<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-01971
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
J. RAY MCDERMOTT, S.A.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
REPUBLIC OF PANAMA 72-1278896
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1450 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112-6050
(504) 587-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
RICHARD R. FOREMAN
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
J. RAY MCDERMOTT, S.A.
1450 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112-6050
(504) 587-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
Copies to:
WALTER J. SMITH GERARD M. MEISTRELL
BAKER & BOTTS, L.L.P. CAHILL GORDON & REINDEL
3000 ONE SHELL PLAZA 80 PINE STREET
HOUSTON, TEXAS 77002-4995 NEW YORK, NEW YORK 10005
(713) 229-1234 (212) 701-3000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PROSPECTUS PRELIMINARY PROSPECTUS DATED JUNE 7, 1996
$250,000,000 [LOGO OF
J. RAY MCDERMOTT, S.A. J. RAY McDERMOTT
% SENIOR SUBORDINATED NOTES DUE 2006 APPEARS HERE]
-----------
Interest on the % Senior Subordinated Notes due 2006 (the "Notes") of J.
Ray McDermott, S.A. (the "Company") will be payable semi-annually on
and of each year, commencing , 1996. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after , 2001 at the redemption prices set forth
herein, together with accrued and unpaid interest, if any, to the date of
redemption. Upon a Change of Control (as defined herein), each holder of the
Notes will have the right to require the Company to purchase all or a portion
of such holder's Notes at a purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "Description of the Notes."
The Notes represent unsecured senior subordinated obligations of the Company
and will be subordinated to all existing and future Senior Indebtedness (as
defined herein). The Notes will also be structurally subordinated to all
indebtedness of the Company's consolidated subsidiaries and joint ventures and
unconsolidated joint ventures. As of March 31, 1996, after giving effect to the
sale of the Notes offered hereby (the "Offering") and the application of the
net proceeds therefrom as described under "Use of Proceeds," the aggregate
amount of outstanding Senior Indebtedness would have been approximately $132.7
million ($118.9 million of which would be guarantees of Indebtedness of the
Company's consolidated and unconsolidated subsidiaries and joint ventures), in
addition to certain bid and performance bonds outstanding, and the aggregate
amount of Indebtedness (as defined herein) of the Company's consolidated
subsidiaries and joint ventures (excluding Indebtedness guaranteed by the
Company) would have been approximately $125.4 million. In addition, certain of
the Company's unconsolidated joint ventures have significant amounts of
outstanding Indebtedness that the Company has not guaranteed. See "Risk
Factors--Subordination; Company Structure," "Capitalization" and "Description
of the Notes."
The Notes will be represented by a Global Certificate registered in the name
of the nominee of The Depository Trust Company ("DTC") or other successor
depository appointed by the Company (DTC or such other depository is herein
referred to as the "Depository"). Beneficial interests in the Global
Certificate will be shown on, and transfers thereof will be effected only
through, records maintained by the Depository and its participants. Except as
described herein, Notes in definitive form will not be issued. See "Description
of the Notes--Book-Entry Delivery and Form."
Application will be made to list the Notes on the New York Stock Exchange.
The Company's common stock is listed on the New York Stock Exchange under the
symbol "JRM."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
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Per Note................................. % % %
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Total.................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriter (as defined herein)
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
-----------
The Notes are being offered by the Underwriter, subject to prior sale, when,
as and if issued to and accepted by the Underwriter, subject to approval of
certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Global Certificate will be made through the book-entry
facilities of the Depository on or about , 1996.
-----------
MERRILL LYNCH & CO.
-----------
The date of this Prospectus is , 1996.
<PAGE>
[Photo: Fabrication]
The Company's largest fabrication yard, located in Morgan City,
Louisiana.
[Photo: Derrick Installation]
The DB102, one of the world's largest heavy-
lift vessels, installing facilities on a fixed
platform off the coast of Norway.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<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 or in the documents incorporated by reference in
this Prospectus. Unless the context otherwise requires, (i) references in this
Prospectus to the "Company" refer to J. Ray McDermott, S.A. and its
consolidated subsidiaries viewed as a single entity and include its
predecessors and (ii) references in this Prospectus to the Company's "joint
ventures" include majority-owned subsidiaries that are consolidated with the
financial results of the Company, as well as unconsolidated investees in which
the Company, directly or indirectly, owns an interest and which the Company
reports on the equity method.
THE COMPANY
BUSINESS OVERVIEW
The Company, together with its joint ventures, operates the world's largest
fully integrated marine construction business, including the largest fleet of
major marine construction vessels in the world. With its fleet of major marine
construction vessels and its geographically dispersed fabrication yards, the
Company supplies a full range of construction services on a worldwide basis to
the offshore oil and gas exploration and production and hydrocarbon
transportation industries. The Company's services include the basic and
detailed design, engineering, fabrication and installation of offshore drilling
and production platforms and other specialized structures, modular facilities,
marine pipelines and subsea production systems and onshore construction and
maintenance services. The Company also provides comprehensive project
management services, feasibility studies, engineering services, subsea
trenching services, diving services, and removal, salvage and refurbishment
services for offshore fixed platforms. The Company and its joint ventures
operate throughout the world in all major offshore oil and gas producing
regions, including the Gulf of Mexico, the North Sea, West Africa, South
America, the Middle East, India and the Far East. For the fiscal year ended
March 31, 1996 ("fiscal 1996"), the Company had consolidated revenues and
EBITDA of approximately $1.2 billion and $133 million, respectively. At March
31, 1996, the Company's backlog was approximately $978 million, excluding
backlog relating to work to be performed by the Company's joint ventures of
approximately $1.4 billion. In addition, the EBITDA of the Company's
unconsolidated joint ventures for fiscal 1996 was approximately $62 million.
The Company was formed in connection with the January 1995 combination of
substantially all the marine construction services business of McDermott
International, Inc. ("McDermott International") with Offshore Pipelines, Inc.
("OPI") through a series of transactions including the Merger (as defined
herein). The Merger was completed for the purposes of improving the ability of
the combined businesses to compete effectively in markets worldwide and
allowing the elimination of duplicative facilities and general and
administrative expenses, thereby giving the combined business a greater ability
to realize profits than would exist for either business as a separate company.
McDermott International was a pioneer in the marine construction services
business, with its marine operations dating back to 1947, when its predecessor,
J. Ray McDermott & Co., Inc., installed the first offshore platform in the Gulf
of Mexico. Over the years, McDermott International's marine construction
services business became established as an industry leader, providing a full
range of marine construction services on a worldwide basis, with significant
capabilities suited for the deepwater and high-end segments of the offshore
exploration and production industry. OPI was organized in 1984 as a marine
construction contractor primarily focused on the offshore installation of
underwater pipelines and other marine construction services, principally to the
middle-market segment of the offshore exploration and production industry. The
Company is a majority-owned subsidiary of McDermott International, which
currently owns approximately 64% of the Company's voting stock.
3
<PAGE>
The Company conducts operations both directly and through its participation
in joint ventures, some of which it manages and others of which are managed by
other marine construction contractors. The Company's joint ventures have
resulted in greater utilization of assets through geographic diversification,
expansion of its significant market presence as a fully integrated contractor
in new markets, greater access to specialized facilities and equipment,
participation in markets that require minimum levels of local ownership, and
cooperative development of advanced technologies. The Company's joint venture
interests include 50% ownership of the HeereMac joint venture, formed with
Heerema Offshore Construction Group, Inc. ("Heerema"), to provide heavy-lift
marine installation services on a worldwide basis. The Company is also engaged
in a joint venture (the "ETPM joint venture") with ETPM S.A., a French
contractor ("ETPM"), primarily consisting of a series of joint venture
operating companies, most of which are majority-owned and controlled by the
Company. The ETPM joint venture operates one pipelaying vessel and seven
combination derrick-pipelaying vessels in the North Sea, West Africa, South
America, the Middle East, India and the Far East. See "Business--Joint Venture
Operations."
COMPANY STRENGTHS
Established name as industry leader. The Company has one of the oldest and
best-known names in the marine construction business, with its operations
dating back to the inception of the offshore oil and gas exploration and
development industry in the Gulf of Mexico. The Company was also among the
first to fabricate structures and facilities for offshore production in the
Middle East, West Africa, Alaska and the North Sea. Today, the Company believes
it is an industry leader because of its experience, size and global presence,
the full range of its service capabilities, its technically advanced equipment
and personnel, its reliability, and its safety record. The Company has
maintained its reputation as a pioneer in the industry through the development
of numerous technological advancements that have significantly impacted the
industry.
Position as the only fully integrated marine construction company providing
services on a worldwide basis. The Company believes that its ability to provide
a full range of marine construction services on a global basis affords the
Company greater opportunities through the expansion of historical relationships
with customers who operate in multiple geographic regions. The Company's
integrated services complement one another and provide opportunities to build
upon. For example, the Company believes that its knowledge and experience
gained in its platform structure and deck module fabrication operations provide
it with significant advantages in the competition for potentially higher-margin
transportation and installation projects.
Position to benefit from the trend towards bundled services. Providing fully
integrated services gives the Company the ability to meet the demands of the
increasing number of customers who seek single-source solutions to their marine
construction requirements. The Company believes that certain of the larger
customers in the marine construction market are trending towards more
integrated service projects in which a single contractor is responsible, often
in conjunction with several subcontractors, for the complete project scope,
including initial design, engineering, procurement, installation and
commissioning. The Company provides single-source turnkey project
responsibility for large, complex and geographically remote projects around the
world. The Company believes that its size, global presence and range of
operating assets position it as one of the strongest competitors in the
integrated services market.
Position to benefit from possible increases in market activity. The Company
generally focuses on projects in deepwater (200 feet to 1,000 feet) and very
deep water (1,000 feet or deeper), which generally are more complex, require
larger marine construction vessels with greater lifting capacity, require more
sophisticated technology and experienced personnel, and provide greater
operating margins than shallow water projects. The Company believes it is well
positioned to benefit from any increases in major marine construction activity
that would result from decisions by oil and gas producers to pursue significant
projects currently under
4
<PAGE>
evaluation in different parts of the world, including additional deepwater and
very deep water projects in the North Sea, the North Atlantic and the Gulf of
Mexico and natural gas production projects in the South China Sea.
Capabilities of equipment, personnel and other resources; position as a
technological leader. Through the operation of its fleet of marine construction
vessels and its strategically located fabrication facilities, the Company has
demonstrated significant capabilities in all aspects of major marine
construction. These capabilities, combined with the Company's expertise and
worldwide presence, have resulted in the Company's selection as a contractor
for some of the largest and most innovative offshore projects in the world. The
most recent of these projects include three successive record-setting projects
for Shell Oil Company in the deep waters of the Gulf of Mexico, utilizing
tension-leg platforms, and an innovative spar platform for Oryx Energy. The
Company is also providing integrated services and project management for the
first phase of British Petroleum's Foinaven development in the North Atlantic,
west of the Shetland Islands, one of the highest profile offshore development
projects currently underway. In addition, many of the deepwater and very deep
water projects under development today have become possible as a result of
recent advancements in subsea completion technology. During the past few years,
the Company has expanded its capabilities in the subsea market through the
acquisition of Northern Ocean Services Limited, a subsea installation and
pipelay contractor ("NOS"), and Mentor Engineering Consultants Ltd., a subsea
engineering firm ("Mentor").
BUSINESS STRATEGY
Capitalize on geographic diversity. The Company's ability to operate in
geographically diverse markets is important to the Company's success. The
Company's customers include many large energy producers operating in various
parts of the world that generate demand for the full range of services provided
by the Company. The ability to provide these services on a global basis
enhances the Company's relationships with these customers and affords the
Company greater opportunities. In addition, geographic diversity permits the
Company to improve the utilization rates for its assets, particularly its major
marine construction vessels. By dispersing these vessels in significant
hydrocarbon producing regions around the world, the Company achieves greater
utilization by reducing the aggregate amount of mobilization time required
between construction sites. Geographic diversity also reduces the Company's
exposure to regional conditions that may adversely affect the market for marine
construction services within a specific operating area.
Focus on projects requiring technologically advanced solutions. The Company
utilizes its superior capabilities, equipment and other resources to provide
high-end, technologically advanced solutions for its customers. Through its
subsidiaries and joint ventures, the Company has developed several proprietary
technologies that provide an advantage in competing for work on more
technologically challenging projects, which have greater revenue generating
potential. These include advanced technologies used in compliant-tower platform
structures and modifications to spar platform technology that have resulted in
the first spar platform (which is currently being constructed) ever to be built
for the offshore drilling and production of oil and gas.
Develop leadership in the deepwater and subsea markets. As a result of the
combination of several technological advancements in recent years, including
the development of new seismic technologies and improvements in subsea
completion technologies and production systems, there has recently been a
significant amount of new exploration and development activity in deepwater and
very deep water areas, such as the North Sea, the North Atlantic and the
deepwater regions of the Gulf of Mexico. As technology continues to advance,
the Company expects significant new opportunities to develop in these markets.
The Company's leadership role in deepwater marine construction led to the
Company's being selected as a major contractor for several of Shell Oil
Company's deepwater projects in the Gulf of Mexico, British Petroleum's
Foinaven
5
<PAGE>
project in the North Atlantic and Shell's Teal Guillemot project in the North
Sea. The Company intends to capitalize on its recognition as a leader in the
deepwater markets and extend its leadership role to the very deep water and
subsea markets. With the acquisitions of NOS and Mentor, together with the
Company's experience base in deepwater environments, the Company believes it is
well positioned to actively participate in the future growth in these markets.
Utilize joint ventures. The Company believes that its joint venture
operations enhance its ability to compete effectively. The Company's joint
ventures have resulted in greater utilization of assets through geographic
diversification, the development of a significant market presence as a fully
integrated contractor in a greater number of markets, the participation in
markets that require minimum levels of local ownership, and the cooperative
development of advanced technologies. The Company and ETPM have recently
restructured the ETPM joint venture in a transaction pursuant to which the
Company increased its participation in the joint venture by expanding the joint
venture's scope geographically to include, among other areas, the Far East and
to pursue subsea contracting work on a worldwide basis. The Company intends to
continue reviewing additional joint venture opportunities.
Provide turnkey services; partner with customers. The Company intends to
pursue the developing market for turnkey marine construction contracts, which
generally provide for a single contractor to be responsible for the complete
project scope, including engineering, procurement, installation and
commissioning (commonly referred to as "EPIC" contracts). With its position as
the only marine construction company with the capability of providing fully
integrated services on a worldwide basis, the Company is well positioned to
compete for these integrated services contracts. In addition, the Company plans
to continue developing partnering and alliance arrangements with customers for
the management of projects, as appropriate.
Continue to exploit benefits of cost reductions and synergies resulting from
the Merger. With the Merger, the Company solidified its position as the world's
largest fully integrated marine construction company and expanded the Company's
operations into complementary markets. The Merger also created significant
opportunities for cost reductions and operating efficiencies. The Company has
taken several significant actions to rationalize the combined operations of its
predecessors and to eliminate substantial duplicate administrative costs and
operating expenses. These measures include the closing of OPI's headquarters
office in Houston, Texas; the elimination of duplicate facilities and redundant
administration worldwide; and the disposal of surplus equipment, either through
scrapping or through sales to third parties. While the Company's results of
operations have been positively impacted by the cost reduction actions taken to
date, the Company is still in the process of rationalizing the combined
operations, has developed plans for additional consolidation of administrative
functions and is continuing to dispose of surplus assets resulting from the
Merger. The Company will continue to exploit the additional market
opportunities created by the Merger.
6
<PAGE>
THE OFFERING
Securities Offered........ $250,000,000 principal amount of % Senior
Subordinated Notes due 2006.
Maturity Date............. , 2006.
Interest Payment Dates.... Interest on the Notes will be payable semi-annually
in arrears on and of each
year, commencing , 1996.
Optional Redemption....... The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after , 2001 at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. See
"Description of the Notes--Optional Redemption."
Tax Redemption............ In the event of certain changes affecting
withholding taxes applicable to certain payments on
the Notes, subject to certain limitations, the
Notes will be redeemable, in whole but not in part,
at the option of the Company, at 100% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption. See
"Description of the Notes--Tax Redemption."
Change of Control......... Upon a Change of Control, each holder of the Notes
will have the right to require the Company to
purchase all or a portion of such holder's Notes at
a purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See
"Description of the Notes--Certain Covenants--
Change of Control."
Ranking................... The Notes represent unsecured senior subordinated
obligations of the Company and will be subordinated
to all existing and future Senior Indebtedness and
will be effectively subordinated to all
indebtedness and other liabilities of the Company's
consolidated subsidiaries and joint ventures and
unconsolidated joint ventures. As of March 31,
1996, after giving effect to the Offering and the
application of the net proceeds therefrom, the
aggregate amount of outstanding Senior Indebtedness
would have been approximately $132.7 million
($118.9 million of which would be guarantees of
Indebtedness of the Company's consolidated and
unconsolidated subsidiaries and joint ventures), in
addition to certain bid and performance bonds (or
letters of credit in respect of bids or performance
obligations) outstanding ($168.4 million at March
31, 1996), and the aggregate amount of Indebtedness
of the Company's consolidated subsidiaries and
joint ventures (excluding Indebtedness guaranteed
by the Company) would have been approximately
$125.4 million. The foregoing amounts do not
include the undrawn portions under the Company's
(or its consolidated subsidiaries' or joint
ventures') existing credit arrangements, which are
substantial. In addition, certain of the Company's
unconsolidated joint ventures have
7
<PAGE>
significant amounts of outstanding Indebtedness
that the Company has not guaranteed, as well as
undrawn but available credit facilities. See "Risk
Factors--Subordination; Company Structure,"
"Capitalization" and "Description of the Notes."
Certain Covenants......... The Indenture (as defined herein) pursuant to which
the Notes will be issued will contain certain
covenants, including, but not limited to, covenants
with respect to the following matters: (i)
limitation on additional indebtedness, (ii)
limitation on restricted payments, (iii) limitation
on liens, (iv) limitation on sale-leaseback
transactions, (v) limitation on disposition of
proceeds of asset sales, (vi) limitation on
issuance and sale of preferred stock by restricted
subsidiaries, (vii) limitation on transactions with
affiliates, (viii) limitation on dividends and
other payment restrictions affecting restricted
subsidiaries, (ix) limitation on other senior
subordinated indebtedness, (x) limitation on
designation of unrestricted subsidiaries, (xi)
provision of financial statements and (xii)
restrictions on consolidations, merger or sale of
assets. These covenants will be subject to various
qualifications and exceptions. The Indenture does
not limit the incurrence of Indebtedness by the
Company's joint ventures and generally does not
limit the Company's investment in joint ventures.
See "Description of the Notes--Certain Covenants."
Use of Proceeds........... The net proceeds to the Company from the sale of
the Notes will be used (i) to repurchase all of the
Company's 9% Senior Subordinated Notes due 2001
(the "9% Notes") and (ii) for general corporate
purposes. See "Use of Proceeds," "Capitalization"
and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Listing................... Application will be made to list the Notes on the
New York Stock Exchange. See "Underwriting."
RISK FACTORS
Prospective purchasers of the Notes should consider all of the information
contained in this Prospectus before making an investment in the Notes. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical consolidated financial data as of and for
the three fiscal years in the period ended March 31, 1996 are derived from the
audited consolidated financial statements of the Company. The unaudited pro
forma information gives effect to (i) the completion of the Vessel Sales (as
defined herein) and the application of the proceeds therefrom, as described
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and (ii) the completion of the
Offering and the application of the net proceeds therefrom, as described under
"Use of Proceeds," in each case, as if each such transaction had occurred as of
April 1, 1995. The Balance Sheet Data presented below is adjusted to give
effect to the Offering and the application of the net proceeds therefrom, as
described under "Use of Proceeds," as if such transaction had occurred as of
March 31, 1996. The information presented below should be read in conjunction
with the historical and pro forma financial statements and related notes and
other financial information of the Company presented elsewhere in this
Prospectus. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of actual results of operations and
financial position that would have been achieved had the transactions been
consummated on such dates, and is not necessarily indicative of future results
of operations or financial position.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
HISTORICAL
----------------------------------- PRO FORMA
1994 1995 1996 1996
---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $1,193,881 $1,127,320 $1,227,841 $1,192,260
Costs and expenses:
Cost of operations
(excluding
depreciation and
amortization)......... 976,636 887,223 1,004,412 1,004,412
Depreciation and
amortization ......... 53,627 70,372 85,566 73,865
Selling, general and
administrative
expenses.............. 115,428 114,165 116,725 116,725
---------- ---------- ---------- ----------
1,145,691 1,071,760 1,206,703 1,195,002
---------- ---------- ---------- ----------
Operating income (loss)
before equity in income
of investees........... 48,190 55,560 21,138 (2,742)
Equity in income of
investees(a)........... 106,593 22,857 9,124 22,936
---------- ---------- ---------- ----------
Operating income........ 154,783 78,417 30,262 20,194
Interest income......... 3,483 9,298 6,014 14,152
Interest expense........ 20,076 25,158 42,387 40,108
Provision for income
taxes.................. 28,050 8,885 4,892 5,577
Income (loss) before
cumulative effect of
accounting change...... 119,137 60,700 187 (149)
Net income (loss)(b).... 119,137 59,374 187 (149)
OTHER FINANCIAL DATA AND
RATIOS:
EBITDA(c)............... $ 220,890 $ 165,115 $ 133,032 $ 119,401
Capital expenditures(d). 18,898 46,793 67,653 67,653
Ratio of EBITDA to
interest expense, net
of interest income..... 13.31x 10.41x 3.66x 4.60x
Ratio of total debt to
EBITDA................. 3.32 3.86
Ratio of net debt to
EBITDA................. 2.07 2.36
Ratio of earnings to
fixed charges(e)....... 3.10 2.41 -- --
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(G)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 166,408 $ 178,408
Net property, plant and
equipment.............. 392,400 392,400
Investment in
unconsolidated
affiliates............. 72,806 72,806
Total assets............ 1,537,745 1,556,745
Total debt (including
current maturities)(f). 441,662 460,662
Net debt(f)............. 275,254 282,254
Total equity............ 553,897 553,897
</TABLE>
(footnotes on following page)
9
<PAGE>
- --------
(a) The accounts of all of the Company's controlled subsidiaries and joint
ventures are consolidated with the accounts of the Company. Investments in
joint ventures and other entities that the Company does not control
(including the HeereMac joint venture and McDermott-ETPM West, Inc. ("ETPM
West")) are accounted for on the equity method. Accordingly, the revenues
and operating expenses of those joint ventures are not included in the
Company's consolidated revenues and operating expenses.
(b) Includes the cumulative effect of the change resulting from the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postretirement Benefits," in the fiscal year ended March 31,
1995.
(c) Reflects income before cumulative effect of accounting change plus
depreciation and amortization, interest expense and provision for taxes.
EBITDA is not intended to represent cash flow and does not represent the
measure of cash available to the Company. EBITDA is not a generally
accepted accounting principle measure, but provides additional information
for evaluating the Company's ability to make payments in respect of the
Notes. EBITDA is not intended as an alternative to income from continuing
operations or net income.
(d) Includes $6.7 million and $29.6 million during the years ended March 31,
1995 and 1996, respectively, for the conversion of a vessel to a floating
production unit, which has been leased to a third party.
(e) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of earnings before provision for income taxes and
cumulative effect of accounting changes (adjusted for equity in
undistributed earnings of investees) plus fixed charges (adjusted to
include capitalized interest). Fixed charges consist of interest on
indebtedness plus one-third of rental expense, which is considered
representative of the interest factor. For the fiscal year ended March 31,
1996 and the pro forma fiscal year ended March 31, 1996, earnings were
inadequate to cover fixed charges by $4.2 million and $3.8 million,
respectively.
(f) Includes notes payable to McDermott International of $298.0 million, $270.8
million and $231.0 million at March 31, 1994, 1995 and 1996, respectively.
Net debt reflects total debt (including current maturities), net of cash
and cash equivalents.
(g) Gives effect to the Offering and the application of the net proceeds
therefrom as described under "Use of Proceeds." See "Capitalization."
10
<PAGE>
RISK FACTORS
The following factors should be considered carefully together with the
information provided elsewhere in this Prospectus and the documents
incorporated by reference herein, including the financial statements and the
notes thereto, in evaluating an investment in the Notes offered hereby.
DEPENDENCE ON OIL AND GAS INDUSTRY
The demand for marine construction services has traditionally been cyclical,
depending primarily on the capital expenditures of oil and gas companies for
developmental construction. These capital expenditures are influenced by such
factors as prevailing oil and gas prices, expectations about future prices, the
cost of exploring for, producing and delivering oil and gas, the sale and
expiration dates of available offshore leases, the discovery rate of new oil
and gas reserves in offshore areas, local and international political and
economic conditions, technological advances, and the ability of oil and gas
companies to generate funds for capital expenditures. In recent periods, the
market for marine construction services has been relatively weak. While the
Company believes the market is showing some signs of improvement, the Company
cannot, at this time, predict the timing or extent of any improvement in the
industry or the future level of demand for the Company's marine construction
services. Moreover, there can be no assurance that any future downturns in the
oil and gas industry will not be severe or that any such downturn will not have
a material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
SUBSTANTIAL LIQUIDITY REQUIREMENTS; LEVERAGE
The Company's operations (and the operations of its joint ventures) require
significant amounts of working capital for acquisitions of and improvements to
significant amounts of heavy-duty equipment and for the procurement of
materials for contracts to be performed over relatively long periods of time.
In addition, the Company's contract arrangements with customers frequently
require the Company to provide letters of credit or bid and performance bonds
to partially secure the Company's obligations under its bids and/or contracts.
The Company conducts most of its operations through its subsidiaries and joint
ventures. Accordingly, a substantial amount of the Company's consolidated
assets are held by, and a substantial part of the Company's consolidated cash
flows are attributable to, the Company's subsidiaries and joint ventures. As a
result, the Company's liquidity is (and its ability to service the indebtedness
represented by the Notes will be) substantially dependent upon its ability to
obtain a flow of funds from such subsidiaries and joint ventures. Certain of
the Company's subsidiaries and joint ventures have substantial indebtedness
owing to third parties, some of which is outstanding pursuant to arrangements
that restrict the ability of the Company to obtain funds from the applicable
subsidiaries and/or joint ventures. In addition, the agreements governing
certain of the Company's joint ventures require approval of the other parties
to those joint ventures before distributions can be made to the parties. As a
result of these restrictions, the Company's liquidity could, in the future,
become constrained and, as a result, its ability to secure future financings
could be adversely affected. See "--Risks of Joint Venture Operations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
As of March 31, 1996, after giving effect to the Offering and the application
of the net proceeds therefrom, the Company would have had total long-term debt
(excluding current maturities) equal to approximately 40% of its total
capitalization. In addition, certain of the Company's unconsolidated joint
ventures are highly leveraged. The indebtedness of the Company and its
unconsolidated joint ventures may pose a risk to the holders of the Notes,
including the risks that sufficient cash flow might not be generated to service
the indebtedness represented by the Notes, that the Company's ability to secure
future financings
11
<PAGE>
could become substantially limited, and that the financial capacity of the
Company and its unconsolidated joint ventures to respond to cyclical changes
in the demand for their services or extraordinary capital needs could be
restricted. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SUBORDINATION; COMPANY STRUCTURE
The Notes will be subordinated in right of payment to all Senior
Indebtedness, including the principal of and interest on and all other amounts
due on or payable under the Company's principal revolving credit facility (the
"Credit Facility"), whether currently existing or created in the future.
Generally, the Company may not pay principal of or interest on or acquire
Notes (including any repurchase at the option of the holders of Notes after a
Change of Control or certain asset sales) if a default on Senior Indebtedness
has occurred and is continuing or if a default would occur as a result of such
payment. In addition, upon the occurrence of any other event of default
entitling the holders of Designated Senior Indebtedness (as defined herein) to
accelerate the maturity thereof and receipt by the Trustee of written notice
of such occurrence, the holders of Designated Senior Indebtedness will be able
to block payment on the Notes for specified periods of time. By reason of the
subordination of the Notes, in the event of the insolvency, bankruptcy,
liquidation, reorganization, dissolution or other winding-up of the Company or
upon a default in payment with respect to any Senior Indebtedness or any event
of default with respect to Senior Indebtedness resulting in the acceleration
thereof, the assets of the Company will be available to pay the amounts due on
the Notes only after all Senior Indebtedness has been paid in full. In
addition, the Notes will be structurally subordinated to all of the creditors
of the Company's subsidiaries and joint ventures, including trade creditors.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Description of the Notes--Subordination."
As of March 31, 1996, after giving effect to the Offering and the
application of the net proceeds therefrom, the aggregate amount of outstanding
Senior Indebtedness would have been approximately $132.7 million ($118.9
million of which would be guarantees of Indebtedness of the Company's
consolidated and unconsolidated subsidiaries and joint ventures), in addition
to certain bid and performance bonds (or letters of credit in respect of bids
or performance obligations) outstanding ($168.4 million at March 31, 1996),
and the aggregate amount of Indebtedness of the Company's consolidated
subsidiaries and joint ventures (excluding Indebtedness guaranteed by the
Company) would have been approximately $125.4 million. The foregoing amounts
do not include the undrawn portions under the Company's (or its consolidated
subsidiaries' or joint ventures') existing credit arrangements ($207.4 million
at March 31, 1996). In addition, certain of the Company's unconsolidated joint
ventures have significant amounts of outstanding Indebtedness that the Company
has not guaranteed, as well as undrawn but available credit facilities ($125.6
million at March 31, 1996). See "Use of Proceeds," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
HIGHLY COMPETITIVE INDUSTRY
The marine construction services business is highly competitive and in
recent years has been characterized by overcapacity, which has resulted in
substantial pressure on pricing and operating margins (as is generally
reflected in the downward trend in the Company's earnings in the two most
recently completed fiscal years). The Company expects the overcapacity in the
industry to continue for the foreseeable future. Contracts for marine
construction services are usually awarded on a competitive bid basis. Although
the Company believes customers consider, among other things, the availability
and technical capabilities of equipment and personnel, efficiency, condition
of equipment, safety record and reputation, price competition is currently a
primary factor in determining which qualified contractor with available
equipment is awarded a contract. Major marine construction vessels have few
alternative uses and, because of their nature and the environment in which
they work, have relatively high maintenance costs whether or not operating.
Because these costs are essentially fixed, and in order to avoid additional
expenses associated with temporarily idling or "stacking" its vessels, the
Company may from time to time be required to bid its vessels out for hire at
less than attractive rates, depending on the prevailing contractual rates in a
given region. See "Business--Competition."
12
<PAGE>
RISKS ASSOCIATED WITH CONTRACTUAL PRICING IN THE OFFSHORE CONSTRUCTION INDUSTRY
Because of the nature of the offshore marine construction industry, a
substantial number of the Company's projects are currently performed on a
fixed-price basis, although some projects are performed on a cost-plus or day-
rate basis or some combination of the foregoing. The Company attempts to cover
increased costs of anticipated charges in labor, material and service costs of
long-term contracts, either through an estimation of such charges, which is
reflected in the original price, or through price escalation clauses. Despite
these attempts, however, the revenue, cost and gross profit realized on a
fixed-price contract will often vary from the estimated amounts because of
changes in job conditions and variations in labor and equipment productivity
over the term of the contract. These variations and the risks generally
inherent in the marine construction industry may result in gross profits
realized by the Company being different from those originally estimated and may
result in the Company experiencing reduced profitability or losses on projects.
Depending on the size of a project, these variations from estimated contract
performance could have a significant effect on the Company's operating results
for any particular fiscal quarter or year. In general, turnkey contracts to be
performed on a fixed-price basis involve an increased risk of significant
variations, as a result of the long-term nature of such contracts (and the
inherent difficulties in estimating costs) and the interrelationship of the
integrated services to be provided under such contracts (where unanticipated
costs or delays in performing part of the contract could have compounding
effects by increasing costs of performing other parts of the contract). As a
result, in connection with its work for more complex, very deep water
installations involving long-term commitments, the Company generally seeks to
negotiate contract terms such that the Company is not at risk for cost
overruns.
In addition, the Company's contract revenues are recognized on a percentage
of completion basis. Accordingly, contract price and cost estimates are
reviewed periodically as the work progresses, and adjustments proportionate to
the percentage of completion are reflected in income in the period when such
estimates are revised. To the extent that these adjustments result in a
reduction or elimination of previously reported profits with respect to a
project, the Company would recognize a charge against current earnings, which
could be material. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Results of Operations" and "Business--
Customers."
SEASONALITY
The activity in the marine construction industry is highly seasonal in
certain geographic regions and is affected by adverse weather conditions in
those regions during particular times of the year. Historically, a
disproportionate amount of the Company's contract revenues and net income has
been earned during the first three quarters of its fiscal year and the Company
has frequently incurred losses during the fourth quarter of its fiscal year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Business--Backlog; Seasonality."
RISKS OF JOINT VENTURE OPERATIONS
The Company conducts a significant portion of its operations through
subsidiaries and joint ventures, some of which the Company manages and some of
which are managed by others. Most of the Company's consolidated revenues and
EBITDA are derived from its subsidiaries and joint ventures. Even in those
joint ventures managed by the Company, the Company may be required to consider
the interests of its joint venture partners in connection with decisions
concerning the operations of the joint ventures. In addition, the Company may
be dependent, from time to time, on its ability to obtain funds from its
subsidiaries and joint ventures in order to service its indebtedness, including
the Notes. Certain financing arrangements involving the Company's subsidiaries
and joint ventures impose restrictions on the ability of the Company to gain
access to the cash flow or assets of its subsidiaries and joint ventures. In
addition, the Company's foreign subsidiaries and joint ventures may face
governmentally imposed restrictions, from time to time, on their ability to
transfer funds to the Company. See "--Substantial Liquidity Requirements;
Leverage" and "Business."
13
<PAGE>
OPERATING RISKS
The Company's operations are subject to the inherent risks of operations at
sea, including accidents resulting in the loss of life or property, pollution
or other environmental mishaps, adverse weather conditions, mechanical
failures, collisions, property losses to the Company's vessels, business
interruption due to political action in foreign countries, and labor stoppages.
Litigation arising from any such event may result in the Company being named as
a defendant in lawsuits asserting large claims. The Company maintains insurance
for such amounts and against such risks that it deems prudent. However, certain
risks are either not insurable or insurance is available only at rates that the
Company considers uneconomical. Among such risks are war and confiscation of
property in certain areas of the world and pollution liability in excess of
relatively low limits. Depending on competitive conditions and other factors,
the Company endeavors to obtain contractual protection against uninsured risks
from its customers. When obtained, such contractual indemnification protection
may not in all cases be supported by adequate insurance maintained by the
customer. There is no assurance that such insurance or contractual indemnity
protection will be sufficient or effective under all circumstances or against
all hazards to which the Company may be subject. The occurrence of a
significant event not fully insured or indemnified against or the failure of a
customer to meet its indemnification obligations could materially and adversely
affect the Company's results of operations and financial condition. Moreover,
there can be no assurance that the Company will be able to maintain adequate
insurance in the future at commercially reasonable rates or on acceptable
terms. See "Business--Legal Proceedings and Insurance."
RISKS OF INTERNATIONAL OPERATIONS
The international operations of the Company are subject to certain political,
economic and other uncertainties not encountered in domestic operations,
including, among others, risks of war, expropriation or nationalization of
assets, renegotiation or nullification of existing contracts, changing
political conditions, changing laws and policies affecting trade and
investment, overlap of different tax structures, and the general hazards
associated with the assertion of foreign sovereignty over certain areas in
which operations are conducted. Because the Company's major marine vessels
typically require relatively long periods of time to mobilize over long
distances, the Company may be particularly susceptible to regional conditions
that may adversely affect its operations. Additionally, various foreign
jurisdictions have laws limiting the right and ability of foreign subsidiaries
and joint ventures to pay dividends and remit earnings to affiliated companies,
unless specified conditions precedent are met.
The Company's foreign operations sometimes face the additional risks of
fluctuating currency values, hard currency shortages and controls of foreign
currency exchange. The Company attempts to limit its exposure to foreign
currency fluctuations by attempting to match anticipated foreign currency
contract receipts with anticipated like foreign currency disbursements during
contract negotiations. To the extent that it is unable to match the anticipated
foreign currency receipts and disbursements related to its contracts, the
Company enters into forward exchange contracts to hedge foreign currency
transactions on a continuing basis for periods consistent with its committed
exposures. Because the Company generally does not hedge beyond its contract
exposure, the Company believes this practice minimizes the impact of foreign
exchange rate movements on the Company's operating results. See "Business--
Foreign Operations."
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations and properties are affected by
political developments and are subject to both domestic and foreign
governmental regulation, including those relating to the construction and
equipping of production platforms and other marine facilities, vessel safety,
currency conversions and repatriation, oil exploration and development,
taxation of foreign earnings and earnings of expatriate personnel, and use of
local employees and suppliers by foreign contractors. In addition, the Company
depends on the demand for its services from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws and
regulations relating to the oil and gas industry generally. The adoption of
14
<PAGE>
laws and regulations curtailing exploration and development drilling for oil
and gas for economic and other policy reasons would adversely affect the
Company's operations by limiting demand for marine construction services. The
Company cannot determine to what extent future operations and earnings of the
Company may be affected by new legislation, new regulations or changes in
existing regulations.
The Company's operations and properties are also affected by numerous
foreign, federal, state and local environmental protection laws and
regulations. The technical requirements of these laws and regulations are
becoming increasingly expensive, complex and stringent. These laws may provide
for "strict liability" for damages to natural resources or threats to public
health and safety, rendering a party liable for the environmental damage
without regard to negligence or fault on the part of such party. Sanctions for
noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties, and criminal prosecution. Certain
environmental laws provide for strict, joint and several liability for
remediation of spills and other releases of hazardous substances. In addition,
companies may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances. Such laws and
regulations may also expose the Company to liability for the conduct of or
conditions caused by others, or for acts of the Company that were in compliance
with all applicable laws at the time such acts were performed. See "Business--
Governmental Regulation."
CONTROL OF THE COMPANY BY MCDERMOTT INTERNATIONAL; RELATED PARTY TRANSACTIONS
McDermott International currently owns approximately 64% of the Company's
outstanding voting stock. As a result, McDermott International is in a position
to control actions that require the consent of a majority of the Company's
outstanding voting stock, including the election of directors, to control
decisions relating to acquisitions or divestitures or merger transactions
involving the Company, and to otherwise direct the business policies of the
Company. The Company and McDermott International or its affiliates may enter
into material transactions and agreements. Any such transactions or agreements,
however, will be subject to the restrictions and limitations contained in the
Indenture with respect to transactions with affiliates. See "Description of the
Notes--Certain Covenants--Limitation on Transactions with Affiliates." In
addition, pursuant to an agreement entered into in connection with the Merger
(the "Letter Agreement"), the Company is restricted from entering into certain
transactions with McDermott International, or taking certain other actions that
may be for the benefit of McDermott International, without the approval of a
committee of independent directors of the Company (the "Independent Committee")
established pursuant to such agreement, including the following: (i) the
repurchase, redemption or prepayment of the 9% Notes or the Company's Series A
$2.25 Cumulative Convertible Preferred Stock ("Series A Preferred Stock"), (ii)
the repurchase of any shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") owned by McDermott International or certain of its
affiliates, and (iii) the lease, sale or other provision of certain goods or
services to, or lease or purchase of certain goods or services from, McDermott
International or certain of its affiliates (other than pursuant to certain
services agreements entered into in connection with the Merger) involving
aggregate payments in excess of $5.0 million, generally through January 31,
1998. The repurchase of the 9% Notes with a part of the proceeds from the
Offering has been approved by the Independent Committee, as well as the
Company's Board of Directors. See "Certain Transactions and Relationships--
Transactions with McDermott International in Connection with the Merger."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing market for the Notes and there can be no assurance as to
the liquidity of any markets that may develop for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which holders would be
able to sell their Notes. Future trading prices of the Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. The Company
has been advised by Merrill Lynch, Pierce, Fenner & Smith Incorporated that,
subject to applicable laws and regulations, such firm currently intends to make
a market in the Notes after the consummation of the Offering, although it is
not obligated to do so and may discontinue any market-making activities with
respect to the Notes at any time without notice. The Company intends to apply
for listing of the Notes on the New York Stock Exchange. See "Underwriting."
15
<PAGE>
THE COMPANY
The Company, together with its joint ventures, operates the world's largest
fully integrated marine construction business, including the largest fleet of
major marine construction vessels in the world. With its fleet of major marine
construction vessels and its geographically dispersed fabrication yards, the
Company supplies a full range of construction services on a worldwide basis to
the offshore oil and gas exploration and production and hydrocarbon
transportation industries. The Company's services include the basic and
detailed design, engineering, fabrication and installation of offshore drilling
and production platforms and other specialized structures, modular facilities,
marine pipelines and subsea production systems and onshore construction and
maintenance services. The Company also provides comprehensive project
management services, feasibility studies, engineering services, subsea
trenching services, diving services, and removal, salvage and refurbishment
services for offshore fixed platforms. The Company and its joint ventures
operate throughout the world in all major offshore oil and gas producing
regions, including the Gulf of Mexico, the North Sea, West Africa, South
America, the Middle East, India and the Far East.
The Company was formed in connection with the January 1995 combination of
substantially all the marine construction services business of McDermott
International with OPI through a series of transactions including the Company's
acquisition of OPI in a merger transaction (the "Merger") pursuant to an
Agreement and Plan of Merger dated as of June 2, 1994, as amended (the "Merger
Agreement"). McDermott International was a pioneer in the marine construction
services business, with its marine operations dating back to 1947, when its
predecessor, J. Ray McDermott & Co., Inc., installed the first offshore
platform in the Gulf of Mexico. Over the years, McDermott International's
marine construction services business became established as an industry leader,
providing a full range of marine construction services on a worldwide basis,
with significant capabilities suited for the deepwater and high-end segments of
the offshore exploration and production industry. OPI was organized in 1984 as
a marine construction contractor primarily focused on the offshore installation
of underwater pipelines and other marine construction services, principally to
the middle-market segment of the offshore exploration and production industry.
The Company is a majority-owned subsidiary of McDermott International, which
currently owns approximately 64% of the Company's voting stock.
The Company's principal executive offices are located at 1450 Poydras Street,
New Orleans, Louisiana 70112-6050, and its telephone number at such address is
(504) 587-5300.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby are
estimated to be approximately $ million. The Company intends to use such net
proceeds (i) to repurchase all the outstanding 9% Notes ($231.0 million
aggregate principal amount plus accrued interest of approximately $4.7 million
as of the date of this Prospectus) and (ii) for general corporate purposes. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The 9% Notes bear interest at the rate of 9% per annum and are scheduled to
mature on September 15, 2001. The 9% Notes were issued to McDermott
International on January 31, 1995 as partial consideration for the contribution
of certain assets by McDermott International to the Company in connection with
the Merger. The 9% Notes may be redeemed, in whole or in part, at the option of
the Company at any time on or after September 15, 1997, at an initial
redemption price equal to 105% of the principal amount being redeemed
(declining to par at the rate of 1.25% per year over a four-year period).
Following negotiations between the Company and McDermott International, the
parties have agreed that the Company shall repurchase the 9% Notes at their
face value, without any premium, with a part of the proceeds from the Offering.
Such repurchase has been approved by the Independent Committee, in accordance
with the provisions of the Letter Agreement, as well as by the Company's Board
of Directors. See "Certain Transactions and Relationships--Transactions with
McDermott International in Connection with the Merger."
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents,
short-term debt and capitalization of the Company as of March 31, 1996 (i) on a
historical basis and (ii) as adjusted to give effect to the issuance of the
Notes offered hereby. The as-adjusted balances for cash and cash equivalents
and short-term debt shown below do not reflect the repayment of any of the
approximately $79.5 million of indebtedness relating to the Company's work on
the Foinaven project. That indebtedness will be repaid upon completion of the
Foinaven project (which is currently anticipated to be completed by December
31, 1996). See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
<TABLE>
<CAPTION>
MARCH 31, 1996(A)
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................ $166,408 $178,408
======== ========
Short-term debt, including current maturities of long-
term debt............................................... $ 96,130 $ 96,130
======== ========
Long-term debt, excluding current maturities:
12-7/8% Notes.......................................... $ 74,473 $ 74,473
9% Notes............................................... 231,000 --
Notes offered hereby................................... -- 250,000
Other notes payable.................................... 27,153 27,153
Capital leases......................................... 12,906 12,906
-------- --------
Total long-term debt................................. 345,532 364,532
Stockholders' equity:
Series A $2.25 cumulative convertible Preferred Stock,
par value $0.01 per share, 10,000,000 shares
authorized, 3,200,000 shares outstanding (liquidation
preference $160,000,000).............................. 32 32
Common Stock, par value $0.01 per share, 60,000,000
shares authorized; 40,197,946 shares outstanding(b)... 402 402
Capital in excess of par value......................... 581,609 581,609
Deficit................................................ (14,576) (14,576)
Currency translation adjustments....................... (13,570) (13,570)
-------- --------
Total stockholders' equity........................... 553,897 553,897
-------- --------
Total capitalization............................... $899,429 $918,429
======== ========
</TABLE>
- --------
(a) The accounts of all of the Company's controlled subsidiaries and joint
ventures are consolidated with the accounts of the Company. Investments in
joint ventures and other entities that the Company does not control
(including the HeereMac joint venture and ETPM West) are accounted for on
the equity method. Accordingly, the cash and cash equivalents and
indebtedness of those joint ventures are not included in the Company's
consolidated balance sheet. At March 31, 1996, those joint ventures had
combined cash and cash equivalents of $89.6 million, short-term debt
(including current maturities of long-term debt) of $111.4 million
(including $4.1 million owed to the Company) and long-term debt of $302.9
million (including $105.0 million owed to the Company).
(b) Does not include 1,092,094 shares reserved for issuance upon exercise of
outstanding stock options, 3,839,570 shares available for future option
grants under the Company's stock plans, 4,919,644 shares available for
issuance pursuant to a thrift plan under which the Company is a
participating employer or 5,740,800 shares initially issuable upon
conversion of the Company's Series A Preferred Stock.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected consolidated financial data as of and for the five
fiscal years ended March 31, 1992, 1993, 1994, 1995 and 1996 are derived from
the audited consolidated financial statements of the Company. The data should
read in conjunction with the consolidated financial statements, related notes
and other financial information included herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $1,903,281 $1,601,060 $1,193,881 $1,127,320 $1,227,841
Costs and expenses:
Cost of operations
(excluding
depreciation and
amortization)......... 1,647,336 1,344,115 976,636 887,223 1,004,412
Depreciation and
amortization.......... 89,307 80,856 53,627 70,372 85,566
Selling, general and
administrative
expenses.............. 142,382 115,480 115,428 114,165 116,725
---------- ---------- ---------- ---------- ----------
1,879,025 1,540,451 1,145,691 1,071,760 1,206,703
---------- ---------- ---------- ---------- ----------
Operating income before
equity in income (loss)
of investees........... 24,256 60,609 48,190 55,560 21,138
Equity in income (loss)
of investees(a)........ (6,622) 84,973 106,593 22,857 9,124
---------- ---------- ---------- ---------- ----------
Operating income........ 17,634 145,582 154,783 78,417 30,262
Interest income......... 3,960 2,773 3,483 9,298 6,014
Interest expense........ 25,175 22,569 20,076 25,158 42,387
Provision for income
taxes.................. 19,672 42,760 28,050 8,885 4,892
Income (loss) before
cumulative effect of
accounting changes..... (2,874) 95,756 119,137 60,700 187
Net income (loss)(b)(c). (2,874) 37,011 119,137 59,374 187
OTHER FINANCIAL DATA:
Ratio of earnings to
fixed charges(d)....... 1.27x 2.36x 3.10x 2.41x --
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 18,191 $ 26,994 $ 53,343 $ 52,224 $ 166,408
Net property, plant and
equipment.............. 511,572 444,962 481,807 594,162 392,400
Investment in
unconsolidated
affiliates............. 20,894 46,364 90,370 105,283 72,806
Total assets............ 984,063 932,528 1,007,609 1,482,262 1,537,745
Total debt (including
current maturities)(e). 302,874 256,949 303,457 420,516 441,662
Total equity............ 195,187 169,623 253,021 559,471 553,897
</TABLE>
- --------
(a) The accounts of all of the Company's controlled subsidiaries and joint
ventures are consolidated with the accounts of the Company. Investments in
joint ventures and other entities that the Company does not control
(including the HeereMac joint venture and ETPM West) are accounted for on
the equity method. Accordingly, the revenues and operating expenses of
those joint ventures are not included in the Company's consolidated
revenues and operating expenses.
(b) Includes the cumulative effect of the change resulting from the adoption
of SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
in the fiscal year ended March 31, 1993; and the cumulative effect of the
change resulting from the adoption of SFAS No. 112, "Employers' Accounting
for Postretirement Benefits," in the fiscal year ended March 31, 1995.
(c) Net loss applicable to Common Stock (after preferred stock dividend
requirements) was $7.5 million ($0.19 per share) for fiscal 1996. For all
other periods presented, the Company was not a separate entity with its
own capital structure.
(d) For the purpose of determining the ratio to fixed charges, earnings
consist of earnings before provision of income taxes and cumulative effect
of accounting changes (adjusted for equity in undistributed earnings of
investees) plus fixed charges (adjusted to include capitalized interest).
Fixed charges consist of interest on indebtedness plus one-third of rental
expense, which is considered representative of the interest factor. For
fiscal 1996, earnings were inadequate to cover fixed charges by $4.2
million.
(e) Includes notes payable to McDermott International of $285.1 million,
$254.3 million, $298.0 million, $270.8 million and $231.0 million at March
31, 1992, 1993, 1994, 1995 and 1996, respectively.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
As described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," in March 1996,
the Company and Heerema completed a transaction pursuant to which each of
them, through their respective subsidiaries, sold to companies included within
the HeereMac joint venture the major marine vessels they had been chartering
to the joint venture (the Company's DB 101 and DB 102 and Heerema's Hermod and
Balder) (collectively, the "Vessel Sales"). Under the terms of the
transaction, the Company's vessels were purchased for approximately $211.0
million (consisting of cash of approximately $106.0 million and a promissory
note for $105.0 million). In addition, the Company received a $30.0 million
deposit in advance of the sale of certain other equipment by the Company to
the joint venture and a $10.0 million distribution from the joint venture. As
a result of the Vessel Sales transaction, the Company recorded a deferred gain
of approximately $103.2 million, which it is amortizing over 12 years. The
Company applied substantially all of the cash proceeds it received from the
Vessel Sales to repay the remaining $20.5 million principal amount outstanding
under a floating rate demand note issued to McDermott International in
connection with the Merger (the "Floating Rate Note") and to repay other
borrowings under the Credit Facility and other credit lines.
The following unaudited pro forma consolidated statement of income includes
certain adjustments to the historical consolidated statement of income of the
Company for fiscal 1996. Such adjustments relate to the Vessel Sales and the
sale of the Notes offered hereby and the use of the proceeds therefrom, and
are based on the assumption that the transactions had occurred as of April 1,
1995. The pro forma information is not necessarily indicative of the results
that would have actually occurred had the transactions occurred on such date
or that may occur in the future. The following statement should be read in
conjunction with the historical financial statements and notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................... $1,227,841 $(35,581)(a) $1,192,260
Costs and expenses:
Cost of operations (excluding
depreciation and amortization)....... 1,004,412 -- 1,004,412
Depreciation and amortization......... 85,566 (11,701)(a) 73,865
Selling, general and administrative
expenses............................. 116,725 -- 116,725
---------- -------- ----------
1,206,703 (11,701) 1,195,002
---------- -------- ----------
Operating income (loss) before equity
in income of investees................ 21,138 (23,880) (2,742)
Equity in income of investees.......... 9,124 5,209 (b) 22,936
8,603 (a)
---------- -------- ----------
Operating income....................... 30,262 (10,068) 20,194
Interest income........................ 6,014 8,138 (a) 14,152
Interest expense....................... (42,387) 2,279 (c) (40,108)
Other--net............................. 11,190 -- 11,190
---------- -------- ----------
Income before provision for income
taxes................................. 5,079 349 5,428
Provision for income taxes............. 4,892 685 (c) 5,577
---------- -------- ----------
Net income (loss)...................... 187 (336) (149)
Preferred stock dividends.............. 7,711 -- 7,711
---------- -------- ----------
Loss applicable to Common Stock........ $ (7,524) $ (336) $ (7,860)
========== ======== ==========
</TABLE>
- --------
(a) To record the reduction in revenues and depreciation expense relating to
the sale of the Company's vessels, the amortization of the deferred gain
recorded on the sale and the interest income on the $105.0 million
promissory note received as part of the consideration for the sale of such
vessels.
(b) To record the Company's share of the net impact of the Vessel Sales on the
HeereMac joint venture due to lower operating expenses and increased
interest expense on loans payable issued in conjunction with the
transaction.
(c) To record net change in interest expense due to the issuance of the Notes
and the retirement of the 9% Notes, borrowings outstanding under the
Credit Facility and the Floating Rate Note.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
OVERVIEW
The Company was formed in connection with the January 1995 combination of
substantially all of the marine construction services business of McDermott
International with OPI. The Merger was completed for the purposes of improving
the ability of the combined businesses to compete effectively in markets
worldwide and allowing the elimination of duplicative facilities and general
and administrative expenses, thereby giving the combined business a greater
ability to realize profits than would exist for either business as a separate
company. McDermott International was a pioneer in the marine construction
services business, with its marine operations dating back to 1947. OPI was
organized in 1984 as a marine construction contractor primarily focused on the
offshore installation of underwater pipelines and other marine construction
services. The Company is a majority-owned subsidiary of McDermott
International, which currently owns approximately 64% of the Company's voting
stock. The Company and its joint ventures operate throughout the world in all
major offshore oil and gas producing regions, including the Gulf of Mexico, the
North Sea, West Africa, South America, the Middle East, India and the Far East.
The Company's customers include major and independent oil and gas exploration
and development companies, foreign government-owned energy companies, and
hydrocarbon transportation companies. Projects performed by the Company can
range in size from as small as $0.5 million to as large as $500.0 million or
more and can take up to 48 months to complete. The Company obtains business
through competitive bidding and through direct negotiations with customers. A
significant percentage of the Company's contracts is performed on a fixed-price
basis, although other contracts include terms that may limit or share
construction risk, particularly in connection with more complex projects and
projects involving long-term commitments. Although the Company does not
generally provide construction financing or deferred billing for its customers,
it does at times commit significant amounts of working capital on projects in
advance of collecting from customers with respect to such projects. In general,
the Company's contract revenues are recognized on a percentage of completion
basis. Contract price and cost estimates are reviewed periodically as the work
progresses, and adjustments proportionate to the percentage of completion are
reflected in income in the period when such estimates are revised. To the
extent that these adjustments result in a reduction or elimination of
previously reported profits with respect to a project, the Company would
recognize a charge against current earnings, which could be material. Most
long-term contracts have provisions for progress payments. See "Business--
Customers."
In recent periods, the market for marine construction services has been
relatively weak. This lower level of market activity, combined with the
overcapacity in the industry, has resulted in substantial pressure on pricing
and operating margins. The Company's business tends to follow the overall
capital expenditure cycles of the oil and gas industry. The recent focus in the
offshore segment of the oil and gas industry has been on expanding exploration
and development activity in deepwater and very deep water regions, such as the
North Sea, the North Atlantic and the deepwater regions of the Gulf of Mexico.
While this activity has not yet begun to generate significant demand for marine
construction services, it has resulted in a recent increase in the demand for
offshore drilling rigs, which historically has been a leading indicator for an
upturn in the demand cycle for marine construction services.
In general, the Company's performance is a function of the level of oil and
gas development activity in the world's major hydrocarbon producing regions. As
a result, the Company's revenues and profitability reflect some variability
associated with the timing of the completion of significant development
projects and the commencement of others as to which the Company has contracts,
as well as the worldwide volume of projects and their geographic distribution.
The Company's recent operating results have been adversely
21
<PAGE>
impacted by a substantial decline in the number of projects generating demand
for marine construction services in the Southeast Asia market. The Company
believes this decline is only temporary and is largely due to project timing.
This decline has had an adverse effect on other markets as a result of the
migration of equipment and other resources previously allocated to the
Southeast Asia market to other markets and the resultant pressure on pricing in
those markets caused by the increased capacity. Based on its ongoing dialogue
with existing customers with respect to possible future projects, the Company
expects improvement in certain of its significant markets, including Southeast
Asia and the Gulf of Mexico. The Company believes that some level of
improvement in market activity is reflected in an increase in the backlog
relating to contracts to be performed by the Company's unconsolidated joint
ventures from $978,000,000 at March 31, 1995 to $1,374,000,000 at March 31,
1996 (which amount is not included in the Company's backlog amounts referred to
herein). Notwithstanding these signs of improvement, the Company cannot, at
this time, predict the timing or extent of any improvement in the industry or
the future level of demand for the Company's services. See "Business--Industry
Overview" and "--Backlog; Seasonality."
The foregoing statements regarding the Company's markets and the other
statements in this "Overview" discussion are forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertanties,
including, among others, the uncertainties relating to offshore development
decisions to be made by oil and gas exploration and development companies and
the risks and uncertainties described in "Risk Factors" under the captions
"Dependence on Oil and Gas Industry," "Highly Competitive Industry," "Risks
Associated with Contractual Pricing in the Offshore Construction Industry,"
"Seasonality," "Risks of Joint Venture Operations," "Operating Risks," "Risk of
International Operations," and "Governmental Regulation and Environmental
Matters."
The Company's services include the basic and detailed design, engineering,
fabrication and installation of offshore drilling and production platforms and
other specialized structures, related modular facilities, marine pipelines and
subsea production systems. While the Company often provides its services on an
integrated basis, projects performed by the Company can generally be divided
into two broad categories: fabrication projects and marine installation
projects. Fabrication projects generally entail the initial design, engineering
and onshore fabrication of structures and modular facilities. Installation
projects include the transportation and installation of completed structures
and facilities at offshore sites, as well as the offshore installation of
marine pipelines and subsea production systems. The fabrication market is
highly fragmented, with a large number of essentially regional participants. No
single competitor dominates this market on a worldwide basis, although the
Company believes it has the largest share of the worldwide fabrication market.
The Company owns or operates major fabrication facilities on the U.S. Gulf
coast and in Scotland, West Africa, the Middle East and the Far East. While
margins in the fabrication business are difficult to generalize, because in
many cases these services are bundled with other services in a single contract,
they are generally lower than in the installation business because of the
relatively higher variable costs associated with material procurement. In
contrast, installation projects generally achieve relatively higher margins, as
a result of their greater service orientation and the high degree of skill and
experience involved in providing those services. The marine installation market
includes both marine pipelay and heavy-lift operations and is somewhat more
concentrated than the fabrication business. The Company, together with its
joint ventures, has a more dominant position in this business worldwide, as
measured by both the size of the Company's fleet of major marine construction
vessels and the Company's share of contracted vessel days.
In addition to facilities and vessels directly owned and operated by the
Company, the Company conducts a significant portion of its operations through a
number of joint ventures around the world. Some of these joint ventures are
operated by the Company and some are operated by other marine construction
contractors. Some of the Company's joint ventures are consolidated with the
Company's accounts for financial reporting purposes while others (including the
HeereMac joint venture and ETPM West) are accounted for using the equity
method. The Company's joint ventures are largely financed through their own
resources, including, in some cases, stand-alone borrowing arrangements.
Historically, the Company has obtained funds from its joint ventures through
chartering arrangements, whereby the Company charters vessels to the joint
ventures for use in joint venture operations, as well as through distributions
from the joint ventures. While the Company
22
<PAGE>
and the other parties to the joint venture arrangements generally must agree on
the amount of cash flow to be distributed, the joint ventures have historically
distributed to their respective owners cash in excess of estimated working
capital requirements, based on the owners' relative ownership percentages.
The Company believes that the joint ventures provide significant benefits for
the Company. These arrangements have enabled the Company to improve asset
utilization, gain access to specialized facilities and equipment, enter
otherwise protected markets, and benefit from cooperative development of
advanced technologies. The Company intends to continue evaluating and pursuing
other strategic joint venture opportunities.
A significant portion of the Company's revenues and operating results is
derived from its foreign operations. As a result, the Company's operations and
financial results could be significantly affected by international factors. See
"Business--Foreign Operations." In addition, the activity in the marine
construction industry is highly seasonal in certain geographic regions and is
affected by adverse weather conditions in those regions during particular times
of the year. Historically, a disproportionate amount of the Company's contract
revenues and net income has been earned during the first three quarters of its
fiscal year and the Company has frequently incurred losses during the fourth
quarter of its fiscal year. See "Business--Backlog; Seasonality."
The Merger created significant opportunities for reduced costs and improved
efficiencies. The Company has taken several significant actions to rationalize
the combined operations of its predecessors and to eliminate substantial
duplicate administrative costs and operating expenses. These actions include
the closing of OPI's headquarters in Houston, Texas, the elimination of
duplicate facilities and redundant administration worldwide, and the disposal
of surplus equipment, either through scrapping or through sales to third
parties. While the Company's results of operations have been positively
impacted by the cost reduction actions taken to date, the Company is still in
the process of consolidating the combined operations, including the development
of plans for additional consolidation of administrative functions and is
evaluating the potential disposition of certain assets deemed to be surplus.
The Company expects to complete these actions in the fiscal year ended March
31, 1997 ("fiscal 1997").
RESULTS OF OPERATIONS
The following discussion presents the results of operations of the Company
for the periods indicated and includes the accounts of the subsidiaries,
divisions and controlled joint ventures that McDermott International
contributed to the Company prior to the Merger. For the periods after the
Merger, the discussion includes the accounts and operations of the Company on a
stand-alone basis (including the contribution from OPI's operations from
January 31, 1995). For the fiscal year ended March 31, 1994, and through the
date of the Merger, certain expenses included in the consolidated financial
statements include charges from McDermott International for direct costs,
allocation of corporate overhead and interest on intercompany debt. Management
believes that the allocation methods were reasonable, and that the allocations
were representative of what costs would have been on a stand-alone basis.
However, the assets, liabilities and capital structure of the Company after the
Merger differ significantly from the assets, liabilities and capital structure
of the Company prior to the Merger (which reflected substantially all of
McDermott International's marine construction services business).
Fiscal Years Ended March 31, 1996 and 1995
Revenues increased $100,521,000 to $1,227,841,000, primarily due to higher
purchased engineered equipment and subcontract activities in the North Sea
related to British Petroleum's Foinaven development program west of the
Shetlands in the North Atlantic, higher revenues in North America and revenues
resulting from the Merger. These increases were partially offset by lower
revenues in the Far East.
23
<PAGE>
Operating income by geographic area decreased $33,814,000 to $33,152,000,
primarily due to higher amortization expense relating to goodwill and other
intangibles resulting from the acquisition of OPI on January 31, 1995. There
were also lower margins due to the completion of higher profit margin contracts
in the Far East and the Middle East during the fiscal year ended March 31, 1995
("fiscal 1995"), lower volume in the Far East this year, lower operating income
in North America on offshore activities because of weather downtime and lower
margins on certain contracts. This decrease was partially offset by higher
volume and margins in North America on fabrication activities in fiscal 1996.
In addition, there were operating losses associated with the fabrication yard
in Scotland and accelerated depreciation of $4,314,000 on certain marine
equipment in the Far East in the prior year.
