulatory requirements and included a transaction
structured as a Section 1031 "Like Kind" exchange for tax purposes.
Accordingly, the cash received ($508,000) plus accrued interest at December 31,
1994, was restricted and used for the acquisition of ERT properties during 1995.
During 1995, net working interests of 50 percent to 100 percent in seven
offshore blocks were acquired in exchange for cash of $1,780,000 and ERT
assuming the related abandonment liabilities. The 1996 property acquisitions
included net working interests of 33 percent to 100 percent in four offshore
blocks which were acquired for cash of $3,600,000 and assumption of a pro rata
share of the decommissioning liability.
ERT production activities are regulated by the federal government and
require a significant amount of third-party involvement, such as refinery
processing and pipeline transportation. The Company records revenue from its
offshore properties net of royalties paid to the Minerals Management Service.
Royalty fees paid totaled approximately $460,000, $875,000 and $1,996,000 for
the years ended 1994, 1995 and 1996, respectively. In accordance with federal
regulations that require operators in the Gulf of Mexico to post an areawide
bond of $3,000,000, cash deposits restricted for salvage operations include U.S.
Treasury bonds of $3,300,000 at December 31, 1995 and 1996, respectively (see
Note 2). In addition, the terms of certain of the 1992 and 1993 purchase and
sale agreements require that ERT deposit a portion of a property's net
production revenue into an interest-bearing escrow account until such time as a
specified level of funding has been set aside for salvaging and abandoning the
properties. As of December 31, 1996, such deposits totaled $1,900,000 and are
included in cash deposits restricted for salvage operations in the accompanying
balance sheet.
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
DECEMBER 31, MARCH 31,
-------------------------- ------------
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
Accrued payroll and related benefits . $ 1,093,614 $ 2,960,710 $ 1,218,210
Workers compensation claims .......... 1,213,861 998,925 964,247
Workers compensation claims to be
reimbursed ......................... 1,210,683 698,486 777,486
Other ................................ 575,569 1,099,772 759,451
------------ ------------ ------------
Total accrued liabilities ....... $ 4,093,727 $ 5,757,893 $ 3,719,394
============ ============ ============
5. REVOLVING CREDIT FACILITY:
During 1995, the Company entered into a $30 million revolving credit
facility, maturing in May 2000, which is secured by property and equipment and
trade receivables. At the Company's option, interest is at a rate equal to 2.00
percent above a Eurodollar base rate (2.25 on borrowings less than $10 million)
or .5 percent above prime. Pursuant to these terms, borrowings at December 31,
1996, included $22 million at 7.37 percent (Eurodollar option) and $3 million at
8.75 percent. 1995 year-end borrowings were comprised of $4.5 million at 8.2
percent (Eurodollar option) and $800,000 at 9 percent. The Company drew upon the
revolving credit facility throughout 1996 and for a total of 238 days during
1995 with maximum borrowings of $25,000,000 and
F-10
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$8,000,000 in those years. At March 7, 1997, $5.9 million was available under
the revolving credit facility.
Under this credit facility, letters of credit (LOC) are also available
which the Company typically uses if performance bonds are required and, in
certain cases, in lieu of purchasing U.S. Treasury bonds in conjunction with ERT
property acquisitions. At December 31, 1996, LOC totaling $4.25 million were
outstanding pursuant to these terms.
The revolving credit facility contains, among other restrictions, financial
covenants which require the Company to (a) maintain income from operations at
specified levels, (b) limit leverage, as defined, to no more than a specified
ratio of net worth, (c) maintain certain interest coverage and debt service
ratios, as defined, and (d) maintain a minimum ratio of current assets to
current liabilities. The Company was in compliance with, or obtained waivers of
default from the bank for, these debt covenants at December 31, 1996.
Borrowings during 1994 bore interest at prime plus 1 percent pursuant to a
revolving credit and term loan facility in place during those years. During
1994, the Company drew upon this facility for 151 days with a maximum borrowing
of $2,377,000. The amount outstanding on the term loan was converted to the new
revolving credit facility in May of 1995.