Equity in income of investees decreased $13,733,000 to $9,124,000. This
decrease was primarily due to lower results from both the HeereMac and ETPM
West joint ventures. The revenues of these two joint ventures declined from
$656,490,000 to $542,772,000, primarily in the Gulf of Mexico, the Far East and
the North Sea, partially offset by increased volume in West Africa. The equity
income from these two joint ventures declined from $24,759,000 to $3,616,000 as
a result of reduced volume and margins in the North Sea. Together these two
significant investees accounted for 40% of equity earnings of investees. While
both joint ventures performed at low levels during fiscal 1996, worldwide
demand for offshore drilling rigs has increased and the increased level of oil
and gas discoveries has resulted in an increase in these joint ventures'
backlog. Equity income in fiscal 1996 benefitted from the inclusion of the
results of the CMM Mexican joint venture which was not a part of the Company's
marine construction services business in the prior period and higher operating
activity from the Brown and Root McDermott Fabricators Limited joint venture
which was formed in the last quarter of the prior year.
Backlog at March 31, 1996 and 1995 was $977,896,000 and $1,002,968,000,
respectively. Not included in backlog at March 31, 1996 and 1995 was backlog
relating to contracts to be performed by its unconsolidated joint ventures of
approximately $1,374,000,000 and $978,000,000, respectively.
The activity of the Company (including its investees) depends mainly on the
capital expenditures of oil and gas companies and foreign governments for
developmental construction. These expenditures are influenced by the selling
price of oil and gas along with the cost of production and delivery, the terms
and conditions of offshore leases, the discovery rates of new reserves
offshore, the ability of the oil and gas industry to raise capital, and local
and international political and economic conditions.
Oil company capital exploration and production budgets in calendar year 1996
are higher than 1995 expenditures. While oil prices remain flat, natural gas
prices have increased significantly as compared to calendar year 1995.
Expenditures in both domestic and international areas are expected to increase;
domestic at a higher rate. Worldwide demand for offshore drilling rigs has
increased and this, historically, has been a leading indicator for an increase
in the need for marine construction services. The Company's markets are
expected to begin to emerge from the competitive environment that has put
pressure on margins in prior periods.
Interest income decreased $3,284,000 to $6,014,000, primarily due to
settlement of claims for interest relating to foreign tax refunds and contract
claims of $4,868,000 in the prior year.
Interest expense increased $17,229,000 to $42,387,000, primarily due to
interest on the 12 7/8% Guaranteed Senior Notes due 2002 issued by a subsidiary
of OPI being included in the Company's consolidated results following the
Merger and changes in other debt obligations and interest rates prevailing
thereon.
Other-net income increased $4,162,000 to $11,190,000, primarily due to
minority shareholder participation in the increased losses of McDermott-ETPM
East, Inc.
The provision for income taxes decreased $3,993,000 to $4,892,000 while
income before provision for income taxes and cumulative effect of accounting
changes decreased $64,506,000 to $5,079,000. The reduction
24
<PAGE>
in income taxes is primarily due to a decrease in income and a reappraisal of
approximately $4,800,000 of liabilities in certain foreign tax jurisdictions.
In addition, the Company operates in many different tax jurisdictions. Within
these jurisdictions, tax provisions vary because of nominal rates, allowability
of deductions, credits and other benefits, and even tax basis (for example,
revenue versus income). These variances, along with variances in the mix of
income within jurisdictions, are responsible for shifts in the effective tax
rate. As a result of these factors, the provision for income taxes was 96% of
pretax income for fiscal 1996, compared to a provision of 13% of pretax income
for fiscal 1995.
Net income decreased $59,187,000 to $187,000. This decrease included the
cumulative effect of the adoption of SFAS No. 112 of $1,326,000 in the prior
year, in addition to other items described above.
Fiscal Years Ended March 31, 1995 and 1994
During fiscal 1995, revenues decreased by $66,561,000 to $1,127,320,000
compared to $1,193,881,000 for the fiscal year ended March 31, 1994 ("fiscal
1994"), primarily due to lower volume in worldwide marine and domestic
fabrication operations. This decrease was partially offset by the inclusion of
revenues as a result of the acquisition of OPI (approximately $44,000,000) on
January 31, 1995 and NOS (which has been renamed as McDermott Subsea
Constructors Limited) ($59,644,000 for the full fiscal year) in February 1994,
and higher volume in foreign fabrication and procured materials.
Operating income by geographic area increased $7,094,000 to $66,966,000
(including $4,993,000 from OPI) primarily due to improved margins in foreign
marine operations, inclusion of the operating results of NOS for the full
fiscal year, and higher volume in foreign fabrication and procured materials.
These increases were partially offset by higher operating expenses.
Equity in income of investees decreased $83,736,000 to $22,857,000. Both the
HeereMac joint venture and ETPM West performed at lower levels than in the
previous year, as several large contracts were completed in fiscal 1994. The
revenues of these two joint ventures declined from $895,666,000 to
$656,490,000. Most of the HeereMac decline was in the North Sea. ETPM West also
declined in the North Sea, but this was partially offset by increased volume in
West Africa. The equity income from these two investees declined from
$106,783,000 to $24,759,000. HeereMac's equity income decreased as a result of
the reduced volume and reduced margins. ETPM West's equity income also
decreased as a result of the reduced volume, but the decrease was not as
severe. ETPM West also had a loss provision of approximately $7,500,000 on a
major North Sea contract. Together, these two significant joint ventures
accounted for 108% of equity in earnings of investees. No other venture
contributed significantly to the decline.
Interest income increased $5,815,000 to $9,298,000, primarily due to
settlement of claims for interest relating to foreign tax refunds and contract
claims.
Interest expense increased $5,082,000 to $25,158,000, primarily due to
increases in debt obligations and interest rates prevailing thereon.
Other-net income decreased $1,969,000 to $7,028,000, primarily due to
minority shareholder participation in the improved results of McDermott-ETPM
East, Inc. (one of the operating entities in the ETPM joint venture that is
controlled by the Company ("ETPM East")) partially offset by lower foreign
currency transaction losses.
The provision for income taxes decreased $19,165,000 to $8,885,000 while
income before provision for income taxes and cumulative effect of accounting
changes decreased $77,602,000 to $69,585,000. The decrease in the provision for
income taxes is primarily due to a decrease in income from operations.
25
<PAGE>
Net income decreased $59,763,000 to $59,374,000. This decrease included the
cumulative effect of the adoption of SFAS No. 112 of $1,326,000, in addition to
other items described above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's cash requirements have been met primarily through
cash generated from operations (including distributions from the Company's
unconsolidated joint ventures), short-term borrowings, and proceeds from asset
sales.
In addition to cash flow from consolidated operations, the Company's
liquidity is also partially affected by its ability to obtain a flow of funds
from its unconsolidated joint ventures. Certain of these joint ventures have
substantial indebtedness owing to third parties, some of which is outstanding
pursuant to arrangements that restrict the ability of the Company to obtain
funds from the joint venture.
In general, the Company's working capital position is, to a large extent, a
function of (i) the terms of payment on major contracts entered into with
customers that provide for performance over long periods of time and (ii) the
Company's ability to enter into contracts with subcontractors (who perform
certain specialized functions) and material and equipment suppliers that
contain payment terms that are similar to (or more favorable to the Company
than) the payment terms contained in the major contracts with customers. Work
performed on a contract that has not yet been invoiced to the customer is
generally reflected in contracts in progress, and advances received from
customers for work on contracts not yet performed are generally reflected in
advanced billings on contracts.
At March 31, 1996, the Company had working capital of $169,409,000, an
increase of $195,997,000 compared to a working capital deficit of $26,588,000
at March 31, 1995. This increase primarily reflects increases in cash and cash
equivalents and contracts in progress (together with a decrease in advance
billings on contracts), partially offset by lower accounts receivable--trade.
During fiscal 1996, the Company's cash and cash equivalents increased
$114,184,000 to $166,408,000 and total debt (including current maturities)
increased by $21,146,000 to $441,662,000. During fiscal 1996, the Company used
cash of $48,906,000 in operating activities; $38,033,000 for additions to
property, plant and equipment; $29,620,000 for the conversion of a barge to a
floating production unit; $7,928,000 for dividends on the Company's preferred
stock; $6,827,000 for investments in equity investees; and $6,808,000 for
repayment of long-term debt. Also during fiscal 1996, the Company received cash
of $133,693,000 from the proceeds of its asset sales; $37,097,000 from the
return of capital from its equity investees; and $30,000,000 from a deposit in
advance on the sale of certain equipment.
The Company's contracts in progress at March 31, 1996 were $181,375,000, an
increase of $126,428,000 from the March 31, 1995 balance of $54,947,000, while
the Company's advanced billings on contracts at March 31, 1996 were
$36,581,000, a decrease of $25,914,000 from the March 31, 1995 balance of
$62,495,000. The Company's accounts payable at March 31, 1996 were
$151,168,000, or $9,792,000 greater than the March 31, 1995 balance of
$141,376,000. The increase in net contracts in progress and advanced billings
on contracts was primarily related to the timing of billings on British
Petroleum's Foinaven development project. Accounts payable to McDermott
International increased $42,423,000, of which approximately $21,000,000 has
been settled subsequent to March 31, 1996.
Expenditures for property, plant and equipment decreased $2,049,000 to
$38,033,000 for fiscal 1996 as compared with the prior year. These expenditures
included $8,669,000 for installation of a new pipe reel system on a marine
construction vessel. In addition to expenditures for property, plant and
equipment, the Company expended $29,620,000 in fiscal 1996 for the conversion
of a vessel to a floating production unit, which is now leased to a third
party. The vessel conversion was financed by $21,700,000 in loan facilities, of
which $21,139,000 was outstanding at March 31, 1996.
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The Company has committed to make capital expenditures of approximately
$30,385,000 during fiscal 1997. Approximately half of these expenditures will
primarily relate to the purchase of submarine cable lay and maintenance marine
equipment. The Company continues to evaluate its level of capital spending
throughout the year based upon, among other things, cash flow from operations
and conditions affecting the industry. The Company has annual dividend
requirements of $7,200,000 on its Series A Preferred Stock, all of which is
held by McDermott International. In the first nine months of fiscal 1996, all
the outstanding shares of Series B $2.25 Cumulative Convertible Exchangeable
Preferred Stock of the Company ("Series B Preferred Stock") were either
converted into shares of Common Stock or redeemed for cash.
During fiscal 1997, the Company expects to obtain funds to meet working
capital, capital expenditure, debt maturity and Series A Preferred Stock
dividend requirements primarily from operating activities. Leasing agreements
for equipment, which are short-term in nature, are not expected to impact the
Company's liquidity or capital resources.
In March 1996, the Company and Heerema completed the Vessel Sales transaction
pursuant to which each of them, through their respective subsidiaries, sold to
companies included in the HeereMac joint venture the major marine vessels they
had been chartering to the joint venture (the Company's DB 101 and DB 102 and
Heerema's Hermod and Balder). The Vessel Sales transaction was entered into for
the primary purpose of more permanently committing these highly specialized
heavy-lift vessels to the HeereMac joint venture, thereby ensuring long-term
maximum utilization of these vessels through continued coordination of their
operations. Under the terms of the transaction, the Company's vessels were
purchased for approximately $211.0 million (consisting of cash of approximately
$106.0 million and a promissory note in the principal amount of $105.0
million), and all of the outstanding stock of the two Heerema subsidiaries that
owned the Heerema vessels were purchased by the joint venture. Substantially
all of the cash portion of the combined purchase price for the Company's
vessels and the stock of the Heerema subsidiaries was funded through a $200.0
million stand-alone credit arrangement obtained by the HeereMac joint venture
(the "HeereMac Credit Agreement"), which has an initial term of five years and
is secured by the vessels included in the Vessel Sales transaction. In
addition, the Company received a $30.0 million deposit in advance of the sale
of certain other equipment by the Company to the joint venture and a $10.0
million distribution from the joint venture. The promissory note received by
the Company in the Vessel Sales transaction is subordinated to all indebtedness
outstanding pursuant to the HeereMac Credit Agreement, bears interest from the
date of issue at the rate of 7.75% per annum, and is scheduled to mature on
March 31, 2003. Interest accrued and not paid on such note will be added to
the principal. The note is unsecured and does not contain any financial
covenants or cross-default or cross-acceleration provisions.
As a result of the Vessel Sales transaction, the Company recorded a deferred
gain of approximately $103.2 million, which it is amortizing over 12 years. The
Company applied substantially all of the cash proceeds it received from the
Vessel Sales to repay the Floating Rate Note and to repay other borrowings
under the Credit Facility and other credit lines.
At March 31, 1996 and 1995, the Company had available to it various
uncommitted short-term lines of credit from banks totaling $142,645,000 and
$118,231,000, respectively. Borrowings by the Company against these lines of
credit at March 31, 1996 and 1995 were $85,251,000 and $24,750,000,
respectively. The Company also has available borrowing capacity of up to
$150,000,000 under the Credit Facility, none of which was outstanding at March
31, 1996. The Company is restricted, as a result of the consolidated tangible
net worth covenant in the Credit Facility, in its ability to transfer funds to
McDermott International and its subsidiaries through cash dividends or through
unsecured loans or investments. At March 31, 1996, approximately $13,000,000 of
its net assets were not subject to this restriction. Accordingly, this
restriction is not expected to impact the Company's ability to make preferred
dividend payments for the forseeable future. See "Description of Certain
Indebtedness--Credit Facility."
The Company's unconsolidated joint ventures are largely financed through
their own resources, including, in some cases, stand-alone borrowing
arrangements (although the Company and its joint venture
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partners have provided or facilitated additional funding by contributing or
lending cash to the joint ventures or providing guarantees of bank borrowings
by the joint ventures). As of March 31, 1996, the Company's unconsolidated
joint ventures had combined cash and cash equivalents of $89,644,000, short-
term debt (including current maturities of long-term debt) of $111,365,000
(including $4,132,000 owed to the Company), and long-term debt of $302,893,000
(including $105,000,000 owed to the Company). Of the debt owed to third
parties, approximately $33,455,000 was guaranteed by the Company.
The Company has provided a valuation allowance ($16,216,000 at March 31,
1996) for deferred tax assets, which cannot be realized through carrybacks and
future reversals of existing taxable temporary differences. Management believes
that remaining deferred tax assets ($34,444,000 at March 31, 1996) are
realizable through carrybacks and future reversals of existing taxable
temporary differences. Management will continue to assess the adequacy of the
valuation allowance on a quarterly basis.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," effective for fiscal years beginning after
December 15, 1995. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also applies
to similar assets that are held for disposal, except for the assets of a
discontinued operation. The Company has not yet finalized its review of the
impact of this statement, but it is not expected to have a material impact on
the Company's consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15, 1995.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Company has not yet finalized its
review of the provisions of this statement, and accordingly, has not yet
determined whether it will adopt SFAS No. 123 for expense recognition purposes,
or continue to follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and make the pro forma information disclosures
required under the new standard.
EFFECT OF INFLATION AND CHANGING PRICES
Due to the relatively low levels of inflation experienced in fiscal 1994,
1995 and 1996, inflation did not have a significant effect on the Company's
results in such years. In order to minimize the negative impact of inflation on
its operations, the Company attempts to cover the increased cost of anticipated
changes in labor, material and service costs, either through an estimate of
such changes, which is reflected in an original price, or through price
escalation clauses in its contracts. See "Business--Customers."
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BUSINESS
GENERAL
The Company, together with its joint ventures, operates the world's largest
fully integrated marine construction business, including the largest fleet of
major marine construction vessels in the world. With its fleet of major marine
construction vessels and its geographically dispersed fabrication yards, the
Company supplies a full range of construction services on a worldwide basis to
the offshore oil and gas exploration and production and hydrocarbon
transportation industries. The Company's services include the basic and
detailed design, engineering, fabrication and installation of offshore drilling
and production platforms and other specialized structures, modular facilities,
marine pipelines and subsea production systems and onshore construction and
maintenance services. The Company also provides comprehensive project
management services, feasibility studies, engineering services, subsea
trenching services, diving services, and removal, salvage and refurbishment
services for offshore fixed platforms. The Company and its joint ventures
operate throughout the world in all major offshore oil and gas producing
regions, including the Gulf of Mexico, the North Sea, West Africa, South
America, the Middle East, India and the Far East.
The Company was formed in connection with the January 1995 combination of
substantially all the marine construction services business of McDermott
International with OPI through a series of transactions including the Merger.
The Merger was completed for the purposes of improving the ability of the
combined businesses to compete effectively in markets worldwide and allowing
the elimination of duplicative facilities and general and administrative
expenses, thereby giving the combined business a greater ability to realize
profits than would exist for either business as a separate company. McDermott
International was a pioneer in the marine construction services business, with
its marine operations dating back to 1947, when its predecessor, J. Ray
McDermott & Co., Inc., installed the first offshore platform in the Gulf of
Mexico. Over the years, McDermott International's marine construction services
business became established as an industry leader, providing a full range of
marine construction services on a worldwide basis, with significant
capabilities suited for the deepwater and high-end segments of the offshore
exploration and production industry. OPI was organized in 1984 as a marine
construction contractor primarily focused on the offshore installation of
underwater pipelines and other marine construction services, principally to the
middle-market segment of the offshore exploration and production industry. The
Company is a majority-owned subsidiary of McDermott International, which
currently owns approximately 64% of the Company's voting stock.
The typical configuration of marine vessels at an offshore construction site
(usually referred to as a "construction spread") is centered around either a
large derrick vessel, pipelaying vessel, combination derrick-pipelaying vessel
or pipe burying vessel capable of offshore operations for an extended period of
time in remote locations. The Company owns, or through its ownership interests
in joint ventures has interests in, 12 derrick vessels, six pipelaying vessels,
11 combination derrick-pipelaying vessels and three pipe burying vessels
(collectively, the "Combined Fleet"). The Company also owns, or through its
ownership interests in joint ventures has interests in, three other derrick
vessels, which are intended to be scrapped or sold in the current fiscal year.
The lifting capacities of the derrick and combination derrick-pipelaying
vessels in the Combined Fleet range from 250 to 13,200 tons. These vessels
range in length from approximately 400 to 660 feet and are fully equipped with
stiff leg or revolving cranes, auxiliary cranes, welding equipment, pile-
driving hammers, anchor winches and a variety of additional gear. Some of these
vessels hold various records for heavy lifts and installations of deepwater
pipelines in different regions of the world. The largest vessels in the
Combined Fleet are the derrick barge DB 102, which is one of the world's
largest semisubmersible derrick vessels in both size and lifting capacity and
provides quarters for approximately 750 workers, and the LB 200, a
semisubmersible pipelaying vessel capable of laying 60-inch diameter pipe
(including concrete coating) and operating in water depths of up to 2,000 feet.
To support the operations of these major marine construction vessels, the
Company and its joint ventures also own or lease a substantial number of other
vessels, such as tugboats, utility boats, launch barges and cargo barges.
In addition to its offshore fleet, the Company owns or operates six
fabrication facilities throughout the world. The Company's principal U.S.
fabrication yard is located on 1,114 acres near Morgan City, Louisiana.
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The Company also owns or operates fabrication facilities near Corpus Christi,
Texas, near Inverness, Scotland, in Indonesia on Batam Island, in Jebel Ali,
U.A.E. and in Warri, Nigeria. The Company's fabrication facilities are equipped
with a wide variety of heavy-duty construction and fabrication equipment,
including cranes, welding equipment, machine tools and robotic and other
automated equipment. The Company has the capability to fabricate a full range
of offshore structures, from the conventional jacket-type fixed platform to
deepwater platform configurations employing compliant-tower, tension leg,
floating production platform and spar technology. The Company also fabricates
platform deck structures and modular components, including complete production
processing systems, hydrocarbon separation and treatment systems, pressure and
flow control systems and personnel quarters.
The Company conducts operations both directly and through its participation
in joint ventures, some of which it manages and others of which are managed by
other marine construction contractors. The Company's joint ventures have
resulted in greater utilization of assets through geographic diversification,
expansion of its significant market presence as a fully integrated contractor
in new markets, greater access to specialized equipment and facilities,
participation in markets that require minimum levels of local ownership, and
cooperative development of advanced technologies. The Company's joint venture
interests include 50% ownership of the HeereMac joint venture, formed with
Heerema, to provide heavy-lift marine installation services on a worldwide
basis. The Company also is engaged in a joint venture with ETPM, a French
contractor, primarily consisting of a series of joint venture operating
companies, most of which are majority-owned and controlled by the Company. The
ETPM joint venture operates one pipelaying vessel and seven combination
derrick-pipelaying vessels in the North Sea, West Africa, South America, the
Middle East, India and the Far East.
INDUSTRY OVERVIEW
The Company competes in the marine construction services industry, which
provides design, engineering, fabrication and installation services to the oil
and gas exploration and production and hydrocarbon transportation industries in
connection with the offshore exploration and development of oil and gas. The
industry is comprised of both integrated and specialized marine construction
companies that provide a wide array of services in connection with the
construction and installation of offshore drilling and production platforms and
other specialized structures, related modular facilities, marine pipelines and
subsea production systems. Industry participants include engineering firms,
fabrication yards, subsea equipment manufacturers, pipelaying companies,
shipbuilders and ship and offshore drilling unit owners.
The primary customers in the marine construction services industry are major
and independent oil and gas exploration and production companies, foreign
government-owned energy companies, and hydrocarbon transportation companies.
Consequently, the level of activity in the industry depends primarily on the
capital expenditures of these customers in connection with developmental
construction. These capital expenditures are influenced by such factors as
prevailing oil and gas prices, expectations about future prices, the cost of
exploring for, producing and delivering oil and gas, the sale and expiration
dates of available offshore leases, the discovery rate of new oil and gas
reserves in offshore areas, local and international political and economic
conditions, technological advances, and the ability of oil and gas companies to
generate funds for capital expenditures.
The Company categorizes the market for offshore construction services into
three segments: shallow water (less than 200 feet), deepwater (200 feet to
1,000 feet) and very deep water (1,000 feet or deeper). The Company generally
focuses on projects in deepwater and very deep water, which generally are more
complex, require larger marine construction vessels with greater lifting
capacity, more sophisticated technology and experienced personnel, and which
generally provide greater operating margins than shallow water projects.
Because of the relatively low levels of complexity and capital costs involved
in shallow water marine construction activities, there are a number of
companies with one or more derrick or pipelaying barges capable of operating in
shallow waters. For projects in very deep water or that involve a higher degree
of complexity, competition is more limited.
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In recent periods, the market for marine construction services has been
relatively weak. This lower level of market activity, combined with the
overcapacity in the industry, has resulted in substantial pressure on pricing
and operating margins. The marine construction business tends to follow the
overall capital expenditure cycles of the oil and gas industry. As a result,
the demand for marine construction services has historically been cyclical.
Moreover, the demand for marine construction services generated by individual
offshore oil and gas development projects is itself cyclical in nature. With
regard to new development projects, the demand for the Company's services
generally follows the exploratory drilling and, in some cases, initial
developmental drilling activities. Based on the results of these activities and
evaluations of field economics, customers determine whether to install new
platforms and new infrastructure, such as gathering lines and pipelines. With
regard to existing development projects, demand for the Company's services is
generated by decisions to, among other things, expand development operations in
existing fields and expand existing infrastructure.
The Company believes, based on industry sources, that calendar year 1996 oil
and gas exploration and production companies' budgets for capital expenditures
relating to deepwater and very deep water projects are, in general, moderately
higher than in 1995. The recent focus in the offshore segment of the oil and
gas industry has been on expanding exploration and development activity in
deepwater and very deep water regions, such as the North Sea, the North
Atlantic and the deepwater regions of the Gulf of Mexico. The increase in
planned exploration and development activities in deepwater and very deep water
regions is primarily attributable to recent improvements in seismic
technologies and subsea completion technologies and production systems and, in
the case of some of the increased activity in the North Sea, recent changes in
the U.K. tax law applicable to offshore exploration and development. These
developments have generally reduced finding costs associated with deepwater and
very deep water reserves and reduced the costs of developing those reserves and
bringing them to market. As technology continues to advance, the Company
expects oil and gas producers to increase their focus in the deepwater and very
deep water regions of the world.
COMPANY STRENGTHS
Established name as industry leader. The Company has one of the oldest and
best-known names in the marine construction business, with its operations
dating back to the inception of the offshore oil and gas exploration and
development industry in the Gulf of Mexico. The Company was also among the
first to fabricate structures and facilities for offshore production in the
Middle East, West Africa, Alaska and the North Sea. Today, the Company believes
it is an industry leader because of its experience, size and global presence,
the full range of its service capabilities, its technically advanced equipment
and personnel, its reliability, and its safety record. The Company has
maintained its reputation as a pioneer in the industry through the development
of numerous technological advancements that have significantly impacted the
industry.
Position as the only fully integrated marine construction company providing
services on a worldwide basis. The Company believes that its ability to provide
a full range of marine construction services on a global basis affords the
Company greater opportunities through the expansion of historical relationships
with customers who operate in multiple geographic regions. The Company's
integrated services complement one another and provide opportunities to build
upon. For example, the Company believes that its knowledge and experience
gained in its platform structure and deck module fabrication operations provide
it with significant advantages in the competition for potentially higher-margin
transportation and installation projects.
Position to benefit from the trend towards bundled services. Providing fully
integrated services also gives the Company the ability to meet the demands of
the increasing number of customers who seek single-source solutions to their
marine construction requirements. The Company believes that certain of the
larger customers in the marine construction market are trending towards more
integrated service projects in which a single contractor is responsible, often
in conjunction with several subcontractors, for the complete project scope,
including initial design, engineering, procurement, installation and
commissioning. The Company
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provides single-source turnkey project responsibility for large, complex and
geographically remote projects around the world. The Company believes that its
size, global presence and range of operating assets position it as one of the
strongest competitors in the integrated services market. The Company's
abilities in providing integrated services are demonstrated by the following
recent projects:
. Shell Oil Company's Auger and Mars tension-leg platform projects in the
deep waters of the Gulf of Mexico, for which the Company fabricated the
decks and topside modules and installed the platforms (through the
HeereMac joint venture) in approximately 2,860 feet and 2,900 feet of
water, respectively. The Company also laid the pipe for both oil and gas
production from the approximately 20 wells being produced from the Auger
platform.
. Shell Oil Company's Ram-Powell project, a new Gulf of Mexico development
project utilizing a tension-leg platform to be installed in over 3,200
feet of water, for which the Company is providing integrated fabrication
and installation services.
. British Petroleum's Foinaven development project, for which the Company
won one of the largest integrated marine construction services contracts
recently awarded. This project will produce oil from subsea wells into a
floating production facility. The oil will be offloaded to two tankers
that will shuttle back and forth between the facility and a terminal.
The Company fabricated the large turret system for the vessel being
converted into the floating production facility and has responsibility
for project management, engineering and all installation work to be
performed at the project site.
Position to benefit from possible increases in market activity. The Company
generally focuses on projects in deepwater (200 feet to 1,000 feet) and very
deep water (1,000 feet or deeper), which generally are more complex, require
larger marine construction vessels with greater lifting capacity, require more
sophisticated technology and experienced personnel, and provide greater
operating margins than shallow water projects. The Company believes it is well
positioned to benefit from any increases in major marine construction activity
that would result from decisions by oil and gas producers to pursue significant
projects currently under evaluation in different parts of the world, including
additional deepwater and very deep water projects in the North Sea, the North
Atlantic and the Gulf of Mexico and natural gas production projects in the
South China Sea.
Capabilities of equipment, personnel and other resources; position as a
technological leader. Through the operation of its fleet of marine construction
vessels and its strategically located fabrication facilities, the Company has
demonstrated significant capabilities in all aspects of major marine
construction. These capabilities, combined with the Company's expertise and
worldwide presence, have resulted in the Company's selection as a contractor
for some of the largest and most innovative offshore projects in the world. The
most recent of these projects include three successive record-setting projects
for Shell Oil Company in the deep waters of the Gulf of Mexico, utilizing
tension-leg platforms, and an innovative spar platform for Oryx Energy. The
Company is also providing integrated services and project management for the
first phase of British Petroleum's Foinaven development in the North Atlantic,
west of the Shetland Islands, one of the highest profile offshore development
projects currently underway. In addition, many of the deepwater and very deep
water projects under development today have become possible as a result of
recent advancements in subsea completion technology. During the past few years,
the Company has expanded its capabilities in the subsea market through the
acquisition of NOS, a subsea installation and pipelay contractor, and Mentor, a
subsea engineering firm.
BUSINESS STRATEGY
Capitalize on geographic diversity. The Company's ability to operate in
geographically diverse markets is important to the Company's success. The
Company's customers include many large energy producers operating in various
parts of the world that generate demand for the full range of services provided
by the Company. The ability to provide these services on a global basis
enhances the Company's relationships with these customers and affords the
Company greater opportunities. In addition, geographic diversity permits
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the Company to improve the utilization rates for its assets, particularly its
major marine construction vessels. By dispersing these vessels in significant
hydrocarbon producing regions around the world, the Company achieves greater
utilization by reducing the aggregate amount of mobilization time required
between construction sites. Geographic diversity also reduces the Company's
exposure to regional conditions that may adversely affect the market for marine
construction services within a specific operating area.
Focus on projects requiring technologically advanced solutions. The Company
utilizes its superior capabilities, equipment and other resources to provide
high-end, technologically advanced solutions for its customers. Through its
subsidiaries and joint ventures, the Company has developed several proprietary
technologies that provide an advantage in competing for work on more
technologically challenging projects, which have greater revenue generating
potential. These include advanced technologies used in compliant-tower platform
structures and modifications to spar platform technology that have resulted in
the first spar platform (which is currently being constructed) ever to be built
for the offshore drilling and production of oil and gas.
Develop leadership in the deepwater and subsea markets. As a result of the
combination of several technological advancements in recent years, including
the development of new seismic technologies and improvements in subsea
completion technologies and production systems, there has recently been a
significant amount of new exploration and development activity in deepwater and
very deep water areas, such as the North Sea, the North Atlantic and the
deepwater regions of the Gulf of Mexico. As technology continues to advance,
the Company expects significant new opportunities to develop in these markets.
The Company's leadership role in deepwater marine construction led to the
Company's being selected as a major contractor for several of Shell Oil
Company's deepwater projects in the Gulf of Mexico, British Petroleum's
Foinaven project in the North Atlantic and Shell's Teal Guillemot project in
the North Sea. The Company intends to capitalize on its recognition as a leader
in the deepwater markets and extend its leadership role to the very deep water
and subsea markets. With the acquisitions of NOS and Mentor, together with the
Company's experience base in deepwater environments, the Company believes it is
well positioned to actively participate in the future growth in these markets.
Utilize joint ventures. The Company believes that its joint venture
operations enhance its ability to compete effectively. The Company's joint
ventures have resulted in greater utilization of assets through geographic
diversification, the development of a significant market presence as a fully
integrated contractor in a greater number of markets, the participation in
markets that require minimum levels of local ownership, and the cooperative
development of advanced technologies. The Company and ETPM have recently
restructured the ETPM joint venture in a transaction pursuant to which the
Company increased its participation in the joint venture by expanding the joint
venture's scope geographically to include, among other areas, the Far East and
to pursue subsea contracting work on a worldwide basis. The Company intends to
continue reviewing additional joint venture opportunities.
Provide turnkey services; partner with customers. The Company intends to
pursue the developing market for turnkey marine construction contracts, which
generally provide for a single contractor to be responsible for the complete
project scope, including engineering, procurement, installation and
commissioning (commonly referred to as "EPIC" contracts). With its position as
the only marine construction company with the capability of providing fully
integrated services on a worldwide basis, the Company is well positioned to
compete for these integrated services contracts. In addition, the Company plans
to continue developing partnering and alliance arrangements with customers for
the management of projects, as appropriate.
Continue to exploit benefits of cost reductions and synergies resulting from
the Merger. With the Merger, the Company solidified its position as the world's
largest fully integrated marine construction company and expanded the Company's
operations into complementary markets. The Merger also created significant
opportunities for cost reductions and operating efficiencies. The Company has
taken several significant actions to rationalize the combined operations of its
predecessors and to eliminate substantial duplicate administrative costs and
operating expenses. These measures include the closing of OPI's headquarters
office
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in Houston, Texas; the elimination of duplicate facilities and redundant
administration worldwide; and the disposal of surplus equipment, either through
scrapping or through sales to third parties. While the Company's results of
operations have been positively impacted by the cost reduction actions taken to
date, the Company is still in the process of rationalizing the combined
operations, has developed plans for additional consolidation of administrative
functions and is continuing to dispose of surplus assets resulting from the
Merger. The Company will continue to exploit the additional market
opportunities created by the Merger.
DESCRIPTION OF OPERATIONS
The Company's services include the basic and detailed design, engineering,
fabrication and installation of offshore drilling and production platforms and
other specialized structures, modular facilities, marine pipelines and subsea
production systems. The Company also provides comprehensive project management
services, feasibility studies, engineering services, subsea trenching services,
diving services, and removal, salvage and refurbishment services for offshore
fixed platforms.
Design, Construction and Installation of Offshore Platforms
There are two basic types of offshore platforms: fixed and floating. Most
fixed platforms currently in use are of the traditional jacket-type design.
Modern technologies have created a new generation of compliant-tower platforms
for development in very deep waters. Floating platforms are of three basic
types: tension-leg platforms, spar platforms and floating production
facilities. The Company provides design engineering, fabrication and
installation services for each of these types of offshore platforms. The
Company also designs and installs subsea production systems, which are systems
that contain primary well control equipment and rest directly on the ocean
floor.
The selection of the type of offshore platform for a given project (as well
as the specific engineering and design characteristics for the platform)
depends on a number of factors, including the type of hydrocarbons to be
produced, whether additional drilling operations will be conducted
simultaneously with production, estimated production levels, the location of
the field, the depth of the water, weather conditions, characteristics of the
sea floor, earthquake potential and deck load requirements.
Fixed Platforms. A fixed platform is the traditional type of platform used
for the offshore development and production of oil and gas. As of March 31,
1996, over 3,800 fixed platforms were installed in the Gulf of Mexico alone.
Most fixed platforms being built today are built to accommodate both drilling
and production operations. These combination platforms are large and generally
more costly than single-purpose structures. Because directional drilling
techniques permit 50 or more wells to be drilled from a single platform,
however, and because drilling and production can take place simultaneously,
these platforms are often more efficient.
The most common type of fixed platform consists of a tubular steel, trussed
structure extending from the mudline on the ocean floor to a point above the
water surface. This structure, commonly referred to as a jacket, is supported
on tubular piling driven deep into the seabed which, in turn, supports the deck
structure located above the level of storm waves. These platforms can be
designed to accommodate multiple functions (including development, production,
separating, gathering, pumping, compression, well support and quartering). They
can be joined by bridges to form complexes of platforms for very large
developments or to improve safety by dividing functions among specialized
platforms. Jacket-type platforms are generally the most viable solution for
water depths of 1,300 feet or less. In general, the construction time for a
jacket can range between eight weeks and 18 months. These structures are
generally sold for between $0.5 million and $100.0 million, depending on their
design, size and other characteristics.
The Company has been an innovator in the design, fabrication and installation
of jacket-type platforms. The Company fabricated and installed the first jacket
over 300 meters tall. Most of the steel for jackets arrives at the Company's
fabrication at the Company's fabrication yards as steel plate. The plate is cut
and rolled
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into tubular sections at rolling mills in the fabrication yards. The tubular
sections (which vary in diameter, sometimes approaching 20 feet) are welded
together in long straight tubes to become legs or into shorter tubes to become
part of the network of bracing that supports the legs. The various cuts in the
fabrication process are made by computer-controlled equipment that receives
instruction from data developed during the design of the structure.
Jackets are built on skidways (which are long parallel rails along which the
jacket will slide when it is transferred to a barge for towing out to sea) and
are generally built in sections so that as much of their fabrication as
possible is done flat on the ground. As each section of legs and bracing is
complete, large crawler cranes (sometimes as many as 30) pick up an entire side
and "roll up" the section, which is then joined to another uprighted section.
When a jacket is complete and ready for launch, it is pulled along the skidway
onto a launch barge, which is gradually deballasted to compensate for the
weight of the structure as more of it moves aboard the barge. With the aid of
ocean-going tugs, the barge and jacket are transported to the installation
site. At the site, the jacket is launched into the sea and turned upright
through controlled flooding of the hollow jacket structure. Then, with the aid
of large derrick barges, the jacket is carefully set into place on the ocean
bottom. With the base of the jacket resting on the bottom and its top
protruding above the surface, a pile driver attached to a derrick barge crane
hammers piles through the hollow jacket legs deep into the sea floor. A portion
of the jacket and pilings extends above the water line to support the deck.
Decks are generally built in modules and installed piece by piece on the
platform with the aid of derrick barges. The composition and quantity of
petroleum in the well stream generally determines the makeup of the production
deck on a processing platform. Typical equipment includes crude oil pumps, gas
and oil separators and gas compressors.
In addition to large amounts of heavy-duty construction equipment,
fabrication of jackets requires facilities that meet certain minimum size and
other physical requirements. Approximately 100 acres of yard area adjacent to a
navigable waterway is needed to build a jacket approximately 1,500 feet long.
Because of the combined weight of the structure and the cranes and the
construction equipment, the entire area must have a minimum load-bearing
capacity of approximately 10,000 pounds per square foot. In addition, the
channel at dockside must be deep enough to match the elevations of the launch
barge and the skidway when the structure is being loaded for transport to its
installation site.
While jacket-type platforms are the most common offshore platforms, their
economical range is generally limited to maximum water depths of between 1,300
and 1,600 feet. A new generation of fixed platforms, known as compliant towers,
is being developed for greater water depths (generally between 1,200 and 3,000
feet). Unlike the traditional fixed platforms, compliant towers are designed to
flex with the forces of waves, wind and current. While there are various
designs for compliant towers (some of which employ technology proprietary to
the Company), these structures will generally use less steel than fixed
platforms of equal size and should therefore be more economical to build. The
Company is a leader in the development of compliant towers. The Company has
bids outstanding for several very deep water development projects that would
involve the fabrication and installation of the first compliant towers in the
industry. The Company will be able to fabricate and install compliant tower
structures utilizing the Company's existing facilities and equipment.
Floating Platforms. Floating platforms provide the capability for development
in very deep waters beyond the limitations of fixed platforms. In addition,
because they are mobile (and can therefore be reused), floating platforms are
sometimes used in water depths that could accommodate fixed platforms,
particularly where the petroleum reservoir has a relatively short production
life.
A tension leg platform ("TLP") consists of a deck that sits atop four or more
separate column-shaped semisubmersible hulls, which are positioned on site with
vertical tendons (pipes) that run from the columns to the sea floor. The
tendons hold the columns partially submerged and are highly tensioned using the
buoyancy of the hulls. This system develops a restoring force against wave,
wind and current actions in proportion to the lateral displacement of the
vessel. Wells for a TLP are often predrilled through a subsea
35
<PAGE>
template. Long, flexible production risers, which carry the petroleum to the
deck of the TLP, are supported in tension by mechanical tensioner machines on
the platform's deck and are directly subject to wave, wind and current forces.
The Company believes there are five TLPs operating in the world today.
The Company has been a leader in the design, fabrication and installation of
TLPs. The Company fabricated the deck for the first TLP. The latest TLP to be
installed, Shell Oil Company's Mars TLP, was installed in the Gulf of Mexico in
over 2,900 feet of water. The Company fabricated the topsides for this platform
and, through the HeereMac joint venture, installed the platform offshore. The
Company is currently fabricating the topside modules for Shell's Ram-Powell
TLP, which is scheduled to be installed in over 3,200 feet of water in the Gulf
of Mexico in mid-1997.
A spar platform consists of a vertically floating, large-diameter cylinder
supporting a relatively conventional offshore drilling and production deck. The
structure is positioned at the site with mooring systems that use either piling
or anchors. Wells can be either predrilled or drilled from the platform. The
well risers are supported in tension by individual buoyancy tanks located
inside the hull so that both the risers and the tanks are protected from
waveload forces. The hull of a spar platform can be configured for significant
oil storage, which can be advantageous in locations that lack oilfield
infrastructure. The spar platform concept has historically been used for
auxiliary structures, such as mooring and loading tankers. Recent exploration
successes in very deep waters have led to the design of spar platforms capable
of drilling and production operations in water depths between 1,500 and 6,000
feet. The first of these platforms is currently being constructed for Oryx
Energy, utilizing proprietary technology developed by a joint venture between
the Company and an engineering firm. The Company is fabricating the topside
modules for the Oryx spar, and will be responsible for the installation of the
platform and the related pipeline.
A floating production facility ("FPF") consists of a ship or semisubmersible
vessel upon which drilling and production equipment is mounted. In most cases,
the hull is a converted tanker (often referred to as a floating, production,
storage and offloading ("FPSO") unit), although there have been some situations
in which a semisubmersible drilling unit has been converted or a new hull has
been purpose-built for an FPF. For harsh weather locations, FPFs are designed
with a mooring system that provides weathervaning capability so that the FPF
can be rotated on location to minimize the effects of wave, wind and current
actions. The production risers in these FPFs are connected to the hull through
a swivel or turret system that also accommodates the mooring system. Spread
mooring systems are used in FPFs designed for milder environmental conditions.
FPFs generally utilize subsea completion technology. The hull of an FPF is
typically used for on-board oil storage, which is an important feature for
remote locations where export pipelines are not available and oil storage
availability is limited or nonexistent. The Company's work on British
Petroleum's Foinaven development project demonstrates some of the Company's
capabilities in projects utilizing FPFs. This project will produce oil from
subsea wells into an FPSO unit. The FPSO unit will have on-board storage
capacity for 310,000 barrels of oil. The oil will be offloaded to two tankers
that will shuttle back and forth between the facility and a terminal. The
Company fabricated the turret system for the vessel being converted into the
floating production facility and has responsibility for project management,
engineering and all installation work to be performed at the project site.
Subsea Completions. Subsea systems provide a means of producing hydrocarbons
with the primary well control equipment located on the sea floor. These systems
are connected to various forms of surface facilities (such as fixed platforms,
TLPs or FPFs), which support the hydrocarbon processing and transportation
operations. Accordingly, these systems are not independent; rather, they must
operate within the limitations imposed by the supporting surface facilities. As
a result of improvements in subsea technologies in recent years, a number of
recent offshore development projects have used subsea completions as the
primary development scheme. This technology has resulted in a significant
amount of recent exploration and development activity in the North Sea. As the
search for oil and gas becomes further expanded into very deep water and into
areas subject to severe weather conditions, and as oil and gas companies seek
to extend the development radius of the existing infrastructure, the Company
expects further technological improvements to subsea systems to develop,
resulting in subsea systems becoming more prevalent.
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<PAGE>
Subsea installations can generally be categorized into one of three types of
completions: single step-outs, templates and clusters. Single step-outs involve
the installation of a single well some distance from a host platform or other
surface facility. Several of these step-out wells may exist, each connected by
its own flowline to the surface facility. Templates are structures that are
installed on the seabed before development drilling begins. A number of wells
are then drilled through the template. The template structure gives positive
location and ensures appropriate geometric layout for post-drilling
installation of a predetermined set of equipment, usually consisting of
christmas trees, manifolds, control modules and chokes and sometimes process
equipment and booster pumps. Templates are particularly suited to, but are not
limited to, locations where it is impractical to use divers to install or
maintain equipment. A cluster is a series of wells drilled in close proximity
to each other without the use of a template. These wells are completed with
individual christmas trees and are connected to a central gathering spot or
manifold. Interconnection of subsea components is accomplished through
flowlines, control umbilicals and power umbilicals. Interconnection between
subsea systems and surface facilities is accomplished through various riser
configurations designed to accommodate installation and operational
requirements of the production systems.
In addition to installing the pipelines and flowlines used in connection with
subsea systems, the Company also installs templates, production risers and
various hardware packages for subsea completions, including wellhead control
pods, manifolds, umbilicals and well protection structures.
Offshore Pipeline Installation
The efficient development of an offshore field frequently involves the
addition or extension of an infrastructure of gathering lines and pipelines. In
those environments where they are feasible, offshore pipelines are generally
the safest and most efficient way to bring oil and gas to shore. Some offshore
pipelines lead to offshore gathering stations where the hydrocarbons are
separated and treated, put back into a pipeline, and routed to shore for
further processing. Other lines terminate onshore at tank farms where liquid
hydrocarbons are stored for distribution to refineries. With its fleet of
pipelaying, combination derrick-pipelaying and pipe burying vessels, the
Company is a leading provider of offshore pipeline installation services.
The Company's pipelaying vessels and combination derrick-pipelaying vessels
are highly specialized vessels, capable of installing pipelines of various
diameters using different pipelaying methods. Some of the Company's pipelaying
vessels employ conventional S-lay technology, while others employ more advanced
J-lay or reel-lay technologies. The Company's pipe burying vessels are used to
bury the pipe beneath the ocean floor in locations where applicable
environmental regulations require it or where it is necessary to protect the
pipe from potential damage from anchors. These services are particularly
important in the United States markets, where regulations of the United States
Department of Interior--Minerals Management Service (the "MMS") require all
offshore oil and gas pipelines greater than 8.75 inches in diameter located in
water depths of 200 feet or less to be buried three feet below the sea floor.
S-Lay, or conventional pipeline installation, involves the sequential
assembly of pipeline joints through an assembly line of welding stations that
runs the length of the pipelaying vessel and goes off the stern and into the
water via a ramp that is referred to as a stinger. The stinger supports the
pipe to some distance under the water and prevents over-stressing as it curves
from a horizontal position downward toward the sea floor. The suspended pipe
forms an elongated "S" shape as it undergoes a second bend above the contact
point on the sea floor. As the pipelaying vessel moves forward, it pulls a plow
that digs a trench along the sea floor, into which the pipeline settles. During
the pipelaying process, divers regularly inspect the pipeline to ensure that
there are no obstructions on the sea floor, that the stinger is providing
proper support and that the pipeline is settling correctly. The S-lay method is
generally considered a shallow-water pipeline construction method, although the
Company has employed this method in water depths of up to 2,400 feet (and the
Company believes this method could be used in up to 3,000 feet of water).
Twenty-three of the Company's pipelaying vessels and combination derrick-
pipelaying vessels use the S-lay method.
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<PAGE>
The J-lay technique involves the assembly of pipeline joints in a near-
vertical position, eliminating the initial bend in the pipeline and thereby
substantially reducing the bending stresses on the pipeline as it is lowered
to the sea floor. This method is more suited to deeper water depths than the
S-lay method. However, because it involves the use of only one workstation for
welding, weld testing and joint coating, the J-lay technique is generally
slower than the S-lay method. In order to maximize productivity in its J-lay
operations, the Company's vessels employing this technique use "long joints"
of pipe of 50 or more meters, together with automated pipe-handling equipment.
The J-lay system is modular and can be moved from one vessel to another as
operational demands may require. The Company has two modular J-lay units.
The reel-lay technique involves the onshore assembly of long pipeline
segments that are wound onto a large reel. The loaded reel is transported to
the installation site, and the coiled pipeline segment is unwound from the
reel, straightened and lowered to the seabed at a high lay rate. The reel-lay
method reduces labor costs by permitting much of the welding, x-raying,
coating and testing to be accomplished onshore, where labor costs are
generally lower than comparable labor costs offshore. This technique is used
in both shallow and deepwater installations, but is generally restricted to
installations, such as gas gathering systems, using small pipe diameters (up
to approximately 12 inches). One of the Company's pipelaying vessels is a
specialized vessel, exclusively designed to employ the reel-lay method. The
Company has two other modular reel-laying units that it can use on different
vessels.
Maintenance and Removal of Platforms.
The Company is actively involved in setting platform drilling units for
offshore workovers and other maintenance activities, as well as platform
removal, salvage and refurbishment operations. Over the course of the
producing life of an offshore field, the field may require workover operations
and the field's platform structures will require periodic maintenance, which
may involve upgrading equipment and adding to facilities as new technology
develops. At the end of a field's productive life, the platform structures
installed in the field must be removed, generally in order to comply with
applicable environmental laws. The Company expects an increase in the demand
for its derrick vessels in removal operations throughout the world
(particularly in the Gulf of Mexico), as long-producing fields reach their
maturity.
In fixed platform removal operations, derrick barges are used to remove
equipment and deck sections, which are typically off-loaded to barges and
transported back to shore. The platform's piles are cut (usually below the
ocean floor), and the platform is lifted onto a barge for towing to shore or
to a suitable site where it may be sunk in order to form an artificial reef
and a habitat for marine life. A recovered platform may be salvaged for its
steel or refurbished and re-installed in another field.
JOINT VENTURE OPERATIONS
The Company conducts significant operations through joint ventures with
other marine construction contractors. The Company believes that its joint
venture operations enhance its ability to compete effectively. The Company's
joint ventures have resulted in greater utilization of assets through
geographic diversification, the development of a significant market presence
as a fully integrated contractor in a greater number of markets, the
participation in markets that require minimum levels of local ownership, and
the cooperative development of advanced technologies. The Company's most
significant joint ventures include the HeereMac joint venture and the ETPM
joint venture.
The HeereMac joint venture was formed with Heerema in January 1989 in order
to consolidate and more efficiently utilize the specialized, heavy-lift marine
construction vessels owned by the two parties and operated in different parts
of the world. Each party has a 50% interest in the joint venture, and Heerema
has responsibility for its day-to-day operations (although significant
decisions relating to the joint venture generally require the approval of the
Company). During March 1996, the Company and Heerema completed a transaction
pursuant to which each of them sold to the HeereMac joint venture the vessels
they had been chartering to it.
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See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's initial joint venture with ETPM was formed in April 1989 to
provide general marine construction services to the petroleum industry in West
Africa, South America, the Middle East and India and offshore pipelaying
services in the North Sea. With the addition of two new joint venture operating
companies in March 1995, the Company and ETPM have expanded the ETPM joint
venture's operations to include the Far East region and to begin jointly
pursuing subsea contracting work on a worldwide basis. Most of the operating
companies in the ETPM joint venture are majority-owned and controlled by the
Company. However, the operations of ETPM West, which conducts operations in the
North Sea, South America and West Africa, are controlled by ETPM. ETPM has
dedicated all of its marine construction assets to the joint ventures with the
Company, including three combination derrick-pipelaying vessels and fabrication
yards in Sharjah, U.A.E. and Tchengue, Gabon. The Company currently charters
four combination derrick-pipelaying vessels and one pipelaying vessel to the
joint ventures and provides the use of its facilities in Jebel Ali and Ras-al-
Khaimah in the U.A.E., Batam Island, Indonesia and Warri, Nigeria.
Effective April 1, 1996, the Company formed a new equally owned joint venture
(the "Engineering Joint Venture") with McDermott International, which performs
engineering, procurement and project development services for the Company,
McDermott International and third parties. Under the new arrangement,
substantially all of the employees of McDermott International's construction
engineering subsidiary, Delta Hudson Engineering Corporation, became employees
of the Company, although they will work primarily on projects undertaken by the
Engineering Joint Venture. The Engineering Joint Venture is the preferred (but
not exclusive) engineering contractor to the Delta Hudson International
subsidiaries of McDermott International for onshore-related work and to the
Company for offshore-related work. See "Certain Transactions and
Relationships--Other Transactions with McDermott International."
In April 1996, the Company and Teleglobe Inc., a Canadian telecommunications
company ("Teleglobe"), formed a joint venture, McDermott Submarine Cable
Systems Limited, to install and maintain submarine fiber optic cable. The
Company and Teleglobe own 79.4% and 20.6%, respectively, of the joint venture.
The Company participates in numerous other joint ventures (including 49%-
owned joint ventures in Mexico and Malaysia) involving operations in foreign
countries that require majority ownership by local interests. Through a
subsidiary, the Company also participates in an equally owned joint venture
with the Brown & Root Energy Services unit of Halliburton Company ("Brown &
Root"), which was formed in February 1995 to coordinate the operations of the
Company's and Brown & Root's fabrication facilities in Scotland and to improve
their efficiency.
Historically, the Company has obtained funds from its joint ventures through
chartering arrangements, whereby the Company charters vessels to the joint
ventures for use in joint venture operations, as well as through distributions
from the joint ventures. While the Company and the other parties to the joint
venture arrangements generally must agree on the amount of cash flow to be
distributed, the joint ventures have historically distributed to their
respective owners cash in excess of estimated working capital requirements,
based on the owners' relative ownership percentages.
The joint ventures are largely financed through their own resources,
including, in some cases, stand-alone borrowing arrangements. Occasionally, the
Company and the other joint venturers have provided or facilitated additional
funding by contributing or lending cash to the joint ventures or providing
guarantees of bank borrowings by the joint ventures. In addition, the Company
frequently provides guarantees to customers of the joint ventures relating to
work to be performed on joint venture projects. To date, none of these
performance guarantees has ever been acted upon. As of March 31, 1996, the
Company's unconsolidated joint ventures had combined outstanding borrowings
under their respective credit arrangements of approximately $519.3 million,
including approximately $214.1 million owed to the Company and the other
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joint venturers, respectively. Of the borrowings from third parties,
approximately $33.5 million was guaranteed by the Company.
Under the Company's various joint venture arrangements, competition between
the Company and the joint ventures takes different forms. For example, the
HeereMac joint venture has worldwide operations and the joint venture agreement
does not contain any mechanism whereby the Company and the joint venture are
restricted from competing with each other. Consequently, in some circumstances,
the Company may compete directly against the HeereMac joint venture in bids for
the same contract. By contrast, operations of the ETPM joint venture are
generally restricted to specific geographic regions. Taken as a whole, the
Company believes its joint venture operations enhance its ability to compete
effectively, and the Company intends to continue reviewing additional joint
venture opportunities.
MARINE CONSTRUCTION VESSELS AND PROPERTIES
The following table sets forth certain information with respect to the major
marine construction vessels utilized to conduct the Company's marine
construction business, including their location at March 31, 1996 (except where
otherwise noted, each of the vessels is owned and operated by the Company):
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
LOCATION YEAR MAXIMUM PIPE
AND ENTERED DERRICK LIFT DIAMETER
VESSEL NAME FLAG VESSEL TYPE SERVICE (TONS) (INCHES)
- ---------------------- ----------- ------------------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C>
UNITED STATES
DB 50 (a) Panama Derrick 1988 4,000 --
DB 28 U.S.A. Pipelay/Derrick 1969 860 40
LB 280 (b) U.S.A. Pipelay 1973 -- 48
DB 16 (c) U.S.A. Derrick 1967 860 --
DB 23 U.S.A. Derrick 1969 750 --
SLC 5000 U.S.A. Shearleg Crane 1976 5,000 --
BB 356 U.S.A. Pipe Bury 1974 -- --
Ocean Builder (d) Vanuatu Derrick 1975 2,000 --
BB 316 (b) U.S.A. Pipe Bury 1974 -- --
Balder (e) Panama Semi-Submersible Derrick 1978 7,000 --
LB 30 U.S.A. Pipelay 1975 -- 60
EUROPE
DB 101 (e) Panama Semi-Submersible Derrick 1978 3,500 --
DB 102 (a)(e) Panama Semi-Submersible Derrick 1985 13,200 --
LB 200 (f) Panama Semi-Submersible Pipelay 1975 -- 60
MV Norlift (a) Bermuda Pipelay 1977 -- 10
MV Northern
Explorer (a) Cayman Isl. Pipe Bury 1984 -- --
ETPM 1601 (g) France Pipelay/Derrick 1974 2,000 60
WEST AFRICA
DLB 1 (b) Vanuatu Pipelay/Derrick 1956 250 24
LB Pipeliner 6 Vanuatu Pipelay 1969 -- 16
Polaris (g) Panama Pipelay/Derrick 1979 1,300 60
MEXICO
DB 15 (h) Indonesia Pipelay/Derrick 1966 860 40
DB II Vanuatu Derrick 1966 600 --
Mixteco (i) Mexico Pipelay/Derrick 1972 800 --
Huasteco (i) Mexico Pipelay/Derrick 1976 2,000 48
Olmeca II (i) Mexico Pipelay 1969 -- --
Sara Maria (j) Mexico Derrick 1965 550 --
MIDDLE EAST
DB 27 (f) U.S.A. Pipelay/Derrick 1974 2,400 60
ETPM 801 (g) Panama Pipelay/Derrick 1978 900 56
FAR EAST
Hermod (e) Panama Semi-Submersible Derrick 1978 9,000 --
DLB KP1 (b)(f) Vanuatu Pipelay/Derrick 1974 800 60
DB 26 (f) Panama Pipelay/Derrick 1975 900 60
DB 17 (f) Panama Pipelay/Derrick 1969 860 60
Teknik Pada (k) Malaysia Pipelay/Derrick 1966 1,100 60
Teknik Perdana (k) Malaysia Pipelay/Derrick 1971 750 60
</TABLE>
- --------
(a) Vessel with dynamic positioning capability.
(b) Vessels subject to minimum value maintenance requirements under the
12-7/8% Guaranteed Senior Notes due 2002 issued by one of the Company's
subsidiaries.
(c) Owned by the Company and operated for the Company's benefit by McDermott
International's joint venture (the "CMM Joint Venture") with
Constructucciones Maritimas Mexicanas, S.A. de D.V. ("CMM") pursuant to
short-term charter.
(d) Chartered by the Company with an option to purchase the vessel at the end
of the five-year charter term (February 24, 1999).
(e) Owned and operated by the HeereMac joint venture.
(f) Owned by the Company and operated by the ETPM joint venture pursuant to a
charter.
(g) Owned by ETPM's parent company and operated by the ETPM joint venture
pursuant to a charter.
(h) Owned by the Company and chartered to the Company's joint venture with
Grupo Consorcio de Fabricaciones y Construcciones (the "CCC joint
venture").
(i) Owned by CMM and operated by the CMM Joint Venture.
(j) Owned and operated by the CCC joint venture.
(k) Owned and operated by the Company's Malaysian joint venture.
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The Company also owns or leases a substantial number of other vessels, such
as tugboats, utility boats and cargo barges, to support its major marine
vessels. In connection with its construction and pipelaying activities, the
Company conducts diving operations which, because of the water depths involved,
require sophisticated equipment, including saturation diving systems and an
underwater habitat. In May 1996, the Company entered into a memorandum of
understanding with a third party to sell certain diving support assets
(including assets to be acquired from McDermott International) to such third
party in exchange for an equity interest in such third party. Under the terms
of the memorandum of understanding, the third party will enter into an
exclusive five year contract to provide diving support services to the Company
in certain geographic areas at prices no less favorable than charges to third
parties. See "Certain Transactions and Relationships--Other Transactions with
McDermott International."
Under applicable governmental regulations, the Company's insurance policies
and certain of the Company's financing arrangements, the Company is required to
maintain its vessels in accordance with standards of seaworthiness and safety
set by government regulations or classification organizations. The Company
maintains its fleet to the standards for seaworthiness, safety and health set
by the American Bureau of Shipping, Net Norske Veritas and other world-
recognized classification societies.
In addition to its offshore fleet, the Company owns or operates six
fabrication facilities throughout the world. The Company's principal U.S.
fabrication yard is located on approximately 1,114 acres of leased property
near Morgan City, Louisiana. The Company also owns fabrication facilities on
approximately 218 acres of land near Corpus Christi, Texas and on approximately
817 acres of land in Scotland, near Inverness. In addition, the Company
operates fabrication facilities in Indonesia on Batam Island and at Jebel Ali,
U.A.E. The fabrication facility in Scotland is operated by Brown & Root
McDermott Fabricators Limited, an equally owned joint venture company formed by
the Company and Brown & Root. Brown & Root's fabrication yard at Nigg, Scotland
is also operated by this joint venture. Through the ETPM joint venture,
additional fabrication facilities in the U.A.E. and West Africa are available
to meet the Company's needs.
The Company's fabrication facilities are equipped with a wide variety of
heavy-duty construction and fabrication equipment, including cranes, welding
equipment, machine tools and robotic and other automated equipment. Operations
at the Company's fabrication facilities in Morgan City, Louisiana, Inverness,
Scotland, Jebel Ali, U.A.E. and Batam Island, Indonesia have been awarded ISO
9000 certification. ISO 9000 is an internationally recognized verification
system for quality management.
The following table sets forth the expiration dates, including renewal
options, of the leases covering land (together with the amount of acreage) for
the Company's leased fabrication facilities.
<TABLE>
<CAPTION>
EXPIRATION
FACILITY ACREAGE DATE
-------- ------- ----------
<S> <C> <C>
Morgan City, Louisiana................................. 1,114 2000-2033
Jebel Ali, U.A.E....................................... 130 2005
Batam Island, Indonesia................................ 129 2008
Warri, Nigeria......................................... 50 2065
</TABLE>
The Company also occupies office space in New Orleans, Louisiana and Houston,
Texas under an arrangement with McDermott International (see "Certain
Transactions and Relationships--Other Transactions with McDermott
International") and leases office space in London, England, which serve as the
Company's executive offices and as bases for coordination of all of the
Company's operational activities.
COMPETITION
The marine construction services business is highly competitive and in recent
years has been characterized by overcapacity, which has resulted in substantial
pressure on pricing and operating margins (as is generally reflected in the
downward trend in the Company's earnings in the current and immediately
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preceding fiscal years). The Company expects the overcapacity in the industry
to continue for the foreseeable future. Contracts for marine construction
services are usually awarded on a competitive bid basis. Although the Company
believes customers consider, among other things, the availability and technical
capabilities of equipment and personnel, efficiency, condition of equipment,
safety record and reputation, price competition is currently a primary factor
in determining which qualified contractor with available equipment is awarded a
contract. Major marine construction vessels have few alternative uses and,
because of their nature and the environment in which they work, have relatively
high maintenance costs whether or not operating. Because these costs are
essentially fixed, and in order to avoid additional expenses associated with
temporarily idling, or "stacking," its vessels, the Company may from time to
time be required to bid its vessels out for hire at less than attractive rates,
depending on the prevailing contractual rates in a given region.
The Company believes it is the only marine construction contractor capable of
providing the full range of marine construction services in all major offshore
oil and gas producing regions of the world. The Company believes that the
substantial capital costs involved in becoming a full-service marine
construction contractor create a significant barrier to entry into the market
as a global, fully integrated competitor. The Company does, however, face
substantial competition from regional competitors and less integrated providers
of marine construction services, such as engineering firms, fabrication yards,
pipelaying companies, shipbuilders and ship and offshore drilling unit owners.
CUSTOMERS
The Company's customers are primarily major and independent oil and gas
exploration and production companies, foreign government-owned energy
companies, and hydrocarbon transportation companies. The following is a list
(in alphabetical order) of the Company's five largest customers during fiscal
1996:
Britoil Plc
Foster Wheeler Corporation
Golar Nor a/s
Royal Dutch Shell Group of Companies
Total Exploration & Production
The Company is not dependent on any one customer. The level of construction
services required by any one customer depends upon the amount of that
customer's capital expenditure budget devoted to construction in any single
year. Consequently, customers that account for a significant portion of
revenues in one fiscal year may represent an immaterial portion of revenues in
subsequent fiscal years.
Because of the nature of the offshore marine construction industry, a
substantial number of the Company's projects are currently performed on a
fixed-price basis, although some projects are performed on a cost-plus or day-
rate basis or some combination of the foregoing. The Company attempts to cover
increased costs of anticipated charges in labor, material and service costs of
long-term contracts, either through an estimate of such charges, which is
reflected in the original price, or through price escalation clauses. Despite
these attempts, however, the revenue, cost and gross profit realized on a
fixed-price contract will often vary from the estimated amounts because of
changes in job conditions and variations in labor and equipment productivity
over the term of the contract. These variations and the risks generally
inherent in the marine construction industry may result in gross profits
realized by the Company being different from those originally estimated and may
result in the Company experiencing reduced profitability or losses on projects.
Depending on the size of a project, these variations from estimated contract
performance could have a significant effect on the Company's operating results
for any particular fiscal quarter or year. In general, turnkey contracts to be
performed on a fixed-price basis involve an increased risk of significant
variations, as a result of the long-term nature of such contracts (and the
inherent difficulties in estimating costs) and the interrelationship of the
integrated services to be provided under such contracts (where unanticipated
costs or delays in performing part of the contract could have compounding
effects by increasing costs of performing other parts of the contract). As a
result, in connection with its work for more complex, very deep water
installations involving
43
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long-term commitments, the Company generally seeks to negotiate contract terms
such that the Company is not at risk for cost overruns.
The Company's contract revenues are recognized on a percentage of completion
basis. Accordingly, contract price and cost estimates are reviewed periodically
as the work progesses, and adjustments proportionate to the percentage of
completion are reflected in income in the period when such estimates are
revised. To the extent that these adjustments result in a reduction or
elimination of previously reported profits with respect to a project, the
Company would recognize a charge against current earnings, which could be
material. Most long-term contracts have provisions for progress payments.
The Company's arrangements with customers frequently require the Company to
provide letters of credit or bid and performance bonds to secure bids or
performance under contracts for marine construction services. While these
letters of credit and bonds may involve significant dollar amounts,
historically there have been no material payments to the Company's customers
under these arrangements. These arrangements are typical in the industry and
generally do not involve significant cost to obtain.
RAW MATERIALS
The raw materials used by the Company in its operations, such as carbon and
alloy steel in various forms, welding gases, concrete, fuel oil and gasoline,
are available from many sources and the Company is not dependent upon any
single supplier or source. Although shortages of certain of these raw materials
and fuels have existed from time to time, no serious shortage exists at the
present time.
FOREIGN OPERATIONS
The Company has substantial operations outside the United States, both
directly and through its joint ventures. For information regarding revenues,
operating income and identifiable assets in the different geographic regions in
which the Company operates, see Note 14 to the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
The Company's operations in some parts of the world are subject to certain
political, economic and other uncertainties not encountered in domestic
operations, including, among others, risks of war, expropriation or
nationalization of assets, renegotiation or nullification of existing
contracts, changing political conditions, changing laws and policies affecting
trade and investment, overlap of different tax structures, and the general
hazards associated with the assertion of foreign sovereignty over certain areas
in which operations are conducted. Because the Company's major marine vessels
typically require relatively long periods of time to mobilize over long
distances, the Company may be particularly susceptible to regional conditions
that may adversely affect its operations. The Company's foreign operations
sometimes face the additional risks of fluctuating currency values, hard
currency shortages and controls of foreign currency exchange. The Company
attempts to limit its exposure to foreign currency fluctuations by attempting
to match anticipated foreign currency contract receipts with anticipated like
foreign currency disbursements during contract negotiations. To the extent that
it is unable to match the anticipated foreign currency receipts and
disbursements related to its contracts, the Company enters into forward
exchange contracts to hedge foreign currency transactions on a continuing basis
for periods consistent with its committed exposures. Because the Company
generally does not hedge beyond its contract exposure, the Company believes
this practice minimizes the impact of foreign exchange rate movements on the
Company's operating results.
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BACKLOG; SEASONALITY
As of March 31, 1996, the Company's backlog amounted to approximately $978
million. It is expected that approximately $792 million of this backlog will be
recognized in revenues in fiscal 1997 and $186 million thereafter. The
following table sets forth detail relating to the Company's backlog as of March
31, 1996 and 1995 by geographic region:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1995
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
North and South America.............................. $313,643 $ 218,661
North Sea and West Africa............................ 195,293 420,810
Middle East and India................................ 345,764 99,698
Far East............................................. 123,096 225,031
Other................................................ -- 38,768
-------- ----------
Total backlog...................................... $977,796 $1,002,968
======== ==========
</TABLE>
Not included in the Company's backlog at March 31, 1996 and 1995 was backlog
relating to contracts to be performed by its unconsolidated foreign joint
ventures of approximately $1.4 billion and $1.0 billion, respectively.
While fabrication projects are typically awarded substantially in advance of
performance as a result of required lead time for procurement, the marine
construction industry is highly seasonal in certain geographic regions. Because
of the more conducive weather conditions, most installation operations are
conducted in the warmer months of the year in those areas, and many of these
contracts are awarded with only a short period of time before the desired time
of project performance. As a result, a disproportionate amount of the Company's
contract revenues and net income has been earned during the first three
quarters of its fiscal year and the Company has frequently incurred losses
during the fourth quarter of its fiscal year.
PATENTS
The Company owns or has exclusive rights to use, for marine construction
purposes, a number of patents relating to offshore platform design, fabrication
and installation and pipelaying operations. The Company also co-owns several
patents relating to its operations. Although in the aggregate these patents are
important to the Company, the Company does not consider any single patent to be
of a critical or essential nature. In general, the Company depends on its
technological capabilities and the application of know-how rather than patents
in the conduct of its business.
GOVERNMENTAL REGULATION
General
Many aspects of the Company's operations and properties are affected by
domestic and foreign political developments and are subject to both domestic
and foreign governmental regulations, including those relating to the
construction, operation and equipping of production platforms and other marine
facilities, vessel and worker safety, currency conversions and repatriation,
oil exploration and development, taxation of foreign earnings and earnings of
expatriate personnel, use of local employees and suppliers by foreign
contractors and the protection of the environment. In addition, the Company
depends on the demand for its services from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws and
regulations relating to the oil and gas industry generally. The ability of the
Organization of Petroleum Exporting Countries to meet and maintain production
targets also influences the demand for the Company's services. The adoption of
laws and regulations curtailing exploration and development drilling for oil
and gas for economic and other policy reasons would adversely affect the
Company's operations by limiting demand for marine construction services. The
Company cannot determine to what extent future operations and
45
<PAGE>
earnings of the Company may be affected by new legislation, new regulations or
changes in existing regulations.
The Company is required by various other governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with respect to
its operations. The kinds of permits, licenses and certificates required in the
Company's operations depend upon a number of factors. The Company believes that
it has or can obtain all permits, licenses and certificates necessary for the
conduct of its business.
The exploration and development of oil and gas properties on the continental
shelf of the United States is regulated primarily under the Outer Continental
Shelf Lands Act and regulations promulgated thereunder. These laws require the
construction, operation and removal of offshore production facilities located
on the Outer Continental Shelf of the United States to meet stringent
engineering and construction specifications. Similar regulations govern the
plugging and abandoning of wells located on the Outer Continental Shelf of the
United States and the removal of all production facilities. Violations of
regulations issued pursuant to the Outer Continental Shelf Lands Act and
related laws can result in substantial civil and criminal penalties as well as
injunctions curtailing operations. The Company believes that its operations are
in material compliance with these and all other regulations affecting the
conduct of its business on the Outer Continental Shelf of the United States.
Environmental
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent foreign, federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and
the health and safety of employees. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties, and criminal prosecution. Certain environmental laws provide for
strict, joint and several liability for remediation of spills and other
releases of hazardous substances, as well as damage to natural resources. In
addition, companies may be subject to claims alleging personal injury or
property damage as a result of alleged exposure to hazardous substances. Such
laws and regulations may also expose the Company to liability for the conduct
of or conditions caused by others, or for acts of the Company that were in
compliance with all applicable laws at the time such acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and similar laws provide for responses to and liability for
releases of hazardous substances into the environment. Additionally, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Safe Drinking Water Act, the Emergency Planning and Community Right to Know
Act, each as amended, and similar foreign, state or local counterparts to these
federal laws, regulate air emissions, water discharges, hazardous substances
and wastes, and require public disclosure related to the use of various
hazardous substances. The Company's operations are also governed by laws and
regulations relating to workplace safety and worker health, primarily the
Occupational Safety and Health Act and regulations promulgated thereunder.
Compliance with such environmental laws and regulations may require the
acquisition of permits or other authorizations for certain activities and
compliance with various standards or procedural requirements. The Company
believes that its facilities are in substantial compliance with current
regulatory standards.
The Company's compliance with U.S. federal, state and local environmental
control and protection regulations necessitated capital expenditures of
$300,000 in fiscal 1996, and the Company expects such capital expenditures will
not be material for the foreseeable future. The Company cannot predict all of
the environmental requirements or circumstances that will exist in the future
but it anticipates that environmental control and protection standards will
become increasingly stringent and costly. Complying with existing environmental
regulations resulted in a charge against income before taxes of approximately
$1.2 million. Based on the Company's experience to date, the Company does not
currently anticipate any material adverse
46
<PAGE>
effect on its business or consolidated financial position as a result of future
compliance with existing environmental laws and regulations controlling the
discharge of materials into the environment or otherwise relating to the
protection of the environment. However, future events, such as changes in
existing laws and regulations or their interpretation, more vigorous
enforcement policies of regulatory agencies, or stricter or different
interpretations of existing laws and regulations, may require additional
expenditures by the Company which may be material. Accordingly, there can be no
assurance that the Company will not incur significant environmental compliance
costs in the future. In addition, offshore construction and drilling in certain
areas have been opposed by environmental groups and, in certain areas, has been
restricted. To the extent laws are enacted or other governmental actions are
taken that prohibit or restrict offshore construction and drilling or impose
environmental protection requirements that result in increased costs to the oil
and gas industry in general and the offshore construction industry in
particular, the business and prospects of the Company could be adversely
affected.
EMPLOYEES
As of March 31, 1996, the Company had approximately 6,300 hourly and 4,100
salaried employees. The Company is not a party to any collective bargaining
agreements in the United States. From time to time, the Company operates in
countries that require operating under industry-wide collective bargaining
agreements. The Company considers its relationship with its employees to be
satisfactory.
The Company does not consider the possibility of a shortage of qualified
personnel currently to be a major factor in its business. If demand for marine
construction services were to increase rapidly, retention of qualified people
might become more difficult without significant increases in compensation.
LEGAL PROCEEDINGS AND INSURANCE
The Company is named as a defendant in numerous lawsuits arising in the
ordinary course of business, some of which involve substantial damage claims.
While the outcome of these lawsuits cannot be predicted with certainty,
management does not expect these matters to have a material adverse effect on
the consolidated financial position of the Company.
The Company's operations are subject to the inherent risks of operations at
sea, including accidents resulting in the loss of life or property, pollution
or other environmental mishaps, adverse weather conditions, mechanical
failures, collisions, property losses to the Company's vessels, business
interruption due to political action in foreign countries, and labor stoppages.
Litigation arising from any such event may result in the Company being named as
a defendant in lawsuits asserting large claims. The Company maintains insurance
for such amounts and against such risks that it deems normal in the industry.
However, certain risks are either not insurable or insurance is available only
at rates that the Company considers uneconomical. Among such risks are war and
confiscation of property in certain areas of the world and pollution liability
in excess of relatively low limits. Depending on competitive conditions and
other factors, the Company endeavors to obtain contractual protection against
uninsured risks from its customers. When obtained, such contractual
indemnification protection may not in all cases be supported by adequate
insurance maintained by the customer. There is no assurance that such insurance
or contractual indemnity protection will be sufficient or effective under all
circumstances or against all hazards to which the Company may be subject.
Prior to the Merger, one of OPI's vessels was severely damaged during a
typhoon. Estimates for the repair of the vessel, together with out-of-pocket
costs, total approximately $45 million. At the time of the casualty, insurance
policies had been issued insuring the vessel for its full value. Efforts to
settle the claim with underwriters, however, have been unsuccessful, and resort
to the courts may be necessary to collect the amount claimed. Management
believes that the underwriters' refusal to satisfactorily adjust the claim is
without basis and is of the opinion that the outcome of any necessary
litigation will be favorable.
47
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company (ages are as of March 31, 1996):
<TABLE>
<CAPTION>
DIRECTOR'S
NAME AGE POSITION TERM ENDING
---- --- -------- -----------
<C> <C> <S> <C>
Robert E. Howson................. 64 Chairman of the Board and 1998
Chief
Executive Officer
Michael H. Lam................... 49 President, Marine
Construction Services
and Director 1998
James J. Wildasin................ 61 President, Europe and
Subsea Development and
Director 1996
Richard R. Foreman............... 48 Executive Vice President
and Chief Financial
Officer --
L.E. Walker...................... 51 Senior Vice President,
Business Development and
Strategic Initiatives --
Richard E. Woolbert.............. 62 Executive Vice President
and Chief Administrative
Officer --
Daniel R. Gaubert................ 47 Vice President, Finance --
J. Howard Macdonald.............. 67 Director 1996
Rick L. Burdick.................. 44 Director 1996
Brock A. Hattox.................. 48 Director 1997
John F. Bookout.................. 73 Director 1997
Cedric E. Ritchie................ 68 Director 1997
Thomas P. Tatham................. 50 Director 1997
Lodwrick M. Cook................. 67 Director 1998
</TABLE>
As indicated above, the Company's Board of Directors is divided into three
classes, with the term for each class expiring on the date of the third annual
stockholders' meeting for the election of directors following the most recent
election of directors for such class. Each director holds office until the next
annual meeting of stockholders for the election of directors of his class and
until his successor has been duly elected and qualified. Executive officers
serve at the discretion of the Board of Directors.
Robert E. Howson has been the Chairman of the Board and Chief Executive
Officer of the Company since January 31, 1995 and Chairman of the Board and
Chief Executive Officer of McDermott International and McDermott Incorporated
since August 1988. Prior to assuming these positions, he was President and
Chief Operating Officer of McDermott International and McDermott Incorporated
from August 1987. He is also a director of McDermott International, McDermott
Incorporated, The Louisiana Land and Exploration Company and Whitney Holding
Corporation.
Michael H. Lam has been the President, Marine Construction Services of the
Company since September 1995. From October 1992 through the completion of the
Merger on January 31, 1995, he served as the Vice Chairman of the Board of
Directors and Chief Operating Officer of OPI, prior to which he was Executive
Vice President--Worldwide Operations of OPI from April 1990. He is also a
director of DeepTech International Inc.
James J. Wildasin has been the President, Europe and Subsea Development of
the Company since September 1995. Prior thereto, he served as the President and
Chief Operating Officer of the Company from January 31, 1995. Prior to assuming
this position, he was President and Chief Operating Officer of McDermott
International's Marine Construction Services Business from February 1993;
Senior Vice President and Group Executive, North Sea, Middle East and West
Africa Operations of McDermott International from February 1992; Vice President
and Group Executive, North Sea, Middle East and West Africa Operations of
McDermott International from July 1991; Vice President and General Manager,
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<PAGE>
London Engineering of McDermott International from March 1991; and, prior to
that, President and Co-Chief Executive Officer of McDermott-ETPM, Inc.
Richard R. Foreman has been the Executive Vice President and Chief Financial
Officer of the Company since January 31, 1995. During the past five years and
before assuming his present position, Mr. Foreman was President and Chief
Financial Officer of OPI from October 1992. Prior thereto, he served as
President and Chief Operating Officer of OPI from December 1989.
L.E. Walker has been the Senior Vice President, Business Development and
Strategic Initiatives of the Company since February 1995. Before assuming this
position, Mr. Walker served as President of Offshore Pipelines International,
Ltd., OPI's primary international operating subsidiary, from December 1991 and
as Executive Vice President-International Operations of OPI from October 1990
until December 1991. He has over 20 years of experience in the offshore
construction industry, including serving from 1980 until 1988 as a Vice
President and General Manager for McDermott International.
Richard E. Woolbert has been the Executive Vice President and Chief
Administrative Officer of the Company since February 1995. He has also been the
Executive Vice President and Chief Administrative Officer of McDermott
International and McDermott Incorporated since February 1995. Before assuming
his current positions, Mr. Woolbert was Senior Vice President and Chief
Administrative Officer of McDermott International and McDermott Incorporated
from August 1991. Prior thereto, he served as Vice President and Chief
Administrative Officer of McDermott International and McDermott Incorporated
from November 1988.
Daniel R. Gaubert has been the Vice President, Finance of the Company since
August 1995. Prior thereto, he was acting Controller of the Company from
February 1995. Mr. Gaubert is also the Vice President, Finance and Controller
of McDermott International and McDermott Incorporated, and has served in those
capacities since February 1995. Prior thereto, he was Vice President and
Controller of McDermott International and McDermott Incorporated from February
1992; corporate Controller of McDermott International and McDermott
Incorporated from July 1991; and prior to that, Group Controller, Power
Generation Group, of Babcock & Wilcox Investment Company and The Babcock &
Wilcox Company, which are subsidiaries of McDermott International.
J. Howard Macdonald served as the Chairman and Chief Executive Officer of
NatWest Investment Bank from January 1989 until his retirement in April 1991.
He is also a director of McDermott International, The BOC Group plc and The
Weir Group plc.
Rick L. Burdick has been the sole shareholder of a professional corporation
that has served as a partner in the law firm of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., a limited liability partnership including professional
corporations, since 1988. He is also a director of Republic Industries, Inc.
Brock A. Hattox has been the Executive Vice President and Chief Financial
Officer of McDermott International, and Executive Vice President and Chief
Financial Officer, and President of the Engineering and Construction Group, of
McDermott Incorporated since February 1995. Prior to assuming these positions,
he was Senior Vice President and Chief Financial Officer of McDermott
International and McDermott Incorporated from March 1991. Prior thereto, he
served as Vice President, Controller and Planning, of the Eaton Corporation (a
manufacturer of engineered products for automotive, industrial, commercial and
defense markets). He is also a director of McDermott International and
McDermott Incorporated.
John F. Bookout has been the Chairman of the Board, President and Chief
Executive Officer of Kelley Oil & Gas Corporation since February 1996. Until
his retirement in June 1988, Mr. Bookout was President and Chief Executive
Officer of Shell Oil Company and served on the Supervisory Board of Directors
of Royal Dutch Shell in The Netherlands. He is also an advisory director of The
Investment Company of America and a director of McDermott International.
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<PAGE>
Cedric E. Ritchie has been the Chairman of the Executive Committee of the
Board of The Bank of Nova Scotia since January 1995. Prior to assuming this
position, he was Chairman of the Board and Chairman of the Executive Committee
of the Board of The Bank of Nova Scotia from January 1993. Prior thereto, he
was Chairman of the Board and Chief Executive Officer of The Bank of Nova
Scotia from December 1979. He is also a director of Ingersoll-Rand Company,
MacMillan Bloedel Limited, Minorco, Moore Corporation Limited, NOVA Corporation
of Alberta and Canadian National Railways.
Thomas P. Tatham has been Chairman of the Board, Chief Executive Officer and
a director of DeepTech International Inc. ("DeepTech International") since
October 1989 and Chairman of the Board and a director of Leviathan Gas Pipeline
Company ("Leviathan"), which is the general partner of Leviathan Gas Pipeline
Partners, L.P., a publicly traded master limited partnership, since February
1989. Mr. Tatham also served as Chief Executive Officer of Leviathan from
February 1989 through June 1995. Mr. Tatham has also been Chairman of the Board
and a director of Tatham Offshore, Inc. ("Tatham Offshore") since its inception
in 1988 and has served as its Chief Executive Officer since November 1995.
Lodwrick M. Cook has been a director of Atlantic Richfield Company ("ARCO")
since 1980 and served as Chairman of the Board from January 1986 to June 1995,
at which time Mr. Cook was named chairman emeritus. Mr. Cook was also ARCO's
Chief Executive Officer from October 1985 to June 1994, and Chairman of the
Board of ARCO Chemical Company from 1987 until May 1995. Mr. Cook is also a
director of Castle & Cooke, Inc. He is also a member of the Investment Advisory
Committee of Aurora Capital Partners, L.P.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
TRANSACTIONS WITH MCDERMOTT INTERNATIONAL IN CONNECTION WITH THE MERGER
Contribution and Merger Transactions. On January 31, 1995 (the "Effective
Time"), McDermott International contributed (the "Contribution") substantially
all of its marine construction services business to the Company and the Company
acquired OPI in the Merger. McDermott International did not contribute certain
operations historically included in its marine construction services segment,
including its interests in certain interests (similar to oil and gas working
interests) relating to exploration and development projects offshore Sakhalin
Island, Russian Federation and in the Caspian Sea. In connection with the
Contribution and Merger transactions, (i) McDermott International received
24,668,297 shares of Common Stock, 3,200,000 shares of Series A Preferred
Stock, the $231.0 million aggregate principal amount of 9% Notes, and certain
other consideration, including the Floating Rate Note, and (ii) the investors
in OPI received 13,867,946 shares of Common Stock, options to acquire 897,818
shares of Common Stock, and 458,632 shares of Series B Preferred Stock, in
exchange for all the outstanding common stock, common stock options and
preferred stock of OPI. The balance of the Floating Rate Note was repaid with
proceeds from the Vessel Sales. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Events" and "--Other
Transactions with McDermott International."
Letter Agreement. In connection with the Merger, the Company and McDermott
International entered into the Letter Agreement, which provides for, among
other things, the establishment and maintenance of the Independent Committee,
which is comprised of each member of the Board of Directors who either (i)
would qualify as an independent director within the meaning given to such term
under the rules of the New York Stock Exchange, or (ii) is not an "Affiliate"
or "Associate" (as such terms are defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of McDermott International, the Company or, with respect to
periods ending on or prior to the Effective Time, OPI, other than solely as a
result of being a director of the Company. In addition to Messrs. Ritchie,
Tatham, Cook and Burdick, Messrs. Bookout and Macdonald, who are also members
of McDermott International's Board of Directors, are members of the Independent
Committee.
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<PAGE>
The Letter Agreement further provides that, until the earlier of January 31,
1998 and the date on which McDermott International and certain of its
affiliates cease to own at least 30% of the outstanding voting stock of the
Company, the Company shall not take any of the following actions, among others,
without the approval of the Independent Committee: (i) repurchase, redeem,
prepay or amend the 9% Notes or the Series A Preferred Stock or repurchase any
of the Common Stock owned by McDermott International or certain of its
affiliates; (ii) lease, sell or otherwise provide any goods or services to, or
lease or purchase any goods or services from, McDermott International or any of
its affiliates (other than pursuant to the Services Agreement and the
Transition Services Agreement), involving aggregate payments in excess of $5.0
million; or (iii) fill any vacancies on the Board of Directors of the Company
created by an increase in the size of such Board of Directors with certain
persons who are former executive employees or directors of McDermott
International, the Company or OPI.
The repurchase of the 9% Notes with a part of the proceeds from the Offering
has been approved by the Independent Committee (with Messrs. Bookout and
Macdonald abstaining), as well as by the Board of Directors of the Company.
The Letter Agreement also provides that, until the earlier of January 31,
1998 and the date on which McDermott International and certain of its
affiliates cease to own at least 30% of the outstanding voting stock of the
Company, the Company shall not take any of the following actions, among others,
without either (i) the affirmative vote of the holders of at least a majority
of the then-outstanding voting stock owned by persons other than McDermott
International and certain of its Affiliates and Associates (the "McDermott
Group"), or (ii) the approval of the Independent Committee: (a) any merger or
consolidation of the Company or any subsidiary of the Company with any member
of the McDermott Group; (b) certain transfers or other dispositions of assets
outside of the ordinary course of business to, among others, any member of the
McDermott Group; (c) certain issuances or transfers by the Company or any
subsidiary of the Company of equity securities of the Company or any such
subsidiary to any member of the McDermott Group; (d) the adoption of any plan
or proposal for the liquidation or dissolution of the Company pursuant to which
any member of the McDermott Group would receive securities of the Company or
any subsidiary of the Company; (e) certain reclassifications or
recapitalizations of the Company, mergers or consolidations of the Company with
any subsidiary, or certain other transactions that have the effect of
increasing the proportionate equity interest of the Company or any subsidiary
of the Company owned by any McDermott Group member; or (f) certain loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Company or any subsidiary of the
Company to any McDermott Group member.
The Letter Agreement also provides that the net after-tax amount of cash
actually received by McDermott International in respect of its interest in CMM
shall be an offset against any amounts payable by the Company to McDermott
International pursuant to the terms of the Services Agreement and the
Transition Services Agreement. As of the date hereof, no amounts have been
received by McDermott International in connection with its equity interest in
such company.
Services Agreements. In connection with the Merger, McDermott International
and the Company entered into a Transition Services Agreement (the "Transition
Services Agreement") and a Services Agreement (the "Services Agreement") under
which McDermott International agreed to provide certain services to the Company
and the Company agreed to purchase such services.
Under the terms of the Transition Services Agreement, McDermott International
agreed, for a period of one year after the Effective Time (which has been
extended through fiscal 1997), to provide certain services, including (i)
certain accounting, employee benefit, salary, business planning and office
support services to the Company, for which the Company agreed to pay based on
the amount of services used and the actual cost thereof to McDermott
International. Under the terms of the Services Agreement, McDermott
International agreed to provide certain services to the Company, based upon a
predetermined annual fee for each such service, until such time as McDermott
International no longer owns a majority of the Company's outstanding
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<PAGE>
Common Stock. Such services include accounting and financial reporting,
treasury and financing, corporate tax administration and research, human
relations policies and procedures, safety, health and environmental
administration, public and investor relations, executive officer, corporate
secretary, electronic information, and telecommunications network maintenance
and administration services. From the Effective Time through fiscal 1996, the
Company paid to McDermott International approximately $14.1 million under the
Transition Services Agreement and the Services Agreement.
During the same time period, McDermott International also provided other
services, resources and products to the Company under an arrangement similar to
the services agreements, including marine systems and automation, technology
development and research, legal, aviation, investment portfolio management,
reproduction, international marketing and lobbying services and office space,
for which the Company paid to McDermott International approximately $10.0
million.
The Independent Committee reviews the services provided by McDermott
International and its other subsidiaries to the Company and its subsidiaries on
an annual basis. After consultation with McDermott International and giving due
consideration to the legal obligations of McDermott International, the Company
may seek the provision of any of the above-described services from third
parties if the Board of Directors of the Company, after receiving the
recommendation of the Independent Committee, determines that obtaining such
services from third parties is in the best interests of the Company.
Reimbursement of Health Care Costs. For a period of several months after the
Effective Time, McDermott International provided health care benefits to the
Company's employees or former employees for which the Company reimbursed
McDermott International approximately $1.9 million for costs or expenses
incurred by McDermott International in providing such benefits.
Registration Rights Agreement. In connection with the Merger, McDermott
International and the Company entered into a Registration Rights Agreement
pursuant to which McDermott International has been granted certain demand and
piggy-back rights with respect to the registration for sale under the
Securities Act of 1933, as amended (the "Securities Act"), of its shares of
Common Stock and Series A Preferred Stock of the Company. Under the
Registration Rights Agreement, McDermott International will have demand rights
to require the Company to register its shares of Common Stock and Series A
Preferred Stock commencing January 31, 1997. In addition, McDermott
International currently has certain piggy-back rights to register its shares of
Common Stock and Series A Preferred Stock in the event the Company files a
registration statement under the Securities Act. The rights of McDermott
International under the Registration Rights Agreement are subject to a number
of customary conditions and limitations.
Working Capital Facility. In accordance with the terms of the Merger
Agreement, the Company and McDermott International entered into a Loan
Agreement and Note (the "Working Capital Note"), pursuant to which McDermott
International provided working capital to the Company and its subsidiaries of
up to $50.0 million through June 1995. During fiscal 1996, the largest
principal balance outstanding under the Working Capital Note was $44.8 million,
and interest payments in the amount of $364,600 were paid by the Company to
McDermott International under such note.
OTHER TRANSACTIONS WITH MCDERMOTT INTERNATIONAL
Shipyard Business Transfer. On May 30, 1995, the Company and McDermott
International and certain of its subsidiaries entered into a Purchase
Agreement, a sublease and other documents pursuant to which the Company sold
and transferred back to McDermott International those assets and liabilities
comprising the shipyard business located in Morgan City, Louisiana (the
"Shipyard Business") that were included among the assets contributed by
McDermott International to the Company in connection with the Merger. The sale
and transfer of the Shipyard Business was made effective as of January 31,
1995, and the fixed assets relating to the Shipyard Business were sold to
McDermott International in consideration of a reduction by
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approximately $4.8 million (the value attributed to such assets in the Merger)
in the Floating Rate Note received by McDermott International from the Company
in connection with the Merger.
In connection with this sale and transfer, a subsidiary of the Company
subleased that portion of its leased Morgan City, Louisiana property on which
the Shipyard Business operates to McDermott Incorporated for approximately
$12,000 per quarter through March 2006. Such quarterly rental payment reflects
an amount equal to that portion of the total rent paid by such subsidiary of
the Company for the total leased area relative to that portion thereof occupied
by the Shipyard Business. The sublease contains terms and provisions similar to
the underlying lease, including the expiration term of such lease.
Other Arrangements and Transactions. From the Effective Time through fiscal
1996, the Company and its subsidiaries also were billed by McDermott
International and its other subsidiaries for approximately $16.2 million for
other services, on an as requested basis, the costs of which were based on
reference to charges to unrelated parties for similar work. A significant
portion of such billings related to subcontracts for fabrication and material
procurement services. During the same period, McDermott International and its
other subsidiaries were billed by the Company and its subsidiaries for
approximately $10.2 million for requested services on the same basis.
From the Effective Time through fiscal 1996, the Company purchased
engineering services from McDermott International in the amount of
approximately $25.6 million based on reference to charges to unrelated parties
for similar work. Effective April 1, 1996, the Company and McDermott
International, through subsidiaries, created an equally owned engineering joint
venture. In connection therewith, McDermott International contributed assets
valued at approximately $7.9 million, subject to adjustment, and the Company
has agreed to make capital contributions to the engineering joint venture in an
amount up to the value of such contributed assets. The engineering joint
venture is a preferred (but not exclusive) provider of services to the Delta
Hudson International subsidiaries of McDermott International for onshore-
related work and to the Company for offshore-related work. The charges for such
services will also be based on charges to unrelated parties for similar work.
Arrangements for pricing these services will be reviewed from time to time by
the parties.
While the Company's employee liability, comprehensive general liability,
property, marine and other insurance programs are placed through commercial
insurance carriers, substantially all of such employee liability exposure is
reinsured, and significant deductibles under the Company's other insurance
programs are insured, by wholly owned insurance subsidiaries of McDermott
International. The premiums charged by such insurance subsidiaries of McDermott
International for such insurance are primarily based on claims experience and
forecasted future activities of the Company and its subsidiaries. Management
believes this approach is more cost-effective as there is generally no
commercial market for insurance on the same economic terms for these types of
exposures.
From the Effective Time through fiscal 1996, the Company paid approximately
$5.2 million to McDermott International for the charter or lease of certain
diving support equipment and systems used by the Company or its joint ventures
in offshore installation and pipelaying activities. In June 1996, McDermott
International agreed to sell substantially all of such diving support equipment
and systems to the Company for approximately $3.6 million in connection with
the Company's proposed sale of certain diving support assets to a third party
in exchange for an equity interest in such third party.
In June 1996, McDermott International and the Company also agreed that the
Company will purchase from McDermott International nine cranes to be used in
the Company's fabrication and construction activities for approximately $9
million.
To the extent required by the Letter Agreement, the above-described
transactions have been approved by the Independent Committee.
Series A Preferred Stock. During fiscal 1996, McDermott International as the
sole holder of all of the outstanding Series A Preferred Stock of the Company
received quarterly dividend payments totalling $7.2 million from the Company.
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TRANSACTIONS WITH OPI MANAGEMENT AND OTHERS PRIOR TO OR IN CONNECTION WITH THE
MERGER
Noncompetition Agreements with Certain Directors. In connection with the
Merger, the Company entered into a noncompetition agreement with each of Frank
C. Wade and Michael H. Lam, pursuant to which each of Messrs. Wade and Lam
agreed not to compete with the Company for a period of five years in exchange
for (i) in the case of Mr. Wade, an aggregate payment of $5.0 million at the
Effective Time and additional payments of $1.5 million per year for a five-year
period thereafter, and (ii) in the case of Mr. Lam, a payment of $2.0 million
at the Effective Time.
Tatham Offshore Note. On June 30, 1995, Tatham Offshore, a corporation of
which Mr. Tatham (one of the Company's directors) is Chairman of the Board,
paid in full the remaining principal balance of approximately $7.1 million,
plus accrued interest, on a note payable to a subsidiary of the Company. The
note, which was in the original principal amount of approximately $11.4 million
with 9.5% interest per annum (subsequently amended to 10.5% per annum), was
issued by Tatham Offshore to such subsidiary when it was a subsidiary of OPI,
in connection with such subsidiary's acquisition, fabrication and installation
of an offshore platform for Tatham Offshore pursuant to a Construction and
Financing Agreement.
Tatham Farmout and Sale. In anticipation of the Merger, on October 1, 1994,
J. Ray McDermott Properties, Inc., a subsidiary of the Company ("JRM
Properties"), OPI International, Inc. (a subsidiary of OPI prior to the Merger
that became a subsidiary of the Company under the name J. Ray McDermott, Inc.
("JRMI") as a result of the Merger), F-W Oil and Tatham Offshore entered into a
Farmout Agreement, a Unit Operating Agreement and other documents, pursuant to
which Tatham Offshore, as the operator and 100% working interest owner of a
certain offshore oil and gas property, assigned to the other parties an
aggregate 25% working interest in such property. The Company, through JRM
Properties and JRMI, acquired a 12.5% working interest and a related net
revenue interest with respect to such property for an initial investment of
approximately $1.45 million, and subsequent thereto, has paid approximately an
additional $3.8 million in joint interest billing costs. On September 25, 1995,
JRM Properties and JRMI sold its aggregate 12.5% working interest and net
revenue interest in the property to Tatham Offshore in exchange for a $8.0
million convertible production payment relating to such property. Pursuant to
the terms of the agreements entered into in connection with such sale, these
subsidiaries received a right to a production payment that allows them to share
in up to $8.0 million of the net proceeds of any production from the property
based upon a percentage of their original 12.5% working interest without
incurring any additional development and production costs, including their pro
rata portion of approximately $10.4 million in such costs that was called for
by the operator of the property at that time. In December 1995, this property
was placed on production, and at March 31, 1996, an aggregate of approximately
90,000 mcf of natural gas per day was being produced from the first three
wells. Through such date, the Company has earned approximately $179,000 as a
result of this production payment. Such $8.0 million production payment or any
unpaid portion thereof is also convertible into Tatham Offshore common stock at
$8.00 per share (with registration rights), and under certain circumstances,
exchangeable for cash payments from DeepTech International, another corporation
of which Mr. Tatham is Chairman of the Board, equaling 50% of the $8.0 million
production payment or any unpaid portion thereof, if the Company provides
project financing to DeepTech International or an affiliate thereof in the
future.
Tatham Interests. The Company, through one of its subsidiaries, owns 140,000
shares of Tatham Offshore common stock and 20,000 units of Leviathan Gas
Pipeline Partners, L.P., an affiliate of Mr. Tatham. The Company acquired these
interests as a result of the Merger.
Advance to Don W. Wilson. Under the terms of OPI's Incentive Compensation
Program, OPI, prior to the Merger, and the Company, after the Merger and as a
result of its indirect assumption of such program, advanced, on an interest-
free basis, to the participants of such program amounts sufficient to satisfy
their federal tax liability in connection with the vesting of restricted stock
awards made under such program. During fiscal 1995, the Company advanced to Don
W. Wilson (the former Executive Vice President, Operations of the Company)
approximately $253,000 to satisfy federal tax withholding liability as a result
of the vesting of all his unvested restricted stock awards under such program.
As of March 31, 1996, the
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principal balance outstanding on all advances made to Mr. Wilson under this
program was approximately $408,000.
OTHER TRANSACTIONS WITH MANAGEMENT
Wade Resignation. On April 22, 1996, Mr. Wade resigned as the Vice Chairman
of the Board of Directors of the Company and the Company entered into an
agreement with Mr. Wade with respect to certain matters. Mr. Wade was the
Chairman of the Board of Directors and Chief Executive Officer of OPI from
December 1988 through the effective date of the Merger and served as the Vice
Chairman of the Board of Directors of the Company until his resignation. Under
the agreement with Mr. Wade, (i) the Company and Mr. Wade terminated a Lease
and Sublease (the "Lease") entered into between a subsidiary of the Company and
Resort Equities, Ltd. ("Resort Equities"), an affiliate of Mr. Wade, pursuant
to which the Company caused its subsidiary to release its claims and rights
under the Lease against Resort Equities and Mr. Wade, including a claim for
$120,000 in unpaid rent and the right to receive an additional $150,000 in rent
if the Lease had not been terminated, and (ii) Mr. Wade caused Resort Equities
to release its claims and rights under the Lease against the Company and its
subsidiary, and caused another of his affiliates to waive and surrender its
right to acquire a 15% interest in certain property owned by the Company's
subsidiary. Prior to the termination of the Lease, Resort Equities paid to the
Company's subsidiary $90,000 in rent. The agreement between the Company and Mr.
Wade also called for the payment of $29,529 to the Company in settlement of all
amounts owed by F-W Global Aviation, Inc. ("F-W Global Aviation"), an affiliate
of Mr. Wade, to the Company. Such settlement payment was net of amounts payable
by the Company to F-W Global Aviation for aircraft usage by Company personnel.
Other Transactions with Affiliates of Mr. Wade. Effective May 1, 1995, a
subsidiary of the Company entered into an Office Sublease with F-W Oil
Interests, Inc., an affiliate of Mr. Wade ("F-W Oil"), pursuant to which such
subsidiary subleased a portion of its leased space in Houston, Texas to F-W
Oil. Under the sublease, which expires no later than March 14, 1997, F-W Oil is
required to make monthly rental payments of approximately $17,900 to such
subsidiary. Until November 1995, Mr. Lam was also an officer of F-W Oil. During
fiscal 1996, F-W Oil paid such subsidiary of the Company approximately
$185,000.
Effective April 1, 1995, a subsidiary of the Company entered into a
Production Management and Operation Agreement with F-W Oil pursuant to which F-
W Oil manages and operates an offshore producing oil and gas property for such
subsidiary. Such oil and gas property was owned and managed by a subsidiary of
OPI prior to the Merger. Following the Merger, the Company did not retain the
expertise to operate and manage the property and, after evaluating the internal
and external costs associated with operating and managing such property,
decided that it was in its best interests to retain F-W Oil to operate and
manage the property for its benefit. Under the agreement, the Company's
subsidiary is required to pay F-W Oil a monthly fee of $48,000 for F-W Oil's
management and operation of such property (the "Operating Fee"), together with
certain costs incurred by F-W Oil not covered by the Operating Fee, plus, in
certain cases, a 15% mark-up. Under this agreement, such payment terms are
applicable until December 31, 1996, at which time if the parties fail to agree
to new payment terms, either party may terminate the agreement. During fiscal
1996, the Company paid $576,000 to F-W Oil and reimbursed F-W Oil for out-of-
pocket expenses (without mark-up) in connection with the agreement.
During fiscal 1996, a subsidiary of the Company refurbished, transported and
installed an offshore jacket and deck (and certain related equipment) for F-W
Oil that the Company sold to F-W Oil for approximately $1.1 million in 1995. In
connection therewith, F-W Oil paid such subsidiary approximately $2.0 million
for such services. During fiscal 1996, such subsidiary of the Company also
fabricated a caisson for F-W Oil for $84,000.
Design, Fabrication and Installation Contracts with Affiliates of Mr. Tatham.
A subsidiary of the Company has agreed to design, fabricate or install several
offshore pipelines or structures for affiliates of Mr. Tatham (primarily
Leviathan Gas Pipeline Partners, L.P. and its affiliates). The value of these
agreements exceeds $80.0 million. As of March 31, 1996, Leviathan Gas Pipeline
Partners, L.P. and its affiliates and Tatham Offshore have paid to such
subsidiary of the Company approximately $58.2 million and $0.8 million,
respectively, for work completed under such agreements, and Leviathan Gas
Pipeline Partners, L.P. and its
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affiliates and Tatham Offshore have been invoiced for an additional $3.0
million and $0.3 million, respectively. The Company expects that the amounts
invoiced will be paid in the ordinary course of business.
The transactions with members of management described above were entered into
in the Company's ordinary course of business, were negotiated on an arm's-
length basis and, in certain cases, were approved by the Company's Board of
Directors. The Company believes the terms thereof to be no more or less
favorable to either of the parties than those customary and standard in the
industry.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
On June 7, 1995, the Company, the Company's wholly owned subsidiary J. Ray
McDermott Holdings, Inc. ("JRMHI"), and JRMHI's wholly owned subsidiary JRMI
(collectively with the Company and JRMHI, the "Borrowers"), entered into the
Credit Facility with a group of banks (the "Lenders"), including Texas Commerce
Bank National Association as administrative agent (the "Administrative Agent"),
which contains the terms described below.
Availability, Term, Interest and Fees. The Credit Facility provides for
revolving credit borrowings of up to $150 million in aggregate principal
amount. The Credit Facility is for an initial term expiring June 8, 1998, which
term may be extended for successive one-year terms upon the request of the
Borrowers and the consent of the Lenders. The Borrowers are jointly and
severally liable for each Borrower's obligations under the Credit Facility. As
of March 31, 1996, there were no borrowings outstanding under the Credit
Facility. Borrowings under the Credit Facility are used for general corporate
purposes.
Under the terms of the Credit Facility, the Borrowers may at their option
invite the Lenders to bid on an uncommitted basis on short-term borrowings,
such borrowings to bear interest at the option of the Company at either a fixed
rate agreed to by the Borrowers and the Lender or at the London Interbank
Offered Rate ("LIBOR") plus the margin agreed to by the Borrowers and the
Lender. Other borrowings under the Credit Facility will bear interest at a
variable rate per annum equal to (i) the Alternative Base Rate (defined as the
higher of the Prime Rate (defined as the rate of interest per annum announced
by the Administrative Agent as its prime rate), the Base CD Rate (as defined)
plus 1% or the Federal Funds Effective Rate (as defined) plus 1/2 of 1%) or
(ii) the Adjusted LIBOR (as defined) plus an applicable margin. The Borrowers
are required to pay certain facility, participation and administrative fees in
connection with the Credit Facility.
Covenants. The Credit Facility restricts, among other things, the Company's
ability (i) to incur or suffer to exist additional indebtedness, (ii) to create
or suffer to exist certain liens (including liens on stock of any of its
subsidiaries), (iii) to enter into or be a party to certain sale and lease-back
transactions, (iv) to enter into certain investments, (v) to merge or
consolidate with or into another person, (vi) to dispose of substantially all
of the assets of the Company, (vii) to enter into transactions with affiliates,
and (viii) to engage in business significantly different from that currently
conducted by the Company. In addition, the Credit Agreement requires the
Company to comply with certain financial ratios and tests, including
maintenance of (a) a minimum consolidated tangible net worth (defined as the
Company's shareholders' equity, determined on a consolidated basis, minus the
sum of all intangible assets of the Company and its consolidated subsidiaries)
on the last day of any fiscal quarter equal to at least the sum of (i)
$225,000, (ii) 50% of the consolidated net income of the Company (defined as
the net income of the Company and its subsidiaries as determined on a
consolidated basis) for the period (taken as a single accounting period)
commencing April 1, 1995 and ending on the last day of such fiscal quarter and
(iii) 50% of the net cash proceeds received by the Borrowers and any of their
subsidiaries after June 7, 1995 from issuances and sales of their capital stock
to third parties; (b) a consolidated funded indebtedness (defined as the
indebtedness of the Company and its subsidiaries, determined on a consolidated
basis, but excluding non-recourse indebtedness, all guarantees of indebtedness
of others, all obligations in respect of interest rate protection agreements,
foreign currency exchange
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agreements or other interest-rate hedging arrangements and all obligations as
an account party in respect of letters of credit) to consolidated total
capitalization (defined as the sum of (i) the shareholders' equity in the
Company, determined on a consolidated basis, and (ii) the consolidated funded
indebtedness (as defined)) ratio of not more than 50% on and before June 30,
1996, declining to 45% after June 30, 1996, 40% after December 31, 1996 and 35%
after March 31, 1997 and; (c) a consolidated coverage ratio (defined as the
ratio of (x) the sum of (i) operating income (or operating loss) of the Company
and its subsidiaries and (ii) any amount which in the determination of such
operating income (or operating loss) has been deducted for depreciation expense
or amortization expense, in each case determined on a consolidated basis),
provided that the operating income of the Company and its subsidiaries for the
fiscal quarter ended March 31, 1996 shall include the gain from the Vessel
Sales minus (iii) the aggregate amount for the Company and its subsidiaries of
all expenditures during such period and the entire amount of any indebtedness
(other than non-recourse indebtedness) assumed or incurred in connection with
any such expenditure which would, in the case of each such assumption or
incurrence of indebtedness, be classified as a capital expenditure in a
statement of cash flows for such period, all determined on a consolidated
basis, to (y) the sum or gross interest expense and amortization of debt
discount of the Company and its subsidiaries during such period, determined on
a consolidated basis) for any period of four consecutive fiscal quarters (or
such lesser numbers of quarters as shall have ended since June 7, 1995) of not
less than the following ratios for the period during which the last of such
fiscal quarters shall have ended: from October 1, 1995 through March 31, 1996
at least 2.00 to 1.0, from April 1, 1996 through June 30, 1996, 2.25 to 1.0 and
thereafter 3.00 to 1.0.
As of March 31, 1996, (i) the Company's consolidated tangible net worth (as
defined) was $237 million, (ii) the Company's ratio of consolidated funded
indebtedness to consolidated total capitalization (as defined) was 43% and
(iii) the Company's consolidated coverage ratio (as defined) was 2.9 to 1.0. No
assurance can be given that, based on economic conditions then prevailing in
the marine construction industry, the Company will be able to meet all of its
financial covenants under the Credit Facility on an ongoing basis in the
future.
Events of Default. The Credit Facility provides that, upon the occurrence of
certain events of default specified therein, all loans made thereunder will
become immediately due and payable, either automatically or upon notice to the
Company from the Administrative Agent. The events of default specified in the
Credit Facility include the failure of the Company to pay when due any
principal of or interest on the loans made thereunder, the breach by the
Company of any of its representations and warranties contained therein, the
failure of the Company to perform any of its obligations thereunder and certain
other customary events of default.
12-7/8% GUARANTEED SENIOR NOTES
In July 1992, OPI's wholly owned subsidiary, OPI International, Inc. (now
JRMI), issued $70.0 million aggregate principal amount of 12-7/8% Guaranteed
Senior Notes due 2002 (the "12-7/8% Notes"). JRMI's obligations under the
12-7/8% Notes are fully and unconditionally guaranteed, on a joint and several
basis, by JRMHI (as successor by merger to OPI) and each of JRMHI's vessel-
owning, and certain other, subsidiaries.
The 12-7/8% Notes are subject to mandatory sinking fund payments commencing
July 15, 2000, calculated to retire 50% of the original principal amount of the
12-7/8% Notes prior to their maturity in 2002. The 12-7/8% Notes are
redeemable, for cash, at the option of the issuer, at any time on or after July
15, 1997, in whole or in part, initially at a price of 106.4% of the principal
amount, and thereafter at prices declining annually to 100% of the principal
amount on or after July 15, 2000, plus accrued and unpaid interest to the date
of redemption.
The 12-7/8% Notes are redeemable, for cash, at the option of the holder upon
the occurrence of a "Change of Control," as defined in the Indenture relating
to the 12-7/8% Notes (the "12-7/8% Notes Indenture"), at a price equal to 101%
of the principal amount plus accrued and unpaid interest to the date fixed for
redemption. A Change of Control for purposes of the 12-7/8% Notes is deemed to
have occurred at such time as any person
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or group of persons (within the meanings of Section 13(d) under the Exchange
Act), other than Mr. Wade and any corporation or partnership he controls,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
of more than 50% of the Common Stock. Consummation of the Merger resulted in
such a Change of Control. Accordingly, the Company sent notice of the Change of
Control to the holders of record of the 12-7/8% Notes on February 9, 1995,
informing such holders that they had until March 17, 1995 to exercise their
option to require the Company to redeem the 12-7/8% Notes held by such holders
as a result of such Change of Control. None of the holders of the 12-7/8% Notes
exercised their right to require such redemption during the time period
prescribed by the 12-7/8% Notes Indenture.
The terms of the 12-7/8% Notes impose certain restrictions or limitations on,
among other things, the ability of JRMHI to make certain investments, to allow
its consolidated net worth (defined as the sum of (i) the capital stock other
than disqualified stock (defined as capital stock (other than preferred stock)
that, by its terms (or by the terms of any security into which it is
convertible or for which it is exercisable, redeemable or exchangeable),
matures, or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to, the stated final maturity of the 12-7/8% Notes) and (ii)
additional paid-in capital plus retained earnings (or minus accumulated
deficit) of JRMHI and its subsidiaries on a consolidated basis at such date) to
fall below $60.0 million, to pay dividends and to make other distributions on
its capital stock, to merge or consolidate or transfer all of its assets or to
sell or dispose of certain vessels (being substantially all of the significant
vessels currently owned by JRMHI) if the sale or disposition would cause the
Stated Value (as defined) of such vessels to fall below the Minimum Stated
Value (originally $152.7 million). To the extent any such sale or other
disposition would cause the Stated Value of the Vessels to fall below the
Minimum Stated Value, JRMHI is required to reinvest the proceeds in other
vessels or to make an offer to purchase the 12-7/8% Notes (or, to the extent
such offer does not cure the deficiency in the Stated Value of the Vessels, to
defease the 12-7/8% Notes in a principal amount equal to the remaining
deficiency). The terms of the 12-7/8% Notes also prohibit JRMHI and its
subsidiaries from directly or indirectly creating, incurring, assuming or
otherwise becoming directly or indirectly liable with respect to any
indebtedness (other than certain permitted indebtedness, as defined) unless at
the time of the incurrence of such indebtedness, the consolidated cash flow
coverage ratio (defined as the ratio of (a) the sum of (i) the net income (or
loss) of JRMHI and its subsidiaries on a consolidated basis for such period
taken as a single accounting period ("consolidated net income"), (ii) the
aggregate interest expense of JRMHI and its subsidiaries for such period (the
"consolidated interest expense"), (iii) the aggregate income tax expense of
JRMHI and its subsidiaries for such period, (iv) the aggregate depreciation
expense of JRMHI and its subsidiaries for such period, (v) the aggregate
amortization expense of JRMHI and its subsidiaries for such period, and (vi)
other non-cash items reducing consolidated net income minus non-cash items
increasing consolidated net income, for the four consecutive fiscal quarters
(treated as one accounting period) to (b) the aggregate consolidated interest
expense during such four fiscal quarters (all of the foregoing figures
determined on a consolidated basis), as shown by a pro forma consolidated
income statement of JRMHI and its subsidiaries, exceeds 2.0 to 1.0 after giving
effect to the following: (a) the issuance of such indebtedness and (if
applicable) the application of the net proceeds thereof to refinance other
indebtedness as if such indebtedness were issued and the application of such
proceeds had occurred at the beginning of the period; (b) the issuance and
retirement of any other indebtedness since the last day of the most recent
fiscal quarter covered by such income statement as if such indebtedness were
issued or retired at the beginning of such period; and (c) the acquisition of
any company or business acquired by JRMHI or any of its subsidiaries since the
first day of the period, including any acquisition which will be consummated
contemporaneously with the issuance of such indebtedness (as if such
acquisition had occurred at the beginning of the period). The terms of the
12-7/8% Notes also prohibit JRMI, JRMHI, and each of JRMHI's vessel owning, and
certain other, subsidiaries from selling, assigning, transferring or otherwise
disposing of any capital stock of OPI Vessels, Inc. and OPI International
Vessels, Ltd. The 12-7/8% Notes also contain customary default provisions,
including provisions that concern failure to make payments of principal and
interest when due, failure to comply with the financial and other covenants
thereunder and certain events of bankruptcy.
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As of March 31, 1996, (a) JRMHI's consolidated net worth (as defined) was
$505 million, and (b) JRMHI's consolidated cash flow coverage ratio (as
defined) was 4.25 to 1.0. No assurance can be given that, based on economic
conditions then prevailing in the marine construction industry, JRMHI will be
able to meet all of its financial covenants under the 12-7/8% Notes on an
ongoing basis in the future.
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture to be dated as of , 1996
(the "Indenture"), between the Company and Citibank, N.A., as trustee (the
"Trustee"). The following summary of the material provisions of the Indenture
does not purport to be complete and is subject to, and qualified in its
entirety by, reference to the provisions of the Indenture, including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of the Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." All references to the Company in the following summary refer
exclusively to J. Ray McDermott, S.A., and not to any of its subsidiaries.
GENERAL
The Notes will be unsecured senior subordinated obligations of the Company
limited to $250,000,000 aggregate principal amount. The Notes will be issued
only in registered form without coupons, in denominations of $1,000 and
integral multiples thereof. Principal of, premium, if any, and interest on the
Notes will be payable, and the Notes will be transferable, at the corporate
trust office or agency of the Trustee in The City of New York maintained for
such purposes at . In addition, in the event the Notes do not remain in
book-entry form, interest may be paid at the option of the Company by check
mailed to the person entitled thereto as shown on the security register. No
service charge will be made for any transfer, exchange or redemption of Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on , 2006. Interest on the Notes will accrue at
the rate of % per annum and will be payable semi-annually on each and,
commencing , 1996, to the holders of record of the Notes at the
close of business on the and immediately preceding such interest
payment date. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the
original date of issuance of the Notes (the "Issue Date"). Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Notes are not subject to the benefit of any mandatory sinking fund.
However, upon the occurrence of certain Asset Sales or a Change of Control,
holders of Notes will have the right to require the Company to purchase their
Notes, as more fully described under "--Certain Covenants--Disposition of
Proceeds of Asset Sales" and "--Change of Control," respectively.
ADDITIONAL AMOUNTS
All payments made by the Company under or with respect to the Notes will be
made free and clear of and without withholding or deduction for or on account
of any Taxes, unless the Company is required to withhold or deduct Taxes by law
or by the interpretation or administration thereof. If the Company is required
to withhold or deduct any amount for or on account of Indemnifiable Taxes from
any payment made under or with respect to the Notes, the Company will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each holder of Notes (including Additional Amounts), after
withholding or deduction of such Indemnifiable Taxes, will not be less than the
amount the holder would
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have received if such Indemnifiable Taxes had not been withheld or deducted.
The Company will also (i) make such withholding or deduction and (ii) remit the
full amount deducted or withheld to the relevant Taxing Authority in accordance
with applicable law. The Company will use its best efforts to obtain certified
copies of tax receipts evidencing the payment of any such Indemnifiable Taxes
and furnish certified copies of such tax receipts to the holders of the Notes
within 30 days after the date on which the payment of any such Taxes is due
pursuant to applicable law. If, notwithstanding the Company's efforts to obtain
such receipts, the same are not obtainable, the Company will provide to the
holders of the Notes other evidence of such payments by the Company.
The Company will indemnify and hold harmless each holder of Notes and, upon
written request therefor from a holder of Notes (which request shall include a
reasonable description of the Indemnifiable Taxes), reimburse such holder, for
the amount of (i) any Indemnifiable Taxes levied or imposed and paid by such
holder as a result of the Company's failure to deduct or withhold such
Indemnifiable Taxes from payments made under or with respect to the Notes; (ii)
any liability (including penalties, interest and reasonable expenses) arising
under or with respect to the foregoing clause (i); and (iii) any Indemnifiable
Taxes so levied or imposed with respect to any reimbursement under the
foregoing clause (i) or (ii), so that the net amount received by such holder
after such reimbursement will not be less than the net amount the holder would
have received if Indemnifiable Taxes on such reimbursement had not been
imposed, but excluding any Taxes on such holder's net income. In certain
circumstances, holders of Notes will be required to provide information
concerning their nationality, residence or identity.
At least 10 days prior to each date on which payment under or with respect to
the Notes is due and payable, if the Company will be obligated to pay
Additional Amounts with respect to such payment, the Company will deliver to
the Trustee an Officers' Certificate stating the fact that such Additional
Amounts will be payable and the amounts so payable and setting forth such other
information necessary to enable the Trustee to pay such Additional Amounts to
holders of Notes on the payment date. Whenever in the Indenture or in this
"Description of the Notes" there is mentioned, in any context, the payment of
principal, premium, if any, interest or any other amount payable under or with
respect to any Note, such mention shall be deemed to include mention of the
payment of Additional Amounts to the extent that, in such context, Additional
Amounts are, were or would be payable in respect thereof.
For a discussion of the exemption from Panamanian withholding taxes
applicable to payments under or with respect to the Notes, see "Certain Income
Tax Considerations--Panamanian Taxes."
OPTIONAL REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2001, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004 and thereafter............................................ 100.00%
</TABLE>
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with any applicable requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange (or if the Notes
are so listed but such exchange does not impose requirements with respect to
the selection of debt securities for redemption), on a pro rata basis, by lot
or by such method as the Trustee in its sole discretion shall deem fair and
appropriate; provided, however, that no
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Notes of a principal amount of $1,000 or less shall be redeemed in part. Notice
of redemption shall be given by first-class mail, postage prepaid, mailed not
less than 30 nor more than 60 days before the redemption date, to each holder
of Notes to be redeemed, at its address as shown in the security register. If
any Note is to be redeemed in part only, the notice of redemption that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon surrender for
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption unless
the Company defaults in the payment of the redemption price.
TAX REDEMPTION
The Notes will also be redeemable, in whole but not in part, at the option of
the Company at any time prior to maturity at 100% of the principal amount
thereof, plus accrued interest, if any, to the redemption date, if the Company
has become or would become obligated to pay, on the next date on which any
amount would be payable with respect to the Notes, any Additional Amounts as a
result of a change in, amendment to or promulgation of any treaty or law (or
any regulation thereunder) with respect to Indemnifiable Taxes, or any change
in, amendment to or promulgation of any official position (whether
administrative, judicial or otherwise) regarding the application or
interpretation of any such treaty, law or regulation, which change, amendment
or promulgation is announced or becomes effective on or after the Issue Date;
provided that the Company determines, in its business judgment, that the
obligation to pay such Additional Amounts cannot be avoided by the use of
reasonable measures available to the Company (not including substitution of the
obligor under the Notes) or that such reasonable measures cannot be taken
without the Company suffering any material economic, legal or regulatory
disadvantage.
SUBORDINATION
Payments of and distribution of or with respect to the Senior Subordinated
Note Obligations will be subordinated, to the extent set forth in the
Indenture, in right of payment to the prior payment in full in cash or cash
equivalents of all existing and future Senior Indebtedness, which includes,
without limitation, all Credit Agreement Obligations of the Company. At the
present time, the Company is a joint and several obligor with respect to all
Credit Agreement Obligations of the Company's Subsidiaries that are obligors
under the Credit Agreement. The Notes will rank prior in right of payment only
to other indebtedness of the Company which is, by its terms, expressly
subordinated in right of payment to the Notes. There is currently no
indebtedness of the Company which would constitute such subordinated
indebtedness. In addition, the Senior Subordinated Note Obligations will be
effectively subordinated to all of the creditors of the Company's subsidiaries
and joint ventures, including trade creditors. See "Risk Factors--
Subordination; Company Structure."
The Indenture will provide that in the event of (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company (or its creditors, as such) or its assets, or (b) any liquidation,
dissolution or other winding-up of the Company, whether voluntary or
involuntary, or (c) any assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Company, all Senior Indebtedness of
the Company must be paid in full in cash or cash equivalents before any direct
or indirect payment or distribution, whether in cash, property or securities
(excluding certain permitted equity and subordinated debt securities referred
to in the Indenture as "Permitted Junior Securities"), is made on account of
the Senior Subordinated Note Obligations. In the event that, notwithstanding
the foregoing, the Trustee or the holder of any Note receives any payment or
distribution of properties or assets of the Company of any kind or character,
whether in cash, property or securities, by set-off or otherwise, in respect of
Senior Subordinated Note Obligations before all Senior Indebtedness is paid or
provided for in full, then the Trustee or the holders of Notes receiving any
such payment or distribution (other than a payment or distribution in the form
of Permitted Junior Securities) will be required to pay or deliver such payment
or distribution forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of
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assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full.
During the continuance of any default in the payment when due (whether at
Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of
principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letters of credit or fees relating to letters of credit
constituting, any Designated Senior Indebtedness (a "Payment Default"), no
direct or indirect payment or distribution by or on behalf of the Company of
any kind or character shall be made on account of the Senior Subordinated Note
Obligations unless and until such default has been cured or waived or has
ceased to exist or such Senior Indebtedness shall have been discharged or paid
in full in cash or cash equivalents.
In addition, during the continuance of any default other than a Payment
Default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may then be accelerated (a "Non-payment Default"), after
receipt by the Trustee from the holders (or their representative) of such
Designated Senior Indebtedness of a written notice of such Non-payment Default,
no payment or distribution of any kind or character may be made by the Company
on account of the Senior Subordinated Note Obligations for the period specified
below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the holders (or their representative)
of Designated Senior Indebtedness stating that such notice is a payment
blockage notice pursuant to the Indenture and shall end on the earliest to
occur of the following events: (i) 179 days shall have elapsed since the
receipt by the Trustee of such notice; (ii) the date, as set forth in a written
notice to the Company or the Trustee from the holders (or their representative)
of the Designated Senior Indebtedness initiating such Payment Blockage Period,
on which such default is cured or waived or ceases to exist (provided that no
other Payment Default or Non-payment Default has occurred or is then continuing
after giving effect to such cure or waiver); (iii) the date on which such
Designated Senior Indebtedness is discharged or paid in full in cash or cash
equivalents; or (iv) the date, as set forth in a written notice to the Company
or the Trustee from the holders (or their representative) of the Designated
Senior Indebtedness initiating such Payment Blockage Period, on which such
Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the holders (or their representative) of Designated
Senior Indebtedness initiating such Payment Blockage Period, after which the
Company, subject to the subordination provisions set forth above and the
existence of another Payment Default, shall promptly resume making any and all
required payments in respect of the Notes, including any missed payments. Only
one Payment Blockage Period with respect to the Notes may be commenced within
any 360 consecutive day period. No Non-payment Default with respect to
Designated Senior Indebtedness that existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period will be, or can be,
made the basis for the commencement of a second Payment Blockage Period,
whether or not within a period of 360 consecutive days, unless such default has
been cured or waived for a period of not less than 90 consecutive days (it
being acknowledged that any subsequent action, or any breach of any financial
covenant for a period commencing after the date of commencement of such Payment
Blockage Period, that, in either case, would give rise to a Non-payment Default
pursuant to any provision under which a Non-payment Default previously existed
or was continuing shall constitute a new Non-payment Default for this purpose;
provided that, in the case of a breach of a particular financial covenant, the
Company shall have been in compliance for at least one full 90 consecutive day
period commencing after the date of commencement of such Payment Blockage
Period). In no event will a Payment Blockage Period extend beyond 179 days from
the date of the receipt by the Trustee of the notice and there must be a 181
consecutive day period in any 360-day period during which no Payment Blockage
Period is in effect. In the event that, notwithstanding the foregoing, the
Company makes any payment or distribution to the Trustee or the holder of any
Note prohibited by the subordination provision of the Indenture, then such
payment or distribution will be required to be paid over and delivered
forthwith to the holders (or their representative) of Designated Senior
Indebtedness.
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If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency, creditors of the Company who are holders of
Senior Indebtedness may recover more, ratably, than the holders of the Notes,
and funds which would be otherwise payable to the holders of the Notes will be
paid to the holders of the Senior Indebtedness to the extent necessary to pay
the Senior Indebtedness in full, and the Company may be unable to meet its
obligations in full with respect to the Notes. In addition, as described above,
the Senior Subordinated Note Obligations will be effectively subordinate to the
claims of creditors of the Company's subsidiaries and joint ventures including
trade creditors.