6. FEDERAL INCOME TAXES:
Federal income taxes have been provided based on the statutory rate of 34
percent adjusted for items which are allowed as deductions for federal income
tax reporting purposes, but not for book purposes. The primary differences
between the statutory rate and the Company's effective rate are as follows:
1994 1995 1996
----------- ----------- -----------
Statutory rate.......................... 34% 34% 34%
Percentage depletion related to the
natural gas production
of ERT properties..................... (3) (7) --
Other................................... -- 1 1
-- -- --
Effective rate.......................... 31% 28% 35%
== == ==
Components of the provision for income taxes reflected in the statements of
operations consist of the following:
1994 1995 1996
-------------- -------------- --------------
Current....................... $ 1,569,712 $ 412,699 $ 2,456,853
Deferred...................... 203,378 634,729 2,122,094
-------------- -------------- --------------
$ 1,773,090 $ 1,047,428 $ 4,578,947
============== ============== ==============
F-11
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from those transactions which affect financial
and taxable income in different years. The nature of these transactions and the
income tax effect of each as of December 31, 1995 and 1996, is as follows:
1995 1996
------------ ------------
Deferred tax liabilities --
Depreciation ............................... $ 2,915,555 $ 5,417,188
------------ ------------
Total deferred tax liabilities .......... 2,915,555 5,417,188
------------ ------------
Deferred tax assets --
Tax carryforward ........................... (67,893) --
Reserves, accrued liabilities and other .... (105,145) (552,577)
------------ ------------
Total deferred tax assets (included
in other current assets) .............. (173,038) (552,577)
------------ ------------
Net deferred tax liability .............. $ 2,742,517 $ 4,864,611
============ ============
Internal Revenue Service (IRS) conducted an examination of the Company's
federal income tax returns for the period from inception (July 27, 1990) through
December 1991. In connection with this examination, the IRS proposed additional
taxes due based upon its interpretation of the recording of certain transactions
at the date the Company was acquired. This matter was settled during 1996 with
insignificant impact upon the Company's consolidated financial position, results
of operations or net cash flows.
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company occupies several facilities under noncancelable operating
leases, with the more significant leases expiring in 1997. Future minimum
rentals under these leases are $223,000 at December 31, 1996, with $164,000 in
1997 and the balance thereafter. Total rental expense under operating leases was
$226,000, $240,000 and $262,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
INSURANCE AND LITIGATION
The Company carries hull protection on vessels, indemnity insurance and a
general umbrella policy. All onshore employees are covered by workers'
compensation, and all offshore employees, including divers and tenders, are
covered by Jones Act employee coverage, the maritime equivalent of workers'
compensation. The Company is exposed to deductible limits on its insurance
policies, which vary from $5,000 to a maximum of $50,000 per accident
occurrence. Effective August 1, 1992, the Company adopted a self-insured (within
specified limits) medical and health benefits program for its employees whereby
the Company is exposed to a maximum of $15,000 per claim.
The Company incurs workers' compensation claims in the normal course of
business, which management believes are covered by insurance. The Company, its
insurers and legal counsel analyze each claim for potential exposure and
estimate the ultimate liability of each claim. Amounts accrued and receivable
from insurance companies, above the applicable deductible limits, are reflected
in other current assets in the consolidated balance sheet. See related accrued
liabilities at Note 4. Such amounts were $1,210,683 and $698,486 as of December
31, 1995 and 1996, respectively. The Company has not incurred any significant
losses as a result of claims denied by its insurance carriers. In the opinion of
management, the ultimate liability to the Company, if any, which may result from
these claims will not materially affect the Company's consolidated financial
position, results of operations or net cash flows.
F-12
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS:
DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution 401(k) retirement plan covering
substantially all of its employees. The Company's contributions and cost are
determined annually as 50 percent of each employee's contribution up to 5
percent of the employee's salary. The Company's costs related to this plan
totaled $150,000, $168,000 and $197,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
INCENTIVE AND STOCK OPTION PLAN
During 1995, the board of directors and shareholders approved the 1995
Long-Term Incentive Plan (the Incentive Plan). Under the Incentive Plan, a total
of 600,000 shares of common stock is available for awards to key executives and
selected employees who are likely to make a significant positive impact on the
reported net income of the Company. The Incentive Plan is administered by a
committee which determines, subject to board approval, the type of award to be
made to each participant and sets forth in the related award agreement the
terms, conditions and limitations applicable to each award. The committee may
grant stock options, stock appreciation rights, or stock and cash awards.
The stock option plan is accounted for using APB Opinion No. 25, and
therefore no compensation expense is recorded. If SFAS Statement No. 123 had
been used for the accounting of these plans, the Company's pro forma net income
for 1994, 1995 and 1996 would have been $4,034,000, $2,607,000 and $8,330,000,
respectively, and the Company's pro forma earnings per share would have been
$.46, $.24 and $.74, respectively. These pro forma results exclude consideration
of options granted prior to January 1, 1995, and therefore may not be
representative of that to be expected in future years.