As of March 31, 1996, on a pro forma basis, after giving effect to the sale
of the Notes, and the application of the net proceeds therefrom, the aggregate
amount of outstanding Senior Indebtedness would have been approximately $132.7
million ($118.9 million of which would be guarantees of Indebtedness of the
Company's consolidated and unconsolidated subsidiaries and joint ventures), in
addition to certain bid and performance bonds (or letters of credit in respect
of bids or performance obligations) outstanding ($168.4 million at March 31,
1996), and the aggregate amount of Indebtedness of the Company's consolidated
subsidiaries and joint ventures (excluding Indebtedness guaranteed by the
Company) would have been approximately $125.4 million. The foregoing amounts do
not include the undrawn portions under the Company's (or its consolidated
subsidiaries' or joint ventures') existing credit arrangements ($207.4 million
at March 31, 1996). In addition, certain of the Company's unconsolidated joint
ventures have significant amounts of outstanding Indebtedness that the Company
has not guaranteed, as well as undrawn but available credit facilities ($125.6
million at March 31, 1996). See "Use of Proceeds," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Although the Indenture will contain limitations on the amount of additional
Indebtedness that the Company and the Restricted Subsidiaries may incur, the
amounts of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness or Indebtedness of Subsidiaries (to
which the Notes will be structurally subordinated). The Indenture will not
limit the amount of Indebtedness which can be incurred by or Investments made
by the Company and the Restricted Subsidiaries in Joint Ventures. See
"--Certain Covenants--Limitation on Additional Indebtedness." The Indenture will
prohibit the incurrence by the Company of Indebtedness which is contractually
subordinated in right of payment to any Senior Indebtedness of the Company and
senior in right of payment to the Notes. After giving effect to the issuance of
the Notes and the Vessel Sales and the application of the net proceeds
therefrom, there will be no indebtedness of the Company which is subordinated
in right of payment to the Notes and there will be no indebtedness of the
Company which is pari passu in right of payment with the Notes.
CERTAIN COVENANTS
The Indenture will contain the following covenants, among others:
Limitation on Additional Indebtedness. The Indenture will provide that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or in any other
manner become liable, contingently or otherwise (in each case, to "incur"), for
the payment of any Indebtedness (including any Acquired Indebtedness); provided
that (i) the Company and each Wholly-owned Restricted Subsidiary will be
permitted to incur Indebtedness (including Acquired Indebtedness) and (ii) a
Restricted Subsidiary which is not a Wholly-Owned Restricted Subsidiary will be
permitted to incur Acquired Indebtedness if, immediately after giving pro forma
effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company
would be equal to or greater than 2.25:1.0.
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Notwithstanding the foregoing, the Company (and, to the extent specifically
set forth below, the Restricted Subsidiaries) may incur each and all of the
following Indebtedness (including any Acquired Indebtedness):
(1) (a) Indebtedness of the Company or any Restricted Subsidiary
under the Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed $250,000,000 (or, to the extent non-U.S.
dollar denominated, the equivalent of such amount as determined by the
Credit Agreement), and any fees, premiums, expenses (including costs of
collection), indemnities and other similar amounts payable in
connection with such Indebtedness; (b) Indebtedness of JRMI and the OPI
Guarantors arising from the OPI Notes; and (c) other Indebtedness of
the Company or any Restricted Subsidiary outstanding on the Issue Date;
(2) Indebtedness of the Company evidenced by the Notes;
(3) (a) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary covering Indebtedness of the Company or any
Restricted Subsidiary incurred in the ordinary course of business:
provided that the notional principal amount of any such Interest Rate
Protection Obligations does not exceed 105% of the principal amount of
the Indebtedness to which such Interest Rate Protection Obligations
expressly relates;
(4) Indebtedness of the Company or any of the Restricted Subsidiaries
under Currency Agreement Obligations; provided that such Currency
Agreement Obligations do not increase the Indebtedness or other
obligations of the Company and the Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable
thereunder;
(5) (i) Indebtedness of the Company owed to a Restricted Subsidiary
and Indebtedness of a Restricted Subsidiary owed to the Company or a
Restricted Subsidiary; provided that (a) any subsequent issuance or
transfer of Capital Stock or any Designation that results in such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer or assignment of such Indebtedness (other than to
the Company or a Restricted Subsidiary or a Joint Venture) will be
deemed to constitute the incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be, and (b) any such
Indebtedness of the Company owed to a Restricted Subsidiary must be
subordinated in right of payment to the prior payment in full and
performance of the Company's obligations under the Indenture and the
Notes; and (ii) Indebtedness of the Company or any Wholly-Owned
Restricted Subsidiary owed to any Joint Venture; provided that any such
Indebtedness (a) if Indebtedness of the Company, must be subordinated
in right of payment to the prior payment in full and performance of the
Company's obligations under the Indenture and the Notes and (b) must
not bear interest (other than through the accrual or payment in kind of
Indebtedness of the same obligor containing terms identical to the
terms of the Indebtedness on which such Indebtedness is paid as
interest) except that cash interest may be paid (A) if required by law
to prevent the holder of such Indebtedness from being treated for
applicable revenue tax purposes as having received imputed interest
thereon or (B) to minimize taxes payable by the parties to the Joint
Venture;
(6) Indebtedness of the Company or any Restricted Subsidiary incurred
in respect of bid, performance and payment bonds (other than in respect
of Indebtedness), surety bonds, trade letters of credit, bankers'
acceptances and letters of credit supporting bids, advance payments and
performance obligations of the Company, any Restricted Subsidiary or
any Joint Venture (other than in respect of Indebtedness), in each case
incurred in the ordinary course of business;
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(7) Indebtedness of the Company or any Restricted Subsidiary not to
exceed $30,000,000 in aggregate amount per year incurred in connection
with capital expenditures (as determined in accordance with GAAP);
(8) Indebtedness of the Company or any Restricted Subsidiary (a)
representing Capitalized Lease Obligations and (b) in respect of
Purchase Money Obligations for property acquired in the ordinary course
of business (and not, in any event, in connection with an Asset
Acquisition or a Capitalized Lease Obligation), which taken together do
not exceed $20,000,000 in aggregate amount at any time outstanding;
(9) Indebtedness of the Company or any Restricted Subsidiary in
respect of Receivables Facility Obligations; provided that the holders
of such Indebtedness have recourse only to the accounts receivable,
work in progress and related assets transferred pursuant to such
Receivables Facility;
(10) Indebtedness of the Company and any Restricted Subsidiary
consisting of the guarantee of Indebtedness of a Joint Venture not to
exceed $50,000,000 in aggregate principal amount at any time
outstanding; provided that as and to the extent that the Company or
such Restricted Subsidiary, as the case may be, shall be entitled
pursuant to the terms of any agreement then in effect, to
reimbursement, indemnity or contribution from any person (other than
the Company or any of its Subsidiaries or the Joint Ventures) that the
Company reasonably deems to be solvent for amounts as to which the
Company or such Restricted Subsidiary, as the case may be, may become
liable for or have to pay pursuant to such guarantee of Indebtedness of
a Joint Venture, such amount, but not the remaining amount, shall not
be treated for the purpose of the foregoing limitation as having been
guaranteed;
(11) Indebtedness of the Company and any Restricted Subsidiary
consisting of a guarantee of performance obligations of any Joint
Venture (other than in respect of Indebtedness of such Joint Venture);
(12) (a) Indebtedness of the Company or any Restricted Subsidiary to
the extent the proceeds thereof are used to refinance (whether by
amendment, modification, supplement, restatement, replacement,
restructuring, refinancing, renewal, extension or refunding)
Indebtedness of the Company (including all or a portion of the Notes)
or any Restricted Subsidiary to the extent the Indebtedness to be
refinanced, redeemed or retired has been incurred under or referred to
in the first paragraph of this covenant or clauses (1)(b), (1)(c), (2),
(8)(b) or (13); provided that the principal amount of Indebtedness
incurred pursuant to this clause (12) (or, if such Indebtedness
provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration of the maturity thereof,
the original issue price of such Indebtedness) shall not exceed the sum
of the principal amount of Indebtedness so amended, modified,
supplemented, restated, replaced, restructured, refinanced, renewed,
extended or refunded (or, if such Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness plus any accreted value attributable thereto
since the original issuance of such Indebtedness) plus the amount of
any premium required to be paid in connection therewith pursuant to the
terms of such Indebtedness or the amount of any premium reasonably
determined by the Company or a Restricted Subsidiary, as applicable, as
necessary to accomplish the foregoing by means of a tender or exchange
offer or privately negotiated purchase, plus the amount of expenses in
connection therewith; and
(13) additional Indebtedness of the Company and the Restricted
Subsidiaries not to exceed $100,000,000 in aggregate principal amount
at any time outstanding (which may include any Indebtedness incurred
for any purpose, including but not limited to the purposes referred to
in clauses (1) through (12) above).
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Limitation on Restricted Payments. The Indenture will provide that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly:
(i) declare or pay any dividend or make any other distribution or payment
on or in respect of Capital Stock of the Company or any payment made to the
direct or indirect holders (in their capacities as such) of Capital Stock
of the Company (other than dividends or distributions payable solely in
rights to purchase Capital Stock of the Company (other than Redeemable
Capital Stock));
(ii) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock owned
by a Wholly-Owned Restricted Subsidiary);
(iii) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Subordinated Indebtedness owed to a Wholly-Owned Restricted Subsidiary); or
(iv) make any Investment (other than a Permitted Investment) in any
person
(such payments or Investments described in (but not excluded from) the
preceding clauses (i) (other than by reason of the proviso thereto), (ii),
(iii) and (iv) are collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than in cash, shall be the Fair
Market Value of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted
Payment), (A) no Default shall have occurred and be continuing, (B) the
aggregate amount of all Restricted Payments declared or made from and after the
Issue Date would not exceed the sum of (1) 50% of the aggregate Consolidated
Net Income of the Company accrued on a cumulative basis during the period
(treated as one accounting period) beginning on April 1, 1996 and ending on the
last day of the fiscal quarter of the Company immediately preceding the date of
such proposed Restricted Payment (or, if such aggregate cumulative Consolidated
Net Income of the Company for such period shall be a deficit, minus 100% of
such deficit) plus (2) the aggregate net cash proceeds received by the Company
either (x) as capital contributions in the form of common equity to the Company
after the Issue Date or (y) from the issuance or sale of Capital Stock
(excluding Redeemable Capital Stock but including Capital Stock issued upon the
conversion of convertible Indebtedness, in exchange for outstanding
Indebtedness or from the exercise of options, warrants or rights to purchase
Capital Stock (other than Redeemable Capital Stock)) of the Company to any
person (other than to a Restricted Subsidiary) after the Issue Date plus (3) in
the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date (excluding any Investment made
pursuant to clause (iv) of the following paragraph), an amount equal to the
lesser of the return of capital with respect to such Investment and the initial
amount of such Investment, in either case, less the cost of the disposition of
such Investment plus (4) 100% of the aggregate amount of all Investments
previously made on or after the date of the Indenture in any Unrestricted
Subsidiary upon the revocation of the designation of such Unrestricted
Subsidiary as such, other than Investments made in such Unrestricted Subsidiary
pursuant to clause (iv) of the following paragraph and (C) the Company could
incur $1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Additional Indebtedness" covenant described above. For purposes
of the preceding clause (B)(2), upon the issuance of Capital Stock either from
the conversion of convertible Indebtedness or in exchange for outstanding
Indebtedness or upon the exercise of options, warrants or rights, the amount
counted as net cash proceeds received will be the cash amount received by the
Company at the original issuance of the Indebtedness that is so converted or
exchanged or from the issuance of options, warrants or rights, as the case may
be, plus the incremental amount of cash received by the Company, if any, upon
the conversion, exchange or exercise thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii)
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Company or any Restricted Subsidiary in
exchange for, or out of the net cash proceeds
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of, a substantially concurrent issue and sale of other shares of Capital Stock
(other than Redeemable Capital Stock) of the Company to any person (other than
to a Restricted Subsidiary or a Joint Venture); provided that such net cash
proceeds are excluded from clause (B)(2)(y) of the preceding paragraph; (iii)
so long as no Default shall have occurred and be continuing, any redemption,
repurchase or other acquisition or retirement of Subordinated Indebtedness by
exchange for, or out of the net cash proceeds of, a substantially concurrent
issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of
the Company to any person (other than to a Restricted Subsidiary or a Joint
Venture); provided that any such net cash proceeds are excluded from clause
(B)(2)(y) of the preceding paragraph; or (2) Indebtedness of the Company so
long as such Indebtedness (x) is subordinated to the Notes in the same manner
and at least to the same extent as the Subordinated Indebtedness being
redeemed, repurchased, acquired or retired and (y) has no Stated Maturity
earlier than the 91st day after the Stated Maturity for the final scheduled
principal payment of the Notes; (iv) so long as no Default shall have occurred
and be continuing, the making of Investments constituting Restricted Payments
in persons (other than Joint Ventures and Wholly-Owned Restricted Subsidiaries
of the Company) made after the Issue Date not to exceed $30,000,000 at any time
outstanding; (v) the making of Investments constituting Restricted Payments
made after the Issue Date as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the covenant "--
Disposition of Proceeds of Asset Sales;" or (vi) for so long as no Default
shall have occurred and be continuing, the declaration and payment of dividends
of up to $15,000,000 in aggregate amount to MII or its Affiliates in respect of
shares of Series A Preferred Stock owned by such persons that otherwise would
not be permitted as a result of the foregoing provisions. In computing the
amount of Restricted Payments previously made for purposes of clause (B) of the
preceding paragraph, Restricted Payments made under the immediately preceding
clauses (i), (iv) and (v) shall be included.
The Indenture will also provide that the Company will not consent to or
otherwise authorize any Joint Venture to, directly or indirectly, and where the
Company has a legal or contractual right to do so, the Company will prevent a
Joint Venture from acting to
(i) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any Subsidiary of the Company (other
than Capital Stock of the Company upon original issuance by the Company);
(ii) make any principal payment on, or purchase, repurchase, redeem or
otherwise acquire or retire for value, any Subordinated Indebtedness (other
than any Subordinated Indebtedness owed by such Joint Venture to the
Company or any of its Subsidiaries); or
(iii) make any Investment in any person (other than (x) a Subsidiary of
which 100% of the outstanding Capital Stock is owned by such Joint Venture
or (y) as permitted by clause (i) or (ii) above) other than in the ordinary
course of business of such Joint Venture solely for the purpose of
conducting activities directly related to the marine construction business
or a business reasonably related thereto.
Limitation on Liens. (a) The Indenture will provide that the Company will
not, and will not permit any Restricted Subsidiary to, create, incur, assume or
suffer to exist any Lien of any kind against or upon any of its property or
assets, whether now owned or acquired after the date of the Indenture, or any
proceeds therefrom, which secures either (i) Subordinated Indebtedness (other
than Subordinated Indebtedness of a Restricted Subsidiary owing to the Company
secured by assets of such Restricted Subsidiary) unless the Notes are secured
by a Lien on such property, assets or proceeds that is senior in priority to
the Liens securing such Subordinated Indebtedness or (ii) Pari Passu
Indebtedness unless the Notes are equally and ratably secured with the Liens
securing such Pari Passu Indebtedness. The foregoing covenant will not apply to
any Lien securing Acquired Indebtedness, provided that any such Lien extends
only to the properties or assets that were subject to such Lien prior to the
related acquisition by the Company or such Restricted Subsidiary and was not
created, incurred or assumed in contemplation of such transaction.
(b) Notwithstanding the foregoing, any security interest granted by the
Company or any Restricted Subsidiary to secure the Notes created pursuant to
paragraph (a) above shall provide by its terms that such
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security interest shall be automatically and unconditionally released and
discharged upon the release by the holders of the Indebtedness of the Company
or any Restricted Subsidiary described in paragraph (a) above of their security
interest (including any deemed release upon payment in full of all obligations
under such Indebtedness), at a time when (A) no other Pari Passu Indebtedness
and Subordinated Indebtedness of the Company or any Restricted Subsidiary has
been secured by such property or assets of the Company or any such Restricted
Subsidiary or (B) the holders of all such other Pari Passu Indebtedness and
Subordinated Indebtedness which is secured by such property or assets of the
Company or any such Restricted Subsidiary also release their security interest
in such property or assets (including any deemed release upon payment in full
of all obligations under such Indebtedness).
Limitation on Sale-Leaseback Transactions. The Indenture will provide that
the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, assume, guarantee or otherwise become
liable with respect to any Sale-Leaseback Transaction unless (a) the
Attributable Value of the obligations of the Company or such Restricted
Subsidiary with respect thereto is treated as Indebtedness and would be
permitted under the "Limitation on Additional Indebtedness" covenant, (b) the
consideration received with respect to the property subject to such Sale-
Leaseback Transaction at the time of such Sale-Leaseback Transaction is at
least equal to the Fair Market Value of the property subject to the Sale-
Leaseback Transaction and (c) the Company applies an amount in cash equal to
the Net Cash Proceeds of the Sale-Leaseback Transaction in accordance with and
to the extent required by the provisions of the "Disposition of Proceeds of
Asset Sales" covenant as if such Sale-Leaseback Transaction were an Asset Sale
by the Company. Notwithstanding the foregoing, the Company or any Wholly-Owned
Restricted Subsidiary may enter into a Sale-Leaseback Transaction with any
Wholly-Owned Restricted Subsidiary or any Joint Venture, and a Wholly-owned
Restricted Subsidiary may enter into a Sale-Leaseback Transaction with the
Company or any Joint Venture or another Wholly-owned Restricted Subsidiary, in
each case subject only to clause (b) of the preceding sentence.
Change of Control. The Indenture will provide that, upon the occurrence of a
Change of Control, the Company shall be obligated to make an offer to purchase
(a "Change of Control Offer") and shall, subject to the provisions described
below, purchase, on a business day not more than 60 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, plus Additional Amounts, if any (the
"Change of Control Purchase Price"), to the Change of Control Purchase Date.
The Company shall, subject to the provisions described below, be required to
purchase all Notes properly tendered into the Change of Control Offer and not
withdrawn. The Change of Control Offer is required to remain open for at least
20 business days and until the close of business on the Change of Control
Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not later
than the 30th day after the Change of Control, mail to each holder of Notes
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that holders of Notes must follow to accept the Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of Notes
seeking to accept the Change of Control Offer. Instruments governing Senior
Indebtedness may prohibit the Company from purchasing any Notes prior to their
Stated Maturity, including pursuant to a Change of Control Offer. In the event
a Change of Control occurs at a time when the Company does not have available
funds sufficient to pay the Change of Control Purchase Price or at a time when
the Company is prohibited from purchasing the Notes (and the Company is unable
to obtain the consent of such holders of Senior Indebtedness or to repay such
Senior Indebtedness), an Event of Default would occur under the Indenture. The
definition of Change of Control includes an event by which the Company sells,
conveys, transfers or leases all or substantially all of its Properties to any
Person; the phrase "all or substantially all" is subject to applicable legal
precedent and as a result in the future there may be uncertainty as to whether
a
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Change of Control has occurred. The Company shall not be required to make a
Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer at the Change of Control Purchase Price, at the same
times and otherwise in compliance with the requirements applicable to a Change
of Control Offer made by the Company and purchases all Notes validly tendered
and not withdrawn under such Change of Control Offer.
The occurrence of the events constituting a Change of Control under the
Indenture will result in an event of default under the Credit Agreement as
presently in effect and, thereafter, the lenders will have the right to require
repayment of the borrowings thereunder in full. The Credit Agreement does not
permit the purchase of the Notes absent consent of the lenders thereunder in
the event of a Change of Control.
The Company will comply with Section 14(e) and Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that a Change of Control
occurs and the Company is required to purchase Notes as described above.
Disposition of Proceeds of Asset Sales. The Indenture will provide that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
make any Asset Sale unless (i) the Company or such Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (ii) at least 75% of such consideration consists of cash and/or
Cash Equivalents (with Indebtedness of the Company or any Restricted Subsidiary
(other than any Restricted Subsidiary that will cease to be a Restricted
Subsidiary as a result of such Asset Sale) being counted as cash for all
purposes of this covenant if the Company or the Restricted Subsidiary is
unconditionally released from any liability therefor). Net Cash Proceeds of any
Asset Sale may be applied to repay Specified Indebtedness or Credit Agreement
Obligations (but only if the commitments or amounts available to be borrowed
under such Specified Indebtedness or the Credit Agreement, as the case may be,
are permanently reduced by the amount of such payment). To the extent that such
Net Cash Proceeds are not applied as provided in the preceding sentence, the
Company or a Restricted Subsidiary, as the case may be, may apply the Net Cash
Proceeds from such Asset Sale, within 18 months of the date of such Asset Sale,
to an investment in properties and assets that were the subject of such Asset
Sale or in properties and assets that will be used in the business of the
Company and the Restricted Subsidiaries existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"); provided that the
Company or such Restricted Subsidiary, as the case may be, may apply such Net
Cash Proceeds towards the acquisition or construction of a new marine vessel or
the refurbishment or refitting of an existing marine vessel, in either case
that will be used in the business of the Company or one or more of its
Restricted Subsidiaries or Joint Ventures, to the extent made pursuant to a
binding written agreement entered into by the Company or such Restricted
Subsidiary, as the case may be, within six months of such Asset Sale,
notwithstanding that the application of such Net Cash Proceeds pursuant to such
binding written agreement may occur, in whole or in part, following the
expiration of the 18-month period following such Asset Sale, and any such Net
Cash Proceeds applied pursuant to this proviso shall not constitute Excess
Proceeds (as hereinafter provided) except to the extent that they would
otherwise constitute Excess Proceeds (but for the application of this proviso)
and then only to the extent that they are not actually applied within the 30-
month period following the completion of such Asset Sale. Any Net Cash Proceeds
from any Asset Sale not applied as provided in the preceding two sentences,
within 18 months of the date of such Asset Sale, constitute "Excess Proceeds"
subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $25,000,000,
the Company shall make an offer to purchase, from all holders of the Notes and
any then outstanding Pari Passu Indebtedness required to be repurchased or
repaid on a permanent basis in connection with an Asset Sale, an aggregate
principal amount of Notes and any such Pari Passu Indebtedness equal to such
Excess Proceeds as follows:
(i) (A) The Company shall make an offer to purchase (a "Net Proceeds
Offer") from all holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment
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Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Indebtedness, if any (subject to
proration in the event such amount is less than the aggregate Offered Price
(as defined in clause (ii) below) of all Notes tendered), and (B) to the
extent required by any such Pari Passu Indebtedness and provided there is a
permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase such Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.
(ii) The offer price for the Notes shall be payable in cash in an amount
equal to 100% of the principal amount of the Notes tendered pursuant to a
Net Proceeds Offer, plus accrued and unpaid interest, if any, to the date
such Net Proceeds Offer is consummated plus Additional Amounts, if any (the
"Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of the Notes
tendered pursuant to a Net Proceeds Offer is less than the Payment Amount
relating thereto or the aggregate amount of the Pari Passu Indebtedness
that is purchased or repaid pursuant to the Pari Passu Offer is less than
the Pari Passu Indebtedness Amount (such shortfall constituting a "Net
Proceeds Deficiency"), the Company may use such Net Proceeds Deficiency, or
a portion thereof, for general corporate purposes, subject to the
limitations of the "Limitation on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be
reset to zero.
The Company will comply with Section 14(e) and Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that an Asset Sale occurs and
the Company is required to purchase Notes as described above.
Limitation on Issuance and Sale of Preferred Stock by Restricted
Subsidiaries. The Indenture will provide that the Company (i) will not permit
any of the Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or a Restricted Subsidiary) and (ii) will not permit any person
(other than the Company or a Restricted Subsidiary) to own any Preferred Stock
of any Restricted Subsidiary except for Preferred Stock of a Restricted
Subsidiary issued and outstanding at the time such Restricted Subsidiary became
a Subsidiary of the Company; provided that such Preferred Stock was not issued
in anticipation of such person becoming a Subsidiary of the Company.
Limitation on Transactions with Affiliates. The Indenture will provide that
the Company will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
transfer, disposition, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company (other than
a Wholly-Owned Restricted Subsidiary or a Joint Venture; provided that no
Affiliate (other than a Subsidiary of the Company) or beneficial holder of 10%
or more of any class of Capital Stock of the Company shall beneficially own any
Capital Stock in such Restricted Subsidiary or Joint Venture other than Capital
Stock beneficially owned by a Permitted Holder solely by virtue of its
ownership of Capital Stock of the Company) or any beneficial holder of 10% or
more of any class of Capital Stock of the Company except (i) on terms that are
no less favorable to the Company or the Restricted Subsidiary, as the case may
be, than those which could have been obtained in a comparable transaction at
such time from persons who do not have such a relationship with the Company,
and (ii) with respect to any transaction or series of related transactions
involving aggregate payments or value equal to or greater than $5,000,000, the
Company shall have delivered an officer's certificate to the Trustee certifying
that such transaction or series of related transactions comply with the
preceding clause (i) and, with respect to any transaction or series of
transactions involving aggregate payments or value equal to or greater than
$10,000,000, further certifying that such
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transaction or series of transactions have been approved by a majority of the
Board of Directors of the Company, including a majority of the disinterested
directors of the Board of Directors of the Company. For the purposes of the
foregoing, a director of the Company shall not be considered "interested" with
respect to a transaction solely by virtue of being a director of the other
party to such transaction. This covenant will not restrict the Company from (a)
making dividends permitted by the covenant "--Limitation on Restricted
Payments," (b) paying reasonable and customary regular fees to directors of the
Company who are not employees of the Company, (c) making loans or advances to
officers of the Company and the Restricted Subsidiaries for bona fide business
purposes of the Company, (d) the Company's employee compensation and other
benefit arrangements, (e) complying with the terms of any Permitted Agreement
and (f) performing any existing obligations in respect of the transactions
separately described under "Certain Transactions and Relationships."
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company will not, and will
not permit any of the Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock or any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (c) make loans or advances to the Company or any
other Restricted Subsidiary or (d) transfer any of its properties or assets to
the Company or any other Restricted Subsidiary (other than any customary
restriction on transfers of property subject to a Lien permitted under the
Indenture (other than a Lien on cash not constituting proceeds of non-cash
property subject to a Lien permitted under the Indenture) which would not
materially adversely affect the Company's ability to satisfy its obligations
under the Notes and the Indenture), except for such encumbrances or
restrictions existing under or by reason of (i) applicable law or governmental
regulation, (ii) customary non-assignment provisions of any contract or any
licensing agreement entered into by the Company or any of the Restricted
Subsidiaries in the ordinary course of business or any lease governing a
leasehold interest of the Company or any Restricted Subsidiary, (iii) any
agreement or other instrument of a person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other than
the person, or the property or assets (including subsequently acquired property
or assets to the extent subject thereto) of the person, so acquired, (iv) any
encumbrance or restriction in the Credit Agreement, the indenture governing the
OPI Notes or any other agreement, in each case, as in effect on the Issue Date
or otherwise modified from time to time; provided that any such modification is
not materially less favorable to the holders of Notes than the applicable
provision as in effect on the Issue Date and (v) any encumbrance or restriction
pursuant to any agreement that extends, restructures, refinances, renews,
refunds or replaces any agreement described in clause (ii), (iii) or (iv)
above, which is not materially less favorable to the holders of Notes than
those existing under the agreement being extended, restructured, refinanced,
renewed, refunded or replaced.
Limitation on Other Senior Subordinated Indebtedness. The Indenture will
provide that the Company will not incur, directly or indirectly, any
Indebtedness which is expressly subordinate or junior in right of payment in
any respect to Senior Indebtedness unless such Indebtedness ranks pari passu in
right of payment with the Notes, or is expressly subordinated in right of
payment to the Notes.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture will
provide that the Company may designate any Subsidiary of the Company as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the Capital Stock of such Subsidiary on such date; and
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(c) the Company would be permitted under the Indenture to incur $1.00 of
additional Indebtedness pursuant to the first paragraph of the covenant
described under "--Limitation on Additional Indebtedness" at the time of
Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"-- Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount. The Indenture will further provide that the Company shall
not and shall not permit any Restricted Subsidiary to, at any time (x) provide
credit support for, or a guarantee of, any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness) (provided, that the Company or a Restricted Subsidiary may
provide credit support to an Unrestricted Subsidiary if (i) such credit support
or Indebtedness constitutes a Permitted Investment or a Restricted Payment
permitted by the "Limitation on Restricted Payments" covenant, in each case at
the time of incurrence, or (ii) the credit support or Indebtedness would be a
Permitted Investment at the time of designation of such Subsidiary as an
Unrestricted Subsidiary), (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any
Unrestricted Subsidiary (including any right to take enforcement action against
such Unrestricted Subsidiary), except in the case of clause (x) or (y) to the
extent permitted under the covenant described under "--Limitation on Restricted
Payments."
The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Reporting Requirements. The Indenture will require that the Company file with
the Commission the annual reports, quarterly reports and other documents
required to be filed with the Commission pursuant to Sections 13 and 15(d) of
the Exchange Act, to the extent such filings are accepted by the Commission and
whether or not the Company has a class of securities registered under the
Exchange Act. The Company will be required to file with the Trustee, within 30
days after it files them with the Commission, copies of such reports and
documents (with exhibits) and to cause such reports and documents (without
exhibits) to be distributed to all holders of the Notes then shown in the
securities register.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture will provide that the Company will not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets as an entirety to, any person or persons, and
that the Company will not permit any of the Restricted Subsidiaries to enter
into any such transaction or series of related transactions if such transaction
or series of related transactions, in the aggregate, would result in a sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or of the Company
and the Restricted Subsidiaries, taken as a whole, to any other person or
persons, unless at the time and after giving effect thereto (i) either (A)(1)
if the transaction or transactions is a merger or consolidation involving the
Company as a constituent to the merger or
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consolidation, the Company shall be the surviving person of such merger or
consolidation or (2) if the transaction or related transactions is a merger or
consolidation involving a Restricted Subsidiary as a constituent to the merger
or consolidation, such Restricted Subsidiary shall be the surviving person of
such merger or consolidation and such surviving person shall be a Restricted
Subsidiary, or (B)(1) the person formed by such consolidation or into which the
Company or such Restricted Subsidiary is merged or to which the properties and
assets of the Company or such Restricted Subsidiary, as the case may be,
substantially as an entirety, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of Panama, the United States of America,
any state thereof or the District of Columbia and (2) in the case of a
transaction involving the Company as a constituent to the merger or
consolidation, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
and in each case, the Indenture shall remain in full force and effect; and (ii)
immediately after giving effect to such transaction or series of related
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or as a
result of such transaction or series of related transactions), no Default shall
have occurred and be continuing and the Company, or the Surviving Entity, as
the case may be, after giving effect to such transaction or series of related
transactions on a pro forma basis, could incur $1.00 of additional Indebtedness
under the first paragraph of the "--Limitation on Additional Indebtedness"
covenant described above.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated by the provisions described in the foregoing
paragraph, the Company shall deliver, or cause to be delivered, to the Trustee,
in form reasonably satisfactory to the Trustee, an officers' certificate and an
opinion of counsel, each stating that such consolidation, merger, transfer,
lease or other disposition and the supplemental indenture in respect thereof
comply with the requirements under the Indenture. Such opinion of counsel shall
further state that the transaction will not result in the Company or the
Surviving Entity being required to make any deduction or withholding on account
of any Taxes from any payments made under or with respect to the Notes unless
the Company or the Surviving Entity shall agree to waive its rights under "Tax
Redemption" above and pay in full to the holders of Notes any Additional
Amounts which may become due and payable.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the Surviving Entity shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if the Surviving Entity had
been named as the Company therein; provided that, solely for purposes of
computing cumulative Consolidated Net Income for purposes of clause (B) of the
first paragraph of the covenant "Limitation on Restricted Payments" above, the
cumulative Consolidated Net Income of any persons other than the Company and
the Restricted Subsidiaries shall only be included for periods subsequent to
the effective time of such merger, consolidation, combination or transfer of
assets.
The Indenture will provide that for all purposes of the Indenture and the
Notes (including the provision of this covenant and the covenants described in
"--Limitation on Additional Indebtedness", "--Limitation on Restricted
Payments" and "--Limitation on Liens"), Subsidiaries of any Surviving Entity
will, upon such transaction or series of transactions, become Restricted
Subsidiaries or Unrestricted Subsidiaries as provided pursuant to the covenant
described under "--Limitation on Designations of Unrestricted Subsidiaries" and
all Indebtedness, and all Liens on property or assets, of the Company and the
Restricted Subsidiaries immediately prior to such transaction or series of
transactions will be deemed to have been incurred upon such transaction or
series of transactions.
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EVENT OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of, or premium, if any, when
due and payable, on any Note (at its Stated Maturity, upon optional
redemption, upon required purchase, upon acceleration or otherwise); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, and the continuation of such default for a
period of 30 days or more; or
(iii) the failure by the Company to comply with its obligations described
under "Consolidation, Merger, Sale of Assets, Etc." above, the failure to
make or consummate a Change of Control Offer in accordance with the
Company's obligations under the covenant described under "Change of
Control" above, or the failure to make or consummate an offer in accordance
with the Company's obligations under the covenant described under
"Disposition of Proceeds of Asset Sales" above; or
(iv) the failure by the Company to perform or observe any other term,
covenant or agreement contained in the Notes or the Indenture (other than a
default specified in clause (i), (ii) or (iii) above) for a period of 60
days after written notice of such failure stating that it is a "notice of
default" under the Indenture and requiring the Company to remedy the same
shall have been given (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Notes then outstanding; or
(v) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness (a "Debt
Instrument") under which the Company or one or more Restricted Subsidiaries
or the Company and one or more Restricted Subsidiaries then have
outstanding Indebtedness in excess of $15,000,000, individually or in the
aggregate, and either (x) the principal amount of such Indebtedness is
already due and payable in full or (y) such default or defaults have
resulted in the acceleration of the maturity of such Indebtedness; or
(vi) the commencement of proceedings, or the taking of any enforcement
action (including by way of set-off), by any holder of at least $15,000,000
in aggregate principal amount of Indebtedness of the Company or any
Restricted Subsidiary, after a default under such Indebtedness, to retain
in satisfaction of such Indebtedness or to collect or seize, dispose of or
apply in satisfaction of such Indebtedness, property or assets of the
Company or any Restricted Subsidiary having a Fair Market Value in excess
of $15,000,000 individually or in the aggregate; or
(vii) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $15,000,000 over the coverage under applicable binding
insurance policies issued by a solvent insurer which has accepted such
coverage, either individually or in the aggregate, shall be entered against
the Company or any Restricted Subsidiary or any of their respective
properties and shall not be discharged, settled or fully bonded and either
(A) commencement by any creditor of an enforcement proceeding upon such
judgment (other than a judgment that is stayed by reason of pending appeal
or otherwise) or (B) there shall have been a period of 60 days after the
date on which any period for appeal has expired and during which a stay of
enforcement of such judgment, order or decree shall not be in effect; or
(viii) certain events of bankruptcy, insolvency or bankruptcy
reorganization with respect to the Company or any Significant Subsidiary of
the Company or any Significant Joint Venture shall have occurred; or
(ix) any Significant Joint Venture defaults under one or more agreements,
instruments, mortgages, bonds, debentures or other evidences of
Indebtedness (a "JV Debt Instrument") under which such Significant Joint
Venture and one or more of its Subsidiaries then have outstanding
Indebtedness in excess of $40,000,000, individually or in the aggregate,
and either (x) the principal amount of such Indebtedness is already due and
payable in full or (y) such default or defaults have resulted in the
acceleration of the maturity of such Indebtedness; or
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(x) the commencement of proceedings, or the taking of any enforcement
action (including by way of set-off), by any holder of at least $40,000,000
in aggregate principal amount of Indebtedness of any Significant Joint
Venture or any Subsidiary of such Significant Joint Venture, after a
default under such Indebtedness, to retain in satisfaction of such
Indebtedness or to collect or seize, dispose of or apply in satisfaction of
such Indebtedness, property or assets of such Significant Joint Venture or
such Subsidiary having a Fair Market Value in excess of $40,000,000
individually or in the aggregate.
If an Event of Default (other than as specified in clause (viii) above with
respect to the Company) shall occur and be continuing, the Trustee, by notice
to the Company, or the holders of at least 25% in aggregate principal amount of
the Notes then outstanding, by written notice to the Trustee and the Company,
may declare the principal of, premium, if any, and accrued interest on all of
the outstanding Notes due and payable immediately, upon which declaration, all
amounts payable in respect of the Notes shall be immediately due and payable.
If an Event of Default specified in clause (viii) above with respect to the
Company occurs and is continuing, then the principal of, premium, if any, and
accrued interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes.
Notwithstanding the foregoing, in the event of a declaration of acceleration
in respect of the Notes because an Event of Default specified in (i) clause (v)
or (ix) above shall have occurred and be continuing, such Event of Default and
any consequential acceleration shall be automatically rescinded if the
Indebtedness that is the subject of such Event of Default has been repaid, or
if the default relating to such Indebtedness is waived or cured and, if such
Indebtedness has been accelerated, the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness (provided, in each
case, that such repayment, waiver, cure or rescission is effected within a
period of 10 days from the continuation of such default beyond the applicable
grace period or the occurrence of such acceleration), or (ii) clause (vi) or
(x) above shall have occurred and be continuing, such Event of Default and any
consequential acceleration shall be automatically rescinded if the proceedings
or enforcement action with respect to the Indebtedness that is the subject of
such Event of Default is terminated or rescinded, or such Indebtedness is
repaid and only so long as any holder of such Indebtedness shall not have
applied any property or assets referenced in clause (vi) or (x) above, as the
case may be, in satisfaction of such Indebtedness, and, in the case of both (i)
and (ii) above, written notice of such repayment, or cure or waiver and
rescission, as the case may be, shall have been given to the Trustee by the
Company or by the requisite holders of such Indebtedness or a trustee,
fiduciary or agent for such holders, within 45 days after such declaration of
acceleration in respect of the Notes and no other Event of Default shall have
occurred which has not been cured or waived during such 45-day period, and so
long as such rescission of any such acceleration does not conflict with any
judgment or decree.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of money due has been obtained by the Trustee,
the holders of a majority in aggregate principal amount of the outstanding
Notes, by written notice to the Company and the Trustee, may rescind such
declaration and its consequences if: (a) the Company has paid or deposited with
the Trustee a sum sufficient to pay (i) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements, and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Notes, (iii) the principal of and premium, if any, on
any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, and (iv) to
the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Notes which has become
due otherwise than by such declaration of acceleration; (b) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction; and (c) all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the Notes that has become due
solely by such declaration of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
default and its consequences under the Indenture except a default in the
payment of the principal of, premium, if any, or interest on any Note, or in
respect of a
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covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding within 60 days after
receipt of such notice and the Trustee, within such 60-day period, has not
received directions inconsistent with such written request by holders of a
majority in aggregate principal amount of the outstanding Notes. Such
limitations do not apply, however, to a suit instituted by a holder of a Note
for the enforcement of the payment of the principal of, premium, if any, or
interest on, such Note on or after the respective due dates expressed in such
Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, whether or not an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders of the Notes unless such holders shall have offered to the Trustee
reasonable security or indemnity. Subject to certain provisions concerning the
rights of the Trustee, the holders of a majority in aggregate principal amount
of the outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after obtaining knowledge thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if the Trustee in good faith determines
that withholding the notice is in the interest of the Noteholders.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within ten days of any event which is, or after
notice or lapse of time or both would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the then outstanding Notes, except for
(i) the rights of holders of outstanding Notes to receive payment in respect of
the principal of, premium, if any, and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for receipt of payments
in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to terminate
its obligations with respect to certain covenants that are set forth in the
Indenture, some of which are described under "--Certain Covenants" above, and
any subsequent failure to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust for the benefit of
the holders of the Notes, cash in United States dollars, U.S.
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Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the outstanding Notes to redemption or
maturity, (ii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred (in
the case of defeasance, such opinion must refer to and be based upon a ruling
of the Internal Revenue Service or a change in applicable federal income tax
laws), (iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or at any time during the 90-day period
following such date, (iv) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest under the Indenture or the
Trust Indenture Act with respect to any securities of the Company, (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any other material agreement or instrument to
which the Company is a party or by which the Company is bound, and (vi) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, which, taken together, state that all conditions precedent
under the Indenture to either defeasance or covenant defeasance, as the case
may be, have been complied with and that no violations under agreements
governing any other outstanding Indebtedness would result therefrom.
SATISFACTION AND DISCHARGE
The Indenture shall upon request of the Company cease to be of further effect
(except as to certain provisions governing registration of transfer and
exchange of the Notes and payments thereon) when (A) either (1) all Notes
theretofore authenticated and delivered (other than (i) Notes which have been
destroyed, lost or stolen and which have been replaced or paid and (ii) Notes
for whose payment (x) cash in United States dollars or (y) U.S. Government
Obligations maturing as to principal, premium, if any, and interest in such
amounts of money and at such times as are sufficient without consideration of
any reinvestment of such interest, to pay principal of and interest on the
outstanding Notes not later than one day before the due date of any payment,
have theretofore been deposited in trust with the Trustee or any Paying Agent)
have been delivered to the Trustee for cancellation, or (2) all such Notes not
theretofore delivered to the Trustee for cancellation (i) have become due and
payable, or (ii) will become due and payable at their Stated Maturity within
one year, or (iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the
Company, in the case of (2)(i), (2) (ii) or (2)(iii) above, has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for principal and
interest to the date of such deposit (in the case of Notes which have become
due and payable) or to the Stated Maturity or Redemption Date, as the case may
be, together with instructions from the Company irrevocably directing the
Trustee to apply such funds to the payment thereof at maturity or redemption,
as the case may be; (B) the Company has paid or caused to be paid all other
sums then due and payable hereunder by the Company; and (C) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
which, taken together, state that all conditions precedent herein relating to
the satisfaction and discharge of this Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the Trustee may, without the consent of the holders of any
outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act of 1939 or making any change that
does not materially and adversely affect the rights of any holder. Other
amendments or modifications of the Indenture or the Notes may be made by the
Company and
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the Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes; provided that no such
modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby, (i) reduce the principal amount of, extend
the fixed maturity of or alter the redemption provisions of, the Notes, (ii)
change the currency in which the Notes or any premium or the interest thereon
is payable, (iii) reduce the percentage in principal amount of outstanding
Notes that must consent to an amendment, supplement or waiver or consent to
take any action under the Indenture or the Notes, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to the
Notes, (v) waive a default in payment with respect to the Notes, (vi) following
the occurrence of a Change of Control or Asset Sale, amend, change or modify
the obligation of the Company to make and consummate a Change of Control Offer
in the event of a Change of Control or make and consummate the offer with
respect to any Asset Sale or modify any of the provisions or definitions with
respect thereto in a manner adverse to the holders of the Notes, (vii) reduce
or change the rate or time for payment of interest on the Notes or (viii)
modify or change any provision of the Indenture affecting the subordination of
the Notes in a manner adverse to the holders of the Notes.
Subject to the limitations set forth above, the holders of a majority in
aggregate principal amount of the outstanding Notes may waive compliance by the
Company with certain restrictive provisions of the Indenture. The holders of a
majority in aggregate principal amount of the outstanding Notes may waive any
past default under the Indenture, except a default in the payment of principal
or premium, if any, or interest on the Notes.
THE TRUSTEE
Citibank, N.A. is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Indenture (including the provisions of the Trust Indenture Act
incorporated by reference therein) will contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, if it acquires
any conflicting interest (as defined in the Trust Indenture Act) it must
eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
CONSENT TO JURISDICTION AND SERVICE
The Indenture will provide that the Company will irrevocably appoint
Corporation Trust System as its agent for service of process in any suit,
action or proceeding with respect to the Indenture or the Notes and for actions
brought under federal or state securities laws brought in any federal or state
court located in The City of New York and submits to such jurisdiction.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person, but not including
Indebtedness incurred in connection with, or in anticipation of, such person
becoming a Subsidiary.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management
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and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or less of the voting
common equity (on a fully diluted basis) or options or warrants to purchase
such equity (but only if exercisable at the date of determination or within 60
days thereof) of a person shall not, in and of itself, be deemed to constitute
control of such person.
"Asset Acquisition" means (a) an Investment by the Company or any Subsidiary
of the Company in any other person pursuant to which such person shall become a
Restricted Subsidiary, or shall be merged with or into the Company or any
Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted
Subsidiary of the assets of any person which constitute all or substantially
all of the assets of such person or any division, operating unit or line of
business of such person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition by the Company or any Restricted Subsidiary to any person other
than the Company, a Restricted Subsidiary or a Joint Venture (including, but
not limited to, the initial contribution to a Joint Venture), in one or a
series of related transactions, of: (a) any Capital Stock of any Subsidiary of
the Company or any interest in any Joint Venture; (b) all or substantially all
of the properties and assets of any division or line of business of the Company
or any Restricted Subsidiary; or (c) any other properties or assets of the
Company or a Restricted Subsidiary other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any sale, issuance, conveyance, transfer, lease or other
disposition of properties or assets that is governed by the provisions
described under "--Consolidation, Merger, Sale of Assets, Etc.," (ii) any sale
of worn-out or obsolete vessels and other equipment that, in the Company's
reasonable judgment, are no longer used or useful in the business of the
Company or the Restricted Subsidiaries; (iii) any sale of receivables and
related assets pursuant to a Receivables Facility; (iv) any sale, issuance,
conveyance, transfer, lease or other disposition of properties or assets,
whether in one transaction or a series of related transactions, involving
assets with a Fair Market Value not in excess of $5,000,000; (v) any charter
(bareboat or otherwise) or other lease of assets or property entered into in
the ordinary course of business and with respect to which the Company or any
Restricted Subsidiary is the charterer or lessor, except any such charter or
lease that provides for the acquisition of such assets or property by the
lessee during or at the term thereof for an amount that is less than the Fair
Market Value thereof as determined at the time the right to acquire such assets
or property is granted, in which case an Asset Sale shall be deemed to occur at
the time such right is granted; (vi) any trade or exchange by the Comany or any
Restricted Subsidiary of one or more marine construction vessels for one or
more other marine construction vessels owned or held by another person,
provided that the Fair Market Value of the vessels traded or exchanged by the
Company or such Restricted Subsidiary is reasonably equivalent to the Fair
Market Value of the vessels to be received by the Company or such Restricted
Subsidiary; (viii) the completion of the Vessel Sales; (ix) the sale of one or
more of the vessels identified as DB21, DB51 and DB100; and (x) the sale of any
property received pursuant to clause (j) of the definition of "Permitted
Investment."
"Attributable Value" means, as to any particular lease under which any person
is at the time liable other than a Capitalized Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount
of rent required to be paid by such person under such lease during the initial
term thereof as determined in accordance with GAAP, discounted from the last
date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of rent payable by the lessee with respect to such period
after excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated. "Attributable Value" means,
as to a Capitalized Lease Obligation under which
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any person is at the time liable and at any date as of which the amount thereof
is to be determined, the capitalized amount thereof that would appear on the
face of a balance sheet of such person in accordance with GAAP.
"Bankruptcy Law" means Title 11 of the United States Code or any similar
federal, state or foreign law for the relief of debtors.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP, and, for the
purpose of the Indenture, the amount of such obligation at any date shall be
the Attributable Value thereof at such date.
"Cash Equivalents" means, at any time: (i) any evidence of Indebtedness with
a maturity of 360 days or less from the date of acquisition thereof issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof); (ii) (x) demand
and time deposits and certificates of deposit or acceptances with a maturity of
360 days or less from the date of acquisition thereof of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $250,000,000 and (y)
Eurocurrency time deposits maturing within 360 days from the date of
acquisition thereof with any branch or office of any commercial bank organized
under the laws of a country that is a member of the Organization for Economic
Cooperation and Development (the "OECD"), and comparable in quality to the
Investments permitted by the preceding clause (x); (iii) commercial paper with
a maturity of 360 days or less issued by a corporation that is not an Affiliate
of the Company organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-1 by
Moody's or at least an equivalent rating category of another nationally
recognized securities rating agency; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the government of the United States of America or
issued by any agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within 360 days from the date
of acquisition; (v) deposits available for withdrawal on demand with any
commercial bank organized under the laws of any country that is a member of the
OECD and has total assets in excess of $100,000,000 or with any commercial bank
organized under the laws of any other country (other than the United States) in
which the Company or any Restricted Subsidiary maintains an office or is
engaged in offshore operations, provided that (a) all such deposits are
required to be made in such accounts in the ordinary course of business and (b)
such deposits do not at any one time exceed $30,000,000 in the aggregate; (vi)
deposits available for withdrawal on demand with any commercial bank not
meeting the qualifications specified in clause (ii) above but which is a
lending bank under any of the Company's or any Restricted Subsidiary's credit
facilities, provided that all such deposits do not exceed $30,000,000 in the
aggregate at any one time; and (vii) money market funds organized under the
laws of the United States of America or any state thereof that invest
substantially all of their assets in any of the types of investments described
in clause (i), (ii) or (iii) above.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), excluding a Permitted Holder, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the contractual right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or
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otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could be paid by the
Company as a Restricted Payment under the Indenture and (ii) immediately after
such transaction, no "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), excluding a Permitted Holder, is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the contractual right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation or (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or persons
whose election as directors or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office other than by reason of an action taken
by a Permitted Holder.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to the Company for any period, (i)
the sum of, without duplication, the amount for such period, taken as a single
accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash
Charges, (c) Consolidated Interest Expense and (d) Consolidated Income Tax
Expense, less (ii) non-cash items increasing Consolidated Net Income for such
period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of the aggregate amount of Consolidated EBITDA of the
Company for the four full fiscal quarters for which financial information in
respect thereof is available immediately preceding the date of the transaction
(the "Transaction Date") giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (such four full fiscal quarter period being
referred to herein as the "Four Quarter Period") to the aggregate amount of
Consolidated Fixed Charges of the Company for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence of any Indebtedness of
the Company or any of the Restricted Subsidiaries during the period commencing
on the first day of the Four Quarter Period to and including the Transaction
Date (the "Reference Period"), including, without limitation, the incurrence of
the Indebtedness giving rise to the need to make such calculation (and the
application of the net proceeds thereof), as if such incurrence (and
application) occurred on the first day of the Reference Period, (b) an
adjustment to eliminate or include, as the case may be, the Consolidated EBITDA
and Consolidated Fixed Charges of such person directly or indirectly
attributable to assets which are the subject of any Asset Sale or Asset
Acquisition (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the
Reference Period, as if such Asset Sale (after giving effect to any Designation
of Unrestricted Subsidiaries) or Asset Acquisition occurred on the first day of
the Reference Period and (c) the retirement of Indebtedness during the
Reference Period which cannot thereafter be reborrowed occurring as if retired
on the first day of the Reference Period. For purposes of calculating
"Consolidated Fixed Charges" for this "Consolidated Fixed Charge Coverage
Ratio," interest on
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Indebtedness incurred during the Four Quarter Period under any revolving credit
facility which can be borrowed and repaid without reducing the commitments
thereunder shall be the actual interest during the Four Quarter Period.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on
a fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date, (ii) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Reference Period; and (iii) notwithstanding clauses
(i) and (ii) above, interest on Indebtedness determined on a fluctuating basis,
to the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the amounts for such period of Consolidated Interest Expense.
"Consolidated Income Tax Expense" means, with respect to the Company for any
period, the provision for federal, state, local and foreign income taxes of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP related to Indebtedness, excluding fees related
to the issuance of the Notes, but including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation which in accordance with GAAP is required to
be reflected on an income statement, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing (other than in respect of Letters of Credit relating to bid,
performance and advance payment obligations incurred in the ordinary course of
business), (e) dividends payable in respect of Redeemable Capital Stock
(whether or not paid) other than Series A Preferred Stock and (f) all accrued
interest and (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any period,
the consolidated net income (or loss) of the Company (including the Restricted
Subsidiaries and the Joint Ventures) for such period as determined in
accordance with GAAP consistently applied adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (i) all
extraordinary gains or losses (net of fees and expenses relating to the
transaction giving rise thereof) and the non-recurring cumulative effect of
accounting charges, (ii) except to the extent actually received by the Company,
any Restricted Subsidiary and any Joint Venture, income of the Company, the
Restricted Subsidiaries and the Joint Ventures derived from or in respect of
all Investments in persons other than any Restricted Subsidiary or Joint
Ventures, (iii) the portion of net income (or loss) of any Joint Venture
allocable to interests in such person other than the interests of the Company
or any Restricted Subsidiary, (iv) net income (or loss) of any person combined
with the Company, one of the Restricted Subsidiaries or one of the Joint
Ventures on a "pooling of interests" basis attributable to any period prior to
the date of combination, (v) any gain or loss realized upon the termination of
any employee pension benefit plan, on an after-tax basis, (vi) gains or losses
in respect of any Asset Sales by the Company, one of the Restricted
Subsidiaries or one of the Joint Ventures (net of fees and expenses relating to
the transaction giving rise thereto), on an after-tax basis, and (vii) the net
income of any Restricted Subsidiary (other than JRMI and the OPI Guarantors) to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income (A) is not at the time
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permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its
stockholders or (B) requires the approval of any minority interest in such
Restricted Subsidiary except to the extent dividends or similar distributions
are actually declared payable to the Company by such Restricted Subsidiary;
provided that there shall be included in net income of the Company or such
Restricted Subsidiary dividends or distributions excluded from net income of
such person in a previous fiscal period pursuant to clause (ii) or clause (vii)
to the extent such dividends or distributions are actually received in the
current fiscal period.
"Consolidated Non-cash Charges" means, with respect to the Company for any
period, the aggregate depreciation, amortization and other non-cash expenses
(including, without limitation, non-cash reserves and non-cash charges) of the
Company, the Restricted Subsidiaries and the Joint Ventures reducing
Consolidated Net Income of the Company and the Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP adjusted, to
the extent included in calculating such depreciation, amortization and non-cash
expenses, by excluding, without duplication, the portion thereof allocable to
interests in Joint Ventures by any person other than the Company or any
Restricted Subsidiary.
"Credit Agreement" means the Competitive Advance and Revolving Credit
Facility Agreement dated as of June 7, 1995 among the Company, J. Ray McDermott
Holdings, Inc., JRMI, the financial institutions from time to time party
thereto, Texas Commerce Bank National Association as administrative agent,
Chemical Bank, as auction agent and Bank of America National Trust and Savings
Association, as co-agent, as such agreement may be amended, modified,
supplemented, extended, restated, replaced (including replacement after the
termination of such agreement), restructured, renewed or refinanced from time
to time in one or more credit agreements, loan agreements, instruments or
similar agreements, as such may be further amended, modified, supplemented,
extended, restated, replaced (including replacement after the termination of
such agreement), restructured, renewed or refinanced from time to time, in each
case in accordance with and as permitted by the Indenture.
"Credit Agreement Obligations" means all monetary obligations of every nature
of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, from time to time owed to
the lenders or any agent under or in respect of the Credit Agreement.
"Currency Agreement Obligations" means the obligations of any person under
any foreign exchange contract, currency swap agreement or other similar
agreement or arrangement designed to protect such person against fluctuations
in currency values.
"Default" means any event that is, or after notice or passage of time or both
would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under the
Credit Agreement Obligations and (ii) any other Senior Indebtedness which (a)
at the time of incurrence equals or exceeds $50,000,000 in aggregate principal
amount and (b) is specifically designated by the Company in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
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"Engineering Joint Venture Agreement" means, collectively, the Contribution
Agreement dated as of April 1, 1996 among J. Ray McDermott Engineering
Holdings, Inc., Delta Hudson Engineering Corporation and McDermott Engineering
Houston, LLC ("MEH"), the Regulations of MEH and the Articles of Organization
of MEH.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Fair Market Value" with respect to any asset or property means the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy. Fair Market Value shall be determined by the
Board of Directors of the Company acting in good faith and shall be evidenced
by a board resolution which determination shall be conclusive for all purposes
of the Indenture.
"GAAP" means, at any date, generally accepted accounting principles in the
United States set forth in the Statements of Financial Accounting Standards and
the Interpretations, Accounting Principles Board Opinions and AICPA Accounting
Research Bulletins that are applicable to the circumstances as of the date of
determination and consistently applied; provided, however, that, except as
otherwise provided, all calculations made for purposes of determining
compliance with the terms of the covenants set forth in "Certain Covenants" and
other provisions of the Indenture shall utilize GAAP in effect at the Issue
Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables, advances on
contracts and other accrued current liabilities incurred in the ordinary course
of business, but including, without limitation, all obligations, contingent or
otherwise, of such person in connection with any letters of credit, banker's
acceptance or other similar credit transaction, (b) all obligations of such
person evidenced by notes, debentures or other similar instruments, (c) all
Indebtedness of such person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
person (even if the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), but excluding trade accounts payable arising in the ordinary course
of business, (d) all Capitalized Lease Obligations of such person, (e) all
Indebtedness referred to in the preceding clauses of other persons and all
dividends of other persons, the payment of which is secured by (or for which
the holder of such Indebtedness has an existing contractual right, contingent
or otherwise, to be secured by) any Lien upon property (including, without
limitation, accounts and contract rights) owned by such person, even though
such person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of
the value of such property or asset or the amount of the obligation so
secured), (f) all guarantees of Indebtedness referred to in this definition by
such person, (g) all Redeemable Capital Stock of such person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (h) all obligations of such person under or in respect of
Currency Agreement Obligations and Interest Rate Protection Obligations of such
person and (i) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses (a)
through (h) above. For purposes hereof, (x) the "maximum fixed repurchase
price" of any Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value shall be the
Fair Market Value of such Redeemable Capital Stock (provided
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that if such Redeemable Capital Stock is not at the date of determination
permitted or required to be repurchased, the "maximum fixed repurchase price"
shall be the book value of such Redeemable Capital Stock) and (y) Indebtedness
is deemed to be incurred pursuant to a revolving credit facility each time an
advance is made thereunder. For purposes of the covenant "Limitation on
Additional Indebtedness," in determining the principal amount of any
Indebtedness to be incurred by the Company or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount thereof shall be due
upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination and (y) effect shall be given to the
impact of any Interest Rate Protection Obligations and Currency Agreement
Obligations with respect to such Indebtedness. When any person becomes a
Restricted Subsidiary, there shall be deemed to have been an incurrence by such
Restricted Subsidiary of all Indebtedness for which it is liable at the time it
becomes a Restricted Subsidiary. If the Company or any of the Restricted
Subsidiaries, directly or indirectly, guarantees Indebtedness of a third
person, there shall be deemed to be an incurrence of such guaranteed
Indebtedness as if the Company or such Restricted Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness; provided that as
and to the extent that the Company or such Restricted Subsidiary, as the case
may be, shall be entitled pursuant to the terms of any agreement then in
effect, to reimbursement, indemnity or contribution from any person (other than
the Company or any of its Subsidiaries or Joint Ventures) that the Company
reasonably deems to be solvent for amounts as to which the Company or such
Restricted Subsidiary, as the case may be, may become liable for or have to pay
pursuant to such a guarantee of Indebtedness of a Joint Venture, such amount,
but not the remaining amount, shall not be treated for this purpose as having
been guaranteed.
"Indemnifiable Taxes" means any Taxes imposed by the Republic of Panama (or
any province or territory or jurisdiction or subdivision thereof) in respect of
a payment upon, under or with respect to a Note pursuant to such Note or the
Indenture, other than any Taxes imposed, payable or due by reason of (i) a
failure of the holder of such Note to comply with any applicable certification,
identification, information, documentation, application, notification or other
reporting requirement imposed by statute, treaty, regulation or administrative
practice or (ii) a present or former connection between the Republic of Panama
(or any province or territory or jurisdiction or subdivision thereof) and the
holder of such Note (or a shareholder or affiliate thereof) otherwise than by
the mere acquisition, holding or disposition (other than an actual disposition
in the Republic of Panama) of the Note or the receipt of payments thereunder.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
person calculated by applying a fixed or a floating rate of interest on the
same nominal amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit, guarantee or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other person. "Investments" shall
exclude contracts in progress and extensions of trade credit by any person in
the ordinary course of business of such person. In addition to the foregoing,
any foreign exchange contract, currency swap or similar agreement shall
constitute an Investment hereunder.
"Joint Venture" means any person (i) in which the Company or any Wholly-Owned
Restricted Subsidiary, directly or indirectly, owns at least 33% or more of the
Capital Stock or partnership or other equity interests of such person, (ii) as
to which the Company or such Wholly-Owned Restricted Subsidiary, as the case
may be, has either (a) the power to control, directly or indirectly (whether
through the exercise of voting rights, representation on the board of directors
or other governing body of such person, the exercise of
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veto rights, or otherwise), any decisions by such person with respect to the
payment of dividends or the making of distributions by such person or (b) the
right (by contract, applicable law or otherwise) to cause the dissolution and
liquidation of such person (including pursuant to contractual provisions
governing deadlock that may require good faith efforts to resolve any deadlock
prior to any such dissolution or liquidation) and (iii) that was formed with
one or more persons who are not Affiliates (provided that the joint venture
established under the Engineering Joint Venture Agreement may be formed with an
Affiliate), and (iv) is engaged in the marine construction business or a
business reasonably related thereto. Any Subsidiary of a Joint Venture of which
the Company owns, directly or indirectly, 25% of the Capital Stock of such
Subsidiary, shall be treated as a Joint Venture. As of the Issue Date, the
following persons constituted Joint Ventures: Offshore Marine Chartering, N.V.;
HeereMac v.o.f.; Panama Offshore Chartering Company, Inc.; U.S. Offshore
Chartering; Far East Vessels Inc.; Heerema McDermott Australia Pty Ltd;
McDermott-ETPM Inc.; McDermott-ETPM West, Inc.; McDermott-ETPM East, Inc.;
McDermott-ETPM Far East, Inc.; ETPM International S.A.S.; ETPM International
(UK) Ltd.; McDermott Subsea Constructors Ltd.; Brown & Root McDermott
Fabricators Limited; CCC Fabricaciones y Construcciones, S.A. de C.V.; Offshore
Hyundai International, Ltd.; TL Offshore Sdn. Bhd.; TL Marine Sdn. Bhd.; Spars
International Inc.; Offshore Production Vessels Ltd.; McDermott Submarine Cable
Systems Limited; the joint venture established under the Engineering Joint
Venture Agreement; and each of their respective Subsidiaries.
"JRMI" means J. Ray McDermott, Inc., a Delaware corporation and a Restricted
Subsidiary.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A person shall be deemed to own subject to a Lien any property which such
person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement having substantially the same economic effect as any of the
foregoing.
"MII" means McDermott International, Inc., a Panama corporation.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents, including, without limitation,
payments in respect of deferred payment obligations when received in the form
of cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Restricted Subsidiary) net
of (i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid and which have been paid, or
amounts required to be pledged and which are pledged, to secure Indebtedness
owed, to any person (other than the Company or any Restricted Subsidiary)
owning a beneficial interest in the assets subject to the Asset Sale (which, in
the case of a Lien, is being pledged or applied to permanently reduce
Indebtedness secured by such Lien) and (iv) appropriate amounts to be provided
by the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee.
"OMC" means Offshore Marine Chartering, N.V.
"OPI Guarantors" means each person designated as either a "Parent Guarantor"
or a "Guarantor" in the indenture governing the OPI Notes.
"OPI Notes" means the 12 7/8% Guaranteed Senior Notes due July 15, 2002
issued pursuant to an Indenture, dated as of July 2, 1992, as supplemented and
in effect from time to time, among JRMI, J. Ray McDermott Holdings, Inc., OPI
Vessels, Inc., OPI Vessels, Ltd. and Offshore Petroleum Divers, Inc. and The
Bank of New York, National Association, as successor Trustee.
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"Pari Passu Indebtedness" means any Indebtedness of the Company ranking pari
passu in right of payment with the Notes.