Options outstanding are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year............................... 560,000 $ .35 560,000 $ .35 447,500 $ 4.50
Granted.............................. -- -- 447,500 4.50 135,000 4.50
Exercised............................ -- -- (560,000) .35 -- --
Terminated........................... -- -- -- -- (38,000) 4.50
---------- ----------- ----------
Options outstanding,
December 31........................ 560,000 .35 447,500 4.50 544,500 4.50
Options exercisable,
December 31........................ 560,000 .35 44,000 4.50 124,700 4.50
</TABLE>
All of the options outstanding at December 31, 1996, have an exercise price
of $4.50 and a weighted average remaining contractual life of 3.9 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996: risk-free interest rates of 5.9
percent; expected dividend yields of 0 percent; expected lives of five years;
and expected volatility of 0 percent as the Company is a privately held entity
and accordingly estimating the expected volatility is not feasible.
9. COMMON STOCK:
During 1991, certain key employees were granted options to purchase 60,000
shares at a price of $.75 per share. In addition, a member of the management
group sold 1,000,000 shares to the Company during 1992 at a price established by
the board of directors and was granted an
F-13
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option to repurchase 500,000 of those shares at the same price. All of these
options were exercised in 1995 in conjunction with the sale of stock to First
Reserve Corporation as discussed below.
During 1995, the board of directors and shareholders approved an amendment
to the Articles of Incorporation increasing the number of authorized shares from
2,000,000 to 20,000,000. In connection with this measure, a 10-for-1 stock split
was also approved. Accordingly, all of the share and per share information
included in the financial statements and notes thereto has been restated
retroactively to reflect the 10-for-1 stock split.
During 1995, First Reserve Corporation, on behalf of certain of the
investment funds it manages, acquired a 50 percent ownership position in the
Company by purchasing 3,329,780 shares held by employees and 2,219,850 treasury
shares held by the Company, increasing shareholders' equity by $10,000,000.
In conjunction with this transaction, the Company entered into an Amended
and Restated Shareholders' Agreement which increased the board of directors from
five to seven members and which provides that First Reserve Corporation can
cause a sale of the Company in certain circumstances (as defined) subsequent to
December 31, 1999.
10. BUSINESS SEGMENT INFORMATION:
The following summarizes certain financial data by business segment:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues --
Subsea and salvage revenues........ $ 35,717,882 $ 32,747,484 $ 63,870,190
Natural gas and oil production..... 2,314,219 4,777,122 12,252,187
--------------- --------------- ---------------
Total......................... $ 38,032,101 $ 37,524,606 $ 76,122,377
=============== =============== ===============
Income from operations --
Subsea and salvage revenues........ $ 6,261,082 $ 3,184,801 $ 10,502,576
Natural gas and oil production..... 43,388 732,638 3,292,432
--------------- --------------- ---------------
Total......................... $ 6,304,470 $ 3,917,439 $ 13,795,008
=============== =============== ===============
Identifiable assets --
Subsea and salvage revenues........ $ 22,024,877 $ 30,261,736 $ 62,519,348
Natural gas and oil production..... 4,705,701 13,386,477 19,838,477
--------------- --------------- ---------------
Total......................... $ 26,730,578 $ 43,648,213 $ 82,357,825
=============== =============== ===============
Capital expenditures --
Subsea and salvage revenues........ $ 917,893 $ 14,260,225 $ 20,037,911
Natural gas and oil production..... 479,102 2,597,129 7,251,843
--------------- --------------- ---------------
Total......................... $ 1,396,995 $ 16,857,354 $ 27,289,754
=============== =============== ===============
Depreciation and amortization
expenses --
Subsea and salvage revenues........ $ 1,548,575 $ 1,658,588 $ 2,525,300
Natural gas and oil production..... 468,440 1,135,918 2,731,955
--------------- --------------- ---------------
Total......................... $ 2,017,015 $ 2,794,506 $ 5,257,255
=============== =============== ===============
</TABLE>
F-14
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED):
The following information regarding the Company's oil and gas producing
activities is presented pursuant to SFAS No. 69, "Disclosures About Oil and Gas
Producing Activities."