"Permitted Agreement" means each of (i) the Letter Agreement dated as of
January 31, 1995 by and between the Company and MII; (ii) the Transition
Services Agreement dated as of August 16, 1994 by and between the Company and
MII, as amended through the Issue Date; (iii) the Services Agreement dated as
of August 16, 1994 by and between the Company and MII, as amended through the
Issue Date; (iv) the Registration Rights Agreement dated as of January 31, 1995
by and between the Company and MII; (v) the Purchase Agreement dated as of May
30, 1995 by and between the Company and MII; (vi) the Term Note dated as of
January 31, 1995 issued by the Company to MII; (vii) the Letter Agreement
relating to litigation support dated as of January 31, 1995 by and between the
Company and MII; and (viii) the Engineering Joint Venture agreement; as any
such Permitted Agreement may be modified or replaced from time to time;
provided that any such modification or replacement is no less favorable to the
holders of Notes than the applicable provision of any such Permitted Agreement
in effect on the Issue Date.
"Permitted Holder" means MII, its controlled Affiliates, and their respective
successors to their businesses substantially as an entirety.
"Permitted Investment" means any of the following: (a) Investments in the
Company or any Wholly-Owned Restricted Subsidiary (including any person that
pursuant to such Investment becomes a Wholly-Owned Restricted Subsidiary) and
any person that is merged or consolidated with or into, or transfers or conveys
all or substantially all of its assets to, the Company or any Wholly-Owned
Restricted Subsidiary at the time such Investment is made; (b) Investments in
any Joint Venture; provided that Investments in OMC, if made at a time when the
Company's proportionate share of OMC's total assets exceeds 25% of the total
assets of the Company and its consolidated Subsidiaries, shall not be deemed to
be Permitted Investments pursuant to this clause (b); (c) Investments in
prepaid expenses, negotiable instruments and other similar instruments (other
than of Affiliates) held for collection; (d) Investments in Cash Equivalents;
(e) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by the United States of America (or an
agency thereof) and repurchase agreements in respect of such obligations;
provided that the aggregate dollar value of such repurchase agreements shall
not exceed $50,000,000 with any one person at any time outstanding; (f)
Investments in deposits with respect to leases, workers' compensation or
utilities provided to third parties in the ordinary course of business; (g)
Investments in the Notes; (h) Investments in agreements giving rise to Interest
Rate Protection Obligations and Currency Agreement Obligations permitted by the
covenant "--Limitation on Additional Indebtedness"; (i) loans or advances to
officers, employees or consultants of the Company and the Restricted
Subsidiaries in the ordinary course of business for bona fide business purposes
of the Company and the Restricted Subsidiaries (including travel and moving
expenses) not in excess of $10,000,000 in the aggregate at any one time
outstanding; (j) Investments in evidences of Indebtedness, securities or other
property received from another person by the Company or any of the Restricted
Subsidiaries in connection with any bankruptcy proceeding or by reason of a
composition or readjustment of debt or a reorganization of such person or as a
result of foreclosure, perfection or enforcement of any Lien in exchange for
evidences of Indebtedness, securities or other property of such person held by
the Company or any of the Restricted Subsidiaries, or for other liabilities or
obligations of such other person to the Company or any of the Restricted
Subsidiaries that were created in accordance with the terms of the Indenture;
and (k) non-cash consideration received as a result of Asset Sales permitted
under the "Disposition of Proceeds of Asset Sales" covenant.
"person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the Issue Date, including, without limitation, all classes and series of
preferred or preference stock of such person.
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"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or the Restricted Subsidiaries,
and any additions and accessions thereto, which are purchased or constructed by
the Company or any Restricted Subsidiary at any time after the Issue Date;
provided that (i) any security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is created
(collectively a "Security Agreement") shall be entered into prior to the date
that is 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection
with the purchase of additions and accessions thereto and except in respect of
fees and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Security Agreement is entered into exceed 100% of
the purchase price to the Company or any Restricted Subsidiary of the assets
subject thereto or (B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
"Receivables Facility" means an agreement or series of agreements under which
the Company or the Restricted Subsidiaries sell accounts receivable and related
assets to unrelated third parties (or to special purpose entities created for
this purpose for resale to unrelated third parties) for cash on a non-recourse
basis (subject to exposures and liabilities customarily retained by sellers in
transactions of that type) and on terms (including discounts) customary for
transactions of that type.
"Receivables Facility Obligations" means any Indebtedness arising under a
Receivables Facility.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the principal of the Notes or is redeemable at the option of
the holder thereof at any time prior to the final Stated Maturity of the
principal of the Notes, or, at the option of the holder thereof, is convertible
into or exchangeable for debt securities at any time prior to the final Stated
Maturity of the principal of the Notes.
"Restricted Payment" has the meaning set forth under "--Limitation on
Restricted Payments" covenant above.
"Restricted Subsidiary" means any Subsidiary of the Company that is not a
Joint Venture and that has not been designated by the Board of Directors of the
Company, by a Board Resolution of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to and in compliance with the covenant
described under "--Certain Covenants--Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions
of such covenant. For purposes of this definition, any directors' qualifying
shares or investments by foreign nationals mandated by applicable law or
governmental regulation shall be disregarded in determining the ownership of a
Restricted Subsidiary.
"Revocation" has the meaning ascribed to that term under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Corporation and its successors.
"Sale-Leaseback Transaction" means, with respect to any person, any direct or
indirect arrangement pursuant to which properties or assets are sold or
transferred by such person and are thereafter leased back from the purchaser or
transferee thereof by such person or one of its Affiliates.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the
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case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall also
include the principal of, premium, if any, and interest (including interest
accruing after the filing of a petition initiating any proceeding under any
Bankruptcy Law, whether or not such interest is an allowable claim in such
proceeding) on, and all other amounts owing in respect of, all Credit Agreement
Obligations of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (a) Indebtedness evidenced by the Notes, (b)
Indebtedness that is expressly subordinate or junior in right of payment to any
Senior Indebtedness of the Company, (c) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United
States Code, is by its terms without recourse to the Company, (d) any
repurchase, redemption or other obligation in respect of Redeemable Capital
Stock of the Company, (e) to the extent it might constitute Indebtedness,
amounts owing for goods, materials or services purchased in the ordinary course
of business or consisting of trade payables or other current liabilities (other
than any current liabilities owing under the Credit Agreement Obligations or
the current portion of any long-term Indebtedness which would constitute Senior
Indebtedness but for the operation of this clause (e)), (f) to the extent it
might constitute Indebtedness, any liability for federal, state, local or other
taxes owed or owing by the Company, (g) Indebtedness of the Company to a
Subsidiary of the Company or any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, and (h) that portion of any Indebtedness of the
Company which at the time of issuance is issued in violation of the Indenture
(but, as to any such Indebtedness, no such violation shall be deemed to exist
for purposes of this clause (h) if the holder(s) of such Indebtedness or their
representative or the Company shall have furnished to the Trustee an opinion of
counsel unqualified in all material respects of independent legal counsel,
addressed to the Trustee (which legal counsel may, as to matters of fact, rely
upon a certificate of the Company) to the effect that the incurrence of such
Indebtedness does not violate the provisions of such Indenture); provided that
the foregoing exclusions shall not affect the priorities of any Indebtedness
arising solely by operation of law in any case or proceeding or similar event
described in clause (a), (b) or (c) of the second paragraph of "--
Subordination."
"Senior Subordinated Note Obligations" means any principal of, premium, if
any, and interest on, and any other amounts (including, without limitation, any
payment obligations with respect to the Notes arising as a result of any Asset
Sale, Change of Control or redemption) owing in respect of, the Notes payable
pursuant to the terms of the Notes or the Indenture or upon acceleration of the
Notes.
"Series A Preferred Stock" means the Series A $2.25 cumulative convertible
Preferred Stock of the Company, par value $.01 per share.
"Significant Joint Venture" means any Joint Venture of which the Company's
proportionate share of such Joint Venture's total assets exceeds an amount
equal to 10% of the total assets of the Company and its consolidated
Subsidiaries at the end of the most recently completed fiscal year of the
Company; provided that OMC shall be deemed not to be a Significant Joint
Venture.
"Significant Subsidiary" shall have the same meaning as in Rule 1.02(w) of
Regulation S-X under the Securities Act as of the Issue Date, provided that no
Unrestricted Subsidiary shall be deemed a Significant Subsidiary.
"Specified Indebtedness" means any Senior Indebtedness and any Indebtedness
of any Restricted Subsidiary which is not subordinated to any other
Indebtedness of such Restricted Subsidiary.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which any principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness or any
installments of interest thereon, means any date specified in the instrument
governing such Indebtedness as the fixed date on which the principal of such
Indebtedness, or such installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which by its
terms is expressly subordinated in right of payment to the Notes.
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<PAGE>
"Subsidiary" means, with respect to any person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
person, by one or more Subsidiaries of such person or by such person and one or
more Subsidiaries of such person and (ii) any other person (other than a
corporation), including, without limitation, a joint venture, in which such
person, one or more Subsidiaries of such person, directly or indirectly, at the
date of determination thereof, has at least a majority ownership interest
entitled to vote in the election of directors, managers or trustees thereof (or
other person performing similar functions). For purposes of this definition,
any directors' qualifying shares or investments by foreign nationals mandated
by applicable law or governmental regulation shall be disregarded in
determining the ownership of a Subsidiary.
"Taxes" means any present or future tax, duty, levy, impost, assessment or
other governmental charge (including penalties, interest and any other
liabilities related thereto) imposed or levied by or on behalf of a Taxing
Authority.
"Taxing Authority" means any government or any political subdivision or
territory or possession of any government or any authority or agency therein or
thereof having power to tax.
"Unrestricted Subsidiary" means a Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries," and any
Subsidiary of such Unrestricted Subsidiary. Any such designation may be revoked
by a Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"U.S. Government Obligations" means direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
payment of which guarantee or obligation the full faith and credit of the
United States is pledged.
"Vessel Sales" means the sale by the Company to the HeereMac Joint Venture
("HeereMac") of the Company's vessels identified for sale pursuant to each of
the Vessel Sale and Purchase Agreement dated as of March 25, 1996 between Hydro
Marine Services, Inc. ("Hydro Marine") and DB-101 Shipping, Inc., the Vessel
Sale and Purchase Agreement dated as of March 25, 1996 between Hydro Marine and
DB-102 Shipping, Inc., and the Suspensively Conditioned Sale Agreement made the
25th day of March 1996 between OPI International Vessels Limited and Offshore
Marine Chartering N.V. and the transactions contemplated by each such
agreement.
"Voting Stock" means any shares of any class or classes of Capital Stock
pursuant to which the holders of such shares have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of any person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of which
100% of the outstanding Capital Stock is owned by the Company and/or another
Wholly-Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law or governmental regulation shall be disregarded in determining
the ownership of a Restricted Subsidiary.
BOOK-ENTRY DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered global
certificates (the "Global Certificates"). The Global Certificates will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York (the "Depositary") and registered in the name of the Depositary's nominee.
The Depositary will maintain the Notes in denominations of $1,000 and integral
multiples thereof through its book-entry facilities.
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<PAGE>
Except as set forth below, the Global Certificates may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: It is
a limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities for its participating
organizations (the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriter), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depositary. Access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or indirect
participants.
The Depositary has also advised that pursuant to procedures established by it
(i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. A beneficial owner is the person who has the right
to sell, transfer or otherwise dispose of an interest in the Notes and the
right to receive the proceeds therefrom, as well as principal, premium (if any)
and interest payable in respect of the Notes. The beneficial owner must rely on
the foregoing arrangements to evidence its interest in the Notes. Beneficial
ownership of the Notes may be transferred only by complying with the procedures
of a beneficial owner's Participant (e.g., a brokerage firm) and the
Depositary. The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in the Global Certificates is limited
to such extent.
So long as a nominee of the Depositary is the registered owner of the Global
Certificates, such nominee will be considered the sole owner or holder of the
Notes for all purposes under the Indenture and any applicable laws. Except as
provided below, owners of beneficial interests in the Global Certificates will
not be entitled to have Notes registered in their names, will not receive or be
entitled to receive physical delivery of Notes in definitive form and will not
be considered the owners or holders thereof under the Indenture.
All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by the
Company or the Trustee will be given only to the Depositary. It is expected
that the Depositary will forward notices to the Participants who will in turn
forward notices to the beneficial owners. Neither the Company, the Trustee, the
paying agent nor the Notes registrar will have any responsibility or obligation
to assure that any notices are forwarded by the Depositary to any Participant
or by any Participant to the beneficial owners. Neither the Company, the
Trustee, the paying agent nor the Notes registrar will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Certificates, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Principal and interest payments on the Global Certificates registered in the
name of the Depositary's nominee will be made by the Company, either directly
or through a paying agent, to the Depositary's nominee as the registered owner
of the Global Certificates. Under the terms of the Indenture, the Company and
the Trustee will treat the persons in whose names the Notes are registered as
the owners of such Notes for the purpose of receiving payments of principal and
interest on such Notes and for all other purposes whatsoever. Therefore,
neither the Company, the Trustee nor any paying agent has any direct
responsibility or liability
91
<PAGE>
for the payment of principal or interest on the Notes to owners of beneficial
interests in the Global Certificates. The Depositary has advised the Company
and the Trustee that its present practice is, upon receipt of any payment of
principal or interest to credit immediately the accounts of the Participants
with payment in amounts' proportionate to their respective holdings in
principal amount of beneficial interests in the Global Certificates as shown on
the records of the Depositary. Payments by Participants and indirect
participants to owners of beneficial interests in the Global Certificates will
be governed by standing instructions and customary practices as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name" and will be the responsibility of such Participants or
indirect participants.
As long as the Notes are represented by the Global Certificates, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "--Certain Covenants--Change of Control" and "--Limitation on Disposition
of Proceeds of Asset Sales." Notice by Participants or indirect participants or
by owners of beneficial interests in the Global Certificates held through such
Participants or indirect participants of the exercise of the option to elect
repayment of beneficial interests in Notes represented by the Global
Certificates must be transmitted to the Depositary in accordance with its
procedures on a form required by the Depositary and provided to Participants.
In order to ensure that the Depositary's nominee will timely exercise a right
to repayment with respect to a particular Note, the beneficial owner of such
Note must instruct the broker or other Participant or indirect participant
through which it holds an interest in such Note to notify the Depositary of its
desire to exercise a right to repayment. Different firms have cut-off times for
accepting instructions from their customers and, accordingly, each beneficial
owner should consult the broker or other Participant or indirect participant
through which it holds an interest in a Note in order to ascertain the cut-off
time by which such an instruction must be given in order for timely notice to
be delivered to the Depositary. The Company will not be liable for any delay in
delivery of notices of the exercise of the option to elect repayment.
The Company will issue Notes in definitive form in exchange for the Global
Certificates if, and only if, either (1) the Depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, or (2) an Event of Default has
occurred and is continuing and the Notes registrar has received a request from
the Depositary to issue Notes in definitive form in lieu of all or a portion of
the Global Certificates. In either instance, an owner of a beneficial interest
in the Global Certificates will be entitled to have Notes equal in principal
amount to such beneficial interest registered in its name and will be entitled
to physical delivery of such Notes in definitive form. Notes so issued in
definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
CERTAIN TAX CONSIDERATIONS
PANAMANIAN TAXES
The principal Panamanian tax consequences of ownership of the Notes are as
follows:
General. Panama's income tax is exclusively territorial. Only income actually
earned from sources within Panama is subject to taxation. Income earned by
Panamanian corporations from operations outside Panama is not taxable in
Panama. The territorial principle of taxation has been in force throughout the
history of the country and is reflected in legislation, administrative
regulations and court decisions.
The Company is not subject to income taxes in Panama because all of its
income arises from activities conducted entirely outside Panama. This is the
case even though the Company maintains its registered office and permanently
employs administrative personnel in Panama.
Taxation of Interest. Interest paid by the Company in respect of the Notes
will be exempted from Panamanian taxes otherwise payable by withholding at
source on such income if the Company has no Panama sourced revenue.
92
<PAGE>
Taxation on Disposition of Notes. There are no Panamanian taxes on capital
gains or other income realized by an individual or corporation, regardless of
nationality or residence, on the sale or other disposition of the Notes because
any gain arising from the sale or disposition of the Notes will not be deemed
taxable in Panama if the Company's assets and activities are held or conducted
entirely outside of Panama.
The preceding summary of certain tax matters is based upon tax laws and
regulations in effect as of the date of this Prospectus and is subject to any
subsequent change in laws and regulations which may come into effect after such
date. Prospective investors should consult their tax advisors regarding the tax
consequences to them of acquiring, holding and disposing of the Notes.
93
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Underwriter"), the Company has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Company, the
entire principal amount of the Notes. In the Purchase Agreement, the
Underwriter has agreed, subject to the terms and conditions set forth therein,
to purchase all the Notes offered hereby if any are purchased.
The Company has been advised by the Underwriter that the Underwriter proposes
initially to offer the Notes 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 % of the principal amount. The
Underwriter may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount to certain other dealers. After the initial
public offering of the Notes, the public offering price, concession and
discount may be changed.
The Notes are a new issue of securities for which there is currently no
public market. The Company intends to apply for listing of the Notes on the New
York Stock Exchange. The Company has been advised by the Underwriter that,
following completion of the initial offering of the Notes, the Underwriter
presently intends to make a market in the Notes, although the Underwriter is
under no obligation to do so and may discontinue any market making activities
at any time without notice. No assurance, however, can be given as to the
liquidity of the trading market for the Notes or that an active trading market
for the Notes will develop. If an active trading market does not develop, the
market price and liquidity of the Notes may be adversely affected.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriter may be required to make in respect of such
liabilities.
94
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will be
passed upon for the Company by Baker & Botts, L.L.P., Houston, Texas, U.S.
counsel to the Company. Certain matters with respect to Panamanian law will be
passed upon for the Company by Durling & Durling, Panama City, Panama,
Panamanian counsel to the Company. Certain legal matters will be passed upon
for the Underwriter by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York. In giving their opinions, Baker
& Botts, L.L.P. and Cahill Gordon & Reindel will rely upon the opinion of
Durling & Durling as to the legal organization of the Company and as to other
matters of Panamanian law. Cahill Gordon & Reindel has represented the Company
and McDermott International in various legal matters from time to time.
EXPERTS
The consolidated financial statements of J. Ray McDermott, S.A. at March 31,
1996 and 1995, and for each of the three years in the period ended March 31,
1996, appearing in this Prospectus and the Registration Statement of which this
Prospectus forms a part (the "Registration Statement") and in J. Ray McDermott,
S.A.'s Annual Report on Form 10-K for the year ended March 31, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and included in such Annual Report on
Form 10-K incorporated herein by reference. Such consolidated financial
statements are included and incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"),
which can be inspected and copied at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549; and at the regional offices of the Commission at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The Common Stock
is listed on the New York Stock Exchange. Reports, proxy statements and other
information concerning the Company can be inspected and copied at the office of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
This Prospectus, which constitutes part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and the
exhibits thereto, which may be obtained at the public reference facilities
maintained by the Commission as provided in the preceding paragraph, for
further information with respect to the Company and the securities offered
hereby. Statements contained herein concerning the provisions of such documents
are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
95
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER THE FEDERAL SECURITIES LAWS
The Company is a corporation organized under the laws of the Republic of
Panama. In addition, certain of the directors and officers of the Company are
residents of countries other than the United States. Accordingly, it may not be
possible to effect service of process on such persons in the United States and
to enforce judgments against such persons predicated on the civil liability
provisions of the federal securities laws of the United States. Because a
substantial amount of the assets of the Company is located outside the United
States, any judgment obtained in the United States against the Company may not
be fully collectible in the United States. The Company has been advised by its
counsel in the Republic of Panama, Durling & Durling, that courts in the
Republic of Panama will enforce foreign judgments for liquidated amounts in
civil matters, subject to certain conditions and exceptions.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended March 31, 1996,
which has been filed by the Company with the Commission pursuant to the
Exchange Act (File No. 1-0558), is incorporated in this Prospectus by reference
and shall be deemed to be a part hereof.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this
Prospectus, in a supplement to this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed supplement to this Prospectus or
in any document that also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above that have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into such documents).
Written or telephone requests for such copies should be directed to the Company
at its principal executive offices located at 1450 Poydras Street, New Orleans,
Louisiana 70112-6050, Attention: Richard R. Foreman (telephone number: (504)
587-5300).
96
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Consolidated Financial Statements for J. Ray McDermott, S.A. for the
years ended March 31, 1996, 1995 and 1994
Report of Independent Auditors....................................... F-2
Consolidated Balance Sheet........................................... F-4
Consolidated Statement of Income..................................... F-6
Consolidated Statement of Equity..................................... F-8
Consolidated Statement of Cash Flows................................. F-10
Notes to Consolidated Financial Statements........................... F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
J. Ray McDermott, S. A.
We have audited the accompanying consolidated balance sheet of J. Ray
McDermott, S.A. as of March 31, 1996 and 1995, and the related consolidated
statements of income, equity and cash flows for each of the three years in the
period ended March 31, 1996. These 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of J. Ray McDermott,
S.A. at March 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended March 31,
1996, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits in 1995.
ERNST & YOUNG LLP
New Orleans, Louisiana
May 15, 1996
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
J. RAY MCDERMOTT, S.A.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................. $ 166,408 $ 52,224
Accounts receivable--trade............................. 193,643 244,212
Accounts receivable--unconsolidated affiliates......... 46,209 56,104
Accounts receivable--other............................. 57,421 33,830
Contracts in progress.................................. 181,375 54,947
Other current assets................................... 57,291 28,819
---------- ----------
Total Current Assets................................. 702,347 470,136
---------- ----------
Property, Plant and Equipment, at Cost:
Land................................................... 21,175 21,948
Buildings.............................................. 76,774 82,490
Machinery and equipment................................ 1,070,326 1,374,672
Property under construction............................ 17,958 25,607
---------- ----------
1,186,233 1,504,717
Less accumulated depreciation.......................... 793,833 910,555
---------- ----------
Net Property, Plant and Equipment........................ 392,400 594,162
---------- ----------
Excess of Cost Over Fair Value of Net Assets of Purchased
Businesses Less Accumulated Amortization of $28,799,000
at March 31, 1996 and $5,483,000 at March 31, 1995...... 316,863 245,179
---------- ----------
Investment in Unconsolidated Affiliates.................. 72,806 105,283
---------- ----------
Other Assets............................................. 53,329 67,502
---------- ----------
TOTAL................................................ $1,537,745 $1,482,262
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
J. RAY MCDERMOTT, S.A.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND EQUITY 1996 1995
---------------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current Liabilities:
Notes payable and current maturities of long-term
debt................................................ $ 96,130 $ 55,894
Note payable to McDermott International.............. -- 39,750
Accounts payable..................................... 103,473 136,104
Accounts payable to McDermott International.......... 47,695 5,272
Accrued contract costs............................... 69,827 53,610
Accrued liabilities--other........................... 120,515 105,242
Deposit on equipment sale............................ 30,000 --
Advance billings on contracts........................ 36,581 62,495
U.S. and foreign income taxes........................ 28,717 38,357
---------- ----------
Total Current Liabilities.......................... 532,938 496,724
---------- ----------
Long-Term Debt......................................... 114,532 93,872
---------- ----------
Notes Payable to McDermott International............... 231,000 231,000
---------- ----------
Deferred and Non-Current Income Taxes.................. 50,016 44,697
---------- ----------
Other Liabilities...................................... 55,362 56,498
---------- ----------
Contingencies..........................................
Stockholders' Equity:
Preferred Stock, par value $.01 per share, authorized
10,000,000 shares:
Series A $2.25 cumulative convertible, outstanding
3,200,000 shares (liquidation preference
$160,000,000)...................................... 32 32
Series B $2.25 cumulative convertible exchangeable,
outstanding 458,632 shares (liquidation preference
$11,465,800)....................................... -- 5
Common stock, par value $0.01 per share, authorized
60,000,000 shares; outstanding 40,197,946 at March
31, 1996 and 38,649,349 shares at March 31, 1995.... 402 386
Capital in excess of par value....................... 581,609 580,279
Deficit.............................................. (14,576) (6,598)
Currency translation adjustments..................... (13,570) (14,633)
---------- ----------
Total Stockholders' Equity......................... 553,897 559,471
---------- ----------
TOTAL.............................................. $1,537,745 $1,482,262
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
J. RAY MCDERMOTT, S.A.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................... $1,227,841 $1,127,320 $1,193,881
---------- ---------- ----------
Costs and Expenses:
Cost of operations (excluding
depreciation and amortization).......... 1,004,412 887,223 976,636
Depreciation and amortization............ 85,566 70,372 53,627
Selling, general and administrative
expenses................................ 116,725 114,165 115,428
---------- ---------- ----------
1,206,703 1,071,760 1,145,691
---------- ---------- ----------
Operating Income before Equity in Income of
Investees................................. 21,138 55,560 48,190
Equity in Income of Investees.............. 9,124 22,857 106,593
---------- ---------- ----------
Operating Income....................... 30,262 78,417 154,783
---------- ---------- ----------
Other Income (Expense):
Interest income.......................... 6,014 9,298 3,483
Interest expense......................... (42,387) (25,158) (20,076)
Other-net................................ 11,190 7,028 8,997
---------- ---------- ----------
(25,183) (8,832) (7,596)
---------- ---------- ----------
Income Before Provision for Income Taxes
and Cumulative Effect of Accounting
Change.................................... 5,079 69,585 147,187
Provision for Income Taxes................. 4,892 8,885 28,050
---------- ---------- ----------
Income Before Cumulative Effect of
Accounting Change......................... 187 60,700 119,137
Cumulative Effect of Accounting Change..... -- (1,326) --
---------- ---------- ----------
Net Income................................. $ 187 $ 59,374 $ 119,137
========== ========== ==========
Net Loss Applicable to Common Stock (after
Preferred Stock dividends)................ $ (7,524)
==========
Loss Per Common and Common Equivalent Share
(Primary and Fully Diluted)............... $ (0.19)
==========
Cash Dividends:
Per Preferred Share....................... $ 2.25
==========
</TABLE>
Earnings per share are not presented for fiscal years 1995 and 1994 because
the Company was not a separate entity with its own capital structure for those
periods.
See accompanying notes to consolidated financial statements.
Significant related party transactions are disclosed in Note 6.
F-6
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-7
<PAGE>
J. RAY MCDERMOTT, S.A.
CONSOLIDATED STATEMENT OF EQUITY
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------
SERIES A SERIES B
--------------- ---------------
PAR PAR
SHARES VALUE SHARES VALUE
--------- ----- -------- -----
<S> <C> <C> <C> <C>
Balance March 31, 1993......................... -- $ -- -- $ --
--------- ---- -------- ----
Net income..................................... -- -- -- --
Translation adjustments........................ -- -- -- --
Distributions to McDermott International....... -- -- -- --
--------- ---- -------- ----
Balance March 31, 1994......................... -- -- -- --
--------- ---- -------- ----
Net income..................................... -- -- -- --
Preferred dividends............................ -- -- -- --
Translation adjustments........................ -- -- -- --
Distributions to McDermott International....... -- -- -- --
Contribution of McDermott International's
marine construction services business......... 3,200,000 32 -- --
Acquisition of Offshore Pipelines, Inc......... -- -- 458,632 5
Exercise of stock options...................... -- -- -- --
Loss on investments............................ -- -- -- --
--------- ---- -------- ----
Balance March 31, 1995......................... 3,200,000 32 458,632 5
--------- ---- -------- ----
Net income..................................... -- -- -- --
Preferred dividends............................ -- -- -- --
Preferred stock conversion..................... -- -- (458,632) (5)
Translation adjustments........................ -- -- -- --
Exercise of stock options...................... -- -- -- --
Tax benefit on exercise of stock options....... -- -- -- --
Restricted stock purchases-- net............... -- -- -- --
Contributions to thrift plan................... -- -- -- --
Deferred career executive stock plan expense... -- -- -- --
Loss on investments............................ -- -- -- --
Minimum pension liability...................... -- -- -- --
Division of McDermott International pension
plan.......................................... -- -- -- --
--------- ---- -------- ----
Balance March 31, 1996......................... 3,200,000 $ 32 -- $ --
========= ==== ======== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
- ----------------- CAPITAL CURRENCY
PAR IN EXCESS OWNER'S TRANSLATION
SHARES VALUE OF PAR VALUE DEFICIT EQUITY ADJUSTMENTS TOTAL
- ---------- ----- ------------ -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
-- $ -- $ -- $ -- $191,104 $(21,481) $169,623
- ---------- ---- -------- -------- -------- -------- --------
-- -- -- -- 119,137 -- 119,137
-- -- -- -- -- (5,444) (5,444)
-- -- -- -- (30,295) -- (30,295)
- ---------- ---- -------- -------- -------- -------- --------
-- -- -- -- 279,946 (26,925) 253,021
- ---------- ---- -------- -------- -------- -------- --------
-- -- -- (5,106) 64,480 -- 59,374
-- -- -- (1,117) -- -- (1,117)
-- -- -- -- -- 12,292 12,292
-- -- -- -- (46,249) -- (46,249)
24,668,297 246 231,277 -- (298,177) -- (66,622)
13,917,946 139 348,573 -- -- -- 348,717
63,106 1 429 -- -- -- 430
-- -- -- (375) -- -- (375)
- ---------- ---- -------- -------- -------- -------- --------
38,649,349 386 580,279 (6,598) -- (14,633) 559,471
- ---------- ---- -------- -------- -------- -------- --------
-- -- -- 187 -- -- 187
-- -- -- (7,711) -- -- (7,711)
1,065,193 11 (13) -- -- -- (7)
-- -- -- -- -- 1,063 1,063
353,978 4 1,527 -- -- -- 1,531
-- -- 2,629 -- -- -- 2,629
49,070 -- 39 -- -- -- 39
80,356 1 1,585 -- -- -- 1,586
148 -- -- -- 148
-- -- -- (452) -- -- (452)
-- -- -- (2) -- -- (2)
(4,585) -- -- -- (4,585)
- ---------- ---- -------- -------- -------- -------- --------
40,197,946 $402 $581,609 $(14,576) $ -- $(13,570) $553,897
========== ==== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
J. RAY MCDERMOTT, S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income..................................... $ 187 $ 59,374 $119,137
--------- -------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 85,566 70,372 53,627
Equity in income of investees less dividends. (6,833) 42,810 (47,414)
Gain on sale and disposal of assets.......... (2,530) (1,862) (2,997)
Provision for (benefit from) deferred taxes.. (2,338) (35,769) 3,616
Other........................................ (3,461) 1,253 (23,410)
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable........................ 49,005 28,290 85,955
Net contracts in progress and advance
billings.................................. (150,121) 13,081 25,506
Accounts payable........................... (23,430) (46,707) (29,490)
Accrued contract costs..................... 16,217 (692) (14,836)
Accrued liabilities........................ (3,142) (32,997) (24,336)
Income taxes............................... (9,927) 9,958 (6,525)
Other, net................................. 1,901 (28,086) (3,315)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................... (48,906) 79,025 135,518
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition.................................... -- 10,828 --
Purchases of property, plant and equipment..... (38,033) (40,082) (18,898)
Proceeds from sale and disposal of assets...... 133,693 15,580 3,938
Investment in asset held for lease............. (29,620) (6,711) --
Increase in notes receivable from McDermott
International................................. -- (16,802) (50,096)
Investments in equity investees................ (6,827) (398) --
Returns of capital from equity investees....... 37,097 -- --
Deposit on equipment sale...................... 30,000 -- --
Other.......................................... (452) (375) --
--------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................... 125,858 (37,960) (65,056)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt...................... (6,808) (132) --
Issuance of long-term debt..................... 32,756 2,348 --
Increase in short-term borrowings.............. 36,001 22,348 1,627
Decrease in notes payable to McDermott
International................................. (20,542) (19,705) (13,927)
Distributions to McDermott International....... -- (46,249) (30,295)
Issuance of common stock....................... 4,197 430 --
Preferred dividends paid....................... (7,928) (900) --
Other.......................................... (523) (667) (410)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................... 37,153 (42,527) (43,005)
--------- -------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH....... 79 343 (1,108)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 114,184 (1,119) 26,349
--------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR. 52,224 53,343 26,994
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ 166,408 $ 52,224 $ 53,343
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)......... $ 41,905 $ 23,146 $ 20,080
Income taxes (net of refunds)................ $ 11,277 $ 21,910 $ 15,233
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE FISCAL YEARS ENDED MARCH 31, 1996
NOTE 1--BASIS OF PRESENTATION
J. Ray McDermott, S.A. ("JRM") was incorporated on March 22, 1994 in the
Republic of Panama and had no significant operations prior to January 31, 1995
when McDermott International, Inc. ("International") contributed substantially
all of its marine construction services business to JRM and JRM acquired
Offshore Pipelines, Inc. ("OPI"). See Note 3 to the consolidated financial
statements.
JRM issued 3,200,000 shares of Series A $2.25 Cumulative Convertible
Preferred Stock; 24,668,297 shares of common stock; $231,000,000 of 9% Senior
Subordinated Notes due 2001 and a Floating Rate Demand Note of $39,750,000 to
International in exchange for its marine construction services business
excluding certain assets and liabilities which were retained by International.
The contribution of International's marine construction services business to
JRM was accounted for in a manner similar to a pooling of interests and the
financial statements reflect International's historical cost of the assets and
liabilities contributed. For periods prior to the contribution, the financial
statements include charges from International for direct costs and allocations
of corporate overhead and other costs. Management believes that the allocation
methods were reasonable and that the allocations were representative of what
the costs would have been on a stand-alone basis.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements are presented in U.S. Dollars in
accordance with accounting principles generally accepted in the United States.
The consolidated financial statements include the accounts of JRM, and all
subsidiaries and controlled joint ventures. Investments in joint ventures and
other entities which JRM does not control but has significant influence are
accounted for on the equity method. Differences between the cost of equity
method investments and the amount of underlying equity in net assets of the
investees are amortized systematically to income. All significant intercompany
transactions and accounts have been eliminated. Certain amounts previously
reported have been reclassified to conform with the presentation at March 31,
1996.
Unless the context otherwise requires, hereinafter, "JRM" will be used to
mean J. Ray McDermott, S.A. and its consolidated subsidiaries; "International"
will be used to mean McDermott International, Inc., a Panamanian corporation
that is the parent company of the McDermott group of companies and the majority
owner of JRM; and "McDermott International" will be used to mean the
consolidated enterprise.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Change in Accounting Policy
Postemployment Benefits--Effective April 1, 1994, JRM adopted Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits," in accounting for disability benefits and other types
of benefits paid to employees, their beneficiaries and covered dependents after
active employment, but before retirement. The cumulative effect as of April 1,
1994 of this change in
F-11
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounting was to reduce net income by $1,326,000 (net of income taxes of
$72,000). Other than the cumulative effect, the accounting change had no
material effect on the results of fiscal year 1995. Prior to April 1, 1994, JRM
recognized the cost of providing most of these benefits on a cash basis.
Income Taxes
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Prior to the January 31, 1995
contribution by International, the U.S. subsidiaries and divisions of JRM were
included in the U.S. federal income tax return filed by McDermott Incorporated
("McDermott"), a subsidiary of International. McDermott's policy for allocation
of U.S. federal income taxes provided generally that the U.S. subsidiaries and
divisions of JRM compute the provision for U.S. federal income taxes on a
separate company basis. Subsequent to the contribution, these U.S. subsidiaries
and divisions are included in the U.S. federal tax return filed by J. Ray
McDermott Holdings, Inc., a subsidiary of JRM.
Foreign Currency Translation
Assets and liabilities of foreign operations, other than operations in highly
inflationary economies, are translated into U.S. Dollars at current exchange
rates and income statement items are translated at average exchange rates for
the year. Adjustments resulting from the translation of foreign currency
financial statements are recorded in a separate component of equity. Foreign
currency transaction adjustments are reported in income. Included in Other
Income (Expense) are transaction gains (losses) of ($1,916,000), $711,000 and
($2,029,000) for fiscal years 1996, 1995 and 1994, respectively.
Contracts and Revenue Recognition
Contract revenues and related costs are principally recognized on a
percentage of completion method for individual contracts or components thereof
based upon work performed or a cost-to-cost method, as applicable to the
product or activity involved. Revenues and related costs so recorded, plus
accumulated contract costs that exceed amounts invoiced to customers under the
terms of the contracts, are included in Contracts in Progress. Billings that
exceed accumulated contract costs and revenues and costs recognized under
percentage of completion are included in Advance Billings on Contracts. Most
long-term contracts have provisions for progress payments. There are no
unbilled revenues which will not be billed. Contract price and cost estimates
are reviewed periodically as the work progresses and adjustments proportionate
to the percentage of completion are reflected in income in the period when such
estimates are revised. Provisions are made currently for all known or
anticipated losses. Variations from estimated contract performance could result
in a material adjustment to operating results for any fiscal quarter or year.
Claims for extra work or changes in scope of work are included in contract
revenues when collection is probable. Included in Accounts Receivable and
Contracts in Progress are approximately $7,639,000 relating to commercial
contract claims whose final settlement is subject to future negotiations or
other procedures which had not been completed at March 31, 1996.
F-12
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Included in Contracts in Progress are:
Costs incurred less costs of revenue recognized........... $ 52,119 $ 2,795
Revenues recognized less billings to customers............ 129,256 52,152
-------- -------
Contracts in Progress..................................... $181,375 $54,947
======== =======
Included in Advance Billings on Contracts are:
Billings to customers less revenues recognized............ $ 52,071 $67,839
Costs incurred less costs of revenue recognized........... (15,490) (5,344)
-------- -------
Advance Billings on Contracts............................. $ 36,581 $62,495
======== =======
Included in accounts receivable--trade are amounts representing retainages on
contracts as follows:
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Retainages................................................ $ 21,705 $20,864
======== =======
</TABLE>
All of the 1996 retainages are expected to be collected within the next year.
Depreciation, Maintenance and Repairs and Drydocking Expenses
Except for major marine vessels, property, plant and equipment is depreciated
on the straight-line method, using estimated economic useful lives of 8 to 30
years for buildings and 2 to 20 years for machinery and equipment.
Major marine vessels are depreciated on the units-of-production method based
on the utilization of each vessel. Depreciation expense calculated under the
units-of-production method may be less than, equal to or greater than
depreciation expense calculated under the straight-line method in any period.
The annual depreciation based on utilization of each vessel will not be less
than the greater of 25% of annual straight-line depreciation, or 50% of
cumulative straight-line depreciation.
Maintenance, repairs and renewals which do not materially prolong the useful
life of an asset are expensed as incurred except for drydocking costs for the
marine fleet, which are estimated and accrued over the period of time between
drydockings, and such accruals are charged to operations currently.
Amortization of Excess of Cost Over Fair Value of Net Assets of Purchased
Businesses
Excess of the cost over fair value of net assets of purchased businesses
primarily pertains to the acquisition of OPI and is being amortized on a
straight-line basis over 15 years. Management periodically reviews goodwill to
assess recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur.
Earnings Per Share
Primary earnings per share is based on the weighted average number of common
and dilutive common equivalent shares outstanding during the year. Fully
diluted earnings per share is the same as primary since the computation was
antidilutive.
F-13
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalization of Interest Cost
In fiscal years 1996, 1995 and 1994, total interest cost incurred was
$43,712,000, $25,325,000 and $20,456,000, respectively, of which $1,325,000,
$167,000 and $380,000, respectively, was capitalized.
Cash Equivalents
Cash equivalents are highly liquid investments, with maturities of three
months or less when purchased.
Derivative Financial Instruments
Derivatives, primarily forward exchange contracts, are utilized to minimize
exposure and reduce risk from foreign exchange fluctuations in the regular
course of business. Gains and losses relating to qualifying hedges of firm
commitments are deferred and recognized in income or as adjustments of carrying
amounts when the hedged transactions occur. Gains and losses on forward
exchange contracts which hedge foreign currency assets or liabilities are
recognized in income as incurred. Such amounts effectively offset gains and
losses on the foreign currency assets or liabilities that are hedged.
Accounting for Long-Lived Assets
JRM is currently reviewing SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective for
fiscal years beginning after December 15, 1995. SFAS No. 121 established
financial accounting and reporting standards for long-lived assets and certain
identifiable intangibles. JRM has not yet finalized its review of the impact of
this statement, but it is not expected to have a material impact on the
consolidated financial statements.
Stock-Based Compensation
JRM accounts for its stock compensation arrangements under the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," but is reviewing the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans.
JRM has not yet finalized its review of the provisions of this statement, and,
accordingly has not yet determined whether it will adopt SFAS No. 123 for
expense recognition purposes, or continue to follow APB Opinion No. 25, and
make the pro forma information disclosures required under the new standard.
NOTE 3--ACQUISITION
On January 31, 1995, JRM acquired OPI, a full-range provider of offshore
marine construction and other related services to the oil and gas industry.
Pursuant to the Merger Agreement, OPI investors received 13,867,946 shares of
JRM common stock; options to acquire 897,818 shares of JRM common stock and
458,632 shares of JRM Series B $2.25 Cumulative Convertible Exchangeable
Preferred Stock in exchange for all of the outstanding common stock, common
stock options and preferred stock of OPI. The acquisition was accounted for by
the purchase method and, accordingly, the purchase price ($369,868,000,
including direct costs of acquisition and non-compete agreements) was allocated
to the underlying assets and liabilities based upon preliminary fair values at
the date of acquisition which resulted in excess cost over fair value of net
assets acquired of $235,000,000. During fiscal year 1996, JRM completed certain
asset and liability valuations related primarily to joint ventures, property,
plant and equipment, and preacquisition contingencies resulting in an increase
in excess cost over fair value of net assets acquired of $95,000,000.
Additionally, during fiscal
F-14
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
year 1996, management completed its assessment of the amortization period of
excess of cost over fair value of net assets acquired and determined the
amortization period should be 15 years. Operating results have been included in
the Consolidated Statement of Income from the acquisition date.
Unaudited pro forma results of operations for fiscal years ended March 31,
1995 and 1994, assuming that the contribution by McDermott International of
substantially all of its marine construction services business to JRM and the
acquisition of OPI had occurred as of the beginning of fiscal year 1994 are:
revenues of $1,442,694,000, income before cumulative effect of accounting
change of $42,617,000 ($0.88 per share primary and fully diluted) and net
income of $41,291,000 ($0.84 per share primary and fully diluted) for fiscal
year 1995; revenues of $1,533,155,000, and net income of $118,666,000 ($2.62
per share primary and $2.58 fully diluted) for fiscal year 1994. The pro forma
financial information is presented for informational purposes only and is not
necessarily indicative of the operating results that would have occurred had
the transaction been completed as of April 1, 1993.
NOTE 4--INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Transactions with unconsolidated affiliates which are accounted for by the
equity method included sales to ($135,051,000, $136,681,000 and $78,748,000 in
fiscal years 1996, 1995 and 1994, respectively, including approximately
$44,491,000, $54,657,100 and $49,121,000, respectively, attributable to leasing
activities) and purchases from ($9,109,000, $1,119,000 and $131,608,000 in
fiscal years 1996, 1995 and 1994, respectively) these entities. Included in
non-current Other Assets at March 31, 1995 was a 4% interest-bearing note
receivable of $5,000,000 from an unconsolidated affiliate. Included in Accounts
payable at March 31, 1996 and 1995 were $4,471,000 and $3,815,000,
respectively, of payables to unconsolidated affiliates.
During fiscal year 1996, JRM sold to the HeereMac joint venture the major
marine vessels that it had been leasing to the joint venture. JRM received cash
of $135,969,000, including a $30,000,000 deposit in advance on the sale of
certain marine equipment, and a 7.75% note receivable of $105,000,000 and
recorded a deferred gain of $103,239,000, which is being amortized over
HeereMac's 12-year depreciable lives of the vessels. The note receivable, net
of the deferred gain, is included in investments in joint ventures. In addition
to the vessel sale in fiscal year 1996, JRM received $37,097,000 as a return on
capital from the HeereMac joint venture.
In fiscal year 1995, JRM contributed various marine construction barges with
a cost of $102,602,000 and accumulated depreciation of $76,763,000 and sold a
derrick barge to the HeereMac joint venture for $9,101,000. In fiscal year
1994, JRM recognized revenues of $131,000,000 on work subcontracted to
HeereMac.
At March 31, 1996 and 1995, property, plant and equipment included
$141,293,000 and $402,479,000, and accumulated depreciation included
$89,312,000 and $230,674,000, respectively, of marine equipment that is leased
to unconsolidated investees. Dividends received from unconsolidated investees
were $2,291,000, $65,667,000 and $59,179,000 in fiscal years 1996, 1995 and
1994, respectively. Undistributed earnings in unconsolidated affiliates were
$27,506,000 and $25,929,000, respectively, at March 31, 1996 and 1995.
F-15
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized combined balance sheet and income statement information based on
the most recent financial information for equity investments in joint ventures
and other entities are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Current Assets.......................................... $ 407,205 $400,197
Non-Current Assets...................................... 622,900 202,673
---------- --------
Total Assets.......................................... $1,030,105 $602,870
========== ========
Current Liabilities..................................... $ 405,818 $341,306
Non-Current Liabilities................................. 464,337 68,152
Owners' Equity.......................................... 159,950 193,412
---------- --------
Total Liabilities and Owners' Equity.................. $1,030,105 $602,870
========== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues......................................... $907,151 $725,225 $896,412
Gross Profit..................................... $203,102 $153,075 $318,503
Income before Provision for Income Taxes......... $ 16,396 $ 52,899 $213,862
Provision for Income Taxes....................... 2,297 4,193 8,025
-------- -------- --------
Net Income....................................... $ 14,099 $ 48,706 $205,837
======== ======== ========
</TABLE>
NOTE 5--INCOME TAXES
Income taxes have been provided based upon the tax laws and rates in the
countries in which operations are conducted. All income has been earned outside
of Panama and JRM is not subject to income tax in Panama on income earned
outside of Panama. Therefore, there is no expected relationship between the
provision for income taxes and income before income taxes. The major reason for
the variations in such relationships is that income is earned within and
subject to the taxation laws of various countries, each of which has a regime
of taxation which varies from that of any other country (not only with respect
to nominal rate but also with respect to the allowability of deductions,
credits and other benefits) and because the proportional extent to which income
is earned in, and subject to tax by, any particular country or countries varies
from year to year. JRM and certain of its subsidiaries keep books and file tax
returns on the completed contract method of accounting.
F-16
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the financial and tax bases of assets and liabilities. Significant
components of deferred tax assets and liabilities as of March 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued provisions for facility closings................ $ 354 $ 1,480
Accrued vacation pay.................................... 935 704
Accrued liabilities for self-insurance (including
postretirement health care benefits)................... 9,902 582
Accrued liabilities for executive and employee incentive
compensation........................................... 1,567 1,670
Long-term contracts..................................... 4,973 3,837
Investments in joint ventures and affiliated companies.. -- 5,179
Accrued pension liability............................... 2,449 --
Accrued drydock liability............................... 2,771 1,086
Net operating loss carryforwards........................ 21,520 17,323
Foreign tax credits..................................... -- 15,662
Property, plant and equipment........................... 1,057 4,351
Other................................................... 5,132 1,074
------- -------
Total deferred tax assets............................. 50,660 52,948
Valuation allowance for deferred tax assets............. (16,216) (21,091)
------- -------
Total deferred tax assets--net........................ 34,444 31,857
------- -------
Deferred tax liabilities:
Property, plant and equipment........................... 27,808 30,031
Long-term contracts..................................... 10,149 10,064
Prepaid pension costs................................... -- 1,846
Investment in joint ventures and affiliated companies... 762 --
Other................................................... 2,695 3,882
------- -------
Total deferred tax liabilities........................ 41,414 45,823
------- -------
Net deferred tax liabilities.......................... $ 6,970 $13,966
======= =======
</TABLE>
Income before provision for income taxes and cumulative effect of accounting
changes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S............................................... $(1,362) $(3,265) $ 18,435
Other than U.S.................................... 6,441 72,850 128,752
------- ------- --------
$ 5,079 $69,585 $147,187
======= ======= ========
</TABLE>
F-17
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S.--Federal.................................... $ 986 $30,514 $ 3,388
Other than U.S................................... 6,244 14,140 21,046
------ ------- -------
Total current.................................. 7,230 44,654 24,434
------ ------- -------
Deferred:
U.S.--Federal.................................... 5,426 (31,742) (2,579)
Other than U.S................................... (7,764) (4,027) 6,195
------ ------- -------
Total deferred................................. (2,338) (35,769) 3,616
------ ------- -------
Provision for Income Taxes......................... $4,892 $ 8,885 $28,050
====== ======= =======
</TABLE>
The current provision for other than U.S. income taxes in 1996, 1995 and 1994
includes a reduction of $3,763,000, $1,323,000 and $21,987,000, respectively,
for the benefit of net operating loss carryforwards.
NOTE 6--RELATED PARTY TRANSACTIONS
Transactions with subsidiaries, divisions and controlled joint ventures of
McDermott International that are not disclosed elsewhere, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sale of marine construction services.............. $10,243 $ 2,652 $ 1,221
Purchase of engineering and other services........ 56,008 16,672 7,981
Insurance premiums................................ 12,908 21,602 30,114
Postretirement health care benefits............... -- 6,075 8,029
Pension expense (benefit)......................... (843) (6,679) 1,030
Selling, general and administrative expense....... 11,900 19,690 21,240
Interest income................................... 787 2,920 1,433
Interest expense.................................. 21,831 20,169 18,799
</TABLE>
The non-current notes payable to McDermott International are 9% Senior
Subordinated Notes due 2001 ("9% Notes") and are redeemable at any time after
September 15, 1997 (subject to any required approvals), in whole or in part,
for cash, at the option of JRM, initially at a price of 105% of the principal
amount, and thereafter at prices declining annually to 100% of the principal
amount after September 15, 2000. The terms of the 9% Notes impose certain
restrictions or limitations on, among other things, the ability of JRM to
pledge its assets as security for certain indebtedness or to incur debt ranking
senior to these notes. During fiscal year 1996, an agreement was reached
between JRM and McDermott International whereas JRM can repurchase the 9% Notes
at their face value, without any premium, plus accrued interest with part of
the proceeds from a proposed offering by JRM in fiscal year 1997.
Included in Accounts receivable-trade are receivables from McDermott
International of $7,668,000 at March 31, 1995.
F-18
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the acquisition of OPI, two directors and two officers of
JRM entered into noncompetition agreements. As consideration, such directors
and officers received a total of approximately $10,131,000 (including 50,000
shares of JRM's common stock valued at $1,131,000) during fiscal year 1995. In
addition, one director (who resigned in April 1996) received $1,500,000 in
fiscal year 1996 and will receive additional payments of $1,500,000 per year
over the next four years.
In fiscal year 1995, JRM entered into an office sublease with an affiliate of
a director (who resigned in April 1996) of JRM. Under the sublease which
expires no later than March 1997, the affiliate is required to make monthly
rental payments of approximately $18,000. During fiscal year 1996, the
affiliate paid $185,000 under the sublease. Under another agreement, the
affiliate manages and operates JRM's offshore producing oil and gas property
for a monthly fee of $48,000 and reimbursement of certain costs. During fiscal
year 1996, JRM paid $576,000 to the affiliate for out-of-pocket expenses for
the management and operations of its offshore producing oil and gas property.
Also during fiscal year 1996, JRM fabricated a caisson for the affiliate for
$84,000. JRM sold an offshore jacket and deck to the affiliate for $1,100,000
during fiscal year 1995 and received approximately $2,000,000 from the
affiliate during fiscal year 1996 pursuant to a contract to refurbish,
transport and install the jacket and deck.
JRM entered into agreements with an affiliate of another director of JRM
pursuant to which the subsidiary acquired interests in certain offshore oil and
gas property. During fiscal years 1996 and 1995, JRM paid $2,036,000 and
$3,000,000, respectively, to the affiliate under the agreements in connection
with the acquisition of its interests and the development of such property.
During fiscal year 1996, JRM sold its interest in the property to the affiliate
in exchange for an $8,000,000 convertible production payment relating to such
property. Pursuant to the terms of the agreements entered into in connection
with such sale, JRM received a right to a production payment that allows it to
share in up to $8,000,000 of the net proceeds on any production from the
property based upon a percentage of its original interest in such property. In
December 1995, this property was placed on production and to date JRM has
earned approximately $179,000 as a result of this production payment. In
addition, JRM owns 140,000 shares of common stock of this affiliate and 20,000
units in a limited partnership which is also an affiliate of this director. JRM
has a $15,000,000 contract to fabricate and install a platform with the limited
partnership.
JRM also has entered into agreements with two affiliates of a director of JRM
pursuant to which JRM will design, fabricate and install several offshore
pipelines or structures. The value of these agreements exceeds $80,000,000. As
of March 31, 1996, these affiliates have paid to JRM approximately $59,000,000
for work completed under these agreements. The affiliates of the director have
been invoiced for an additional $3,300,000 that is expected to be paid in the
ordinary course of business.
In connection with the acquisition of OPI, JRM entered into various
agreements under which McDermott International provides administrative and
technical services to JRM. These services include, but are not limited to:
accounting, treasury, tax administration and other financial services; human
relations; computing and telecommunications; corporate officer and secretarial;
purchasing; and marine systems and automation. The cost of these services to
JRM for fiscal year 1996 was approximately $11,900,000.
Effective January 31, 1995, JRM sold to McDermott International those assets
and liabilities comprising the shipyard business located in Morgan City,
Louisiana that were included in the business contributed by McDermott
International with the Merger. In consideration, JRM received $4,802,000.
Certain officers and employees of JRM participate in certain benefit plans
which involve the issuance of International Common Stock.
JRM maintains employment agreements with certain officers and employees which
contain change in control provisions that would entitle each to receive two
times his three-year average annual salary plus
F-19
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
continuation of certain benefits if there is a change in control of JRM (as
defined) and a termination of his employment within two years after a change in
control. These agreements also provide medical and health insurance benefits
for a two-year period following the termination of employment.
NOTE 7--NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Unsecured debt:
12.875% Guaranteed Senior Notes due 2002
($70,000,000 face value).............................. $ 74,473 $ 74,933
Other notes payable.................................... 13,401 5,771
Secured debt:
Floating rate notes interest at one month LIBOR plus 2%
(6.63% inclusive at March 31, 1996) due 1999.......... 21,139 --
Capitalized Lease Obligations.......................... 16,398 19,812
--------- --------
125,411 100,516
Less amounts due within one year......................... 10,879 6,644
--------- --------
$ 114,532 $ 93,872
========= ========
</TABLE>
Notes payable and current maturities of long-term debt consist of:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Short-term lines of credit:
Unsecured................................................ $85,251 $24,750
Secured.................................................. -- 24,500
Current maturities of long-term debt....................... 10,879 6,644
------- -------
$96,130 $55,894
======= =======
Weighted-average interest rate on short-term borrowings.... 6.88% 7.86%
======= =======
</TABLE>
In connection with the Merger, JRM assumed OPI's $70,000,000 12 7/8%
Guaranteed Senior Notes ("12.875% Notes"). The 12.875% Notes are subject to
mandatory sinking fund requirements beginning on July 15, 2000 calculated to
retire 50% of the original principal amount prior to maturity in 2002. The
12.875% Notes are redeemable, for cash, at the option of JRM, at any time on or
after July 15, 1997, in whole or in part, at a price of 106.4% of the principal
amount, and thereafter at prices declining annually to 100% of the principal
amount on or after July 15, 2000. JRM is restricted, as a result of covenants
in this credit agreement, in its ability to transfer funds to International and
its subsidiaries through cash dividends or through unsecured loans or
investments.
Maturities of long-term debt during the five fiscal years subsequent to March
31, 1995 are as follows: 1997--$10,879,000; 1998--$11,117,000; 1999--
$15,595,000; 2000--$70,000; 2001--$2,000.
At March 31, 1996 and 1995, JRM had available to it various uncommitted
short-term lines of credit from banks totalling $142,645,000 and $118,231,000,
respectively. Borrowings by JRM against these lines of
F-20
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
credit at March 31, 1996 and 1995 were $85,251,000 and $24,750,000,
respectively. JRM also had available a $150,000,000 unsecured and committed
revolving credit facility on which no borrowings were outstanding at March 31,
1996. JRM is restricted, as a result of the consolidated tangible net worth
covenant in this agreement, in its ability to transfer funds to International
and its subsidiaries through cash dividends or through unsecured loans or
investments.
NOTE 8--PENSION PLANS AND POSTRETIREMENT BENEFITS
Pension Plans--Prior to fiscal year 1996, JRM provided retirement benefits,
primarily through employee participation, in non-contributory pension plans of
McDermott International (See Note 6). Effective April 1, 1995, new plans were
established for employees of JRM. As a result, a subsidiary of International
transferred to JRM an accrued pension liability of approximately $4,585,000
relating to employees covered under the new plan and transferred to the plan
assets, which were equal to the projected benefit obligation, of approximately
$40,456,000.
JRM provides retirement benefits through employee participation in two non-
contributory pension plans for substantially all of its salaried employees,
except certain non-resident alien employees of foreign subsidiaries who are not
citizens of a European Community country or who do not earn income in the
United States or the United Kingdom. Plan benefits are based on final average
compensation and years of service. JRM's funding policy is to fund the
applicable pension plan to meet minimum funding requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA") and to fund the other pension
plan as recommended by the respective plan actuary in accordance with
applicable law. At January 1, 1996, approximately one-half of total plan assets
were invested in listed stocks and bonds. The remaining assets were held in
foreign equity funds, U.S. Government securities and investments of a short-
term nature.
JRM also provides benefits to employees in the United Kingdom through
participation of certain of its subsidiaries and affiliate companies in a
contributory pension plan (the "U.K. plan") sponsored by McDermott
International. JRM's policy was to fund the U.K. plan to meet the minimum
requirements as recommended by the plan actuary and in accordance with
applicable law. Under the terms of the Merger Agreement, this plan was excluded
from the contribution of McDermott International's marine construction services
business at January 31, 1995, but former employees of McDermott International's
marine construction services business who transferred to JRM will continue to
participate in this plan until a new one is established.
U.S. Pension Plans
The net periodic pension cost for JRM's pension plans for fiscal year 1996
included the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost--benefits earned during the period............... $ 2,976
Interest cost on projected benefit obligation................. 3,533
Actual return on plan assets.................................. (6,484)
Net amortization and deferral................................. 2,286
-------
Net periodic pension cost..................................... $ 2,311
=======
</TABLE>
F-21
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the U.S. plans' funded status and the amount
recognized in the consolidated financial statements at March 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Acturial present value of benefit obligations:
Vested benefit obligation................................... $29,946
=======
Accumulated benefit obligation.............................. $40,174
=======
Projected benefit obligation................................ $58,377
Plan assets at fair value..................................... 46,904
-------
Projected benefit obligation in excess of plan assets......... (11,473)
Unrecognized net loss......................................... 15,432
Adjustment required to recognize minimum liability............ (57)
Unrecognized prior service cost............................... (9,323)
Unrecognized transition asset................................. (1,577)
-------
Net pension liability......................................... $(6,998)
=======
</TABLE>
The assumptions used in determining the funded status and net periodic
pension cost of the U.S. plans were:
<TABLE>
<S> <C>
Actuarial assumptions:
Discount rate........................................................ 7.25%
----
Rate of increase in future compensation levels....................... 5.0%
----
Expected long-term rate of return on plan assets..................... 8.5%
----
</TABLE>
NON-U.S. PENSION PLANS
The net periodic pension cost for JRM's pension plans for fiscal years 1996,
1995 and 1994 included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the
period........................................ $ 332 $ 1,450 $ 1,544
Interest cost on projected benefit obligation.. 829 3,342 4,130
Actual return on plan assets................... (1,046) (1,240) (14,608)
Net amortization and deferral.................. 30 (7,303) 2,679
------- ------- --------
Net periodic pension cost (benefit)............ $ 145 $(3,751) $ (6,255)
======= ======= ========
</TABLE>
Due to a reduction in workforce at one foreign subsidiary, net income in
fiscal year 1994 includes a net after-tax loss of $1,456,000 resulting from the
recognition of a curtailment of a plan.
F-22
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the non-U.S. plan's funded status and the
amount recognized in JRM's consolidated financial statements:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $ 7,409
=======
Accumulated benefit obligation.............................. $ 7,997
=======
Projected benefit obligation.............................. $10,437
Plan assets at fair value..................................... 11,772
-------
Plan assets in excess of projected benefit obligation......... 1,335
Unrecognized net gain......................................... (663)
Unrecognized transition asset................................. (817)
-------
Net pension liability......................................... $ (145)
=======
</TABLE>
The assumptions used in determining the funded status and net periodic
pension cost of the U.K. plans were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Actuarial assumptions:
Discount rate............................................ 8.25% 8.25% 7.5%
---- ---- ---
Rate of increase in future compensation levels........... 5.0% 5.0% 6.0%
---- ---- ---
Expected long-term rate of return on plan assets......... 8.5% 8.5% 8.0%
---- ---- ---
</TABLE>
Postretirement Health Care and Life Insurance Benefits--JRM offers
postretirement health care and life insurance benefits to substantially all of
its regular full-time employees who retire and receive retirement income from a
defined benefit pension plan funded by JRM, except certain non-resident alien
retired employees who are not citizens of a European Community country, or who,
while employed, did not earn income in the United States, Canada or the United
Kingdom. JRM shares the cost of providing these benefits, except for certain
life insurance plans, with all affected retirees. JRM does not fund any of its
plans.
The following table sets forth the amounts recognized in the consolidated
financial statements at March 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees................................................. $ 663 $ --
Fully eligible active participants....................... 1,363 1,313
Other active plan participants........................... 14,805 11,539
------- -------
Accrued postretirement benefit cost........................ $16,831 $12,852
======= =======
Weighted-average discount rate............................. 7.25% 8.25%
======= =======
</TABLE>
The accumulated postretirement benefit obligation in the above table includes
$16,048,000 and $12,264,000 for health care plans and $783,000 and $588,000 for
life insurance plans at March 31, 1996 and 1995, respectively. For the period
January 31 to March 31, 1995, net periodic postretirement benefit cost was
$337,000.
F-23
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefit cost for fiscal year 1996 included the
following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C> <C>
Service cost.................................................. $ 767
Interest cost................................................. 1,060
--------
Net periodic postretirement benefit cost...................... $1,827
========
</TABLE>
For measurement purposes, a weighted-average annual assumed rate of increase
in the per capita cost of covered health care claims of 10 3/4% was assumed for
1996 and 11 1/2% for 1995. For 1997, a rate of 9 3/4% was assumed. The rate was
assumed to decrease gradually to 5% in 2005 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of March 31, 1996 by $2,676,000 and the
aggregate of the service cost and interest cost components of net periodic
postretirement benefit cost for fiscal year 1996 by $307,000.
NOTE 9--CAPITAL STOCK
At March 31, 1996 and 1995, 15,592,108 and 12,081,354 shares, respectively,
of Common Stock were reserved for issuance in connection with the conversion of
Series A $2.25 Cumulative Convertible Preferred Stock ("Series A Preferred
Stock") and, in fiscal year 1995, Series B $2.25 Cumulative Convertible
Exchangeable Preferred Stock, the exercise of stock options, awards of
restricted stock under JRM's stock incentive plans and, in fiscal year 1996,
contributions to the Thrift Plan.
Series A Preferred Stock
At March 31, 1996 and 1995, 3,200,000 shares of Series A Preferred Stock were
owned by International. Shares of Series A Preferred Stock have one vote per
share and a liquidation preference of $50.00 per share. Dividends on Series A
Preferred Stock are cumulative at the annual rate of $2.25 per share.