CAPITALIZED COSTS
Aggregate amounts of capitalized costs relating to the Company's oil and
gas producing activities and the aggregate amount of related accumulated
depletion, depreciation and amortization as of the dates indicated are presented
below. The Company has no capitalized costs related to unproved properties.
AS OF DECEMBER 31
-------------------------------
1995 1996
-------------- ---------------
Proved properties being amortized.... $ 8,030,826 $ 14,766,670
Less -- Accumulated depletion,
depreciation and amortization...... (1,596,042) (3,997,715)
-------------- ---------------
Net capitalized costs........... $ 6,434,784 $ 10,768,955
============== ===============
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
The following table reflects the costs incurred in oil and gas property
acquisition and development activities during the dates indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------------
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Proved property acquisition costs....... $ 1,629,101 $ 6,091,869 $ 4,688,003
Development costs....................... -- 309,856 2,047,841
-------------- -------------- --------------
Total costs incurred............... $ 1,629,101 $ 6,401,725 $ 6,735,844
============== ============== ==============
</TABLE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------
1994 1995 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenues................................ $ 2,314,219 $ 4,777,122 $ 12,252,187
Production (lifting) costs.............. 1,126,010 1,971,284 4,538,011
Depreciation, depletion and
amortization.......................... 468,440 1,135,918 2,731,955
-------------- -------------- ---------------
Pretax income from producing
activities............................ 719,769 1,669,920 4,982,221
Income tax expenses..................... 244,721 567,773 1,743,777
-------------- -------------- ---------------
Results of oil and gas producing
activities............................ $ 475,048 $ 1,102,147 $ 3,238,444
============== ============== ===============
</TABLE>
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
Proved oil and gas reserve quantities are based on estimates prepared by
Company engineers in accordance with guidelines established by the Securities
and Exchange Commission. The Company's estimates of reserves at December 31,
1996, have been reviewed by Miller and Lents, Ltd., independent petroleum
engineers. Reserve quantities for periods prior to December 31, 1996 were
estimated by the Company's internal engineers and not independent engineers
since the Company was a privately held entity. The internal engineers did not
revise their estimates for 1994 or 1995 because the Company's properties were
proved and producing in the latter stages of their respective lives and
revisions to the reserve data were insignificant. Accordingly, no revisions of
estimates prior to December 31, 1995 have been reflected. All of the Company's
reserves are located in the United States. Proved reserves cannot be measured
exactly because the estimation of reserves involves numerous judgmental
determinations. Accordingly, reserve estimates must be continually revised as a
result of new information obtained from drilling and production history, new
geological and geophysical data and changes in economic conditions.
F-15
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESERVE QUANTITY INFORMATION
(UNAUDITED)
OIL (BBLS.) GAS (MCF.)
----------- --------------
Total proved reserves at December 31,
1993.................................. 3,247 133,967
Production......................... (29,234) (1,249,899)
Purchases of reserves in place..... 100,851 4,452,312
----------- --------------
Total proved reserves at December 31,
1994.................................. 74,864 3,336,380
Production......................... (33,093) (2,382,309)
Purchases of reserves in place..... 80,429 19,444,029
----------- --------------
Total proved reserves at December 31,
1995.................................. 122,200 20,398,100
Revisions of previous estimates.... 31,512 (364,992)
Production......................... (38,417) (4,310,328)
Purchases of reserves in place..... 8,505 8,873,620
----------- --------------
Total proved reserves at December 31,
1996.................................... 123,800 24,596,400
=========== ==============
As of December 31, 1993, 1994 and 1995, all of the Company's proved
reserves were developed. As of December 31, 1996, 4,500 Bbls. of oil and
6,325,700 Mcf. of gas of the Company's proved reserves were undeveloped.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES
The following table reflects the standardized measure of discounted future
net cash flows relating to the Company's interest in proved oil and gas reserves
as of December 31:
1995 1996
--------------- -----------------
Future cash inflows..................... $ 44,127,379 $ 92,392,900
Future costs --
Production.................... (23,989,944) (26,246,500)
Development and abandonment... (6,167,903) (7,365,000)
--------------- -----------------
Future net cash flows before income
taxes................................. 13,969,532 58,781,400
Future income taxes................ (5,071,878) (17,980,165)
--------------- -----------------
Future net cash flows................... 8,897,654 40,801,235
Discount at 10% annual rate........ (1,252,573) (6,995,808)
--------------- -----------------
Standardized measure of discounted
future net cash flows................. $ 7,645,081 $ 33,805,427
=============== =================
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Principal changes in the standardized measure of discounted future net cash