Each share of Series A Preferred Stock is redeemable, for cash at $52.00 per
share, after January 31, 1997 (subject to any required approvals) and prior to
January 31, 2000, provided that the last reported sales price of JRM Common
Stock in its principal trading market for any 20 trading days within a period
of 30 consecutive trading days ending not more than five days prior to the date
the Series A Preferred Stock is called for redemption is at least $55.74 after
January 31, 2000.
Each share of Series A Preferred Stock is convertible into 1.794 shares of
Common Stock at any time after a call by JRM for redemption of any or all of
the outstanding Series A Preferred Stock or at any time after January 31, 2000.
Series B Preferred Stock
During fiscal year 1996, 458,382 shares of Series B Preferred Stock were
converted into 1,065,193 shares of Common Stock and the remaining 250 shares
were redeemed for cash.
F-24
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Incentive Plans
The following table summarizes activity related to stock options under JRM's
stock incentive plans:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Options outstanding, April 1.......................... 1,078,242 --
Issued January 31, 1995 under the terms of the Merger
Agreement (See Note 3)............................... -- 897,818
Granted............................................... 387,910 243,530
Exercised............................................. (353,978) (63,106)
Cancelled/forfeited................................... (20,080) --
--------- ---------
Options outstanding, March 31,........................ 1,092,094 1,078,242
========= =========
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Options exercisable at March 31,...................... 557,440 834,712
========= =========
Average price:
Outstanding options................................. $13.4726 $9.4574
Exercisable options................................. $ 8.7745 $5.6158
========= =========
Shares available at March 31, that may be granted for
options.............................................. 3,839,570 4,156,470
========= =========
</TABLE>
No further awards can be made under the OPI Incentive Compensation Program.
At March 31, 1996, 480,734 were outstanding and exercisable.
A total of 3,533,600 shares of Common Stock are available for grants of
options, and rights to purchase shares, to officers and key employees under the
Executive Long-Term Incentive Compensation Plan. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares and Performance Units. Options to purchase
shares are granted at not less than 100% of the fair market value on the date
of the grant, become exercisable at such time or times as determined when
granted and expire ten years after the date of grant. A total of 54,240 rights
have been granted to purchase shares at par value ($1.00 per share) under the
Executive Long-Term Incentive Compensation Plan at March 31, 1996.
A total of 96,700 shares of Common Stock are available for grants of options,
and rights to purchase shares, to non-employee directors under the nonemployee
Director Stock Plan. Options to purchase 600, 200 and 200 shares will be
granted on the first, second, and third years, respectively, of a Director's
term at par value ($1.00 per share) subject to restrictions on transfer, which
lapse at the end of such term. A total of 1,100 rights have been granted to
purchase shares at par value ($1.00 per share) under the Director Stock Plan at
March 31, 1996.
Under the 1995 Senior Management Stock Option Plan, senior management
employees may be granted options to purchase shares of Common Stock. The total
number of shares available for grant is determined by the Board of Directors
from time to time. Options to purchase shares are granted at no less than 100%
of the fair value on the date of grant, become exercisable at such time or
times as determined when granted and expire ten years after the date of grant.
In the event of a change in control of JRM, all three programs have
provisions that may cause restrictions to lapse and accelerate the
exercisability of options outstanding.
F-25
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Thrift Plan
Certain employees of JRM participate in the Thrift Plan for Employees of
McDermott Incorporated and Participating Subsidiary and Affiliated Companies,
which is a defined contribution plan maintained by a subsidiary of McDermott
International. On June 5, 1995, a maximum of 5,000,000 of the authorized and
unissued shares of JRM's Common Stock was reserved for possible issuance to be
used as the JRM employer match for employee contributions to the Thrift Plan
for Employees of McDermott Incorporated and Participating Subsidiary and
Affiliated Companies. Such employer contributions equal 50% of the first 6% of
compensation, as defined in the Plan, contributed by participants, and fully
vest and are non-forfeitable after five years of service or upon retirement,
death, lay-off or approved disability. During fiscal year 1996, 80,356 shares
were issued as employer contributions pursuant to the Plan. At March 31, 1996,
4,919,644 shares remained available for issuance.
NOTE 10--CONTINGENCIES AND COMMITMENTS
Litigation--JRM and certain of its officers, directors and subsidiaries are
defendants in numerous legal proceedings. Management believes that the outcome
of these proceedings will not have a material adverse effect upon the
consolidated financial position of JRM.
Operating Leases--Future minimum payments required under operating leases
that have initial or remaining noncancellable lease terms in excess of one year
at March 31, 1996 are as follows: 1997--$7,384,000; 1998--$5,850,000; 1999--
$3,606,000; 2000--$2,596,000; 2001--$2,200,000; and thereafter--$18,176,000.
Total rental expense for fiscal years 1996, 1995 and 1994 was $66,617,000,
$79,098,000 and $87,531,000, respectively. These expense figures include
contingent rentals and are net of sublease income, both of which are not
material.
Other--JRM maintains liability and property insurance that it considers
normal in the industry. However, certain risks are either not insurable or
insurance is available only at rates which JRM considers uneconomical.
Prior to JRM's acquisition of OPI, one of OPI's vessels was severely damaged
during a typhoon while undergoing final work in connection with its
refurbishment. Estimates for the repair of the vessel, together with out-of-
pocket costs, total more than $45,000,000. At the time of the casualty loss,
insurance policies had been issued insuring the vessel for its full value.
Efforts to settle the claim with underwriters, however, have been unsuccessful,
and resort to the courts may be necessary to collect the amount claimed.
Management believes that the underwriters' refusal to satisfactorily adjust the
claim is without basis and is of the opinion that the outcome of any necessary
litigation will be favorable.
Commitments for capital expenditures amounted to approximately $30,385,000 at
March 31, 1996, all of which relate to fiscal year 1997.
JRM is contingently liable under standby letters of credit totalling
$168,413,000 (including $51,500,000 issued on behalf of unconsolidated foreign
joint ventures) at March 31, 1996, issued in the normal course of business. JRM
has guaranteed $33,455,000 of loans to and $18,981,000 of standby letters of
credit issued by certain unconsolidated foreign joint ventures of JRM at March
31, 1996. In addition, JRM has guaranteed $13,333,000 of loans to a third party
at March 31, 1996.
F-26
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The principal customers of JRM are the offshore oil, natural gas and
hydrocarbon processing industries and other marine construction companies.
These concentrations of customers may impact JRM's overall
exposure to credit risk, either positively or negatively, in that the customers
may be similarly affected by changes in economic or other conditions. However,
JRM's management believes that the portfolio of receivables is well diversified
and that such diversification minimizes any potential credit risk. Receivables
are generally not collateralized.
JRM believes that its provision for possible losses on uncollectible accounts
receivable is adequate for its credit loss exposure. At March 31, 1996 and
1995, the allowance for possible losses deducted from Accounts receivable-trade
on the balance sheet was $584,000 and $795,000, respectively.
NOTE 12--DERIVATIVE FINANCIAL INSTRUMENTS
JRM operates internationally, giving rise to exposure to market risks from
changes in foreign exchange rates. Derivative financial instruments, primarily
forward exchange contracts, are utilized to reduce those risks. JRM does not
hold or issue financial instruments for trading purposes.
Forward exchange contracts are entered into primarily as hedges of certain
firm purchase and sale commitments denominated in foreign currencies. At March
31, 1996, JRM had forward exchange contracts to purchase $6,766,000 in foreign
currencies (primarily Pound Sterling), and to sell $59,690,000 in foreign
currencies (primarily Dutch Guilders, Saudi Riyals and Pound Sterling), at
varying maturities through fiscal year 1997. At March 31, 1995, JRM had forward
exchange contracts to purchase $10,134,000 in foreign currencies (primarily
Pound Sterling), and to sell $60,445,000 in foreign currencies (primarily Dutch
Guilders and Malaysian Ringgits), at varying maturities through fiscal year
1996.
Deferred realized and unrealized gains and losses from hedging firm purchase
and sale commitments are included on a net basis in the balance sheet as a
component of either other current assets or accrued liabilities. They are
recognized in income as part of the purchase or sale transaction when it is
recognized, or as other gains or losses when a hedged transaction is no longer
expected to occur. At March 31, 1996 and 1995, JRM had deferred gains of
$123,000 and $537,000, respectively, and deferred losses of $18,000 and
$1,570,000, respectively, related to forward exchange contracts. All of the
forward exchange contracts at March 31, 1996 are expected to be recognized
during fiscal year 1997.
JRM is exposed to credit-related losses in the event of nonperformance by
counterparties to derivative financial instruments, but it does not anticipate
nonperformance by any of the counterparties. The amount of such exposure is
generally the unrealized gains in such contracts.
NOTE 13--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by JRM in estimating its fair
value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Long and short-term debt: The fair values of JRM's debt instruments are
based on quoted market prices or where quoted prices are not available, on the
present value of cash flows discounted at estimated borrowing rates for similar
debt instruments or on estimated prices based on current yields for debt issues
of similar
F-27
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
quality and terms. At March 31, 1996 and 1995, JRM had total debt (excluding
capitalized leases and notes payable to McDermott International) with a
carrying value of $194,264,000 and $129,954,000 and a fair value of
$207,700,000 and $130,814,000, respectively.
Notes payable to and receivable from McDermott International: The fair
values of JRM's notes payable to McDermott International are calculated using
estimated prices based on current yields for debt issues of similar quality and
terms. At March 31, 1996 and 1995, JRM's total notes payable issued to
McDermott International had carrying values of $231,000,000 and $270,750,000,
respectively, which approximate fair values.
Note receivable from an unconsolidated affiliate: At March 31, 1996, it was
not practicable to estimate the fair value of JRM's 7.75% Note receivable with
the HeereMac joint venture because there are no quoted market prices and the
time of its settlement cannot yet be determined.
Foreign currency exchange contracts: The fair values of foreign currency
forward exchange contracts are estimated by obtaining quotes from brokers. At
March 31, 1996 and 1995, JRM had net forward exchange contracts to sell foreign
currencies with notional values of $52,924,000 and $50,311,000 and fair values
of $50,022,000 and $51,647,000, respectively.
NOTE 14--SEGMENT REPORTING
JRM operates in a single business segment and supplies worldwide services for
the offshore oil, natural gas and hydrocarbon processing industries, and to
other marine construction companies. Principal activities include the design,
engineering, fabrication and installation of marine pipelines and offshore
structures and subsea production systems for development drilling and
production, transportation of oil and gas and onshore construction and
maintenance services. JRM also provides vessel chartering operations,
principally to its unconsolidated affiliates.
JRM does not believe it is dependent on any one customer. Sales to major
customers that exceeded 10% of revenues were: 1996--customer A $198,453,000
(16%), customer B $190,000,000 (15%); 1995--customer B $118,820,000 (11%); and
1994--customer C $174,688,000 (15%), customer D $160,195,000 (13%).
At March 31, 1996 and 1995 receivables of $6,824,000 and $6,230,000,
respectively, were due from minority shareholders participating in JRM's
majority-owned joint ventures, primarily ETPM S.A. Sales to ETPM S.A. were
$1,801,000 and $3,133,000, respectively, for the fiscal years ended March 31,
1995 and 1994. There were no sales to ETPM S.A. in fiscal year 1996. In fiscal
years 1996, 1995 and 1994 equipment charters and overhead expenses of
$4,118,000, $4,938,000 and $6,330,000, respectively, were charged by ETPM S.A.
to the McDermott-ETPM joint venture.
F-28
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information about JRM's Operations in Different Geographic Areas.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES(/1/)
United States............................ $ 392,290 $ 349,186 $ 351,296
Europe and West Africa................... 483,317 322,817 142,525
Middle East.............................. 142,931 129,010 154,791
Far East................................. 206,629 326,307 545,269
Other Foreign (including transfer
eliminations)........................... 2,674 -- --
---------- ---------- ----------
Total Revenues......................... $1,227,841 $1,127,320 $1,193,881
========== ========== ==========
OPERATING INCOME
Operating Income (Loss) by Geographic
Area(/2/):
United States............................ $ 8,948 $ (9,673) $ 9,126
Europe and West Africa................... 25,000 21,862 4,563
Middle East.............................. (2,805) 17,469 11,694
Far East................................. 1,209 38,804 36,040
Other Foreign............................ 800 (1,496) (1,551)
---------- ---------- ----------
Total Operating Income by Geographic
Area.................................. 33,152 66,966 59,872
---------- ---------- ----------
Total Equity in Income of Investees........ 9,124 22,857 106,593
---------- ---------- ----------
General Corporate Expenses(/2/)............ (12,014) (11,406) (11,682)
---------- ---------- ----------
Total Operating Income................. $30,262 $78,417 $154,783
========== ========== ==========
IDENTIFIABLE ASSETS
United States............................ $ 468,277 $ 312,131 $ 293,344
Europe and West Africa................... 533,167 609,618 411,271
Middle East.............................. 136,985 206,463 101,141
Far East................................. 230,717 271,233 195,967
Other Foreign............................ 12,715 -- 5,886
Corporate................................ 155,884 82,817 --
---------- ---------- ----------
Total.................................. $1,537,745 $1,482,262 $1,007,609
========== ========== ==========
</TABLE>
- --------
(1) Net of inter-geographic area revenues in fiscal years 1996, 1995 and 1994
as follows: United States-- $23,426,000, $4,820,000 and $16,537,000; Europe
and West Africa--$1,058,000, $5,074,000 and $15,543,000; Middle East--
$14,589,000, $36,802,000 and $2,660,000; Far East--$477,000, $341,000 and
$475,000; and Other Foreign--$11,022,000, $26,259,000 and none.
(2) Fiscal years 1995 and 1994 have been restated to reflect the allocation of
certain expenses to the geographic areas which previously were included in
General Corporate Expenses. This restatement reduced Operating Income by
Geographic Area and General Corporate Expenses by $11,217,000 and
$9,558,000 in fiscal years 1995 and 1994, respectively, from amounts
previously reported.
F-29
<PAGE>
J. RAY MCDERMOTT, S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth selected unaudited quarterly financial
information for the fiscal years ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996
------------------------------------
QUARTER ENDED
------------------------------------
SEPT.
JUNE 30, 30, DEC. 31, MARCH 31,
1995 1995 1995 1996
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................... $311,803 $355,957 $272,236 $287,845
Operating income (loss)................ 11,516 16,014 18,709 (15,977)
Net income (loss)...................... 3,267 9,099 6,110 (18,289)
Primary and Fully Diluted
Earnings (Loss) per Share:
Net Income........................... 0.03 0.18 0.11 (0.50)
<CAPTION>
1995
------------------------------------
QUARTER ENDED
------------------------------------
SEPT.
JUNE 30, 30, DEC. 31, MARCH 31,
1994 1994 1994 1995
-------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................... $279,046 $279,322 $247,190 $321,762
Operating income (loss)................ 16,799 32,481 31,071 (1,934)
Income (loss) before cumulative effect
of accounting change.................. 14,024 29,649 18,017 (990)
Net income (loss)...................... 12,698 29,649 18,017 (990)
</TABLE>
Pre-tax results for the quarter ended September 30, 1994 include the
settlement of claims for interest on certain foreign tax refunds of $2,233,000
and the acceleration of depreciation on certain marine construction equipment
of $4,314,000. Results for the quarter ended December 31, 1994 include the
settlement of claims for interest on certain foreign tax refunds of $2,163,000.
Results for the quarter ended March 31, 1995 included a reduction in taxes due
to settlement of outstanding tax issues of $5,200,000.
F-30
<PAGE>
[Photo: Pipeline Installation]
The LB200, one of the world's largest marine
construction vessels, laying a pipeline in
the North Sea.
[Photo: Subsea Installation]
The vessel Norlift preparing to lay subsea flowlines in the Foinaven Field in
the North Atlantic.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE 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 OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
NOTES IN ANY JURISDICTION WHERE, OR TO 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
The Company............................................................... 16
Use of Proceeds........................................................... 17
Capitalization............................................................ 18
Selected Historical Financial Data........................................ 19
Unaudited Pro Forma Consolidated Statement of Income...................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 29
Management................................................................ 48
Certain Transactions and Relationships.................................... 50
Description of Certain Indebtedness....................................... 56
Description of the Notes.................................................. 59
Certain Tax Considerations................................................ 92
Underwriting.............................................................. 94
Legal Matters............................................................. 95
Experts................................................................... 95
Available Information..................................................... 95
Enforceability of Civil Liabilities Under the Federal Securities Laws..... 96
Incorporation of Certain Documents by Reference........................... 96
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF J. RAY McDERMOTT APPEARS HERE]
$250,000,000
J. RAY MCDERMOTT, S.A.
% SENIOR SUBORDINATED
NOTES DUE 2006
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Company in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates, except the registration fee
and the NASD fee:
<TABLE>
<S> <C>
Registration fee................................................ $ 86,207
NASD fee........................................................ 25,500
Printing expenses............................................... 150,000
Accounting fees and expenses.................................... 75,000
Legal fees and expenses......................................... 350,000
Blue Sky fees and expenses...................................... 15,000
Trustee fees and expenses....................................... 7,500
Rating agency fees.............................................. 100,000
Miscellaneous................................................... 550,793
----------
Total....................................................... $1,360,000
==========
</TABLE>
- --------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Civil Code of the Republic of Panama (the "PCC"), an agent is
indemnified against liability incurred in acting without fault or imprudence on
behalf of the agent's principal. It is the opinion of Durling & Durling, the
Company's Panamanian counsel ("Panamanian Counsel"), that this provision would
apply to indemnify directors and officers against liability incurred in
connection with the performance of their duties. According to Panamanian
Counsel, Panamanian law does not permit a limitation on the liability of
directors to a corporation or its stockholders, but neither does Panamanian law
recognize the concept of actions brought by stockholders in the right of the
corporation against directors or officers (i.e., derivative actions). Directors
can be held liable to the corporation or stockholders only on demand made by
resolution of the stockholders, which the Company believes is difficult to
achieve in a public company. Article VII of the registrant's Bylaws provides
for indemnification of directors and officers of the registrant to the full
extent permitted by, and in the manner permissible under, the laws of the
Republic of Panama. The foregoing statements are subject to the detailed
provisions of Article 1420 of the PCC, Article 12 of the Certificate of
Incorporation of the Company and Article VII of the Bylaws of the Company, as
applicable.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
1.1 --Form of Underwriting Agreement.
*2.1 --Agreement and Plan of Merger dated as of June 2, 1994 (as
amended) by and among J. Ray McDermott, S.A., McDermott
International, Inc., MCB I, Inc. and Offshore Pipelines, Inc.
(filed as Exhibit 2.1 to the Company's Registration Statement
on Form S-4, Registration No. 33-87592, and incorporated herein
by reference).
4.1 --Form of Indenture.
5.1 --Opinion of Durling & Durling
5.2 --Opinion of Baker & Botts, L.L.P.
12 --Statement of computation of ratios.
23.1 --Consent of Ernst & Young LLP.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
23.2 --Consent of Durling & Durling (contained in Exhibit 5.1).
+24 --Powers of Attorney (included on the signature page of this
Registration Statement).
+25 --Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939.
</TABLE>
- --------
* Incorporated by reference as indicated.
+Previously filed.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 15 above, or otherwise,
the Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless, in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New Orleans, the State of Louisiana, on June 7,
1996.
J. Ray McDermott, S.A.
/s/ Robert E. Howson
By___________________________________
Robert E. Howson,
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities indicated on June 7, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ Robert E. Howson Chairman of the Board, Chief
- ------------------------------------ Executive Officer and
Robert E. Howson Director
(Principal Executive Officer and
Authorized Representative
in the United States)
* Executive Vice President
- ------------------------------------ and Chief Financial Officer
Richard R. Foreman
(Principal Financial Officer)
/s/ Daniel R. Gaubert Vice President, Finance
- ------------------------------------
Daniel R. Gaubert
(Principal Accounting Officer)
* Director
- ------------------------------------
John F. Bookout
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
Director
- ------------------------------------
Rick L. Burdick
* Director
- ------------------------------------
Brock A. Hattox
* Director
- ------------------------------------
Michael H. Lam
* Director
- ------------------------------------
J. Howard Macdonald
Director
- ------------------------------------
Cedric E. Ritchie
* Director
- ------------------------------------
Thomas P. Tatham
Director
- ------------------------------------
James J. Wildasin
Director
- ------------------------------------
Lodwrick M. Cook
</TABLE>
*By /s/ Daniel R. Gaubert
--------------------------------
Daniel R. Gaubert
(Attorney-In-Fact)
II-4
<PAGE>
EXHIBIT 1.1
J. RAY McDERMOTT, S.A.
$250,000,000
% Senior Subordinated Notes due 2006
PURCHASE AGREEMENT
June , 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Dear Sirs:
J. Ray McDermott, S.A., a Panama corporation (the
"Issuer"), confirms its agreement with you (the "Underwriter")
with respect to the sale by the Issuer and the purchase by the
Underwriter, of $250,000,000 aggregate principal amount of the
Issuer's % Senior Subordinated Notes due 2006 (the
"Notes"). The Notes are to be issued pursuant to an indenture
dated as of June , 1996 (the "Indenture") between the Issuer
and Citibank, N.A., as trustee (the "Trustee").
Prior to the purchase and public offering of the
Notes by the Underwriter, the Issuer and the Underwriter shall
enter into an agreement substantially in the form of Exhibit A
hereto (the "Pricing Agreement" and the time and date of execu-
tion of the Pricing Agreement being herein called the "Repre-
sentation Date"). The Pricing Agreement may take the form of
<PAGE>
-2-
an exchange of any standard form of written telecommunication
between the Issuer and the Underwriter, and shall specify such
applicable information as is indicated in Exhibit A hereto.
The offering of the Notes will be governed by this Agreement,
as supplemented by the Pricing Agreement. From and after the
date of execution and delivery of the Pricing Agreement, this
Agreement shall be deemed to incorporate the Pricing Agreement.
The Issuer has prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration
statement on Form S-3 (File No. 333-01971) and a related pre-
liminary prospectus for the registration of the Notes under the
Securities Act of 1933, as amended (the "1933 Act"), has filed
such amendments thereto, if any, and such amended preliminary
prospectuses as may have been required to the date hereof, and
will file such additional amendments thereto and such amended
prospectuses as may hereafter be required. Such registration
statement (as amended) and the prospectus constituting a part
thereof (including in each case all documents deemed to be
incorporated by reference therein and the information, if any,
deemed to be part thereof pursuant to Rule 430A(b) or Rule 434
of the rules and regulations of the Commission under the 1933
Act (the "1933 Act Regulations")), as from time to time amended
or supplemented pursuant to the 1933 Act, the Securities
Exchange Act of 1934 as amended (the "1934 Act"), or otherwise,
are hereinafter referred to as the "Registration Statement" and
the "Prospectus," respectively, except that if any revised pro-
spectus shall be provided to the Underwriter by the Issuer for
use in connection with the offering of the Notes which differs
from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective (whether or not such
revised prospectus is required to be filed by the Issuer pursu-
ant to Rule 424(b) of the 1933 Act Regulations), the term "Pro-
spectus" shall refer to such revised prospectus from and after
the time it is first provided to the Underwriter for such use.
If the Issuer elects to rely on Rule 434 of the 1933 Act Regu-
lations, all references to the Prospectus shall be deemed to
include, without limitation, the form of Prospectus and the
term sheet taken together, provided to the Underwriter by the
Issuer in reliance on Rule 434 of the 1933 Act Regulations (the
"Rule 434 Prospectus"). If the Issuer files a registration
statement to register a portion of the Notes and relies on Rule
462(b) of the 1933 Act Regulations for such registration state-
ment to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to the
Registration Statement herein shall be deemed to refer to both
the registration statement referred to above and the Rule 462
<PAGE>
-3-
Registration Statement, as each such registration statement may
be amended pursuant to the 1933 Act.
The Issuer understands that the Underwriter proposes
to make a public offering of the Notes as soon as the Under-
writer deems advisable after the Registration Statement becomes
effective and the Pricing Agreement has been executed and
delivered and the Indenture has been qualified under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
SECTION 1. Representations and Warranties. (a) The
Issuer represents and warrants to the Underwriter as of the
date hereof and as of the Representation Date as follows:
(i) The Issuer meets the requirements for use of
Form S-3 under the 1933 Act and at the time the Registra-
tion Statement becomes effective and any post-effective
amendments thereto become effective and at the Representa-
tion Date, the Registration Statement will comply in all
material respects with the applicable requirements of the
1933 Act and the 1933 Act Regulations and will not contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading. The Pro-
spectus, at the Representation Date (unless the term "Pro-
spectus" refers to a prospectus which has been provided to
the Underwriter by the Issuer for use in connection with
the offering of the Notes which differs from the Prospec-
tus on file at the Commission at the time the Registration
Statement becomes effective, in which case at the time it
is first provided to the Underwriter for such use) and at
Closing Time (as defined in Section 2 hereof), will not
include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading; provided that
the representations and warranties in this subsection
shall not apply to statements in or omissions from the
Registration Statement or Prospectus contained in the Pro-
spectus made in reliance upon and in conformity with
information furnished to the Issuer in writing by the
Underwriter expressly for use in the Registration State-
ment or Prospectus. For purposes of this Section 1(a),
all references to the Registration Statement, any post-
effective amendments thereto and the Prospectus shall be
deemed to include, without limitation, any electronically
transmitted copies thereof, including, without limitation,
<PAGE>
-4-
any copy filed with the Commission pursuant to its Elec-
tronic Data Gathering, Analysis, and Retrieval system
("EDGAR").
(ii) Each of (A) Ernst & Young LLP, the accountants
who certified the consolidated financial statements and
supporting schedules with respect to Issuer and the finan-
cial statements of McDermott-ETPM West, Inc. used to pre-
pare the Combined Joint Venture Financial Statements
referred to below included in the Registration Statement
and KPMG Accountants N.V., the accountants who certified
the combined financial statements and supporting schedules
with respect to McDermott-ETPM West, Inc. and Heerema Off-
shore Construction Group Inc. - J. Ray McDermott, S.A.
Joint Venture (the "Combined Joint Venture Financial
Statements") included in the Registration Statement, are
each independent public accountants as required by the
1933 Act and the 1933 Act Regulations.
(iii) The financial statements included (except for
the pro forma financial information) in the Registration
Statement and the Prospectus present fairly the financial
position of each of (A) the Issuer and its consolidated
subsidiaries and (B) McDermott-ETPM West, Inc. and Heerema
Offshore Construction Group Inc. - J. Ray McDermott, S.A.
Joint Venture combined, in each case as at the dates indi-
cated and the results of their operations for the periods
specified; except as otherwise stated in the Registration
Statement and except for the pro forma financial informa-
tion included therein, said financial statements have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis; and the pro
forma financial data included in the Registration State-
ment and the Prospectus have been prepared in accordance
with the requirements of Section 11-02 of Regulation S-X
under the 1933 Act and all adjustments to historical data
made by the Issuer in preparing the pro forma data were
reasonable.
(iv) Since the respective dates as of which informa-
tion is given in the Registration Statement and the Pro-
spectus, except as otherwise stated therein, (A) there has
been no material adverse change in the condition (finan-
cial or otherwise), assets, earnings or liabilities (con-
tingent or otherwise) of the Issuer, its consolidated sub-
sidiaries and the Joint Ventures (as defined in the Inden-
ture) considered as one enterprise (a "Material Adverse
<PAGE>
-5-
Effect"), whether or not arising in the ordinary course of
business, (B) there have been no transactions entered into
by the Issuer, any of its consolidated subsidiaries or any
Joint Venture, other than those in the ordinary course of
business, which are material with respect to the Issuer,
its consolidated subsidiaries and the Joint Ventures con-
sidered as one enterprise, and (C) there has been no divi-
dend or distribution of any kind declared, paid or made by
the Issuer on any class of its capital stock.
(v) The Issuer has been duly incorporated and is
validly existing as a corporation in good standing under
the laws of the Republic of Panama and has corporate power
and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this
Agreement and the Pricing Agreement; and the Issuer is
duly qualified as a foreign corporation to transact busi-
ness and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of busi-
ness, except where the failure to so qualify would not
have a Material Adverse Effect.
(vi) Each Material Subsidiary (as defined below) has
been duly organized and is validly existing and in good
standing under the laws of the jurisdiction of its organi-
zation, has full power and authority to own, lease and
operate its properties and to conduct its business as
described in the Prospectus and is duly qualified to
transact business and is in good standing in each juris-
diction in which such qualification is required, whether
by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so qual-
ify would not have a Material Adverse Effect; except as
described in the Registration Statement and Prospectus,
all of the issued and outstanding capital stock or owner-
ship interests of each Material Subsidiary has been duly
authorized and validly issued, is fully paid and non-
assessable and is owned by the Issuer, directly or through
subsidiaries, free and clear of any security interest,
lien, option, claim or other encumbrance. For purposes of
this Agreement, a "Material Subsidiary" is (a) a subsid-
iary of the Issuer, (b) a Joint Venture or (c) a subsid-
iary of a Joint Venture that, in any case, would consti-
tute a "significant subsidiary" of the Issuer within the
meaning of Rule 102(v) of Regulation S-K under the 1933
<PAGE>
-6-
Act and the 1934 Act (in the case of clauses (b) and (c)
above, assuming such entity were a subsidiary of the
Issuer).
(vii) The authorized, issued and outstanding capital
stock of the Issuer is as set forth in the Prospectus
under "Capitalization" under the column "Actual," except
for issuances, if any, subsequent to March 31, 1996 pursu-
ant to employee benefit plans.
(viii) None of the Issuer or any of the Material Sub-
sidiaries is (A) in violation of its organizational docu-
ments, (B) in default in the performance or observance of
any obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Issuer or any
of the Material Subsidiaries is a party or by which it or
any of them may be bound, or to which any of their prop-
erty or assets is subject, except for any such defaults
that would not have a Material Adverse Effect, or (C) in
violation of any applicable law, rule or regulation, or
any judgment, order or decree of any court with jurisdic-
tion over the Issuer, any subsidiary of the Issuer or any
Joint Venture, or other governmental or regulatory author-
ity with jurisdiction over the Issuer, any of its subsid-
iaries or any of the Joint Ventures, except for any such
defaults that would not have a Material Adverse Effect;
and the execution, delivery and performance of this Agree-
ment and the Pricing Agreement and the consummation of the
transactions contemplated herein and therein and compli-
ance by the Issuer with its obligations hereunder and
thereunder have been duly authorized by all necessary cor-
porate action on the part of the Issuer and will not con-
flict with or constitute a breach of, or a default under,
or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Issuer or any of the Material Subsidiaries pursuant to,
any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Issuer or any of
the Material Subsidiaries is a party or by which it or any
of them may be bound, or to which any of their property or
assets is subject, nor will such action result in any vio-
lation of or conflict with the provisions of the charter
or by-laws of the Issuer or any applicable law, rule or
regulation, or any judgment, order or decree of any court
with jurisdiction over the Issuer, any Material Subsid-
iary, or other governmental or regulatory authority with
<PAGE>
-7-
jurisdiction over the Issuer or any of the Material
Subsidiaries.
(ix) No labor dispute with the employees of the
Issuer, any of the Material Subsidiaries exists or, to the
knowledge of the Issuer, is imminent; and the Issuer is
not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufac-
turers or contractors which might be expected to result in
a Material Adverse Effect.
(x) Except as set forth in the Registration State-
ment and the Prospectus, there is no action, suit or pro-
ceeding before or by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowl-
edge of the Issuer, threatened, against or affecting the
Issuer, any of the Material Subsidiaries, which is
required to be disclosed in the Registration Statement
(other than as disclosed therein), or which may reasonably
be expected to result in a Material Adverse Effect or
which might materially and adversely affect the consumma-
tion of the transactions contemplated by this Agreement;
and except as set forth in the Registration Statement and
the Prospectus, there are no contracts or documents of the
Issuer, any of its subsidiaries or any Joint Venture which
are required to be filed as exhibits to the Registration
Statement or the documents incorporated by reference
therein by the 1933 Act, the 1933 Act Regulations, the
1934 Act or the rules and regulations of the Commission
under the 1934 Act (the "1934 Act Regulations") which have
not been so filed.
(xi) The Issuer and the Material Subsidiaries own or
possess, or can acquire on reasonable terms, the material
patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential informa-
tion, systems or procedures), trademarks, service marks
and trade names (collectively, "patent and proprietary
rights") presently employed by them in connection with the
business now operated by them, and none of the Issuer or
any of the Material Subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any patent
or proprietary rights, or of any facts which would render
any patent and proprietary rights invalid or inadequate to
protect the interest of the Issuer or any of the Material
<PAGE>
-8-
Subsidiaries and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy would result in a Material
Adverse Effect).
(xii) No authorization, approval or consent of any
court or governmental authority or agency is necessary in
connection with the offering, issuance or sale of the
Notes hereunder, except such as may be required under the
1933 Act or the 1933 Act Regulations, the Trust Indenture
Act or United States state securities laws.
(xiii) The Issuer and the Material Subsidiaries possess
such certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies
or bodies necessary to conduct the business now operated
by them, except for such certificates, authorizations or
permits of which the failure by the Company to possess
would not have a Material Adverse Effect, and none of the
Issuer or any of the Material Subsidiaries has received
any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit
which, if the subject of an unfavorable decision, ruling
or finding, would have a Material Adverse Effect.
(xiv) This Agreement has been, and at the Representa-
tion Date, the Pricing Agreement will have been, duly
authorized, executed and delivered by the Issuer.
(xv) The Indenture has been duly authorized by the
Issuer and, at Closing Time, will have been duly qualified
under the Trust Indenture Act and duly executed and deliv-
ered by the Issuer and will constitute a valid and binding
agreement of the Issuer, enforceable against the Issuer in
accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorga-
nization, fraudulent conveyance or transfer, moratorium or
other similar laws relating to or affecting creditor's
rights generally or by general equitable principles.
(xvi) The Notes have been duly authorized and, at
Closing Time, will have been duly executed by the Issuer
and, when authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase
price therefor specified in the Pricing Agreement, will
constitute valid and binding obligations of the Issuer,
enforceable against the Issuer in accordance with their
<PAGE>
-9-
terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent convey-
ance or transfer, moratorium or other similar laws relat-
ing to or affecting creditors' rights generally or by gen-
eral equitable principles, and will be in the form contem-
plated by, and entitled to the benefits of the Indenture.
(xvii) The Notes and the Indenture will conform in all
material respects to the respective statements relating
thereto contained in the Prospectus and will be in sub-
stantially the respective forms filed or incorporated by
reference, as the case may be, as exhibits to the Regis-
tration Statement.
(xviii) Except as set forth in the Prospectus, the
Issuer, its subsidiaries and the Joint Ventures are in
compliance in all material respects with all applicable
laws, statutes, ordinances, rules or regulations, except
where the failure to comply would not reasonably be likely
to, individually or in the aggregate, to have a Material
Adverse Effect.
(xix) The Issuer and the Material Subsidiaries have
good and marketable title to all properties (real and per-
sonal) owned by them, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions
or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) would not, singly or in
the aggregate, materially affect the value of such prop-
erty and would not have a Material Adverse Effect; and all
material properties held under lease by the Issuer and the
Material Subsidiaries are held under valid, subsisting and
enforceable leases.
(xx) The Issuer is not, and upon the issuance and
sale of the Notes as herein contemplated and the applica-
tion of the net proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds" will not
be, an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940
Act").
(xxi) The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time
they were or hereafter are filed with the Commission, com-
plied and will comply in all material respects with the
<PAGE>
-10-
requirements of the 1934 Act and the 1934 Act Regulations,
and, when read together with the other information in the
Prospectus, at the time of Registration Statement and any
post-effective amendments thereto become effective and at
Closing Time, will not contain an untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in the light of the circumstances under which
they were made, not misleading.
(xxii) Except as disclosed in the Registration State-
ment and the Prospectus, and except as would not individu-
ally or in the aggregate have a Material Adverse Effect,
(A) each of the Issuer, its subsidiaries and the Joint
Ventures is in compliance with all applicable Environmen-
tal Laws, (B) each of the Issuer and the Material Subsid-
iaries has all permits, authorizations and approvals
required under any applicable Environmental Laws and is in
compliance with their requirements, (C) there are no pend-
ing or, to the knowledge of the Issuer, threatened Envi-
ronmental Claims against the Issuer or any of the Material
Subsidiaries, and (D) the Issuer has no knowledge of any
circumstances with respect to any property or operations
of the Issuer or any of the Material Subsidiaries that
could reasonably be anticipated to form the basis of any
Environmental Claim against the Issuer or any of the Mate-
rial Subsidiaries.
For purposes of this Agreement, the following terms
shall have the following meanings: "Environmental Law"
means any foreign, federal, state, local or municipal
statute, law, rule, regulation, ordinance, code, policy or
rule of common law and any published judicial or adminis-
trative interpretation thereof including any judicial or
administrative order, consent decree or judgment binding
on the Issuer or any of the Material Subsidiaries, relat-
ing to the environment, health, safety or any chemical,
material or substance, exposure to which is prohibited,
limited or regulated by any such governmental authority.
"Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or viola-
tion, investigations or proceedings relating in any way to
any Environmental Law.
(xxiii) The Issuer, each of its subsidiaries and each
Joint Venture has filed all foreign, federal or state
<PAGE>
-11-
income and franchise tax returns required to be filed
(except insofar as the failure to file such returns would
not have a Material Adverse Effect) and have paid all
material taxes shown thereon as due, and there is no mate-
rial tax deficiency which has been or is reasonably likely
to be asserted against the Issuer or any of the Material
Subsidiaries; all material tax liabilities of the Issuer
and the Material Subsidiaries are adequately provided for
on the books of the Issuer and the Material Subsidiaries.
(xxiv) No person holds any right to include any securi-
ties in the Registration Statement that have not been
effectively waived.
(b) Any representation contained in any certificate
signed by any officer of the Issuer and delivered to the Under-
writer or to counsel for the Underwriter pursuant to the terms
of this Agreement shall be deemed a representation and warranty
by the Issuer to the Underwriter as to the matters covered
thereby.
SECTION 2. Sale and Delivery to the Underwriter;
Closing. (a) On the basis of the representations and warran-
ties herein contained and subject to the terms and conditions
herein set forth, the Issuer agrees to sell to the Underwriter,
and the Underwriter agrees to purchase from the Issuer, at the
purchase price set forth in the Pricing Agreement, the entire
aggregate principal amount of Notes.
(b) Payment of the purchase price for, and delivery
of, the Notes to be purchased by the Underwriter shall be made
at the offices of [ ] or
at such other place as shall be agreed upon by the Underwriter
and the Issuer, at [ ] A.M. on the third (fourth, if the
pricing shall occur after 4:30 P.M.) business day following the
date of execution of the Pricing Agreement, or such other time
not later than ten business days after such date as shall be
agreed upon by the Underwriter and the Issuer (such time and
date of payment and delivery being herein called "Closing
Time").
Payment shall be made to the Issuer by certified or
official bank check or checks drawn in New York Clearing House
funds or similar next day funds payable to the order of the
Issuer (or, if the Issuer and the Underwriter agree, by means
of a wire transfer of same day funds to one or more accounts
designated by the Issuer pursuant to terms whereby the
<PAGE>
-12-
Underwriter is compensated for the use of such funds for one
day), against delivery to the Underwriter of the Notes.
(c) A certificate for the Global Note shall be reg-
istered in the name of Cede & Co. at least one full business
day before Closing Time. The certificates for the Global Note
will be made available for examination and packaging by the
Underwriter in The City of New York not later than 10:00 A.M.
on the business day prior to Closing Time.
SECTION 3. Covenants of the Issuer. The Issuer cov-
enants with the Underwriter as follows:
(a) The Issuer will use its best efforts to cause
the Registration Statement to become effective (as and
when requested by the Underwriter) and, if the Issuer
elects to rely upon Rule 430A of the 1933 Act Regulations
and subject to Section 3(b), will comply with the require-
ments of Rule 430A of the 1933 Act Regulations and will
notify the Underwriter immediately, and confirm the notice
in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-
effective amendment), (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commis-
sion for any amendment to the Registration Statement or
any amendment or supplement to the Prospectus or for addi-
tional information, and (iv) of the issuance by the Com-
mission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any pro-
ceedings for that purpose. The Issuer will make every
reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment. If the
Issuer elects to rely on Rule 434 of the 1933 Act Regula-
tions, the Issuer will prepare a term sheet that complies
with the requirements of Rule 434 of the 1933 Act Regula-
tions. If the Issuer elects not to rely on Rule 434 of
the 1933 Act Regulations, the Issuer will provide the
Underwriter with copies of the form of Prospectus, in such
number as the Underwriter may reasonably request, and file
with the Commission such Prospectus in accordance with
Rule 424(b) of the 1933 Act Regulations by the close of
business in New York on the business day immediately suc-
ceeding the date of the Pricing Agreement. If the Issuer
elects to rely on Rule 434 of the 1933 Act Regulations,
the Issuer will provide the Underwriter with copies of the
Rule 434 Prospectus in such number as the Underwriter may
<PAGE>
-13-
reasonably request by the close of business in New York on
the business day immediately succeeding the date of the
Pricing Agreement.
(b) The Issuer will give the Underwriter notice of
its intention to file or prepare any amendment to the Reg-
istration Statement (including any post-effective amend-
ment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Issuer pro-
poses for use by the Underwriter in connection with the
offering of the Notes which differs from the Prospectus on
file at the Commission at the time the Registration State-
ment becomes effective, whether or not such revised pro-
spectus is required to be filed pursuant to Rule 424(b) of
the 1933 Act Regulations in any term sheet prepared in
reliance on Rule 434 of the 1933 Act Regulations), will
furnish the Underwriter with copies of any such amendment
or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such pro-
spectus to which the Underwriter or counsel for the Under-
writer shall object.
(c) The Issuer will deliver to the Underwriter a
signed copy of the Registration Statement as originally
filed and of each amendment thereto (including exhibits
filed therewith or incorporated by reference therein) and
will also deliver to the Underwriter as many conformed
copies of the Registration Statement as originally filed
and of each amendment thereto as the Underwriter may rea-
sonably request.
(d) The Issuer will deliver to the Underwriter,
without charge, from time to time until the effective date
of the Registration Statement (or, if the Issuer has
elected to rely upon Rule 430A of the 1933 Act Regula-
tions, until such time as the Pricing Agreement is exe-
cuted and delivered, as many copies of each preliminary
prospectus as the Underwriter may reasonably request, and
the Issuer hereby consents to the use of said copies for
purposes permitted by the 1933 Act. The Issuer will fur-
nish to the Underwriter, from time to time during the
period when the Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies
of the Prospectus (as amended or supplemented) as the
Underwriter may reasonably request for the purposes
<PAGE>
-14-
contemplated by the 1933 Act, the 1934 Act, the 1933 Act
Regulations or the 1934 Act Regulations.
(e) If any event shall occur as a result of which it
is necessary, in the opinion of counsel for the Under-
writer, to amend or supplement the Prospectus in order to
make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a
purchaser, the Issuer will forthwith amend or supplement
the Prospectus (in form and substance satisfactory to
counsel for the Underwriter) so that, as so amended or
supplemented, the Prospectus will not include an untrue
statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time it it
is delivered to a purchaser, not misleading, and the
Issuer will furnish to the Underwriter a reasonable number
of copies of such amendment or supplement.
(f) The Issuer will endeavor, in cooperation with
the Underwriter, to qualify the Notes for offering and
sale under the applicable securities laws of such states
and other jurisdictions of the United States as the Under-
writer may designate; provided, however, that the Issuer
shall not be obligated to qualify as a foreign corporation
in any jurisdiction in which it is not so qualified. In
each jurisdiction in which the Notes have been so quali-
fied, the Issuer will file such statements and reports as
may be required by the laws of such jurisdiction to con-
tinue such qualification in effect for a period of not
less than one year from the effective date of the Regis-
tration Statement.
(g) The Issuer will make generally available to its
security holders as soon as practicable, but not later
than 90 days after the close of the period covered
thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) cover-
ing a twelve month period beginning not later than the
first day of the Issuer's fiscal quarter next following
the "effective date" (as defined in said Rule 158) of the
Registration Statement.
(h) The Issuer will use the net proceeds received by
it from the sale of the Notes in the manner specified in
the Prospectus under "Use of Proceeds."
<PAGE>
-15-
(i) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A of the 1933 Act Regu-
lations, then immediately following the execution of the
Pricing Agreement, the Issuer will prepare, and file or
transmit for filing with the Commission in accordance with
such Rule 430A and Rule 424(b) of the 1933 Act Regula-
tions, copies of an amended Prospectus, or, if required by
such Rule 430A, a post-effective amendment to the Regis-
tration Statement (including an amended Prospectus), con-
taining all information so omitted.
(j) The Issuer will use its best efforts to effect
the listing of the Notes on the New York Stock Exchange
(the "NYSE").
(k) For a period of 30 days from the date of this
Agreement, the Issuer will not, and will not permit any of
its subsidiaries to, without the prior written consent of
the Underwriter, directly or indirectly, offer, sell,
grant any option to purchase or otherwise dispose of, any
debt securities of the Issuer or any of its subsidiaries
which are registered for sale to the public under the
securities laws of any jurisdiction.
(l) The Issuer, during the period when the Prospec-
tus, is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed
with the Commission pursuant to the 1934 Act within the
time periods required by the 1934 Act and the 1934 Act
Regulations.
SECTION 4. Payment of Expenses. (a) The Issuer
agrees to pay all expenses incident to the performance of the
Issuer's obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally
filed and of each amendment thereto, (ii) the preparation,
printing and delivery to the Underwriter of this Agreement, the
Pricing Agreement, the Indenture and such other documents as
may be required in connection with the offering, purchase, sale
and delivery of the Notes, (iii) the preparation, printing,
issuance and delivery of the certificates for the Notes to the
Underwriter, (iv) the fees and disbursements of the Issuer's
counsel, accountants and any other advisors, (v) the qualifica-
tion of the Notes under state securities laws in accordance
with the provisions of Section 3(f) hereof, including filing
<PAGE>
-16-
fees and the reasonable fees and disbursements of counsel for
the Underwriter in connection therewith and in connection with
the preparation of the Blue Sky Survey, (vi) the printing and
delivery to the Underwriter of copies of each preliminary pro-
spectus and of the Prospectus and any amendments or supplements
thereto, including any term sheet delivered by the Issuer pur-
suant to Rule 434 of the 1933 Act Regulations, (vii) the filing
fees incident to, and the fees and disbursements of counsel to
the Underwriter in connection with, review by the National
Association of Securities Dealers, Inc. (the "NASD") of the
terms of the sale of the Notes, (viii) any fees payable in con-
nection with the rating of the Notes, and (x) the fees and
expenses of the Trustee, including the fees and disbursements
of counsel for the Trustee in connection with the Indenture and
the Notes.
(b) If this Agreement is terminated by the Under-
writer in accordance with the provisions of Section 5 or Sec-
tion 9(a)(i) hereof, the Issuer shall reimburse the Underwriter
for all of its out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriter.
SECTION 5. Conditions of the Underwriter's Obliga-
tions. The obligations of the Underwriter to purchase and pay
for the Notes are subject to the continued accuracy in all
material respects of the representations and warranties of the
Issuer herein contained (including those contained in the Pric-
ing Agreement), to the accuracy of the statements of the Issuer
made in any certificate pursuant to the provisions hereof, to
the performance by the Issuer of its obligations hereunder
required to be performed prior to Closing Time, and to the fol-
lowing further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date hereof, or
with the consent of the Underwriter, at a later time and
date, not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later
time and date as may be approved by the Underwriter; and
at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threat-
ened by the Commission. If the Issuer has elected to rely
upon Rule 430A of the 1933 Act Regulations, the price of
the Notes and any price-related information previously
omitted from the effective Registration Statement pursuant
to such Rule 430A shall have been transmitted to the
<PAGE>
-17-
Commission for filing pursuant to Rule 424(b) of the 1933
Act Regulations within the prescribed time period and
prior to Closing Time the Issuer shall have provided evi-
dence satisfactory to the Underwriter of such timely fil-
ing, or a post-effective amendment providing such informa-
tion shall have been promptly filed and declared effective
in accordance with the requirements of Rule 430A of the
1933 Act Regulations.
(b) (i) The Issuer shall have furnished to the
Underwriter the opinion of Baker & Botts, L.L.P., special
U.S. counsel for the Issuer, dated as of Closing Time, in
form and substance satisfactory to counsel for the Under-
writer to the effect that:
(1) the execution by the Issuer of, and the
performance by the Issuer of its obligations under,
this Agreement, the Pricing Agreement, the Notes and
the Indenture will not contravene, to the best knowl-
edge of such counsel, any United States or New York
law or administrative regulation applicable to the
Issuer, and will not conflict with or result in a
breach of any of the terms or provisions of, or con-
stitute a default (or an event which with notice or
lapse of time or both, would constitute a default or
permit acceleration) under, or result in the creation
of any lien, charge or encumbrance upon any proper-
ties or assets of the Issuer under any agreement,
document or instrument known to such counsel to be
binding upon the Issuer that is material to the con-
dition (financial or otherwise), assets, earnings,
liabilities (contingent or otherwise) or prospects of
the Issuer, its consolidated subsidiaries and the
Joint Ventures, considered as one enterprise, or, to
the best of such counsel's knowledge, any judgment,
order or decree of any United States or New York gov-
ernmental body, agency or court having jurisdiction
over the Issuer;
(2) to the knowledge of such counsel, without
independent inquiry, there is no pending or threat-
ened action, suit or proceeding before any court or
governmental agency, authority or body or any arbi-
trator involving the Issuer, any of the Material Sub-
sidiaries required to be disclosed in the Prospectus,
which is not adequately disclosed in the Prospectus,
and there is no contract or other document that is
<PAGE>
-18-
material to the condition (financial or otherwise),
assets, earnings, liabilities (contingent or other-
wise) or prospects of the Issuer, its consolidated
subsidiaries and the Joint Ventures, considered as
one enterprise, that is required to be described in
the Registration Statement or Prospectus, or to be
filed as an exhibit, which is not described or filed
as required;
(3) the Registration Statement has become
effective under the 1933 Act; the Indenture has been
duly qualified under the Trust Indenture Act; any
required filing of the Prospectus pursuant to Rule
424(b) of the 1933 Act Regulations has been made in
the manner and within the time period required
thereby; to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registra-
tion Statement has been issued and no proceedings for
that purpose have been instituted or threatened;
(4) the Registration Statement and the Prospec-
tus (other than the Statement of Eligibility on Form
T-1 of the Trustee (the "Form T-1") and the financial
statements and other financial, accounting or statis-
tical information contained therein as to which such
counsel need express no opinion) comply as to form in
all material respects with the applicable require-
ments of the 1933 Act and the 1933 Act Regulations
and, if applicable, the Rule 434 Prospectus conforms
to the requirements of Rule 434 under the 1933 Act
Regulations;
(5) each of this Agreement, the Pricing Agree-
ment and the Indenture has been duly executed and
delivered by the Issuer;
(6) no consent, approval, authorization or
order of or filing with any court or governmental
agency or body is required under the laws of the
United States or the State of New York for the execu-
tion and delivery by the Issuer of this Agreement,
the Pricing Agreement, the Indenture, or the consum-
mation by the Issuer of the transactions contemplated
herein or therein, except such as have been obtained
or made under the 1933 Act, the 1934 Act and the
Trust Indenture Act and such as may be required under
the "Blue Sky" laws of any jurisdiction in connection
<PAGE>
-19-
with the purchase and distribution of the Notes by
the Underwriter (as to which such counsel need
express no opinion) and such other approvals (speci-
fied in such opinion) as have been obtained;
(7) the Notes are in the form contemplated by
the Indenture and, when duly authorized and executed
by the Issuer and authenticated by the Trustee in
accordance with the Indenture (assuming the due
authorization of the Indenture by the Issuer and the
due authorization, execution and delivery of the
Indenture by the Trustee) and delivered to and paid
for by the Underwriter in accordance with the terms
of this Agreement and the Pricing Agreement, will
constitute valid and legally binding obligations of
the Issuer enforceable against the Issuer in accor-
dance with their terms, subject to applicable bank-
ruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer and similar laws
affecting creditors' rights and remedies generally
and subject to the effect of general principles of
equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and the discre-
tion of the court before which any proceeding there-
for may be brought, and will be entitled to the bene-
fits of the Indenture;
(8) the Indenture (assuming the due authoriza-
tion of the Indenture by the Issuer and the due
authorization, execution and delivery by the Trustee)
constitutes a valid and legally binding instrument of
the Issuer, enforceable against the Issuer in accor-
dance with its terms, subject to applicable bank-
ruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer and similar laws
affecting creditors' rights and remedies generally
and subject to the effect of general principles of
equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and the discre-
tion of the court before which any proceeding there-
for may be brought; and
(9) the Notes and the Indenture each conform in
all material respects to the description thereof in
the Prospectus.
<PAGE>
-20-
In addition such counsel shall state that such coun-
sel has participated in conferences with certain officers
and other representatives of the Issuer, counsel for the
Issuer, representatives of the Underwriter and representa-
tives of the independent auditors for the Issuer at which
the contents of the Registration Statement and the Pro-
spectus and related matters were discussed and, although
such counsel does not pass upon, and does not assume any
responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement
or the Prospectus, such counsel advises the Underwriter
that, on the basis of the foregoing (relying as to materi-
ality to a large extent upon the opinions of officers and
other representatives of the Issuer), no facts have come
to the attention of such counsel which lead such counsel
to believe that the Registration Statement, when such Reg-
istration Statement became effective or as of the Repre-
sentation Date, or the Prospectus as of the Representation
Date (unless the term "Prospectus" refers to a prospectus
which has been provided to the Underwriter by the Issuer
for use in connection with the offering of the Notes which
differs from the Prospectus on file at the Commission at
the Representation Date, in which case at the time it is
first provided to the Underwriter for such use) or as of
Closing Time, contained or contains an untrue statement of
a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in
light of the circumstances under which they are being
made) not misleading (it being understood that such coun-
sel has not been requested to and does not make any com-
ment with respect to the Trustee's Statement of Eligibil-
ity on Form T-1, the exhibits to the Registration State-
ment, the financial statements, and the notes thereto and
related schedules, and other financial or statistical data
found in or derivable from the financial, accounting or
internal records of the Issuer and its subsidiaries and
any forward-looking or projected financial or statistical
data relating to the Issuer and its subsidiaries included
in the Registration Statement or the Prospectus).
In rendering such opinions, such counsel (A) need not
express any opinion with regard to the application of laws
of any jurisdiction other than the federal law of the
United States and the laws of the State of New York and,
(B) may rely, as to matters of fact, to the extent they
deem proper, on representations or certificates of
<PAGE>
-21-
responsible officers of the Issuer and its subsidiaries
and certificates of public officials; provided that such
certificates have been delivered to the Underwriter. Ref-
erences to the Prospectus in this subsection (b)(i)
include any supplements thereto at or prior to Closing
Time.
(ii) The Issuer shall have furnished to the Under-
writer the opinion of John Tsai, Esq., assistant counsel
to the Issuer, dated as of Closing Time, in form and sub-
stance satisfactory to counsel for the Underwriter to the
effect that:
(1) the Issuer, each of its subsidiaries and
each Joint Venture is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in which such qualifi-
cation is required, whether by reason of the owner-
ship or leasing of property or the conduct of busi-
ness, except where the failure so to qualify or to be
in good standing would not have a Material Adverse
Effect;
(2) all of the issued and outstanding shares of
capital stock or ownership interests of each Material
Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable, and, to
such counsel's knowledge, except as described in the
Prospectus, all of the issued and outstanding shares
of capital stock or ownership interests of each Mate-
rial Subsidiary of the Issuer and each Joint Venture
are owned by the Issuer, directly or through its sub-
sidiaries, and except as disclosed in the Prospectus
are free and clear of any lien, charge, security
interest or other encumbrance; and none of the shares
or ownership interests of any Material Subsidiary was
issued to the Issuer in violation of preemptive
rights applicable to any such entity;
(3) to the best knowledge of such counsel, the
descriptions of or references to contracts, inden-
tures, mortgages, loan agreements, notes, leases or
other documents, instruments or agreements, in the
Prospectus and the Registration Statement are correct
and, to the best knowledge of such counsel, no
default exists in the due performance or observance
of any material obligation, agreement, covenant or
<PAGE>
-22-
condition contained in any contract, indenture, mort-
gage, loan agreement, note, lease or other instrument
described or referred to in the Prospectus or the
Registration Statement, or any document filed there-
with which individually or in the aggregate could
reasonably be expected to have a Material Adverse
Effect;
(4) to the knowledge of such counsel, other
than as described in the Prospectus: (A) none of the
Issuer, any of its subsidiaries or any Joint Venture
has failed to obtain any license, permit, franchise
or other administrative, governmental or regulatory
approval necessary to the ownership of its property
or to the conduct of its business, which failure to
obtain has or could have a Material Adverse Effect;
(B) no revocation or limitation of any permit,
license, franchise or approval held by the Issuer,
any of its subsidiaries or any Joint Venture is pend-
ing or threatened and none of the Issuer, any of its
subsidiaries or any Joint Venture is in default or
violation of any thereof, and the authorization,
issuance and delivery of the Notes and the compliance
by the Issuer with the terms of the Indenture do not
and will not conflict with, or result in a breach of
any of the terms or provisions of, or constitute a
default under, any of such permits, licenses, fran-
chises and approvals where such revocation, limita-
tion, default, violation, conflict or breach has or
could have a Material Adverse Effect; and (C) there
is no threatened or pending change in any such law,
rule or regulation which would have a Material
Adverse Effect;
(5) the Trustee at its principal office in The
City of New York has been duly appointed registrar
and paying agent for the Notes; and the Trustee has
been duly appointed trustee for the holders of the
Notes;
(6) to the knowledge of such counsel, without
independent inquiry, there is no pending or threat-
ened action, suit or proceeding before any court or
governmental agency, authority or body or any arbi-
trator involving the Issuer, any of the Material Sub-
sidiaries required to be disclosed in the Prospectus,
which is not adequately disclosed in the Prospectus,
<PAGE>
-23-
and there is no contract or other document that is
material to the condition (financial or otherwise),
assets, earnings, liabilities (contingent or other-
wise) or prospects of the Issuer, its consolidated
subsidiaries and the Joint Ventures, considered as
one enterprise, that is required to be described in
the Registration Statement or Prospectus, or to be
filed as an exhibit, which is not described or filed
as required;
(7) no consent, approval, authorization or
order of or filing with any court or governmental
agency or body is required under the laws of the
United States or the State of Louisiana for the exe-
cution and delivery by the Issuer of this Agreement,
the Pricing Agreement, the Indenture, or the consum-
mation by the Issuer of the transactions contemplated
herein or therein, except such as have been obtained
or made under the 1933 Act, the 1934 Act and the
Trust Indenture Act and such as may be required under
the "Blue Sky" laws of any jurisdiction in connection
with the purchase and distribution of the Notes by
the Underwriter (as to which such counsel need
express no opinion) and such other approvals (speci-
fied in such opinion) as have been obtained;
(8) the statements in the Prospectus under the
headings "Business -- Governmental Regulation,"
"Business -- Legal Proceedings and Insurance," "Cer-
tain Transactions and Relationships" and "Description
of Certain Indebtedness" insofar as such statements
constitute a summary of statutes, regulations, legal
matters, documents, agreements or proceedings
referred to therein, provide a fair summary of the
material aspects of such statutes, regulations, legal
matters, documents, agreements and proceedings; and
(9) the Issuer is not an "investment company"
within the meaning of the Investment Company Act of
1940, as amended, nor is the Issuer a holding company
or a subsidiary of a holding company under the Public
Utility Holding Company Act of 1935.
In addition such counsel shall state that such coun-
sel has participated in conferences with certain officers
and other representatives of the Issuer, counsel for the
Issuer, representatives of the Underwriter and
<PAGE>
-24-
representatives of the independent auditors for the Issuer
at which the contents of the Registration Statement and
the Prospectus and related matters were discussed and,
although such counsel does not pass upon, and does not
assume any responsibility for, the accuracy, completeness
or fairness of the statements contained in the Registra-
tion Statement or the Prospectus, such counsel advises the
Underwriter that, on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of
officers and other representatives of the Issuer), no
facts have come to the attention of such counsel which
lead such counsel to believe that the Registration State-
ment, when such Registration Statement became effective or
as of the Representation Date, or the Prospectus as of the
Representation Date (unless the term "Prospectus" refers
to a prospectus which has been provided to the Underwriter
by the Issuer for use in connection with the offering of
the Notes which differs from the Prospectus on file at the
Commission at the Representation Date, in which case at
the time it is first provided to the Underwriter for such
use) or as of Closing Time, contained or contains an
untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or
necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which
they are being made) not misleading (it being understood
that such counsel has not been requested to and does not
make any comment with respect to the Trustee's Statement
of Eligibility on Form T-1, the exhibits to the Registra-
tion Statement, the financial statements, and the notes
thereto and related schedules, and other financial or sta-
tistical data found in or derivable from the financial,
accounting or internal records of the Issuer and its sub-
sidiaries and any forward-looking or projected financial
or statistical data relating to the Issuer and its subsid-
iaries included in the Registration Statement or the
Prospectus).
In rendering such opinions, such counsel need not
express any opinion with regard to the application of laws
of any jurisdiction other than the federal law of the
United States and the laws of the State of Louisiana.
References to the Prospectus in this subsection (b)(ii)
include any supplements thereto at or prior to Closing
Time.
<PAGE>
-25-
(iii) (A) The Issuer shall have furnished to the
Underwriter the opinion of Durling & Durling, Panamanian
counsel for the Issuer, dated as of Closing Time, in form
and substance satisfactory to counsel to the Underwriter
to the effect that:
(1) the Issuer has been duly organized and is
validly existing and in good standing under the laws
of the Republic of Panama, with full power and
authority to own, lease and operate its properties
and conduct its business as described in the Prospec-
tus;
(2) the statements in the Prospectus under the
caption "Certain Tax Considerations -- Panamanian
Taxes" completely and accurately summarize the mate-
rial Panamanian tax consequences of owning any of the
Notes;
(3) the issuance, delivery and sale to the
Underwriter of the Notes are not subject to any tax
imposed by any tax authority under the laws of the
Republic of Panama;
(4) the issuance of the Notes is not subject to
preemptive or other similar rights arising by opera-
tion of law, under the charter or by-laws of the
Issuer or, to the best knowledge of such counsel,
otherwise;
(5) the execution by the Issuer of, and the
performance by the Issuer of its obligations under,
this Agreement, the Pricing Agreement, the Notes and
the Indenture will not contravene the Certificate of
Incorporation or by-laws of the Issuer;
(6) to the knowledge of such counsel, without
independent inquiry, there is no pending or threat-
ened action, suit or proceeding before any court or
governmental agency, authority or body or any arbi-
trator involving the Issuer, any of the Material Sub-
sidiaries required to be disclosed in the Prospectus,
which is not adequately disclosed in the Prospectus,
and there is no contract or other document that is
material to the condition (financial or otherwise),
assets, earnings, liabilities (contingent or other-
wise) or prospects of the Issuer, its consolidated
<PAGE>
-26-
subsidiaries and the Joint Ventures, considered as
one enterprise, that is required to be described in
the Registration Statement or Prospectus, or to be
filed as an exhibit, which is not described or filed
as required;
(7) no consent, approval, authorization or
order of or filing with any court or governmental
agency or body is required under the laws of Panama
for the execution and delivery by the Issuer of this
Agreement, the Pricing Agreement, the Indenture, or
the consummation by the Issuer of the transactions
contemplated herein or therein, except such as have
been obtained;
(8) each of this Agreement, the Pricing Agree-
ment, the Indenture and the Notes have been duly
authorized by the Issuer;
(9) the statements in the Prospectus under the
headings "Enforceability of Civil Liabilities under
the Federal Securities Laws," insofar as such state-
ments constitute a summary of statutes, rules, regu-
lations or legal matters, provide an accurate summary
of the material provisions of such statutes, rules,
regulations or legal matters;
(10) the issued and outstanding capital stock
of the Issuer is as set forth in the Prospectus in
the section captioned "Capitalization";
(11) the Panamanian courts will recognize and
give effect to (a) the choice of the law of the State
of New York ("New York law") as the law governing
this Agreement, the Indenture and the Notes and (b)
the appointment by the Issuer of Corporation Trust
System, as its agent to receive service of process in
the United States of America under this Agreement,
the Indenture and the Notes, and to the provisions in
this Agreement, the Indenture and the Notes whereby
the Issuer submits to the non-exclusive jurisdiction
of any Federal or state court located in the Borough
of Manhattan in The City of New York (a "New York
Court"); and the Issuer has the power to submit and
has taken all necessary corporate action to submit to
the non-exclusive jurisdiction of a New York Court;
<PAGE>
-27-
(12) the Panamanian courts will recognize a
final and conclusive judgment against the Issuer for
a definite amount by a New York Court in an action
arising out of or in connection with (a) the Notes or
(b) this Agreement as creating a debt enforceable
against the Issuer by a judgment creditor;
(13) payments of interest and principal in
respect of the Notes are not subject to any withhold-
ing or similar charges or deductions by or in respect
of any Taxing Authority (as defined on the Indenture)
of the Republic of Panama or any political subdivi-
sion thereof; and
(14) none of the Notes, this Agreement, the
Indenture or any of the documents or instruments
entered into in connection therewith are subject to
any registration tax, stamp duty or similar tax or
duty imposed by the Republic of Panama or any politi-
cal subdivision thereof.
In rendering such opinions, such counsel (A) need not
express any opinion with regard to the application of laws
of any jurisdiction other than the laws of the Republic of
Panama and the laws of each jurisdiction therein and (B)
may rely, as to matters of fact, to the extent they deem
proper, on representations or certificates of responsible
officers of the Issuer and certificates of public offi-
cials; provided that such certificates have been delivered
to the Underwriter. References to the Prospectus in this
subsection (b)(iii) include any supplements thereto at or
prior to Closing Time.
(c) The Underwriter shall have received the favor-
able opinion, dated as of Closing Time, of Cahill Gordon &
Reindel, counsel for the Underwriter, with respect to the
matters set forth in clauses (3), (4), (7) (assuming the
due authorization, execution and delivery of the Indenture
by the Issuer), (8) (assuming the due authorization, exe-
cution and delivery of the Indenture by the Issuer) and
(9) of subsection (b) (i) of this Section.
In giving its opinion required by this subsection (c)
of this Section 5, Cahill Gordon & Reindel shall addition-
ally state that such counsel has participated in confer-
ences with certain officers and other representatives of
the Issuer, counsel for the Issuer, representatives of the
<PAGE>
-28-
Underwriter and representatives of the independent audi-
tors for the Issuer at which the contents of the Registra-
tion Statement and the Prospectus and related matters were
discussed and, although such counsel does not pass upon,
and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in
the Registration Statement or the Prospectus, such counsel
advises the Underwriter that, on the basis of the forego-
ing (relying as to materiality to a large extent upon the
opinions of officers and other representatives of the
Issuer), no facts have come to the attention of such coun-
sel which lead such counsel to believe that the Registra-
tion Statement, when such Registration Statement became
effective or as of the Representation Date, or the Pro-
spectus as of the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been pro-
vided to the Underwriter by the Issuer for use in connec-
tion with the offering of the Notes which differs from the
Prospectus on file at the Commission at the Representation
Date, in which case at the time it is first provided to
the Underwriter for such use), contained an untrue state-
ment of a material fact or omitted to state a material
fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in
light of the circumstances under which they are being
made) not misleading (it being understood that such coun-
sel has not been requested to and does not make any com-
ment with respect to the Trustee's Statement of Eligibil-
ity on Form T-1, the exhibits to the Registration State-
ment, the financial statements, and the notes thereto and
related schedules, and other financial, accounting or sta-
tistical data found in or derivable from the financial or
internal records of the Issuer and its subsidiaries and
any forward-looking or projected financial or statistical
data relating to the Issuer and its subsidiaries included
in the Registration Statement or the Prospectus).
(d) At Closing Time there shall not have been, since
the date hereof or since the respective dates as of which
information is given in the Prospectus, any material
adverse change in the condition (financial or otherwise),
assets, earnings or liabilities (contingent or otherwise)
of the Issuer, its consolidated subsidiaries and the Joint
Ventures considered as one enterprise, whether or not
arising in the ordinary course of business, and the Under-
writer shall have received a certificate of the President
or a Vice President of the Issuer and of the chief
<PAGE>
-29-
financial or chief accounting officer of the Issuer, dated
as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations
and warranties in Section 1 hereof are true and correct in
all material respects with the same force and effect as
though expressly made at and as of Closing Time, (iii) the
Issuer has complied in all material respects with all
agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and
(iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings
for that purpose have been initiated or threatened by the
Commission. As used in this Section 5(d), the term "Pro-
spectus" means the Prospectus in the form first used to
confirm sales of the Notes.
(e) (i) At the time of the execution of this Agree-
ment, the Underwriter shall have received from Ernst &
Young, L.L.P. a letter dated such date, in form and sub-
stance reasonably satisfactory to the Underwriter contain-
ing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain
financial information contained in the Registration State-
ment and the Prospectus.
(ii) At the time of the execution of this Agreement,
the Underwriter shall have received from KPMG Accountants,
N.V. a letter dated such date, in form and substance rea-
sonably satisfactory to the Underwriter, containing state-
ments and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with
respect to the Combined Joint Venture Financial Statements
contained in the Registration Statement and the
Prospectus.
(f) At Closing Time the Underwriter shall have
received from Ernst & Young LLP and KPMG Accountants, N.V.
a letter, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section.
(g) At Closing Time, the NASD shall have approved in
writing the Underwriter's participation in the distribu-
tion of the Notes and such approval shall not have been
withdrawn or limited.
<PAGE>
-30-
(h) At the Closing Time the Notes shall be rated at
least [ ] by Moody's Investors Service Inc. and [ ]
by Standard & Poor's Corporation, and since the date of
this Agreement (i) no downgrading shall have occurred in
the rating accorded any of the securities of the Issuer by
any "nationally recognized statistical rating organiza-
tion," as that term is defined by the Commission for pur-
poses of Rule 436(g)(2) of the 1933 Act Regulations, and
(ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible
negative implications, its rating of the securities of the
Issuer.
(i) At Closing Time, counsel for the Underwriter
shall have been furnished with such information, certifi-
cates and documents as they may reasonably require for the
purpose of enabling them to pass upon the issuance and
sale of the Notes as contemplated herein and related pro-
ceedings, or in order to evidence the accuracy of any of
the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all opinions
and certificates mentioned above or elsewhere in this
Agreement shall be reasonably satisfactory in form and
substance to the Underwriter and counsel for the
Underwriter.
If any condition specified in this Section 5 shall
not have been fulfilled in all material respects when and as
required to be fulfilled, this Agreement may be terminated by
the Underwriter by notice to the Issuer, and such termination
shall be without liability of any party to any other party
except as provided in Section 4. Notwithstanding any such ter-
mination, the provisions of Sections 6, 7 and 8 shall remain in
effect.
SECTION 6. Indemnification. (a) The Issuer agrees
to indemnify and hold harmless the Underwriter and each person,
if any, who controls the Underwriter within the meaning of Sec-
tion 15 of the 1933 Act or Section 20 of the 1934 Act as fol-
lows:
(i) against any and all loss, liability, claim, dam-
age and expense whatsoever, as incurred, arising out of
any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or
any amendment thereto), including the information deemed
to be part of the Registration Statement pursuant to Rule
<PAGE>
-31-
430A or Rule 434 of the 1933 Act Regulations, if applica-
ble, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary
to make the statements therein not misleading or arising
out of any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto),
or the omission or alleged omission therefrom of a mate-
rial fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, dam-
age and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation,
or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omis-
sion, or any such alleged untrue statement or omission;
provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the
Issuer; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel
chosen by the Underwriter), reasonably incurred in inves-
tigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omis-
sion, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or
(ii) above;
provided, however, that (A) this indemnity agreement shall not
apply to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and
in conformity with written information furnished to the Issuer
by the Underwriter expressly for use in the Registration State-
ment (or any amendment thereto), including the information
deemed to be part of the Registration Statement pursuant to
Rule 430A or Rule 434 of the 1933 Act Regulations, or any pre-
liminary prospectus or the Prospectus (or any amendment or sup-
plement thereto) and (B) such indemnity with respect to any
preliminary prospectus shall not inure to the benefit of the
Underwriter (or any person controlling such Underwriter) on
<PAGE>
-32-
account of any such loss, claim, damage, liability or expense
arising from the sale of any of the Notes by the Underwriter to
any person if a copy of the Prospectus shall not have been
delivered or sent to such person at or prior to the confirma-
tion of the sale of the Notes to such person in any case where
such delivery is required by the 1933 Act and the untrue state-
ment or omission of a material fact contained in such prelimi-
nary prospectus was corrected in the Prospectus (provided that
the Issuer shall have delivered the Prospectus to the Under-
writer in requisite quantity on a timely basis in order to per-
mit the Prospectus to be sent or given).
(b) The Underwriter agrees to indemnify and hold
harmless the Issuer, its directors, each of its officers who
signed the Registration Statement, and each person who controls
the Issuer within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or
any amendment thereto), including the information deemed to be
part of the Registration Statement pursuant to Rule 430A or
Rule 434 of the 1933 Act Regulations, or any preliminary pro-
spectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written infor-
mation furnished to the Issuer by the Underwriter expressly for
use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment
or supplement thereto).
(c) Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party
of any action commenced against it in respect of which indem-
nity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially
prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In the case of parties
indemnified pursuant to Section 6(a) above, counsel to the
indemnified parties shall be selected by the Underwriter, and,
in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by
the Issuer. An indemnifying party may participate at its own
expense in the defense of any such action; provided that coun-
sel to the indemnifying party shall not (except with the
<PAGE>
-33-
consent of the indemnified party) also be counsel to the
indemnified party. If it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may
assume the defense of such action with counsel chosen as pro-
vided above, unless such indemnified parties reasonably object
to such assumption on the ground that there may be legal
defenses available to them which are different from or in addi-
tion to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred there-
after in connection with such action. In no event shall the
indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connec-
tion with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same gen-
eral allegations or circumstances. No indemnifying party
shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indem-
nification or contribution could be sought under this Section 6
or Section 7 hereof (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such
litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpa-
bility or a failure to act by or on behalf of any indemni-
fied party.
(d) If at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(ii) effected without its written
consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior
to such settlement being entered into and (iii) such indemnify-
ing party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such
settlement.
<PAGE>
-34-
SECTION 7. Contribution. If the indemnification
provided for in Section 6 hereof is for any reason unavailable
to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall con-
tribute to the aggregate amount of such losses, liabilities,
claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Issuer on the one
hand and the Underwriter on the other hand from the offering of
the Notes pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the rela-
tive benefits referred to in clause (i) above but also the rel-
ative fault of the Issuer on the one hand and of the Under-
writer on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Issuer on the
one hand and the Underwriter on the other hand in connection
with the offering of the Notes pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Notes pursuant to this
Agreement (before deducting expenses) received by the Issuer
and the total underwriting discount received by the Under-
writer, in each case as set forth on the cover of the Prospec-
tus, or, if Rule 434 of the 1933 Act Regulations is used, the
corresponding location on the term sheet delivered by the
Issuer pursuant to such rule bear to the aggregate initial pub-
lic offering price of the Notes as set forth on such cover.
The relative fault of the Issuer on the one hand and
the Underwriter on the other hand shall be determined by refer-
ence to, among other things, whether any such untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information sup-
plied by the Issuer or by the Underwriter and the parties' rel-
ative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Issuer and the Underwriter agree that it would
not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7.
<PAGE>
-35-
The aggregate amount of losses, liabilities, claims, damages
and expenses incurred by an indemnified party and referred to
above in this Section 7 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based
upon any such untrue or alleged untrue statement or omission or
alleged omission.
Notwithstanding the provisions of Section 7, the
Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price at which the
Notes underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which
the Underwriter has otherwise been required to pay by reason of
any such untrue or alleged untrue statement or omission or
alleged omission.
No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any,
who controls the Underwriter within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the
same rights to contribution as the Underwriter, and each direc-
tor of the Issuer, each officer of the Issuer who signed the
Registration Statement, and each person who controls the Issuer
within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as
the Issuer.
SECTION 8. Representations, Warranties and Agree-
ments To Survive Delivery. All representations, warranties,
and agreements contained in this Agreement and the Pricing
Agreement, or contained in certificates of officers of the
Issuer submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by
or on behalf of the Underwriter or any controlling person, or
by or on behalf of the Issuer, and shall survive delivery of
and payment for the Notes hereunder.
SECTION 9. Termination of Agreement. (a) The
Underwriter may terminate this Agreement by notice to the
Issuer, at any time prior to Closing Time (i) if there has
<PAGE>
-36-
been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition
(financial or otherwise), assets, earnings or liabilities
(contingent or otherwise) of the Issuer, its consolidated sub-
sidiaries and the Joint Ventures considered as one enterprise,
or (ii) if there has occurred any material adverse change in
the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis
or any change or development involving a prospective change in
national or international political, financial or economic con-
ditions, in each case the effect of which is such as to make
it, in the judgment of the Underwriter, impracticable to market
the Notes or to enforce contracts for the sale of the Notes, or
(iii) if trading in any of the securities of the Issuer or
McDermott International, Inc. has been suspended or limited by
the Commission or the New York Stock Exchange, or if trading
generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or
limited, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any
of said exchanges or by such system or by order of the Commis-
sion, the NASD or any other governmental authority, or (C) a
banking moratorium has been declared by either United States or
New York authorities. As used in this Section 9(a), the term
"Prospectus" means the Prospectus in the form first used to
confirm sales of the Notes.
(b) If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any
party to any other party except as provided in Section 4
hereof, and provided further that Sections 6, 7 and 8 shall
survive such termination and remain in full force and effect.
SECTION 10. Notices. All notices and other communi-
cations hereunder shall be in writing and shall be deemed to
have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Underwriter shall be
directed to the Underwriter at Merrill Lynch World Headquar-
ters, North Tower, World Financial Center, New York, New York
10281-1305, attention of Mr. Michael F. Senft; notices to the
Issuer shall be directed to the Issuer at 1450 Poydras Street,
New Orleans, Louisiana 70112-6050, attention of General
Counsel.
SECTION 11. Parties. This Agreement and the Pricing
Agreement shall each inure to the benefit of and be binding
<PAGE>
-37-
upon the Underwriter and the Issuer and their respective suc-
cessors. Nothing expressed or mentioned in this Agreement or
the Pricing Agreement is intended or shall be construed to give
any person, firm or corporation, other than the Underwriter and
the Issuer and their respective successors and the controlling
persons and officers and directors referred to in Sections 6
and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this
Agreement or the Pricing Agreement or any provision herein or
therein contained. This Agreement and the Pricing Agreement
and all conditions and provisions hereof and thereof are
intended to be for the sole and exclusive benefit of the Under-
writer and the Issuer and their respective successors, and said
controlling persons and officers and directors and their heirs
and legal representatives, and for the benefit of no other per-
son, firm or corporation. No purchaser of Notes from the
Underwriter shall be deemed to be a successor by reason merely
of such purchase.
SECTION 12. Governing Law and Time. This Agreement
and the Pricing Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified
times of day refer to New York City time unless otherwise
indicated.
SECTION 13. The Article and Section headings herein
are for convenience only and shall not affect the construction
hereof.
SECTION 14. Counterparts. This Agreement may be
executed in one or more counterparts and, when a counterpart
has been executed by each party, all such counterparts taken
together shall constitute one and the same agreement.
SECTION 15. Agent for Service; Submission to Juris-
diction; Waiver of Immunities. By the execution and delivery
of this Agreement, the Issuer (i) acknowledges that it has, by
separate written instrument, irrevocably designated and
appointed Corporation Trust System, as its authorized agent
upon which process may be served in any suit or proceeding
arising out of or relating to this Agreement, the Notes or the
Indenture that may be instituted in any federal or state court
in the State of New York or brought under federal or state
securities laws, and acknowledges that Corporation Trust System
has irrevocably accepted such designation, (ii) irrevocably
submits to the jurisdiction of any such court in any such suit
<PAGE>
-38-
or proceeding, and (iii) irrevocably agrees that service of
process upon Corporation Trust System and written notice of
said service to the Issuer in accordance with Section 10, shall
be deemed in every respect effective service of process upon
the Issuer in any such suit or proceeding. The Issuer further
agrees to take any and all action, including the execution and
filing of any and all such documents and instruments, as may be
necessary to continue such designation and appointment of Cor-
poration Trust System in full force and effect so long as any
of the Notes shall be outstanding; provided, however, that the
Issuer may, by written notice to the Underwriter, designate
such additional or alternative agents for service of process
under this Section 15 that (i) maintains an office located in
the Borough of Manhattan, City of New York in the State of New
York and (ii) are either (x) counsel for the Issuer or (y) a
corporate service company which acts as agent for service of
process for other persons in the ordinary course of its busi-
ness. Such written notice shall identify the name of such
agent for process and the address of the office of such agent
for process in the Borough of Manhattan, City of New York,
State of New York.
To the extent that the Issuer has or hereafter may
acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment
prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, it hereby
irrevocably waives such immunity in respect of its obligations
under the above-referenced documents, to the extent permitted
by law.
If the foregoing is in accordance with your under-
standing of our agreement, please sign and return to the Issuer
a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement between the
Underwriter and the Issuer in accordance with its terms.
Very truly yours,
J. RAY McDERMOTT, S.A.
By:
-----------------------------
Title:
<PAGE>
-39-
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
---------------------------------
Title:
<PAGE>
EXHIBIT A
J. RAY McDERMOTT, S.A.
$250,000,000
% Senior Subordinated Notes due 2006
PRICING AGREEMENT
June , 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Dear Sirs:
Reference is made to the Purchase Agreement dated
, 1996 (the "Purchase Agreement") among J. Ray
McDermott, S.A., a Panama corporation (the "Issuer"), and you,
relating to the purchase by you from the Issuer, subject to the
terms and conditions set forth therein, of $250,000,000 aggre-
gate principal amount of % Senior Subordinated Notes due
2006 (the "Notes") of the Issuer. This Agreement is the Pric-
ing Agreement referred to in the Purchase Agreement and capi-
talized terms used herein without definition shall have the
meanings assigned to them in the Purchase Agreement.
Pursuant to Section 2 of the Purchase Agreement, the
Issuer agrees with you as follows:
1. The initial public offering price of the Notes,
determined as provided in said Section 2, shall be % of
the principal amount thereof, plus accrued interest, if any,
from , 1996.
2. The purchase price of the Notes to be paid by the
Underwriter shall be % of the principal amount thereof.
<PAGE>
-2-
3. The interest rate to be borne by the Notes shall
be % per annum.
4. The Notes will mature on , 2006.
5. The Notes will be redeemable at the election of
the Issuer at % of principal amount at any time on or
after , 2001 and prior to , 2002, at
% of principal amount on or after , 2002 and
prior to , 2003, at % of principal amount on
or after , 2003 and prior to , 2004,
and at 100% of principal amount at any time on or after ,
2004 in each case, plus accrued and unpaid interest, if any.
6. The interest payment dates shall be and
commencing , 1996.
The Issuer represents and warrants to the Underwriter
that the representations and warranties of the Issuer set forth
in Section 1 of the Purchase Agreement are accurate in all
material respects as though expressly made at and as of the
date hereof.
This Pricing Agreement shall be governed by the
internal laws of the State of New York.
<PAGE>
-3-
If the foregoing is in accordance with your under-
standing of our agreement, please sign and return to us a coun-
terpart hereof, whereupon this instrument, along with all coun-
terparts and together with the Purchase Agreement, will be a
binding agreement between you and the Issuer in accordance with
its terms and the terms of the Purchase Agreement.
Very truly yours,
J. RAY McDERMOTT, S.A.
By:
------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
---------------------------------
Title:
<PAGE>
EXHIBIT 4.1
================================================================================
--------------------
J. Ray McDermott, S.A., as Issuer
and
Citibank, N.A., as Trustee
--------------------
INDENTURE
Dated as of , 1996
--------------------
$250,000,000
% Senior Subordinated Notes due 2006
================================================================================
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of , 1996
Trust Indenture Indenture
Act Section Section
Section 310(a)(1) ............................... 7.11
(a)(2) ............................... 7.11
(a)(3) ............................... N.A.
(a)(4) ............................... N.A.
(a)(5) ............................... 7.11
(b) ............................... 7.09; 7.11; 11.02
(c) ............................... N.A.
Section 311(a) ............................... 7.12
(b) ............................... 7.12
(c) ............................... N.A.
Section 312(a) ............................... 2.05
(b) ............................... 11.03
(c) ............................... 11.03
Section 313(a) ............................... 7.07
(b) ............................... 7.07
(c) ............................... 7.07; 11.02
(d) ............................... 7.07
Section 314(a) ............................... 4.07; 11.02
(b) ............................... N.A.
(c)(1) ............................... 11.04
(c)(2) ............................... 11.04
(c)(3) ............................... N.A.
(d) ............................... N.A.
(e) ............................... 11.05
(f) ............................... N.A.
Section 315(a) ............................... 7.01(b)
(b) ............................... 7.05; 11.02
(c) ............................... 7.01(a)
(d) ............................... 7.01(c)
(e) ............................... 6.11
Section 316(a) (last
sentence) ............................... 2.09
(a)(1)(A) ............................... 6.05
(a)(1)(B) ............................... 6.04
(a)(2) ............................... N.A.
(b) ............................... 6.07
Section 317(a)(1) ............................... 6.08
(a)(2) ............................... 6.09
(b) ............................... 2.04
Section 318(a) ............................... 11.01
- ---------------------
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF
GENERAL APPLICATION
Section 1.01. Definitions .............................. 1
Section 1.02. Incorporation by Reference of Trust
Indenture Act .......................... 28
Section 1.03. Rules of Construction .................... 29
ARTICLE TWO
THE NOTES
Section 2.01. Forms and Dating ......................... 30
Section 2.02. Execution and Authentication ............. 30
Section 2.03. Registrar and Paying Agent ............... 32
Section 2.04. Paying Agent To Hold Money in Trust ...... 32
Section 2.05. Noteholder Lists ......................... 33
Section 2.06. Transfer and Exchange .................... 33
Section 2.07. Replacement Notes ........................ 35
Section 2.08. Outstanding Notes ........................ 35
Section 2.09. Treasury Notes............................ 36
Section 2.10. Temporary Notes .......................... 36
Section 2.11. Cancellation ............................. 37
Section 2.12. Defaulted Interest ....................... 37
Section 2.13. CUSIP Number ............................. 37
Section 2.14. Deposit of Moneys ........................ 38
ARTICLE THREE
REDEMPTION OF NOTES
Section 3.01. Notices to the Trustee ................... 38
Section 3.02. Selection of Notes To Be
Redeemed ............................... 38
Section 3.03. Notice of Redemption ..................... 39
Section 3.04. Effect of Notice of Redemption ........... 40
Section 3.05. Deposit of Redemption Price .............. 40
_______________
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-i-
<PAGE>
Page
----
Section 3.06. Notes Redeemed or Purchased in Part ...... 41
Section 3.07. Special Right of Redemption .............. 41
ARTICLE FOUR
COVENANTS
Section 4.01. Payment of Notes ......................... 41
Section 4.02. Maintenance of Office or Agency .......... 42
Section 4.03. Corporate Existence ...................... 42
Section 4.04. Payment of Taxes and Other Claims ........ 43
Section 4.05. Maintenance of Properties; Insurance;
Books and Records; Compliance with
Law .................................... 43
Section 4.06. Compliance Certificate ................... 44
Section 4.07. Reporting Requirements ................... 45
Section 4.08. Limitation on Additional Indebtedness .... 45
Section 4.09. Limitation on Restricted Payments ........ 49
Section 4.10. Limitation on Issuance and Sale of
Preferred Stock by Restricted Sub-
sidiaries .............................. 52
Section 4.11. Limitation on Liens ...................... 52
Section 4.12. Change of Control ........................ 53
Section 4.13. Disposition of Proceeds of Asset
Sales .................................. 56
Section 4.14. Limitation on Transactions with
Affiliates ............................. 60
Section 4.15. Limitation on Dividends and Other Pay-
ment Restrictions Affecting
Restricted Subsidiaries ................ 61
Section 4.16. Limitation on Other Senior Subordi-
nated Indebtedness ..................... 62
Section 4.17. Limitation on Designation of Unre-
stricted Subsidiaries .................. 63
Section 4.18. Limitation on Sale-Leaseback Transac-
tions .................................. 64
Section 4.19. Payment of Additional Amounts ............ 64
Section 4.20. Waiver of Stay, Extension or Usury
Laws ................................... 66
- -------------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-ii-
<PAGE>
Page
----
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01. When Company May Merge, etc. ............. 67
Section 5.02. Successor Substituted .................... 68
ARTICLE SIX
REMEDIES
Section 6.01. Events of Default ........................ 69
Section 6.02. Acceleration ............................. 72
Section 6.03. Other Remedies ........................... 74
Section 6.04. Waiver of Past Defaults .................. 74
Section 6.05. Control by Majority ...................... 75
Section 6.06. Limitation on Suits ...................... 75
Section 6.07. Right of Holders To Receive Payment ...... 76
Section 6.08. Collection Suit by Trustee ............... 76
Section 6.09. Trustee May File Proofs of Claim ......... 76
Section 6.10. Priorities ............................... 77
Section 6.11. Undertaking for Costs .................... 77
Section 6.12. Restoration of Rights and Remedies ....... 78
ARTICLE SEVEN
TRUSTEE
Section 7.01. Duties ................................... 78
Section 7.02. Rights of Trustee ........................ 79
Section 7.03. Individual Rights of Trustee ............. 81
Section 7.04. Trustee's Disclaimer ..................... 81
Section 7.05. Notice of Default ........................ 81
Section 7.06. Money Held in Trust ...................... 81
Section 7.07. Reports by Trustee to Holders ............ 82
Section 7.08. Compensation and Indemnity ............... 82
Section 7.09. Replacement of Trustee ................... 83
Section 7.10. Successor Trustee by Merger, etc. ........ 84
Section 7.11. Eligibility; Disqualification ............ 85
Section 7.12. Preferential Collection of Claims
Against Company ........................ 85
- --------------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-iii-
<PAGE>
Page
----
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01. Termination of the Company's
Obligations .............................. 85
Section 8.02. Legal Defeasance and Covenant Defea-
sance .................................. 87
Section 8.03. Application of Trust Money ............... 91
Section 8.04. Repayment to Company ..................... 91
Section 8.05. Reinstatement ............................ 92
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders ............... 92
SECTION 9.02. With Consent of Holders .................. 93
SECTION 9.03. Compliance with Trust Indenture Act ...... 95
SECTION 9.04. Revocation and Effect of Consents ........ 95
SECTION 9.05. Notation on or Exchange of Notes ......... 96
SECTION 9.06. Trustee May Sign Amendments, etc. ........ 96
ARTICLE TEN
SUBORDINATION OF NOTES
Section 10.01. Notes Subordinate to Senior Indebted-
ness ................................... 96
Section 10.02. Payment Over of Proceeds upon Dissolu-
tion, etc. ............................. 97
Section 10.03. Suspension of Payment When Senior
Indebtedness in Default ................ 99
Section 10.04. Trustee's Relation to Senior Indebted-
ness ................................... 100
Section 10.05. Subrogation to Rights of Holders of
Senior Indebtedness .................... 101
Section 10.06. Provisions Solely To Define Relative
Rights ................................. 102
Section 10.07. Trustee To Effectuate Subordination ...... 102
Section 10.08. No Waiver of Subordination Provisions .... 103
Section 10.09. Notice to Trustee ........................ 103
- --------------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-iv-
<PAGE>
Page
----
Section 10.10. Reliance on Judicial Order or Certifi-
cate of Liquidating Agent .............. 105
Section 10.11. Rights of Trustee as a Holder of
Senior Indebtedness; Preservation of
Trustee's Rights ....................... 105
Section 10.12. Article Applicable to Paying Agents ...... 105
Section 10.13. No Suspension of Remedies ................ 106
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01. Trust Indenture Act of 1939 ............... 106
Section 11.02. Notices ................................... 106
Section 11.03. Communication by Holders with Other
Holders ................................. 108
Section 11.04. Certificate and Opinion as to Con-
ditions Precedent ....................... 108
Section 11.05. Statements Required in Certificate
or Opinion .............................. 108
Section 11.06. Rules by Trustee, Paying Agent,
Registrar ............................... 109
Section 11.07. Governing Law ............................. 109
Section 11.08. Legal Holidays ............................ 109
Section 11.09. No Interpretation of Other Agree-
ments ................................... 109
Section 11.10. No Recourse Against Others ................ 110
Section 11.11. Successors ................................ 110
Section 11.12. Duplicate Originals ....................... 110
Section 11.13. Separability .............................. 110
Section 11.14. Table of Contents, Headings, etc. ......... 111
Section 11.15. Benefits of Indenture ..................... 111
Section 11.16. Agent for Service; Submission to
Jurisdiction; Waiver of
Immunities .............................. 111
SIGNATURES ...............................................
EXHIBIT A Form of Note
- --------------------
Note: This table of contents shall not, for any purpose,
be deemed to be a part of the Indenture.
-v-
<PAGE>
INDENTURE, dated as of , 1996, between
J. Ray McDermott, S.A., a corporation incorporated under the
laws of the Republic of Panama (the "Company"), and Citibank,
N.A., as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit
of each other party and for the equal and ratable benefit of
the Holders of the Company's % Senior Subordinated Notes
due 2006.
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a per-
son (a) assumed in connection with an Asset Acquisition from
such person or (b) existing at the time such person becomes a
Subsidiary of any other person, but not including Indebtedness
incurred in connection with, or in anticipation of, such person
becoming a Subsidiary.
"Additional Amounts" shall have the meaning set forth
in Section 4.19.
"Affiliate" means, with respect to any specified per-
son, any other person directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the
power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "control-
ling" and "controlled" have meanings correlative to the fore-
going. For purposes of this definition, beneficial ownership
of 10% or less of the voting common equity (on a fully diluted
basis) or options or warrants to purchase such equity (but only
if exercisable at the date of determination or within 60 days
thereof) of a person shall not, in and of itself, be deemed to
constitute control of such person.
"Agent" means any Registrar or Paying Agent.
"Asset Acquisition" means (a) an Investment by the
Company or any Subsidiary of the Company in any other person
pursuant to which such person shall become a Restricted
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Subsidiary, or shall be merged with or into the Company or any
Restricted Subsidiary, or (b) the acquisition by the Company or
any Restricted Subsidiary of the assets of any person which
constitute all or substantially all of the assets of such per-
son or any division, operating unit or line of business of such
person.
"Asset Sale" means any sale, issuance, conveyance,
transfer, lease or other disposition by the Company or any
Restricted Subsidiary to any person other than the Company, a
Restricted Subsidiary or a Joint Venture (including, but not
limited to, the initial contribution to a Joint Venture), in
one or a series of related transactions, of: (a) any Capital
Stock of any Subsidiary of the Company or any interest in any
Joint Venture; (b) all or substantially all of the properties
and assets of any division or line of business of the Company
or any Restricted Subsidiary; or (c) any other properties or
assets of the Company or a Restricted Subsidiary other than in
the ordinary course of business. For the purposes of this def-
inition, the term "Asset Sale" shall not include (i) any sale,
issuance, conveyance, transfer, lease or other disposition of
properties or assets that is governed by the provisions of
Article Five hereof; (ii) any sale of worn-out or obsolete ves-
sels and other equipment that, in the Company's reasonable
judgment, are no longer used or useful in the business of the
Company or the Restricted Subsidiaries; (iii) any sale of
receivables and related assets pursuant to a Receivables Facil-
ity; (iv) any sale, issuance, conveyance, transfer, lease or
other disposition of properties or assets, whether in one
transaction or a series of related transactions, involving
assets with a Fair Market Value not in excess of $5,000,000;
(v) any charter (bareboat or otherwise) or other lease of
assets or property entered into in the ordinary course of busi-
ness and with respect to which the Company or any Restricted
Subsidiary is the charterer or lessor, except any such charter
or lease that provides for the acquisition of such assets or
property by the lessee during or at the term thereof for an
amount that is less than the Fair Market Value thereof as
determined at the time the right to acquire such assets or
property is granted, in which case an Asset Sale shall be
deemed to occur at the time such right is granted; (vi) any
trade or exchange by the Company or any Restricted Subsidiary
of one or more marine construction vessels for one or more
other marine construction vessels owned or held by another per-
son, provided that the Fair Market Value of the vessels traded
or exchanged by the Company or such Restricted Subsidiary is
reasonably equivalent to the Fair Market Value of the vessels
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to be received by the Company or such Restricted Subsidiary;
(viii) the completion of the Vessel Sales; (ix) the sale of one
or more of the vessels identified as DB21, DB51 and DB100; and
(x) the sale of any property received pursuant to clause (j) of
the definition of "Permitted Investment."
"Asset Sale Offer" shall have the meaning set forth
in Section 4.13(b).
"Asset Sale Offer Price" shall have the meaning set
forth in Section 4.13(b).
"Asset Sale Purchase Date" shall have the meaning set
forth in Section 4.13(b).
"Attributable Value" means, as to any particular
lease under which any person is at the time liable other than a
Capitalized Lease Obligation, and at any date as of which the
amount thereof is to be determined, the total net amount of
rent required to be paid by such person under such lease during
the initial term thereof as determined in accordance with GAAP,
discounted from the last date of such initial term to the date
of determination at a rate per annum equal to the discount rate
which would be applicable to a Capitalized Lease Obligation
with a like term in accordance with GAAP. The net amount of
rent required to be paid under any such lease for any such
period shall be the aggregate amount of rent payable by the
lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assess-
ments, utility, operating and labor costs and similar charges.
In the case of any lease which is terminable by the lessee upon
the payment of a penalty, such net amount shall also include
the amount of such penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first
date upon which it may be so terminated. "Attributable Value"
means, as to a Capitalized Lease Obligation under which any
person is at the time liable and at any date as of which the
amount thereof is to be determined, the capitalized amount
thereof that would appear on the face of a balance sheet of
such person in accordance with GAAP.
"Bank Agent" means Texas Commerce Bank National Asso-
ciation or any successor or replacement agent under the Credit
Agreement.
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"Bankruptcy Law" means Title 11 of the United States
Code or any similar federal, state or foreign law for the
relief of debtors.
"Board of Directors" means the board of directors of
the Company or any duly authorized committee of such board.
"Board Resolution" means a copy of a resolution duly
adopted by the Board of Directors, certified by the Secretary
or an Assistant Secretary of the Company and in full force and
effect on the date of such certification.
"Business Day" means each day which is not a day on
which banking institutions in The City of New York, State of
New York, or the city in which the Trustee has its Corporate
Trust Office, are authorized or obligated by law or executive
order to close.
"Capital Stock" means, with respect to any person,
any and all shares, interests, participations, rights in or
other equivalents (however designated) of such person's capital
stock, and any rights (other than debt securities convertible
into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation
to pay rent or other amounts under a lease of (or other agree-
ment conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and,
for the purpose of this Indenture, the amount of such obliga-
tion at any date shall be the Attributable Value thereof at
such date.
"Cash Equivalents" means, at any time: (i) any evi-
dence of Indebtedness with a maturity of 360 days or less from
the date of acquisition thereof issued or directly and fully
guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in sup-
port thereof); (ii) (x) demand and time deposits and certifi-
cates of deposit or acceptances with a maturity of 360 days or
less from the date of acquisition thereof of any financial
institution that is a member of the Federal Reserve System hav-
ing combined capital and surplus and undivided profits of not
less than $250,000,000 and (y) Eurocurrency time deposits
maturing within 360 days from the date of acquisition thereof
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with any branch or office of any commercial bank organized
under the laws of a country that is a member of the Organiza-
tion for Economic Cooperation and Development (the "OECD"), and
comparable in quality to the Investments permitted by the pre-
ceding clause (x); (iii) commercial paper with a maturity of
360 days or less issued by a corporation that is not an Affili-
ate of the Company organized under the laws of any state of the
United States or the District of Columbia and rated at least
A-1 by S&P or at least P-1 by Moody's or at least an equivalent
rating category of another nationally recognized securities
rating agency; (iv) repurchase agreements and reverse repur-
chase agreements relating to marketable direct obligations
issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and
backed by the full faith and credit of the United States of
America, in each case maturing within 360 days from the date of
acquisition; (v) deposits available for withdrawal on demand
with any commercial bank organized under the laws of any coun-
try that is a member of the OECD and has total assets in excess
of $100,000,000 or with any commercial bank organized under the
laws of any other country (other than the United States) in
which the Company or any Restricted Subsidiary maintains an
office or is engaged in offshore operations, provided that (a)
all such deposits are required to be made in such accounts in
the ordinary course of business and (b) such deposits do not at
any one time exceed $30,000,000 in the aggregate; (vi) deposits
available for withdrawal on demand with any commercial bank not
meeting the qualifications specified in clause (ii) above but
which is a lending bank under any of the Company's or any
Restricted Subsidiary's credit facilities, provided that all
such deposits do not exceed $30,000,000 in the aggregate at any
one time; and (vii) money market funds organized under the laws
of the United States of America or any state thereof that
invest substantially all of their assets in any of the types of
investments described in clause (i), (ii) or (iii) above.
"Change of Control" means the occurrence of any of
the following events: (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act), excluding a Permitted Holder, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that
such person has the contractual right to acquire, whether such
right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the Company; (b) the Company
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consolidates with, or merges with or into, another person or
sells, assigns, conveys, transfers, leases or otherwise dis-
poses of all or substantially all of its assets to any person,
or any person consolidates with, or merges with or into, the
Company in any such event pursuant to a transaction in which
the outstanding Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than
any such transaction where (i) the outstanding Voting Stock of
the Company, is converted into or exchanged for (1) Voting
Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (2) cash, securities and other prop-
erty in an amount which could be paid by the Company as a
Restricted Payment under this Indenture and (ii) immediately
after such transaction, no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange
Act), excluding a Permitted Holder, is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has
the contractual right to acquire, whether such right is exer-
cisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting
Stock of the surviving or transferee corporation or (c) during
any consecutive two-year period, individuals who at the begin-
ning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such
board of directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a major-
ity of the directors then still in office who were either
directors at the beginning of such period or persons whose
election as directors or nomination for election was previously
so approved) cease for any reason to constitute a majority of
the Board of Directors of the Company then in office other than
by reason of an action taken by a Permitted Holder.
"Change of Control Date" shall have the meaning set
forth in Section 4.12.
"Change of Control Offer" shall have the meaning set
forth in Section 4.12.
"Change of Control Purchase Date" shall have the
meaning set forth in Section 4.12.
"Change of Control Purchase Price" shall have the
meaning set forth in Section 4.12.
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"Common Stock" means, with respect to any person, any
and all shares, interests or other participations in, and other
equivalents (however designated and whether voting or nonvot-
ing) of, such person's common stock, whether outstanding at the
Issue Date or issued after the Issue Date, and includes, with-
out limitation, all series and classes of such common stock.
"Company" means the party named as such in this
Indenture until a successor replaces it (or any previous suc-
cessor) pursuant to this Indenture, and thereafter means such
successor.
"Consolidated EBITDA" means, with respect to the Com-
pany for any period, (i) the sum of, without duplication, the
amount for such period, taken as a single accounting period, of
(a) Consolidated Net Income, (b) Consolidated Non-cash Charges,
(c) Consolidated Interest Expense and (d) Consolidated Income
Tax Expense, less (ii) non-cash items increasing Consolidated
Net Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means,
with respect to the Company, the ratio of the aggregate amount
of Consolidated EBITDA of the Company for the four full fiscal
quarters for which financial information in respect thereof is
available immediately preceding the date of the transaction
(the "Transaction Date") giving rise to the need to calculate
the Consolidated Fixed Charge Coverage Ratio (such four full
fiscal quarter period being referred to herein as the "Four
Quarter Period") to the aggregate amount of Consolidated Fixed
Charges of the Company for the Four Quarter Period. In addi-
tion to and without limitation of the foregoing, for purposes
of this definition, "Consolidated EBITDA" and "Consolidated
Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to, without
duplication, (a) the incurrence of any Indebtedness of the Com-
pany or any of the Restricted Subsidiaries during the period
commencing on the first day of the Four Quarter Period to and
including the Transaction Date (the "Reference Period"),
including, without limitation, the incurrence of the Indebted-
ness giving rise to the need to make such calculation (and the
application of the net proceeds thereof), as if such incurrence
(and application) occurred on the first day of the Reference
Period, (b) an adjustment to eliminate or include, as the case
may be, the Consolidated EBITDA and Consolidated Fixed Charges
of such person directly or indirectly attributable to assets
which are the subject of any Asset Sale or Asset Acquisition
(including, without limitation, any Asset Acquisition giving
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rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any
person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being lia-
ble for Acquired Indebtedness) occurring during the Reference
Period, as if such Asset Sale (after giving effect to any Des-
ignation of Unrestricted Subsidiaries) or Asset Acquisition
occurred on the first day of the Reference Period and (c) the
retirement of Indebtedness during the Reference Period which
cannot thereafter be reborrowed occurring as if retired on the
first day of the Reference Period. For purposes of calculating
"Consolidated Fixed Charges" for this "Consolidated Fixed
Charge Coverage Ratio," interest on Indebtedness incurred dur-
ing the Four Quarter Period under any revolving credit facility
which can be borrowed and repaid without reducing the commit-
ments thereunder shall be the actual interest during the Four
Quarter Period. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio," (i) interest on outstanding Indebtedness determined on
a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date, (ii) if
interest on any Indebtedness actually incurred on the Transac-
tion Date may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rates, then the interest rate
in effect on the Transaction Date will be deemed to have been
in effect during the Reference Period; and (iii) notwithstand-
ing clauses (i) and (ii) above, interest on Indebtedness deter-
mined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Rate Protection
Obligations, shall be deemed to have accrued at the rate per
annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to
the Company for any period, the amounts for such period of Con-
solidated Interest Expense.
"Consolidated Income Tax Expense" means, with respect
to the Company for any period, the provision for federal,
state, local and foreign income taxes of the Company and the
Restricted Subsidiaries for such period as determined on a con-
solidated basis in accordance with GAAP.
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"Consolidated Interest Expense" means, with respect
to the Company for any period, without duplication, the sum of
(i) the interest expense of the Company and the Restricted Sub-
sidiaries for such period as determined on a consolidated basis
in accordance with GAAP related to Indebtedness, excluding fees
related to the issuance of the Notes, but including, without
limitation, (a) any amortization of debt discount, (b) the net
cost under Interest Rate Protection Obligations (including any
amortization of discounts), (c) the interest portion of any
deferred payment obligation which in accordance with GAAP is
required to be reflected on an income statement, (d) all com-
missions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing
(other than in respect of Letters of Credit relating to bid,
performance and advance payment obligations incurred in the
ordinary course of business), (e) dividends payable in respect
of Redeemable Capital Stock (whether or not paid) other than
Series A Preferred Stock and (f) all accrued interest and
(ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the
Company, for any period, the consolidated net income (or loss)
of the Company (including the Restricted Subsidiaries and the
Joint Ventures) for such period as determined in accordance
with GAAP consistently applied adjusted, to the extent included
in calculating such net income, by excluding, without duplica-
tion, (i) all extraordinary gains or losses (net of fees and
expenses relating to the transaction giving rise thereof) and
the non-recurring cumulative effect of accounting charges,
(ii) except to the extent actually received by the Company, any
Restricted Subsidiary, and any Joint Venture, income of the
Company, the Restricted Subsidiaries and the Joint Ventures
derived from or in respect of all Investments in persons other
than any Restricted Subsidiary or Joint Ventures, (iii) the
portion of net income (or loss) of any Joint Venture allocable
to interests in such person other than the interests of the
Company or any Restricted Subsidiary, (iv) net income (or loss)
of any person combined with the Company, one of the Restricted
Subsidiaries or one of the Joint Ventures on a "pooling of
interests" basis attributable to any period prior to the date
of combination, (v) any gain or loss realized upon the termina-
tion of any employee pension benefit plan, on an after-tax
basis, (vi) gains or losses in respect of any Asset Sales by
the Company, one of the Restricted Subsidiaries or one of the
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Joint Ventures (net of fees and expenses relating to the trans-
action giving rise thereto), on an after-tax basis, and (vii)
the net income of any Restricted Subsidiary (other than JRMI
and the OPI Guarantors) to the extent that the declaration of
dividends or similar distributions by that Restricted Subsid-
iary of that income (A) is not at the time permitted, directly
or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Restricted Sub-
sidiary or its stockholders or (B) requires the approval of any
minority interest in such Restricted Subsidiary except to the
extent dividends or similar distributions are actually declared
payable to the Company by such Restricted Subsidiary; provided
that there shall be included in net income of the Company or
such Restricted Subsidiary dividends or distributions excluded
from net income of such person in a previous fiscal period pur-
suant to clause (ii) or clause (vii) to the extent such divi-
dends or distributions are actually received in the current
fiscal period.
"Consolidated Non-cash Charges" means, with respect
to the Company for any period, the aggregate depreciation,
amortization and other non-cash expenses (including, without
limitation, non-cash reserves and non-cash charges) of the Com-
pany, the Restricted Subsidiaries and the Joint Ventures reduc-
ing Consolidated Net Income of the Company and the Restricted
Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP adjusted, to the extent included
in calculating such depreciation, amortization and non-cash
expenses, by excluding, without duplication, the portion
thereof allocable to interests in Joint Ventures by any person
other than the Company or any Restricted Subsidiary.
"Corporate Trust Office" means the corporate trust
office of the Trustee at which at any particular time its cor-
porate trust business shall be principally administered, which
on the date hereof is located at 120 Wall Street, 13th Floor,
New York, New York 10043, except that for purposes of presen-
tation of Notes for payment or registration of transfer or
exchange, such term means the office of the Trustee located at
111 Wall Street, New York, New York 10043.
"covenant defeasance" shall have the meaning set
forth in Section 8.02.
"Credit Agreement" means the Competitive Advance and
Revolving Credit Facility Agreement dated as of June 7, 1995
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among the Company, J. Ray McDermott Holdings, Inc., JRMI, the
financial institutions from time to time party thereto, Texas
Commerce Bank National Association as administrative agent,
Chemical Bank, as auction agent and Bank of America National
Trust and Savings Association, as co-agent, as such agreement
may be amended, modified, supplemented, extended, restated,
replaced (including replacement after the termination of such
agreement), restructured, renewed or refinanced from time to
time in one or more credit agreements, loan agreements, instru-
ments or similar agreements, as such may be further amended,
modified, supplemented, extended, restated, replaced (including
replacement after the termination of such agreement), restruc-
tured, renewed or refinanced from time to time, in each case in
accordance with and as permitted by the Indenture.
"Credit Agreement Obligations" means all monetary
obligations of every nature of the Company or a Restricted Sub-
sidiary, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters
of credit, fees, expenses and indemnities, from time to time
owed to the lenders or any agent under or in respect of the
Credit Agreement.
"Currency Agreement Obligations" means the obliga-
tions of any person under any foreign exchange contract, cur-
rency swap agreement or other similar agreement or arrangement
designed to protect such person against fluctuations in cur-
rency values.
"Custodian" means any receiver, trustee, assignee,
liquidator, sequestrator or similar official under any Bank-
ruptcy Law.
"Default" means any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Depository" shall mean The Depository Trust Company,
New York, New York, or any successor thereto registered under
the Securities Exchange Act or other applicable statute or
regulation.
"Designated Senior Indebtedness" means (i) all Senior
Indebtedness under the Credit Agreement Obligations and (ii)
any other Senior Indebtedness which (a) at the time of incur-
rence equals or exceeds $50,000,000 in aggregate principal
amount and (b) is specifically designated by the Company in the
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instrument evidencing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Designation" has the meaning set forth in Section
4.17.
"Designation Amount" has the meaning set forth in
Section 4.17.
"Engineering Joint Venture Agreement" means, collec-
tively, the Contribution Agreement dated as of April 1, 1996
among J. Ray McDermott Engineering Holdings, Inc., Delta Hudson
Engineering Corporation and McDermott Engineering Houston, LLC
("MEH"), the Regulations of MEH and the Articles of Organiza-
tion of MEH.
"Event of Default" has the meaning set forth in Sec-
tion 6.01.
"Excess Proceeds" shall have the meaning set forth in
Section 4.13.
"Fair Market Value" with respect to any asset or
property means the sale value that would be obtained in an
arm's-length transaction between an informed and willing seller
under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. Fair Market Value shall be deter-
mined by the Board of Directors acting in good faith and shall
be evidenced by a board resolution which determination shall be
conclusive for all purposes of this Indenture.
"GAAP" means, at any date, generally accepted
accounting principles in the United States set forth in the
Statements of Financial Accounting Standards and the Interpre-
tations, Accounting Principles Board Opinions and AICPA
Accounting Research Bulletins that are applicable to the cir-
cumstances as of the date of determination and consistently
applied; provided, however, that, except as otherwise provided,
all calculations made for purposes of determining compliance
with the terms of Article Four and other provisions of this
Indenture shall utilize GAAP in effect at the Issue Date.
"Global Note" shall mean a Note which is executed by
the Company and authenticated and delivered by the Trustee to
the Depository or pursuant to the Depository's instruction, all
in accordance with this Indenture and pursuant to a written
order, which shall be registered in the name of the Depository
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or its nominee and which, together with any other Global Note
representing Notes hereunder, shall represent, and shall be
denominated in an amount equal to the aggregate principal
amount of, all of the outstanding Notes.
"guarantee" means, as applied to any obligation,
(i) a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business),
direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contin-
gent or otherwise, the practical effect of which is to assure
in any way the payment or performance (or payment of damages in
the event of non-performance) of all or any part of such obli-
gation, including, without limiting the foregoing, the payment
of amounts drawn down by letters of credit.
"Holder" or "Noteholder" means the person in whose
name a Note is registered on the Registrar's books.
"Indebtedness" means, with respect to any person,
without duplication, (a) all liabilities of such person for
borrowed money or for the deferred purchase price of property
or services, excluding any trade payables, advances on con-
tracts and other accrued current liabilities incurred in the
ordinary course of business, but including, without limitation,
all obligations, contingent or otherwise, of such person in
connection with any letters of credit, banker's acceptance or
other similar credit transaction, (b) all obligations of such
person evidenced by notes, debentures or other similar instru-
ments, (c) all Indebtedness of such person created or arising
under any conditional sale or other title retention agreement
with respect to property acquired by such person (even if the
rights and remedies of the seller or lender under such agree-
ment in the event of default are limited to repossession or
sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized
Lease Obligations of such person, (e) all Indebtedness referred
to in the preceding clauses of other persons and all dividends
of other persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing contrac-
tual right, contingent or otherwise, to be secured by) any Lien
upon property (including, without limitation, accounts and con-
tract rights) owned by such person, even though such person has
not assumed or become liable for the payment of such Indebted-
ness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of
the obligation so secured), (f) all guarantees of Indebtedness
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referred to in this definition by such person, (g) all Redeem-
able Capital Stock of such person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (h) all obligations of such person under or
in respect of Currency Agreement Obligations and Interest Rate
Protection Obligations of such person and (i) any amendment,
supplement, modification, deferral, renewal, extension or
refunding of any liability of the types referred to in clauses
(a) through (h) above. For purposes hereof, (x) the "maximum
fixed repurchase price" of any Redeemable Capital Stock which
does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as
if such Redeemable Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant
to this Indenture, and if such price is based upon, or measured
by, the fair market value of such Redeemable Capital Stock,
such fair market value shall be the Fair Market Value of such
Redeemable Capital Stock (provided that if such Redeemable Cap-
ital Stock is not at the date of determination permitted or
required to be repurchased, the "maximum fixed repurchase
price" shall be the book value of such Redeemable Capital
Stock) and (y) Indebtedness is deemed to be incurred pursuant
to a revolving credit facility each time an advance is made
thereunder. For purposes of Section 4.08, in determining the
principal amount of any Indebtedness to be incurred by the Com-
pany or a Restricted Subsidiary or which is outstanding at any
date, (x) the principal amount of any Indebtedness which pro-
vides that an amount less than the principal amount thereof
shall be due upon any declaration of acceleration thereof shall
be the accreted value thereof at the date of determination and
(y) effect shall be given to the impact of any Interest Rate
Protection Obligations and Currency Agreement Obligations with
respect to such Indebtedness. When any person becomes a
Restricted Subsidiary, there shall be deemed to have been an
incurrence by such Restricted Subsidiary of all Indebtedness
for which it is liable at the time it becomes a Restricted Sub-
sidiary. If the Company or any of the Restricted Subsidiaries,
directly or indirectly, guarantees Indebtedness of a third per-
son, there shall be deemed to be an incurrence of such guaran-
teed Indebtedness as if the Company or such Restricted Subsid-
iary had directly incurred or otherwise assumed such guaranteed
Indebtedness; provided that as and to the extent that the Com-
pany or such Restricted Subsidiary, as the case may be, shall
be entitled pursuant to the terms of any agreement then in
effect, to reimbursement, indemnity or contribution from any
person (other than the Company or any of its Subsidiaries or
Joint Ventures) that the Company reasonably deems to be solvent
<PAGE>
-15-
for amounts as to which the Company or such Restricted Subsid-
iary, as the case may be, may become liable for or have to pay
pursuant to such a guarantee of Indebtedness of a Joint Ven-
ture, such amount, but not the remaining amount, shall not be
treated for this purpose as having been guaranteed.
"Indemnifiable Taxes" means any Taxes imposed by the
Republic of Panama (or any province or territory or jurisdic-
tion or subdivision thereof) in respect of a payment upon,
under or with respect to a Note pursuant to such Note or the
Indenture, other than any Taxes imposed, payable or due by rea-
son of (i) a failure of the holder of such Note to comply with
any applicable certification, identification, information, doc-
umentation, application, notification or other reporting
requirement imposed by statute, treaty, regulation or adminis-
trative practice or (ii) a present or former connection between
the Republic of Panama (or any province or territory or juris-
diction or subdivision thereof) and the holder of such Note (or
a shareholder or affiliate thereof) otherwise than by the mere
acquisition, holding or disposition (other than an actual dis-
position in the Republic of Panama) of the Note or the receipt
of payments thereunder.
"Indenture" means this Indenture, as amended, modi-
fied or supplemented from time to time.
"interest" means, with respect to any Note, the
amount of all interest accruing on such Note, including all
interest accruing subsequent to the occurrence of any events
specified in Sections 6.01(h) and (i) or which would have
accrued but for any such event, whether or not such claims are
allowable under applicable law.
"Interest Payment Date" means the Stated Maturity of
an installment of interest on the Notes, as set forth therein.
"Interest Rate Protection Obligations" means the
obligations of any person pursuant to any arrangement with any
other person whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calcu-
lated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments
made by such person calculated by applying a fixed or a float-
ing rate of interest on the same notional amount and shall
include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
<PAGE>
-16-
"Investment" means, with respect to any person, any
direct or indirect loan or other extension of credit, guarantee
or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or ser-
vices for the account or use of others), or any purchase or
acquisition by such person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness
issued by, any other person. "Investments" shall exclude con-
tracts in progress and extensions of trade credit by any person
in the ordinary course of business of such person. In addition
to the foregoing, any foreign exchange contract, currency swap
or similar agreement shall constitute an Investment hereunder.
"Issue Date" means [ ], 1996.
"Joint Venture" means any person (i) in which the
Company or any Wholly-Owned Restricted Subsidiary, directly or
indirectly, owns at least 33% or more of the Capital Stock or
partnership or other equity interests of such person, (ii) as
to which the Company or such Wholly-Owned Restricted Subsid-
iary, as the case may be, has either (a) the power to control,
directly or indirectly (whether through the exercise of voting
rights, representation on the board of directors or other gov-
erning body of such person, the exercise of veto rights, or
otherwise), any decisions by such person with respect to the
payment of dividends or the making of distributions by such
person or (b) the right (by contract, applicable law or other-
wise) to cause the dissolution and liquidation of such person
(including pursuant to contractual provisions governing dead-
lock that may require good faith efforts to resolve any dead-
lock prior to any such dissolution or liquidation) and
(iii) that was formed with one or more persons who are not
Affiliates (provided that the joint venture established under
the Engineering Joint Venture Agreement may be formed with an
Affiliate), and (iv) is engaged in the marine construction
business or a business reasonably related thereto. Any Subsid-
iary of a Joint Venture of which the Company owns, directly or
indirectly, 25% of the Capital Stock of such Subsidiary, shall
be treated as a Joint Venture. As of the Issue Date, the fol-
lowing persons constituted Joint Ventures: Offshore Marine
Chartering, N.V.; HeereMac v.o.f.; Panama Offshore Chartering
Company, Inc.; U.S. Offshore Chartering; Far East Vessels Inc.;
Heerema McDermott Australia Pty Ltd; McDermott-ETPM Inc.;
McDermott-ETPM West, Inc.; McDermott-ETPM East, Inc.;
McDermott-ETPM Far East, Inc.; ETPM International S.A.S.; ETPM
International (UK) Ltd.; McDermott Subsea Constructors Ltd.;
Brown & Root McDermott Fabricators Limited; CCC Fabricaciones y
<PAGE>
-17-
Construcciones, S.A. de C.V.; Offshore Hyundai International,
Ltd.; TL Offshore Sdn. Bhd.; TL Marine Sdn. Bhd.; Spars Inter-
national Inc.; Offshore Production Vessels Ltd.; McDermott Sub-
marine Cable Systems Limited; the joint venture established
under the Engineering Joint Venture Agreement; and each of
their respective Subsidiaries.
"JRMI" means J. Ray McDermott, Inc., a Delaware cor-
poration and a Wholly-Owned Restricted Subsidiary.
"legal defeasance" shall have the meaning set forth
in Section 8.02.
"Lien" means any mortgage, charge, pledge, lien
(statutory or other), security interest, hypothecation, assign-
ment for security, claim, or preference or priority or other
encumbrance upon or with respect to any property of any kind.
A person shall be deemed to own subject to a Lien any property
which such person has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement having sub-
stantially the same economic effect as any of the foregoing.
"Maturity Date" means, with respect to any Note, the
date on which any principal of such Note becomes due and pay-
able as therein or herein provided, whether at the Stated
Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"MII" means McDermott International, Inc., a Panama
corporation.
"Moody's" means Moody's Investors Service, Inc. and
its successors.
"Net Cash Proceeds" means, with respect to any Asset
Sale, the proceeds thereof in the form of cash or Cash Equiva-
lents, including, without limitation, payments in respect of
deferred payment obligations when received in the form of cash
or Cash Equivalents (except to the extent that such obligations
are financed or sold with recourse to the Company or any
Restricted Subsidiary) net of (i) brokerage commissions and
other fees and expenses (including, without limitation, fees
and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a
result of such Asset Sale, (iii) amounts required to be paid
and which have been paid, or amounts required to be pledged and
<PAGE>
-18-
which are pledged, to secure Indebtedness owed, to any person
(other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale
(which, in the case of a Lien, is being pledged or applied to
permanently reduce Indebtedness secured by such Lien) and
(iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities asso-
ciated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environ-
mental matters and liabilities under any indemnification obli-
gations associated with such Asset Sale, all as reflected in an
Officers' Certificate delivered to the Trustee.
"Net Proceeds Deficiency" shall have the meaning set
forth in Section 4.13(b).
"Non-payment Default" means, for purposes of Article
Ten hereof, any event (other than a Payment Default) the occur-
rence of which entitles one or more persons to act to acceler-
ate the maturity of any Designated Senior Indebtedness.
"Notes" means the notes that are issued under this
Indenture, as amended or supplemented from time to time pursu-
ant to this Indenture.
"Officer" means the Chairman of the Board, any Presi-
dent, any Vice President, the Chief Financial Officer, the
Treasurer, the Secretary or the Corporate Controller of the
Company.
"Officers' Certificate" means a certificate signed by
two Officers or by an Officer and an Assistant Treasurer or
Assistant Secretary of the Company, as the case may be.
"OMC" means Offshore Marine Chartering, N.V.
"Opinion of Counsel" means a written opinion from
legal counsel who is reasonably acceptable to the Trustee.
Subject to any express provision hereof to the contrary, the
counsel may be an employee of or counsel to the Company.
"OPI Guarantors" means each person designated as
either a "Parent Guarantor" or a "Guarantor" in the indenture
governing the OPI Notes.
<PAGE>
-19-
"OPI Notes" means the 12-7/8% Guaranteed Senior Notes
due July 15, 2002 issued pursuant to an Indenture, dated as of
July 2, 1992, as supplemented and in effect from time to time,
among JRMI, J. Ray McDermott Holdings, Inc., OPI Vessels, Inc.,
OPI Vessels, Ltd. and Offshore Petroleum Divers, Inc. and The
Bank of New York, as successor Trustee.
"Pari Passu Indebtedness" means any Indebtedness of
the Company ranking pari passu in right of payment with the
Notes.
"Pari Passu Indebtedness Amount" shall have the mean-
ing set forth in Section 4.13(b).
"Pari Passu Offer" shall have the meaning set forth
in Section 4.13(b).
"Paying Agent" shall have the meaning set forth in
Section 2.03.
"Payment Amount" shall have the meaning set forth in
Section 4.13(b).
"Payment Blockage Period" shall have the meaning set
forth in Section 10.03.
"Payment Default" means any default in the payment
when due (whether at Stated Maturity, upon scheduled repayment,
upon acceleration or otherwise) of principal of or premium, if
any, or interest on, or of unreimbursed amounts under drawn
letters of credit or fees relating to letters of credit consti-
tuting, any Designated Senior Indebtedness.
"Permitted Agreement" means each of (i) the Letter
Agreement dated as of January 31, 1995 by and between the Com-
pany and MII; (ii) the Transition Services Agreement dated as
of August 16, 1994 by and between the Company and MII, as
amended through the Issue Date; (iii) the Services Agreement
dated as of August 16, 1994 by and between the Company and MII,
as amended through the Issue Date; (iv) the Registration Rights
Agreement dated as of January 31, 1995 by and between the Com-
pany and MII; (v) the Purchase Agreement dated as of May 30,
1995 by and between the Company and MII; (vi) the Term Note
dated as of January 31, 1995 issued by the Company to MII;
(vii) the Letter Agreement relating to litigation support dated
as of January 31, 1995 by and between the Company and MII; and
(viii) the Engineering Joint Venture Agreement; as any such
<PAGE>
-20-
Permitted Agreement may be modified or replaced from time to
time; provided that any such modification or replacement is no
less favorable to the holders of Notes than the applicable pro-
vision of any such Permitted Agreement in effect on the Issue
Date.
"Permitted Holder" means MII, its controlled Affili-
ates, and their respective successors to their business sub-
stantially as an entirety.