flows attributable to the Company's proved oil and gas reserves are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Standardized measure, beginning of year. $ 122,446 $ 604,104 $ 7,645,081
Sales, net of production costs.......... (1,188,209) (2,805,838) (9,881,548)
Net change in prices, net of production
costs................................. (59,282) 1,217,360 22,200,743
Changes in future development costs..... -- -- (555,205)
Development costs incurred.............. -- -- 2,007,016
Accretion of discount................... 13,092 60,410 1,200,286
Net change in income taxes.............. 8,471 (4,357,882) (10,539,391)
Purchases of reserves in place.......... 1,719,149 13,067,712 21,729,868
Changes in production rates (timing) and
other................................. (11,563) (140,785) (1,423)
--------------- --------------- ---------------
Standardized measures, end of year...... $ 604,104 $ 7,645,081 $ 33,805,427
=============== =============== ===============
</TABLE>
F-16
<PAGE>
CAL DIVE INTERNATIONAL, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. REVENUE ALLOWANCE ON GROSS AMOUNTS BILLED
The following table sets forth the activity in the Company's Revenue
Allowance on Gross Amounts Billed for each of the three years in the period
ended December 31, 1996:
1994 1995 1996
------------- ------------- ---------------
Beginning balance............... $ 212,132 $ 364,039 $ 402,393
Additions....................... 605,044 464,318 1,783,315
Deductions...................... (453,137) (425,964) (1,164,623)
------------- ------------- ---------------
Ending balance.................. $ 364,039 $ 402,393 $ 1,021,085
============= ============= ===============
The Company also regularly reviews its trade receivable balances for
collectibility and provides Reserves for Bad Debts when necessary; however, as
the Company's customers consist primarily of major, well-established oil and
pipeline companies and independent oil and gas producers such reserves have
historically been insignificant. See Note 2 for a detailed discussion regarding
the Company's accounting policy on the revenue allowance on gross amounts
billed.
13. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
In April 1997, the Company announced its intention to file a Form S-1
Registration Statement under the Securities Act of 1933. The net proceeds to the
Company from the Offering are estimated to be approximately $29.7 million. The
Company intends to use these proceeds to repay indebtedness incurred in
connection with the purchase of, and enhancement to, the UNCLE JOHN and BALMORAL
SEA and other vessels and for the purchase of natural gas and oil properties.
STOCK SALE TO COFLEXIP
On April 11, 1997 Coflexip purchased approximately 32% of the Company's
Common Stock at a price of $9.46 per share. Coflexip acquired approximately
3,700,000 shares of the Company's stock, consisting of approximately 2.1 million
shares sold by management of the Company, 1.1 million shares sold by First
Reserve Funds and approximately 500,000 shares sold by the Company. Coflexip and
the Company have formed a strategic alliance to jointly pursue deepwater
opportunities in the Gulf of Mexico. The Company had previously, in February of
1997, contracted with Coflexip to acquire two ROVs at published retail prices.
Coflexip also agreed to accept approximately 500,000 shares of the Company's
Common Stock on April 11, 1997 as payment for the ROVs and as part of the
transaction described above.
F-17
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO MAKE ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary .................................................... 1
Risk Factors .......................................................... 8
The Company ........................................................... 12
Use of Proceeds ....................................................... 12
Dividend Policy ....................................................... 12
Dilution .............................................................. 13
Capitalization ........................................................ 14
Selected Financial Data ............................................... 15
Management's Discussion and Analysis Of Financial Condition
and Results of Operations ........................................... 16
Business .............................................................. 23
Management ............................................................ 40
Certain Relationships and Related Transactions ........................ 45
Principal and Selling Shareholders .................................... 47
Description of Capital Stock .......................................... 48
Shares Eligible for Future Sale ....................................... 51
Underwriting .......................................................... 53
Legal Matters ......................................................... 54
Experts ............................................................... 54
Additional Information ................................................ 55
Reports to Shareholders ............................................... 55
Index to Financial Statements ......................................... F-1
------------------------
UNTIL JULY 26, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
3,600,000 SHARES
[COMPANY LOGO]
CAL DIVE INTERNATIONAL, INC.
COMMON STOCK
(WITHOUT PAR VALUE)
SCHRODER & CO. INC.
RAYMOND JAMES
& ASSOCIATES, INC.
SIMMONS & COMPANY
INTERNATIONAL
JULY 1, 1997
================================================================================