"Permitted Investment" means any of the following:
(a) Investments in the Company or any Wholly-Owned Restricted
Subsidiary (including any person that pursuant to such Invest-
ment becomes a Wholly-Owned Restricted Subsidiary) and any per-
son that is merged or consolidated with or into, or transfers
or conveys all or substantially all of its assets to, the Com-
pany or any Wholly-Owned Restricted Subsidiary at the time such
Investment is made; (b) Investments in any Joint Venture; pro-
vided that Investments in OMC, if made at a time when the Com-
pany's proportionate share of OMC's total assets exceeds 25% of
the total assets of the Company and its consolidated Subsidiar-
ies, shall not be deemed to be Permitted Investments pursuant
to this clause (b); (c) Investments in prepaid expenses, nego-
tiable instruments and other similar instruments (other than of
Affiliates) held for collection; (d) Investments in Cash Equiv-
alents; (e) direct obligations of, or obligations the principal
of and interest on which are unconditionally guaranteed by the
United States of America (or an agency thereof) and repurchase
agreements in respect of such obligations; provided that the
aggregate dollar value of such repurchase agreements shall not
exceed $50,000,000 with any one person at any time outstanding;
(f) Investments in deposits with respect to leases, workers'
compensation or utilities provided to third parties in the
ordinary course of business; (g) Investments in the Notes;
(h) Investments in agreements giving rise to Interest Rate Pro-
tection Obligations and Currency Agreement Obligations permit-
ted by Section 4.08; (i) loans or advances to officers, employ-
ees or consultants of the Company and the Restricted Subsidiar-
ies in the ordinary course of business for bona fide business
purposes of the Company and the Restricted Subsidiaries
(including travel and moving expenses) not in excess of
$10,000,000 in the aggregate at any one time outstanding;
(j) Investments in evidences of Indebtedness, securities or
other property received from another person by the Company or
any of the Restricted Subsidiaries in connection with any bank-
ruptcy proceeding or by reason of a composition or readjustment
of debt or a reorganization of such person or as a
<PAGE>
-21-
result of foreclosure, perfection or enforcement of any Lien in exchange
for evidences of Indebtedness, securities or other property of
such person held by the Company or any of the Restricted Sub-
sidiaries, or for other liabilities or obligations of such
other person to the Company or any of the Restricted Subsidiar-
ies that were created in accordance with the terms of this
Indenture; and (k) non-cash consideration received as a result
of Asset Sales permitted by Section 4.13.
"Permitted Junior Securities" means, so long as the
effect of any exclusion employing this definition is not to
cause the Notes to be treated in any case or proceeding or
similar event described in clause (a), (b) or (c) of Section
10.02 as part of the same class of claims as Senior Indebted-
ness or any class of claims pari passu with, or senior to,
Senior Indebtedness, for any payment or distribution, debt or
equity securities of the Company or any successor corporation
provided for by a plan of reorganization or readjustment that
are subordinated at least to the same extent that the Notes are
subordinated to the payment of all Senior Indebtedness then
outstanding; provided that (1) if a new corporation results
from such reorganization or readjustment, such corporation
assumes any Senior Indebtedness not paid in full in cash or
cash equivalents in connection with such reorganization or
readjustment and (2) the rights of the holders of such Senior
Indebtedness are not, without the consent of such holders,
altered by such reorganization or readjustment.
"person" means any individual, corporation, limited
liability company, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Note" means, with respect to any par-
ticular Note, every previous Note evidencing all or a portion
of the same debt as that evidenced by such particular Note;
and, for the purposes of this definition, any Note authenti-
cated and delivered under Section 2.07 hereof in exchange for a
mutilated Note or in lieu of a lost, destroyed or stolen Note
shall be deemed to evidence the same debt as the mutilated,
lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any person,
any and all shares, interests, participations or other equiva-
lents (however designated) of such person's preferred or pref-
erence stock whether now outstanding or issued after the Issue
<PAGE>
-22-
Date, including, without limitation, all classes and series of
preferred or preference stock of such person.
"principal" means, with respect to any debt security,
the principal of the security plus, with respect to the Notes
only, the premium, if any, on the security and any interest on
overdue principal.
"Purchase Money Obligation" means any Indebtedness
secured by a Lien on assets related to the business of the Com-
pany or the Restricted Subsidiaries, and any additions and
accessions thereto, which are purchased or constructed by the
Company or any Restricted Subsidiary at any time after the
Issue Date; provided that (i) any security agreement or condi-
tional sales or other title retention contract pursuant to
which the Lien on such assets is created (collectively a "Secu-
rity Agreement") shall be entered into prior to the date that
is 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined
solely to the assets so purchased or acquired, any additions
and accessions thereto and any proceeds therefrom, (ii) at no
time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection
with the purchase of additions and accessions thereto and
except in respect of fees and other obligations in respect of
such Indebtedness and (iii) (A) the aggregate outstanding prin-
cipal amount of Indebtedness secured thereby (determined on a
per asset basis in the case of any additions and accessions)
shall not at the time such Security Agreement is entered into
exceed 100% of the purchase price to the Company or any
Restricted Subsidiary of the assets subject thereto or (B) the
Indebtedness secured thereby shall be with recourse solely to
the assets so purchased or acquired, any additions and acces-
sions thereto and any proceeds therefrom.
"Receivables Facility" means an agreement or series
of agreements under which the Company or the Restricted Subsid-
iaries sell accounts receivable and related assets to unrelated
third parties (or to special purpose entities created for this
purpose for resale to unrelated third parties) for cash on a
non-recourse basis (subject to exposures and liabilities cus-
tomarily retained by sellers in transactions of that type) and
on terms (including discounts) customary for transactions of
that type.
"Receivables Facility Obligations" means any Indebt-
edness arising under a Receivables Facility.
<PAGE>
-23-
"Redeemable Capital Stock" means any class or series
of Capital Stock that, either by its terms, by the terms of any
security into which it is convertible or exchangeable or by
contract or otherwise, is, or upon the happening of an event or
passage of time would be, required to be redeemed prior to the
final Stated Maturity of the principal of the Notes or is
redeemable at the option of the holder thereof at any time
prior to the final Stated Maturity of the principal of the
Notes, or, at the option of the holder thereof, is convertible
into or exchangeable for debt securities at any time prior to
the final Stated Maturity of the principal of the Notes.
"Redemption Date" means, with respect to any Note to
be redeemed, the date fixed by the Company for such redemption
pursuant to this Indenture and the Notes.
"Redemption Price" means, with respect to any Note to
be redeemed, the price fixed for such redemption pursuant to
the terms of this Indenture and the Notes.
"Registrar" shall have the meaning set forth in
Section 2.03.
"Replacement Assets" shall have the meaning set forth
in Section 4.13(a).
"Restricted Payment" means any of the following:
(i) the declaration or payment of any dividend or the making of
any other distribution or payment on or in respect of Capital
Stock of the Company or any payment made to the direct or indi-
rect holders (in their capacities as such) of Capital Stock of
the Company (other than dividends or distributions payable
solely in rights to purchase Capital Stock of the Company
(other than Redeemable Capital Stock), (ii) the purchase,
redemption, defeasance or other acquisition or retirement for
value of any Capital Stock of the Company (other than any such
Capital Stock owned by a Wholly-Owned Restricted Subsidiary),
(iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or
retirement for value, prior to any scheduled maturity, sched-
uled repayment, scheduled sinking fund payment or other Stated
Maturity, any Subordinated Indebtedness (other than any such
Subordinated Indebtedness owed to a Restricted Subsidiary), or
(iv) the making of any Investment (other than a Permitted
Investment) in any person.
<PAGE>
-24-
"Restricted Subsidiary" means any Subsidiary of the
Company that is not a Joint Venture and that has not been des-
ignated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsid-
iary pursuant to and in compliance with Section 4.17. Any such
designation may be revoked by a Board Resolution of the Company
delivered to the Trustee, subject to the provisions of Section
4.17. For purposes of this definition, any directors' qualify-
ing shares or investments by foreign nationals mandated by
applicable law or governmental regulation shall be disregarded
in determining the ownership of a Restricted Subsidiary.
"Revocation" has the meaning ascribed to that term
under Section 4.17.
"S&P" means Standard & Poor's Corporation and its
successors.
"Sale-Leaseback Transaction" means, with respect to
any person, any direct or indirect arrangement pursuant to
which properties or assets are sold or transferred by such per-
son and are thereafter leased back from the purchaser or trans-
feree thereof by such person or one of its Affiliates.
"SEC" means the Securities and Exchange Commission,
as from time to time constituted, or if at any time after the
execution of this Indenture such Commission is not existing and
performing the applicable duties now assigned to it, then the
body or bodies performing such duties at such time.
"Securities Act" means the Securities Act of 1933, as
amended from time to time.
"Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended from time to time.
"Senior Indebtedness" means the principal of, pre-
mium, if any, and interest on any Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides
that such Indebtedness shall not be senior in right of payment
to the Notes. Without limiting the generality of the fore-
going, "Senior Indebtedness" shall also include the principal
of, premium, if any, and interest (including interest accruing
after the filing of a petition initiating any proceeding under
<PAGE>
-25-
any Bankruptcy Law, whether or not such interest is an allow-
able claim in such proceeding) on, and all other amounts owing
in respect of, all Credit Agreement Obligations of the Company.
Notwithstanding the foregoing, "Senior Indebtedness" shall not
include (a) Indebtedness evidenced by the Notes, (b) Indebted-
ness that is expressly subordinate or junior in right of pay-
ment to any Senior Indebtedness of the Company, (c) Indebted-
ness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is by
its terms without recourse to the Company, (d) any repurchase,
redemption or other obligation in respect of Redeemable Capital
Stock of the Company, (e) to the extent it might constitute
Indebtedness, amounts owing for goods, materials or services
purchased in the ordinary course of business or consisting of
trade payables or other current liabilities (other than any
current liabilities owing under the Credit Agreement Obliga-
tions or the current portion of any long-term Indebtedness
which would constitute Senior Indebtedness but for the opera-
tion of this clause (e)), (f) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other
taxes owed or owing by the Company, (g) Indebtedness of the
Company to a Subsidiary of the Company or any other Affiliate
of the Company or any of such Affiliate's Subsidiaries, and (h)
that portion of any Indebtedness of the Company which at the
time of issuance is issued in violation of this Indenture (but,
as to any such Indebtedness, no such violation shall be deemed
to exist for purposes of this clause (h) if the holder(s) of
such Indebtedness or their representative or the Company shall
have furnished to the Trustee an opinion of counsel unqualified
in all material respects of independent legal counsel,
addressed to the Trustee (which legal counsel may, as to mat-
ters of fact, rely upon a certificate of the Company) to the
effect that the incurrence of such Indebtedness does not vio-
late the provisions of this Indenture); provided that the fore-
going exclusions shall not affect the priorities of any Indebt-
edness arising solely by operation of law in any case or pro-
ceeding or similar event described in clause (a), (b) or (c) of
Section 10.02.
"Senior Representative" means the Bank Agent or any
other representatives designated in writing to the Trustee of
the holders of any class or issue of Designated Senior Indebt-
edness; provided that, in the absence of a representative of
the type described above, any holder or holders of a majority
of the principal amount outstanding of any class or issue of
Designated Senior Indebtedness may collectively act as Senior
Representative for such class or issue, subject to the
<PAGE>
-26-
provisions of any agreements relating to such Designated Senior
Indebtedness.
"Senior Subordinated Note Obligations" means any
principal of, premium, if any, and interest on, and any other
amounts (including, without limitation, any payment obligations
with respect to the Notes arising as a result of any Asset Sale
or Change of Control or redemption) owing in respect of, the
Notes payable pursuant to the terms of the Notes or this Inden-
ture or upon acceleration of the Notes.
"Series A Preferred Stock" means the Series A $2.25
cumulative convertible Preferred Stock of the Company, par
value $.01 per share.
"Significant Joint Venture" means any Joint Venture
of which the Company's proportionate share of such Joint Ven-
ture's total assets exceeds an amount equal to 10% of the total
assets of the Company and its consolidated Subsidiaries at the
end of the Company's most recently completed fiscal year; pro-
vided that OMC shall be deemed not to be a Significant Joint
Venture.
"Significant Subsidiary" shall have the same meaning
as in Rule 1.02(w) of Regulation S-X under the Securities Act
as of the Issue Date, provided that no Unrestricted Subsidiary
shall be deemed a Significant Subsidiary.
"Specified Indebtedness" means any Senior Indebted-
ness and any Indebtedness of any Restricted Subsidiary which is
not subordinated to any other Indebtedness of such Restricted
Subsidiary.
"Stated Maturity" means, when used with respect to
any Note or any installment of interest thereon, the date spec-
ified in such Note as the fixed date on which any principal of
such Note or such installment of interest is due and payable,
and when used with respect to any other Indebtedness or any
installments of interest thereon, means any date specified in
the instrument governing such Indebtedness as the fixed date on
which the principal of such Indebtedness, or such installment
of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the
Company which by its terms is expressly subordinated in right
of payment to the Notes.
<PAGE>
-27-
"Subsidiary" means, with respect to any person, (i) a
corporation a majority of whose Voting Stock is at the time,
directly or indirectly, owned by such person, by one or more
Subsidiaries of such person or by such person and one or more
Subsidiaries of such person and (ii) any other person (other
than a corporation), including, without limitation, a joint
venture, in which such person or one or more Subsidiaries of
such person, directly or indirectly, at the date of determina-
tion thereof, has at least a majority ownership interest enti-
tled to vote in the election of directors, managers or trustees
thereof (or other person performing similar functions). For
purposes of this definition, any directors' qualifying shares
or investments by foreign nationals mandated by applicable law
or governmental regulation shall be disregarded in determining
the ownership of a Subsidiary.
"Surviving Entity" shall have the meaning set forth
in Section 5.01.
"Taxes" means any present or future tax, duty, levy,
impost, assessment or other governmental charge (including
penalties, interest and any other liabilities related thereto)
imposed or levied by or on behalf of a Taxing Authority.
"Taxing Authority" means any government or any polit-
ical subdivision or territory or possession of any government
or any authority or agency therein or thereof having power to
tax.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb) as in effect on the date of this
Indenture.
"Trustee" means the party named as such in this
Indenture until a successor replaces such party (or any pre-
vious successor) in accordance with the provisions of this
Indenture, and thereafter means such successor.
"Trust Officer" means any officer in the Corporate
Trust Administration Department of the Trustee or any other
officer of the Trustee customarily performing functions similar
to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust mat-
ter, any other officer to whom such matter is referred because
of his knowledge of and familiarity with the particular
subject.
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"Unrestricted Subsidiary" means a Subsidiary of the
Company designated as such pursuant to and in compliance with
Section 4.17 and any Subsidiary of such Unrestricted Subsid-
iary. Any such designation may be revoked by a Board Resolu-
tion of the Company delivered to the Trustee, subject to the
provisions of Section 4.17.
"U.S. Government Obligations" shall have the meaning
set forth in Section 8.02.
"Vessel Sales" means the sale by the Company to the
HeereMac Joint Venture of the Company's vessels identified for
sale pursuant to each of the Vessel Sale and Purchase Agreement
dated as of March 25, 1996 between Hydro Marine Services, Inc.
("Hydro Marine") and DB-101 Shipping, Inc., the Vessel Sale and
Purchase Agreement dated as of March 25, 1996 between Hydro
Marine and DB-102 Shipping, Inc. and the Suspensively Condi-
tioned Sale Agreement made the 25th day of March 1996 between
OPI International Vessels Limited and Offshore Marine Charter-
ing N.V. and the transactions contemplated by each such
agreement.
"Voting Stock" means any shares of any class or
classes of Capital Stock pursuant to which the holders of such
shares have the general voting power under ordinary circum-
stances to elect at least a majority of the board of directors,
managers or trustees of any person (irrespective of whether or
not, at the time, stock of any other class or classes shall
have, or might have, voting power by reason of the happening of
any contingency).
"Wholly-Owned Restricted Subsidiary" means any
Restricted Subsidiary of which 100% of the outstanding Capital
Stock is owned by the Company and/or another Wholly-Owned
Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nation-
als mandated by applicable law or governmental regulation shall
be disregarded in determining the ownership of a Restricted
Subsidiary.
Section 1.02. Incorporation by Reference of Trust
Indenture Act.
Whenever this Indenture refers to a provision of the
TIA, the provision is incorporated by reference in and made a
part of this Indenture. The following TIA terms used in this
Indenture have the following meanings:
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"Commission" means the SEC;
"indenture notes" means the Notes;
"indenture noteholder" means a Noteholder or Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means
the Trustee; and
"obligor" on the indenture notes means the Company.
All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute
or defined by SEC rule and not otherwise defined herein have
the meanings assigned to them therein.
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as other-
wise expressly provided or unless the context otherwise
requires:
(a) a term has the meaning assigned to it;
(b) words in the singular include the plural, and
words in the plural include the singular;
(c) "or" is not exclusive;
(d) provisions apply to successive events and
transactions;
(e) all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance
with GAAP;
(f) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other
subdivision;
(g) references to Sections or Articles refer to Sec-
tions and Articles, respectively, of this Indenture,
unless otherwise indicated; and
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(h) all references to $ or dollars shall refer to
the lawful currency of the United States of America.
ARTICLE TWO
THE NOTES
Section 2.01. Forms and Dating.
The Notes and the Trustee's certificate of authenti-
cation thereon shall be in substantially the form of Exhibit A
hereto, with such appropriate insertions, omissions, substitu-
tions and other variations as are required or permitted by this
Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon
as may be required to comply with any applicable law or with
the rules of any securities exchange or as may, consistently
herewith, be determined by the Officers executing such Notes,
as evidenced by their execution thereof. The Notes shall be
issuable only in registered form without coupons and only in
denominations of $1,000 and integral multiples thereof.
The definitive Notes shall be printed, typewritten,
lithographed or engraved or produced by any combination of
these methods or may be produced in any other manner permitted
by the rules of any securities exchange on which the Notes may
be listed, all as determined by the officers executing such
Notes, as evidenced by their execution of such Notes. Each
Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the
Notes, annexed hereto as Exhibit A shall constitute, and are
hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execu-
tion and delivery of this Indenture, expressly agree to such
terms and provisions and to be bound thereby.
Section 2.02. Execution and Authentication.
Two Officers shall execute the Notes on behalf of the
Company by either manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on
the Notes.
If an Officer whose signature is on a Note no longer
holds that office at the time the Trustee authenticates the
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Note or at any time thereafter, the Note shall be valid
nevertheless.
A Note shall not be valid until an authorized signa-
tory of the Trustee manually signs the certificate of authenti-
cation on the Note. Such signature shall be conclusive evi-
dence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate Notes for original
issue in an aggregate principal amount not to exceed
$250,000,000 upon receipt of an Officers' Certificate signed by
two Officers of the Company directing the Trustee to authenti-
cate the Notes and certifying that all conditions precedent to
the issuance of the Notes contained herein have been complied
with. The aggregate principal amount of Notes outstanding at
any time may not exceed $250,000,000, except as provided in
Section 2.07.
The Notes shall be in the form of one or more Global
Notes, which (i) shall represent, and shall be denominated in
an amount equal to the aggregate principal amount of, the out-
standing Notes, (ii) shall be registered in the name of the
Depository or its nominee, (iii) shall be delivered by the
Trustee to the Depository or pursuant to the Depository's
instruction and (iv) shall bear a legend substantially to the
following effect: "Unless and until this Global Note is
exchanged in whole or in part for the individual Notes repre-
sented hereby, this Global Note may not be transferred except
as a whole by the Depository to a nominee of the Depository or
by a nominee of the Depository to the Depository or by a Depos-
itory or any such nominee to a successor Depository or a nomi-
nee of a successor Depository."
With the prior written approval of the Company, the
Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of
such appointment, an authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentica-
tion by such agent. Such authenticating agent shall have the
same rights as the Trustee in any dealings hereunder with the
Company or with any of the Company's Affiliates.
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Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where
Notes may be presented for registration of transfer or for
exchange (the "Registrar"), an office or agency where Notes may
be presented for payment (the "Paying Agent") and an office or
agency where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The
Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company may have one or more
co-Registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent.
Except as otherwise expressly provided in this Indenture, the
Company or any Affiliate thereof may act as Paying Agent.
The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which
shall incorporate the provisions of the TIA. The agreement
shall implement the applicable provisions of this Indenture
that relate to such Agent. The Company shall notify the Trus-
tee of the name and address of any such Agent. If the Company
fails to maintain a Registrar, Paying Agent or agent for ser-
vice of notices and demands, or fails to give the foregoing
notice, the Trustee shall act as such and shall be entitled to
appropriate compensation in accordance with Section 7.08.
The Company initially appoints the Trustee as Regis-
trar, Paying Agent and agent for service of notices and demands
in connection with the Notes.
Section 2.04. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all money held by the Paying Agent
for the payment of principal of, or interest on, the Notes
(whether such money has been distributed to it by the Company
or any other obligor on the Notes), and the Company and the
Paying Agent shall notify the Trustee of any default by the
Company in making any such payment. If the Company or a Sub-
sidiary acts as Paying Agent, it shall segregate the money and
hold it as a separate trust fund. The Company at any time may
require a Paying Agent to distribute all money held by it to
the Trustee and account for any funds disbursed and the Trustee
may at any time during the continuance of any default in the
payment of principal of, or interest on, the Notes, upon writ-
ten request to a Paying Agent, require such Paying Agent to pay
all money held by it to the Trustee and to account for any
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funds distributed. Upon doing so, the Paying Agent (other than
on obligor under the Notes) shall have no further liability for
the money so paid over to the Trustee. Each Paying Agent will
in all respects comply with the provisions of the TIA appli-
cable to such Paying Agent.
Section 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of
the names and addresses of Holders and shall otherwise comply
with TIA Section 312(a). If the Trustee is not the Registrar, the
Company shall furnish to the Trustee at least ten Business Days
before each Interest Payment Date and at such other times as
the Trustee may request in writing a list in such form and as
of such date as the Trustee may reasonably require of the names
and addresses of Holders, which list may be conclusively relied
upon by the Trustee.
Section 2.06. Transfer and Exchange.
(a) When Notes are duly presented to the Registrar
or a co-Registrar with a request to register the transfer of
such Notes or to exchange such Notes for an equal principal
amount of Notes of other authorized denominations, the Regis-
trar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met;
provided, however, that the Notes surrendered for transfer or
exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Company and
the Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing. To permit registrations
of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Notes at the Registrar's request.
No service charge shall be made for any registration of trans-
fer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon
exchanges or transfers pursuant to Section 2.10, 3.06 or 9.05).
The Registrar shall not be required to register the transfer of
or exchange of any Note (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of
redemption of Notes and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole
or in part pursuant to Article Three, except the unredeemed
portion of any Note being redeemed in part.
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A Global Note may be transferred, in whole but not in
part and in the manner provided in this Section 2.6(a), only to
a nominee of the Depository for such Global Note, or to the
Depository, or a successor Depository for such Global Note
selected or approved by the Company, or to a nominee of such
successor Depository.
(b) If at any time the Depository for the Global
Note or Global Notes notifies the Company that it is unwilling
or unable to continue as Depository for such Global Note or
Global Notes or the Company becomes aware that the Depository
has ceased to be a clearing agency registered under the Securi-
ties Exchange Act, the Company shall appoint a successor Depos-
itory with respect to such Global Note or Global Notes. If a
successor Depository for such Global Note or Global Notes has
not been appointed within 120 days after the Company receives
such notice or becomes aware of such ineligibility, the Company
shall execute, and the Trustee, upon receipt of an Officers'
Certificate for the authentication and delivery of Notes, shall
authenticate and deliver, Notes in definitive form, in an
aggregate principal amount at maturity equal to the principal
amount at maturity of each Global Note representing such Notes,
in exchange for each such Global Note. The Company shall reim-
burse the Registrar, the Depository and the Trustee for
expenses they incur in documenting such exchanges and issuances
of Notes in definitive form.
The Company may at any time and in its sole discre-
tion determine that the Notes shall no longer be represented by
such Global Note or Global Notes. In such event the Company
will execute, and the Trustee, upon receipt of a written order
for the authentication and delivery of individual Notes in
exchange in whole or in part for such Global Note or Global
Notes, will authenticate and deliver individual Notes in defin-
itive form in an aggregate principal amount equal to the prin-
cipal amount of such Global Note or Global Notes in exchange
for such Global Note or Global Notes.
Upon any exchange provided for in any of the preced-
ing two paragraphs, the Company will execute and the Trustee
will authenticate and deliver individual Notes in definitive
registered form in authorized denominations. Upon the exchange
of a Global Note for individual Notes, such Global Note shall
be cancelled by the Trustee. Notes issued in exchange for a
Global Note pursuant to this Section 2.6(b) shall be registered
in such names and in such authorized denominations as the
Depository for such Global Note, pursuant to instructions from
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its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Notes to
the persons in whose names such Notes are so registered.
None of the Company, the Trustee, any Paying Agent or
the Registrar shall have any responsibility or obligation to
assure that any notices are forwarded by the Depository to any
of its direct or indirect participants or by any such partici-
pant to any beneficial owner except for compliance with the
requirements of the Depository governing such notices. None of
the Company, the Trustee, any Paying Agent or the Registrar
will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial
ownership interests of a Global Note or for maintaining, super-
vising or reviewing any records relating to such beneficial
ownership interests.
Section 2.07. Replacement Notes.
If (i) any mutilated Note is surrendered to the Trus-
tee or (ii) upon the destruction, loss or theft of any Note,
there is delivered to the Company and the Trustee such security
or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide pur-
chaser, the Company shall execute and, upon receipt of a writ-
ten order from the Company with respect thereto, the Trustee
shall authenticate and deliver, in exchange for any such muti-
lated Note or in lieu of any such destroyed, lost or stolen
Note, a new Note of like tenor and principal amount, bearing an
identification number not contemporaneously outstanding. The
Company may charge the Holder for its reasonable, out-of-pocket
expenses in replacing a Note, including reasonable fees and
expenses of counsel for the Company and counsel for the Trus-
tee. Every replacement Note is an additional obligation of the
Company.
Section 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that
have been authenticated by the Trustee except those cancelled
by it, those delivered to it for cancellation and those
described in this Section as not outstanding. A Note does not
cease to be outstanding because the Company or any of their
respective Affiliates holds the Note.
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If a Note is replaced pursuant to Section 2.07 (other
than a mutilated Note surrendered for replacement), it ceases
to be outstanding unless the Trustee receives proof satisfac-
tory to it that the replaced Note is held by a bona fide pur-
chaser. A mutilated Note ceases to be outstanding upon surren-
der of such Note and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or a Maturity Date the Paying
Agent (other than the Company or an Affiliate of the Company)
holds cash or U.S. Government Obligations sufficient to pay all
of the principal and interest due on the Notes payable on that
date, and is not prohibited from paying such cash or U.S.
Government Obligations to the Holders of such Notes pursuant to
the terms of this Indenture, then on and after that date such
Notes cease to be outstanding, interest on such Notes shall
cease to accrue and the Holders of such Notes shall have no
further rights with respect to such Notes except for the right
to receive the Redemption Price plus unpaid interest on the
Notes through the Redemption Date, upon surrender of such
Notes.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required
principal amount of Notes have concurred in any direction,
waiver or consent under this Indenture, Notes owned by the Com-
pany or any of their respective Affiliates shall be disre-
garded, except that, for the purposes of determining whether
the Trustee shall be protected in relying on any such direc-
tion, waiver or consent, only Notes that the Trustee knows or
has reason to know are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until definitive Notes are prepared and ready for
delivery, the Company may execute and the Trustee shall authen-
ticate temporary Notes. Temporary Notes shall be substantially
in the form of definitive Notes but may have variations that
the Company considers appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary
Notes. Until such exchange, temporary Notes shall be entitled
to the same rights, benefits and privileges as definitive
Notes. Notwithstanding the foregoing, so long as the Notes are
represented by Global Notes, such Global Notes may be in type-
written form.
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Section 2.11. Cancellation.
The Company at any time may deliver Notes to the
Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee, or at the direc-
tion of the Trustee, the Registrar or the Paying Agent (other
than the Company or an Affiliate of the Company), and no one
else, shall cancel and, at the written direction of the Com-
pany, shall dispose of all Notes surrendered for transfer,
exchange, payment or cancellation. Subject to Section 2.07,
the Company may not issue new Notes to replace Notes that it
has paid or delivered to the Trustee for cancellation. If the
Company shall acquire any of the Notes, such acquisition shall
not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surren-
dered to the Trustee for cancellation pursuant to this Section
2.11.
Section 2.12. Defaulted Interest.
If the Company defaults on a payment of interest on
the Notes, it shall pay the defaulted interest, plus (to the
extent permitted by law) any interest payable on the defaulted
interest, in accordance with the terms hereof, to the persons
who are Noteholders on a subsequent special record date, which
date shall be at least five Business Days prior to the payment
date. The Company shall fix such special record date and pay-
ment date in a manner satisfactory to the Trustee. At least 15
days before such special record date, the Company shall mail to
each Noteholder a notice that states the special record date,
the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be
paid.
Section 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP"
number (if then generally in use), and if so, the Trustee may
use the CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice
may state that no representation is made as to the correctness
or accuracy of the CUSIP number printed in the notice or on the
Notes, and that reliance may be placed only on the other iden-
tification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
<PAGE>
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Section 2.14. Deposit of Moneys.
On or before each Interest Payment Date and Maturity
Date, the Company shall deposit with the Trustee or Paying
Agent in immediately available funds money sufficient to make
cash payments, if any, due on such Interest Payment Date or
Maturity Date, as the case may be, in a timely manner which
permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date or Maturity Date, as the case may
be.
ARTICLE THREE
REDEMPTION OF NOTES
Section 3.01. Notices to the Trustee.
If the Company elects to redeem Notes pursuant to
Paragraph 3(a) or 3(b) of the Notes, it shall notify the Trus-
tee of the Redemption Date and principal amount of Notes to be
redeemed.
The Company shall notify the Trustee of any redemp-
tion at least 45 days before the Redemption Date by an Offic-
ers' Certificate, stating that such redemption will comply with
the provisions hereof and of the Notes.
Section 3.02. Selection of Notes To Be
Redeemed.
In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes for redemption
will be made by the Trustee in compliance with any applicable
requirements of the principal national securities exchange, if
any, on which the Notes are listed or, if the Notes are not
then listed on a national securities exchange (or if the Notes
are so listed but the exchange does not impose requirements
with respect to the selection of debt securities for redemp-
tion), on a pro rata basis, by lot or by such method as the
Trustee in its sole discretion shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of
$1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the
Registrar in writing of the Notes selected for redemption and,
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in the case of any Notes selected for partial redemption, the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the con-
text otherwise requires, all provisions relating to redemption
of Notes shall relate, in the case of any Note redeemed or to
be redeemed only in part, to the portion of the principal
amount of such Note which has been or is to be redeemed.
Section 3.03. Notice of Redemption.
Notice of redemption shall be given by first-class
mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the Redemption Date, to each Holder of Notes to
be redeemed, at the address of such Holder appearing in the
Note register maintained by the Registrar.
All notices of redemption shall identify the Notes to
be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price and the amount of accrued
interest, if any, to be paid;
(c) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemp-
tion ceases to accrue on and after the Redemption Date,
and the only remaining right of the Holders of such Notes
is to receive payment of the Redemption Price plus unpaid
interest on the Notes through the Redemption Date, upon
surrender to the Paying Agent of the Notes redeemed;
(d) if any Note is to be redeemed in part, the por-
tion of the principal amount (equal to $1,000 or any inte-
gral multiple thereof) of such Note to be redeemed and
that on and after the Redemption Date, upon surrender for
cancellation of such Note to the Paying Agent, a new Note
or Notes in the aggregate principal amount equal to the
unredeemed portion thereof will be issued without charge
to the Noteholder;
(e) that Notes called for redemption must be surren-
dered to the Paying Agent to collect the Redemption Price
and the name and address of the Paying Agent;
<PAGE>
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(f) the CUSIP number, if any, relating to such
Notes; and
(g) the paragraph of the Notes pursuant to which the
Notes are being redeemed.
Notice of redemption of Notes to be redeemed at the
election of the Company shall be given by the Company or, at
the Company's written request, by the Trustee in the name and
at the expense of the Company.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for
redemption become due and payable on the Redemption Date and at
the Redemption Price. Upon surrender to the Paying Agent, such
Notes called for redemption shall be paid at the Redemption
Price plus accrued interest, if any, to the Redemption Date,
but interest installments whose maturity is on or prior to such
Redemption Date will be payable on the relevant Interest Pay-
ment Dates to the Holders of record at the close of business on
the relevant record dates referred to in the Notes.
Section 3.05. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall
deposit with the Paying Agent an amount of money in same day
funds sufficient to pay the Redemption Price of, and any
accrued interest on, all the Notes or portions thereof which
are to be redeemed on that date, other than Notes or portions
thereof called for redemption on that date which have been
delivered by the Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph,
then, unless the Company defaults in the payment of such
Redemption Price, interest on the Notes to be redeemed will
cease to accrue on and after the applicable Redemption Date,
whether or not such Notes are presented for payment, and the
Holders of such Notes shall have no further rights with respect
to such Notes except for the right to receive the Redemption
Price plus unpaid interest on the Notes through the Redemption
Date, upon surrender of such Notes. If any Note called for
redemption shall not be so paid upon surrender thereof for
redemption, the principal, premium, if any, and, to the extent
lawful, accrued interest thereon shall, until paid, bear inter-
est from the Redemption Date at the rate provided in the Notes.
<PAGE>
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Section 3.06. Notes Redeemed or Purchased in
Part.
Upon surrender to the Paying Agent of a Note which is
to be redeemed in part, the Company shall execute and the Trus-
tee shall authenticate and deliver to the Holder of such Note
without service charge, a new Note or Notes, of any authorized
denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the unredeemed portion of
the principal of the Note so surrendered that is not redeemed.
Section 3.07. Special Right of Redemption.
If the Company has become or would become obligated
to pay, on the next date on which any amount would be payable
with respect to the Notes, any Additional Amounts as a result
of a change in, amendment to or promulgation of any treaty or
law (or any regulation thereunder) with respect to
Indemnifiable Taxes, or any change in, amendment to or promul-
gation of, any official position (whether administrative, judi-
cial or otherwise) regarding the application or interpretation
of any such treaty, law or regulation, which change, amendment
or promulgation is announced or becomes effective on or after
the Issue Date, the Notes will be subject to redemption in
whole, but not in part, at the option of the Company at any
time prior to the Maturity Date at 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the
Redemption Date; provided that the Company determines, in its
business judgment, that the obligation to pay such Additional
Amounts cannot be avoided by the use of reasonable measures
available to the Company (not including substitution of the
obligor under the Notes) or that such reasonable measures can-
not be taken without the Company suffering any material eco-
nomic, legal or regulatory disadvantage.
ARTICLE FOUR
COVENANTS
Section 4.01. Payment of Notes.
The Company will pay, or cause to be paid, the prin-
cipal of and interest on the Notes on the dates and in the man-
ner provided in the Notes and this Indenture. An installment
of principal or interest shall be considered paid on the date
due if the Trustee or Paying Agent (other than the Company, a
<PAGE>
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Subsidiary of the Company or any Affiliate of any thereof)
holds on that date money designated for and sufficient to pay
the installment and is not prohibited from paying such money to
the Holders of the Notes pursuant to the terms of this
Indenture.
The Company will pay interest on overdue principal at
the rate and in the manner provided in the Notes; it shall pay
interest on overdue installments of interest at the same rate
and in the same manner, to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhat-
tan, The City of New York, an office or agency where Notes may
be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may
be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of
such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presenta-
tions, surrenders, notices and demands may be made or served at
the address of the Trustee as set forth in Section 11.02.
The Company may also from time to time designate one
or more other offices or agencies where the Notes may be pre-
sented or surrendered for any or all such purposes and may from
time to time rescind such designations; provided, however, that
no such designation or rescission shall in any manner relieve
the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such
purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change
in the location of any such other office or agency.
The Company hereby initially designates the Corporate
Trust Office of the Trustee, as such office of the Company in
accordance with this Section 4.02.
Section 4.03. Corporate Existence.
Except as permitted by this Indenture, the Company
shall do or cause to be done all things necessary to, and will
cause each of its Subsidiaries to, preserve and keep in full
force and effect the corporate or partnership existence of the
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Company and each of its Subsidiaries; provided, however, that
the Company or any of its Subsidiaries shall not be required to
preserve any such existence (in the case of Subsidiaries) if
(x) the Board of Directors shall reasonably determine that the
preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries taken as a
whole or (y) the loss thereof is not materially adverse to
either the Company and its Subsidiaries taken as a whole or to
the ability of the Company to otherwise satisfy its obligations
hereunder.
Section 4.04. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid
or discharged, before any penalty accrues from the failure to
so pay or discharge, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any
of its Subsidiaries or upon the income, profits or property of
the Company or any of its Subsidiaries, and (b) all material
lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien upon the property of the
Company or any Restricted Subsidiary; provided, however, that
the Company shall not be required to pay or discharge or cause
to be paid or discharged any such tax, assessment, charge or
claim the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for
which adequate provision has been made or where the failure to
effect such payment or discharge is not adverse in any material
respect to the Holders.
Section 4.05. Maintenance of Properties; Insurance;
Books and Records; Compliance with
Law.
(a) Except as permitted by this Indenture, the Com-
pany shall, and shall cause each of its Subsidiaries to, cause
all material properties and assets to be maintained and kept in
good condition, repair and working order (reasonable wear and
tear excepted), all as in the judgment of the Company shall be
reasonably necessary for the proper conduct of its business;
provided, however, that nothing in this Section 4.05(a) shall
prevent the Company or any of its Subsidiaries from discontin-
uing the operation and maintenance of any of its properties (x)
if such discontinuance is, in the judgment of the Board of
Directors or the board of directors of such Subsidiary, desir-
able in the conduct of its business or (y) if such discontinu-
ance or disposal is not materially adverse to either the
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Company and its Subsidiaries taken as a whole or the ability of
the Company to otherwise satisfy its obligations hereunder.
(b) The Company shall, and shall cause each of its
Subsidiaries to, maintain such insurance as may be required by
law (other than with respect to any environmental impairment
liability insurance not commercially available) and such other
insurance to such extent and against such hazards and liabili-
ties, as is customarily maintained by companies similarly situ-
ated (which may include self-insurance in such form as may be
customarily maintained by companies similarly situated).
(c) The Company shall, and shall cause each of its
Subsidiaries to, keep proper books of record and account in
which full and correct entries shall be made of all material
business and financial transactions of the Company and each
Subsidiary of the Company and reflect on its financial state-
ments adequate accruals and appropriations to reserves, all in
accordance with GAAP consistently applied to the Company and
its Subsidiaries taken as a whole.
(d) The Company shall and shall cause each of its
Subsidiaries to comply with all statutes, laws, ordinances, or
government rules and regulations to which it is subject, non-
compliance with which would materially adversely affect the
business, earnings, properties, assets or condition (financial
or otherwise) of the Company and its Subsidiaries taken as a
whole.
Section 4.06. Compliance Certificate.
(a) The Company will deliver to the Trustee within
60 days after the end of each of the Company's first three fis-
cal quarters of each fiscal year of the Company and within 90
days after the end of the Company's fiscal years an Officers'
Certificate stating whether or not the signers know of any
Default or Event of Default under this Indenture by the Company
that occurred during such fiscal period. If they do know of
such a Default or Event of Default, the certificate shall
describe any such Default or Event of Default and its status.
The first certificate to be delivered pursuant to this Section
4.06(a) shall be for the first fiscal quarter of the Company
beginning after the Issue Date. The Company shall also deliver
a certificate to the Trustee at least annually from its princi-
pal executive, financial or accounting officer as to his or her
knowledge of the Company's compliance with all conditions and
covenants under this Indenture, such compliance to be determined
without
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regard to any period of grace or requirement of notice pro-
vided herein.
(b) The Company will deliver to the Trustee as soon
as possible, and in any event within 10 days after the Company
becomes aware of the occurrence of any Default or Event of
Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or pro-
poses to take with respect thereto.
Section 4.07. Reporting Requirements.
The Company shall file with the SEC the annual
reports, quarterly reports and other documents required to be
filed with the SEC pursuant to Sections 13 and 15(d) of the
Securities Exchange Act, to the extent such filings are
accepted by the Commission and whether or not the Company has a
class of securities registered under the Securities Exchange
Act. In accordance with the provisions of TIA Section 314(a), the
Company shall file with the Trustee, within 30 days after it
files them with the SEC, copies of such reports and documents
(with exhibits) which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act. The Company also shall comply with the other provisions
of TIA Section 314(a). In addition, the Company shall cause such
reports and documents (without exhibits) to be filed with the
Trustee and mailed, no later than the date such materials are
mailed or made available to the Company's stockholders, to the
Holders at their addresses as set forth in the register of
Notes maintained by the Registrar.
Section 4.08. Limitation on Additional Indebtedness.
The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or in any other manner become
liable contingently or otherwise (in each case, to "incur") for
the payment of any Indebtedness (including any Acquired Indebt-
edness); provided that (i) the Company and each Wholly-Owned
Restricted Subsidiary shall be permitted to incur Indebtedness
(including Acquired Indebtedness) and (ii) a Restricted Subsid-
iary which is not a Wholly-Owned Restricted Subsidiary will be
permitted to incur Acquired Indebtedness if, immediately after
giving pro forma effect thereto, the Consolidated Fixed Charge
Coverage Ratio of the Company would be equal to or greater than
2.25:1.0.
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Notwithstanding the foregoing, the Company (and, to
the extent specifically set forth below, the Restricted Subsid-
iaries) may incur each and all of the following Indebtedness
(including Acquired Indebtedness):
(a) (i) Indebtedness of the Company or any
Restricted Subsidiary under the Credit Agreement in an
aggregate principal amount at any time outstanding not to
exceed $250,000,000 (or, to the extent non-U.S. dollar
denominated, the equivalent of such amount as determined
by the Credit Agreement), and any fees, premiums, expenses
(including costs of collection), indemnities and other
similar amounts payable in connection with such Indebted-
ness; (ii) Indebtedness of JRMI and the OPI Guarantors
arising from the OPI Notes; and (iii) other Indebtedness
of the Company or any Restricted Subsidiary outstanding on
the Issue Date;
(b) Indebtedness of the Company evidenced by the
Notes;
(c) (i) Interest Rate Protection Obligations of the
Company or any Restricted Subsidiary covering Indebtedness
of the Company or any Restricted Subsidiary incurred in
the ordinary course of business; provided that the
notional principal amount of any such Interest Rate Pro-
tection Obligations does not exceed 105% of the principal
amount of the Indebtedness to which such Interest Rate
Protection Obligations expressly relates;
(d) Indebtedness of the Company or any of the
Restricted Subsidiaries under Currency Agreement Obliga-
tions; provided that such Currency Agreement Obligations
do not increase the Indebtedness or other obligations of
the Company and the Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and com-
pensation payable thereunder;
(e) (i) Indebtedness of the Company owed to a
Restricted Subsidiary and Indebtedness of a Restricted
Subsidiary owed to the Company or a Restricted Subsidiary;
provided that (a) any subsequent issuance or transfer of
Capital Stock or any Designation that results in such
Restricted Subsidiary ceasing to be a Restricted Subsid-
iary or any subsequent transfer or assignment of such
Indebtedness (other than to the Company or a Restricted
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Subsidiary or a Joint Venture) will be deemed to consti-
tute the incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be, and
(b) any such Indebtedness of the Company owed to a
Restricted Subsidiary must be subordinated in right of
payment to the prior payment in full and performance of
the Company's obligations under this Indenture and the
Notes; and (ii) Indebtedness of the Company or any
Wholly-Owned Restricted Subsidiary owed to any Joint Ven-
ture; provided that any such Indebtedness (a) if Indebted-
ness of the Company, must be subordinated in right of pay-
ment to the prior payment in full and performance of the
Company's obligations under the Indenture and the Notes
and (b) must not bear interest (other than through the
accrual or payment in kind of Indebtedness of the same
obligor containing terms identical to the terms of the
Indebtedness on which such Indebtedness is paid as inter-
est) except that cash interest may be paid (A) if required
by law to prevent the holder of such Indebtedness from
being treated for applicable revenue tax purposes as hav-
ing received imputed interest thereon or (B) to minimize
taxes payable by the parties to the Joint Venture;
(f) Indebtedness of the Company or any Restricted
Subsidiary incurred in respect of bid, performance and
payment bonds (other than in respect of Indebtedness),
surety bonds, trade letters of credit, bankers' acceptan-
ces and letters of credit supporting bids, advance pay-
ments and performance obligations of the Company, any
Restricted Subsidiary or any Joint Venture (other than in
respect of Indebtedness), in each case incurred in the
ordinary course of business;
(g) Indebtedness of the Company or any Restricted
Subsidiary not to exceed $30,000,000 in aggregate amount
per year incurred in connection with capital expenditures
(as determined in accordance with GAAP);
(h) Indebtedness of the Company or any Restricted
Subsidiary (i) representing Capitalized Lease Obligations
and (ii) in respect of Purchase Money Obligations for
property acquired in the ordinary course of business (and
not, in any event, in connection with an Asset Acquisition
or a Capitalized Lease Obligation), which taken together
do not exceed $20,000,000 in aggregate amount at any time
outstanding;
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(i) Indebtedness of the Company or any Restricted
Subsidiary in respect of Receivables Facility Obligations;
provided that the holders of such Indebtedness have
recourse only to the accounts receivable, work in progress
and related assets transferred pursuant to such Receiv-
ables Facility;
(j) Indebtedness of the Company and any Restricted
subsidiary consisting of the guarantee of Indebtedness of
a Joint Venture not to exceed $50,000,000 in aggregate
principal amount at any time outstanding; provided, that
as and to the extent that the Company or such Restricted
Subsidiary, as the case may be, shall be entitled pursuant
to the terms of any agreement then in effect, to reim-
bursement, indemnity or contribution from any person
(other than the Company or any of its Subsidiaries or the
Joint Ventures) that the Company reasonably deems to be
solvent for amounts as to which the Company or such
Restricted Subsidiary, as the case may be, may become lia-
ble for or have to pay pursuant to such guarantee of
Indebtedness of a Joint Venture, such amount, but not the
remaining amount, shall not be treated for the purpose of
the foregoing limitation as having been guaranteed;
(k) Indebtedness of the Company and any Restricted
Subsidiary consisting of a guarantee of performance obli-
gations of any Joint Venture (other than in respect of
Indebtedness of such Joint Venture);
(l) (i) Indebtedness of the Company or any
Restricted Subsidiary to the extent the proceeds thereof
are used to refinance (whether by amendment, modification,
supplement, restatement, replacement, restructuring, refi-
nancing, renewal, extension or refunding) Indebtedness of
the Company (including all or a portion of the Notes) or
any Restricted Subsidiary to the extent the Indebtedness
to be refinanced, redeemed or retired has been incurred
under or referred to in the first paragraph of this
Section 4.08 or clauses (a)(ii), (a)(iii), (b), (h)(ii) or
(m); provided that the principal amount of Indebtedness
incurred pursuant to this clause (l) (or, if such Indebt-
edness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of
the principal amount of Indebtedness so amended, modified,
supplemented, restated, replaced, restructured,
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refinanced, renewed, extended or refunded (or, if such
Indebtedness provides for an amount less than the princi-
pal amount thereof to be due and payable upon a declara-
tion of acceleration of the maturity thereof, the original
issue price of such Indebtedness plus any accreted value
attributable thereto since the original issuance of such
Indebtedness) plus the amount of any premium required to
be paid in connection therewith pursuant to the terms of
such Indebtedness or the amount of any premium reasonably
determined by the Company or a Restricted Subsidiary, as
applicable, as necessary to accomplish the foregoing by
means of a tender or exchange offer or privately negoti-
ated purchase, plus the amount of expenses in connection
therewith; and
(m) additional Indebtedness of the Company and the
Restricted Subsidiaries not to exceed $100,000,000 in
aggregate principal amount at any time outstanding (which
may include Indebtedness incurred for any purpose, includ-
ing, but not limited to, the purposes referred to in
clauses (a) through (l) above).
Section 4.09. Limitation on Restricted Payments.
The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless, at the time of and after giving
effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than in cash, shall be the
Fair Market Value of the asset(s) proposed to be transferred by
the Company or such Restricted Subsidiary, as the case may be,
pursuant to such Restricted Payment):
(i) no Default shall have occurred and be
continuing,
(ii) the aggregate amount of all Restricted Payments
declared or made from and after the Issue Date would not
exceed the sum of (1) 50% of the aggregate Consolidated
Net Income of the Company accrued on a cumulative basis
during the period (treated as one accounting period)
beginning on April 1, 1996 and ending on the last day of
the fiscal quarter of the Company immediately preceding
the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income of the Com-
pany for such period shall be a deficit, minus 100% of
such deficit) plus (2) the aggregate net cash proceeds
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received by the Company either (x) as capital contribu-
tions in the form of common equity to the Company after
the Issue Date or (y) from the issuance or sale of Capital
Stock (excluding Redeemable Capital Stock, but including
Capital Stock issued upon the conversion of convertible
Indebtedness, in exchange for outstanding Indebtedness or
from the exercise of options, warrants or rights to pur-
chase Capital Stock (other than Redeemable Capital Stock))
of the Company to any person (other than to a Restricted
Subsidiary) after the Issue Date plus (3) in the case of
the disposition or repayment of any Investment constitut-
ing a Restricted Payment made after the Issue Date
(excluding any Investment made pursuant to clause (iv) of
the next paragraph of this Section 4.09), an amount equal
to the lesser of the return of capital with respect to
such Investment and the initial amount of such Investment,
in either case, less the cost of the disposition of such
Investment plus (4) 100% of the aggregate amount of all
Investments previously made on or after the date of the
Indenture in any Unrestricted Subsidiary upon revocation
of the designation of such Unrestricted Subsidiary as
such, other than Investments made in such Unrestricted
Subsidiary pursuant to clause (iv) of the following para-
graph, and
(iii) the Company could incur $1.00 of additional
Indebtedness under the first paragraph of Section 4.08.
For the purposes of clause (ii)(2) above, the amount counted as
net proceeds received by the Company upon the issuance of Capi-
tal Stock, either from the conversion of convertible Indebted-
ness or in exchange for outstanding Indebtedness or upon the
exercise of options, warrants or rights, will be the cash
amount received by the Company at the original issuance of the
Indebtedness that is so converted or exchanged or from the
issuance of options, warrants or rights, as the case may be,
plus the incremental amount of cash received by the Company, if
any, upon the conversion, exchange or exercise thereof.
None of the foregoing provisions will prohibit
(i) the payment of any dividend within 60 days after the date
of its declaration, if at the date of declaration such payment
would be permitted by the foregoing paragraph; (ii) the redemp-
tion, repurchase or other acquisition or retirement of any
shares of any class of Capital Stock of the Company or any
Restricted Subsidiary in exchange for, or out of the net cash
proceeds of, a substantially concurrent issue and sale of other
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shares of Capital Stock (other than Redeemable Capital Stock)
of the Company to any person (other than to a Restricted
Subsidiary or a Joint Venture); provided that such net proceeds
are excluded from clause (ii)(2)(y) of the preceding paragraph
of this Section 4.09; (iii) so long as no Default shall have
occurred and be continuing, any redemption, repurchase or other
acquisition or retirement of Subordinated Indebtedness by
exchange for, or out of the net proceeds of, a substantially
concurrent issue and sale of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company to any person (other
than to a Restricted Subsidiary or a Joint Venture), provided
that any such net cash proceeds are excluded from
clause (ii)(2)(y) of the preceding paragraph, or (2) Indebted-
ness of the Company so long as such Indebtedness (x) is subor-
dinated to the Notes in the same manner and at least to the
same extent as the Subordinated Indebtedness being redeemed,
repurchased, acquired or retired and (y) has no Stated Maturity
earlier than the 91st day after the Stated Maturity for the
final scheduled principal payment of the Notes; (iv) so long as
no Default shall have occurred and be continuing, the making of
Investments constituting Restricted Payments in persons (other
than Joint Ventures and Wholly-Owned Restricted Subsidiaries of
the Company) made after the Issue Date not to exceed
$30,000,000 at any time outstanding; (v) the making of Invest-
ments constituting Restricted Payments made after the Issue
Date as a result of the receipt of non-cash consideration from
any Asset Sale made pursuant to and in compliance with Section
4.13; or (vi) for so long as no Default shall have occurred and
be continuing, the declaration and payment of dividends of up
to $15,000,000 to MII or its Affiliates in respect of shares of
Series A Preferred Stock owned by such persons that otherwise
would not be permitted as a result of this Section 4.09. In
computing the amount of Restricted Payments previously made for
purposes of clause (ii) of the preceding paragraph of this Sec-
tion 4.09, Restricted Payments made under clauses (i), (iv) and
(v) of this paragraph shall be included.
The Company will not consent to or otherwise autho-
rize any Joint Venture to, directly or indirectly, and where
the Company has a legal or contractual right to do so, the Com-
pany will prevent a Joint Venture from acting to
(i) purchase, redeem, defease or otherwise acquire
or retire for value any Capital Stock of the Company or
any Subsidiary of the Company (other than Capital Stock of
the Company upon original issuance by the Company);
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(ii) make any principal payment on, or purchase,
repurchase, redeem or otherwise acquire or retire for
value, any Subordinated Indebtedness (other than any Sub-
ordinated Indebtedness owed by such Joint Venture to the
Company or any of its Subsidiaries); or
(iii) make any Investment in any person (other than
(x) a Subsidiary of which 100% of the outstanding Capital
Stock is owned by such Joint Venture or (y) as permitted
by clause (i) or (ii) above) other than in the ordinary
course of business of such Joint Venture solely for the
purpose of conducting activities directly related to the
marine construction business or a business reasonably
related thereto.
Section 4.10. Limitation on Issuance and Sale
of Preferred Stock by Restricted
Subsidiaries.
The Company (i) will not permit any of the Restricted
Subsidiaries to issue any Preferred Stock (other than to the
Company or a Restricted Subsidiary) and (ii) will not permit
any person (other than the Company or a Restricted Subsidiary)
to own any Preferred Stock of any Restricted Subsidiary except
for Preferred Stock of a Restricted Subsidiary issued and out-
standing at the time such Restricted Subsidiary became a Sub-
sidiary of the Company; provided that such Preferred Stock was
not issued in anticipation of such person becoming a Subsidiary
of the Company.
Section 4.11. Limitation on Liens.
(a) The Company will not, and will not permit any of
the Restricted Subsidiaries to, create, incur, assume or suffer
to exist any Lien of any kind against or upon any of its prop-
erty or assets, whether now owned or acquired after the date of
this Indenture, or any proceeds therefrom, which secures either
(i) Subordinated Indebtedness (other than Subordinated Indebt-
edness of a Restricted Subsidiary owing to the Company secured
by assets of such Restricted Subsidiary) unless the Notes are
secured by a Lien on such property, assets or proceeds that is
senior in priority to the Liens securing such Subordinated
Indebtedness or (ii) Pari Passu Indebtedness unless the Notes
are equally and ratably secured with the Liens securing such
Pari Passu Indebtedness. This Section 4.11 will not apply to
any Lien securing Acquired Indebtedness, provided that any such
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Lien extends only to the properties or assets that were subject
to such Lien prior to the related acquisition by the Company or
such Restricted Subsidiary and was not created, incurred or
assumed in contemplation of such transaction.
(b) Notwithstanding the foregoing, any security
interest granted by the Company or any Restricted Subsidiary to
secure the Notes created pursuant to Section 4.11(a) shall pro-
vide by its terms that such security interest shall be automat-
ically and unconditionally released and discharged upon the
release by the holders of the Indebtedness of the Company or
any Restricted Subsidiary described in Section 4.11(a) of their
security interest (including any deemed release upon payment in
full of all obligations under such Indebtedness), at a time
when (A) no other Pari Passu Indebtedness and Subordinated
Indebtedness of the Company or any Restricted subsidiary has
been secured by such property or assets of the Company or any
such Restricted Subsidiary or (B) the holders of all such other
Pari Passu Indebtedness and Subordinated Indebtedness which is
secured by such property or assets of the Company or any such
Restricted Subsidiary also release their security interest in
such property or assets (including any deemed release upon pay-
ment in full of all obligations under such Indebtedness).
Section 4.12. Change of Control.
Upon the occurrence of a Change of Control (the date
of such occurrence, the "Change of Control Date"), the Company
shall be obligated to make an offer to purchase (a "Change of
Control Offer") and shall, subject to the provisions described
below, purchase, on a business day (the "Change of Control Pur-
chase Date") not more than 60 nor less than 30 days following
the occurrence of the Change of Control, all of the then out-
standing Notes at a purchase price equal to 101% of the princi-
pal amount thereof plus accrued and unpaid interest, if any,
plus Additional Amounts, if any (the "Change of Control Pur-
chase Price"), to the Change of Control Purchase Date. Prior
to the mailing of the notice to Holders provided for below, the
Company shall have (x) terminated all commitments and repaid in
full all Indebtedness under the Credit Agreement, or
(y) obtained the requisite consents under the Credit Agreement
to permit the purchase of the Notes as provided for under this
Section 4.12. If a notice has been mailed when such condition
precedent has not been satisfied, the Company shall have no
obligation to (and shall not) effect the purchase of the Notes
until such time as such condition precedent is satisfied.
Failure to mail the notice on the date specified below or to
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have satisfied the foregoing condition precedent by the date
that the notice is required to be mailed shall in any event
constitute a Default under Section 6.01(c).
Notice of a Change of Control Offer shall be mailed
by the Company not later than the 30th day after the Change of
Control Date to the Holders of Notes at their last registered
addresses with a copy to the Trustee and the Paying Agent. The
Change of Control Offer shall remain open from the time of
mailing for at least 20 Business Days and until 5:00 p.m., New
York City time, on the Change of Control Purchase Date. The
notice, which shall govern the terms of the Change of Control
Offer, shall include such disclosures as are required by law
and shall state:
(a) that the Change of Control Offer is being made
pursuant to this Section 4.12 and that all Notes properly
tendered into the Change of Control Offer and not with-
drawn will be accepted for payment;
(b) the Change of Control Purchase Price (including
the amount of accrued interest, if any) for each Note, the
Change of Control Purchase Date and the date on which the
Change of Control Offer expires;
(c) that any Note not tendered for payment will con-
tinue to accrue interest in accordance with the terms
thereof;
(d) that, unless the Company shall default in the
payment of the purchase price, any Note accepted for pay-
ment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Purchase
Date;
(e) that Holders electing to have Notes purchased
pursuant to a Change of Control Offer will be required to
surrender their Notes to the Paying Agent at the address
specified in the notice prior to 5:00 p.m., New York City
time, on the Change of Control Purchase Date and must com-
plete any form letter of transmittal proposed by the Com-
pany and acceptable to the Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to with-
draw their election if the Paying Agent receives, not
later than 5:00 p.m., New York City time, on the Change of
Control Purchase Date, a tested telex, facsimile
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transmission or letter setting forth the name of the
Holder, the principal amount of Notes the Holder delivered
for purchase, the Note certificate number (if any) and a
statement that such Holder is withdrawing its election to
have such Notes purchased;
(g) that Holders whose Notes are purchased only in
part will be issued Notes equal in principal amount to the
unpurchased portion of the Notes surrendered;
(h) the instructions that Holders must follow in
order to tender their Notes; and
(i) information concerning the business of the Com-
pany, the most recent annual and quarterly reports of the
Company filed with the SEC pursuant to the Securities
Exchange Act (or, if the Company is not then required to
file any such reports with the SEC, the comparable reports
prepared pursuant to Section 4.07), a description of mate-
rial developments in the Company's business subsequent to
the latest of such reports, information with respect to
pro forma historical financial information after giving
effect to such Change of Control, if material, and such
other information concerning the circumstances and rele-
vant facts regarding such Change of Control and Change of
Control Offer as would be material to a Holder of Notes in
connection with the decision of such Holder as to whether
or not it should tender Notes pursuant to the Change of
Control Offer, including, if available, information
regarding the persons acquiring control.
On the Change of Control Purchase Date, the Company
shall (i) accept for payment Notes or portions thereof validly
tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent money, in immediately available funds,
sufficient to pay the purchase price of all Notes or portions
thereof so tendered and accepted and (iii) deliver to the Trus-
tee the Notes so accepted together with an Officers' Certifi-
cate setting forth the Notes or portions thereof tendered to
and accepted for payment by the Company. The Paying Agent
shall promptly mail or deliver to the Holders of Notes so
accepted payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company will publicly announce the
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results of the Change of Control Offer not later than the first
Business Day following the Change of Control Purchase Date.
The Company shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes
the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements applicable to a
Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) and Rule 14e-1 of the
Securities Exchange Act, and any other applicable securities
laws or regulations in connection with the repurchase of Notes
pursuant to a Change of Control Offer.
Section 4.13. Disposition of Proceeds of Asset
Sales.
(a) The Company will not, and will not permit any of
the Restricted Subsidiaries to, make any Asset Sale unless
(i) the Company or such Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets
sold or otherwise disposed of and (ii) at least 75% of such
consideration consists of cash and/or Cash Equivalents (with
Indebtedness of the Company or any Restricted Subsidiary (other
than any Restricted Subsidiary that will cease to be a
Restricted Subsidiary as a result of such Asset Sale) being
counted as cash for all purposes of this Section 4.13 if the
Company or the Restricted Subsidiary is unconditionally
released from any liability therefor). Net Cash Proceeds of
any Asset Sale may be applied to repay Specified Indebtedness
or Credit Agreement Obligations (but only if the commitments or
amounts available to be borrowed under such Specified Indebted-
ness or Credit Agreement, as the case may be, are permanently
reduced by the amount of such payment). To the extent that
such Net Cash Proceeds are not applied as provided in the pre-
ceding sentence, the Company or a Restricted Subsidiary, as the
case may be, may apply the Net Cash Proceeds from such Asset
Sale, within 18 months of the date of such Asset Sale, to an
investment in properties and assets that were the subject of
such Asset Sale or in properties and assets that will be used
in the business of the Company and the Restricted Subsidiaries
existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets") provided that the Company or
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such Restricted Subsidiary, as the case may be, may apply such
Net Cash Proceeds towards the acquisition or construction of a
new marine vessel or the refurbishment or refitting of an
existing marine vessel, in either case that will be used in the
business of the Company or one or more of its Restricted Sub-
sidiaries or Joint Ventures, to the extent made pursuant to a
binding written agreement entered into by the Company or such
Restricted Subsidiary, as the case may be, within six months of
such Asset Sale, notwithstanding that the application of such
Net Cash Proceeds pursuant to such binding written agreement
may occur, in whole or in part, following the expiration of the
18-month period following such Asset Sale, and any such Net
Cash Proceeds applied pursuant to this proviso shall not con-
stitute Excess Proceeds (as hereinafter provided) except to the
extent that they would otherwise constitute Excess Proceeds
(but for the application of this proviso) and then only to the
extent that they are not actually applied within the 30-month
period following the completion of such Asset Sale. Any Net
Cash Proceeds from any Asset Sale not applied as provided in
the preceding two sentences, within 18 months of the date of
such Asset Sale, constitute "Excess Proceeds" subject to dis-
position as provided below.
(b) When the aggregate amount of Excess Proceeds
equals or exceeds $25,000,000, the Company shall make an offer
to purchase, from all holders of the Notes and any then out-
standing Pari Passu Indebtedness required to be repurchased or
repaid on a permanent basis in connection with an Asset Sale,
an aggregate principal amount of Notes and any such Pari Passu
Indebtedness equal to such Excess Proceeds as follows:
(i) (A) The Company shall make an offer to purchase
(an "Asset Sale Offer") from all holders of the Notes in
accordance with the procedures set forth in this Indenture
the maximum principal amount (expressed as a multiple of
$1,000) of Notes that may be purchased out of an amount
(the "Payment Amount") equal to the product of such Excess
Proceeds multiplied by a fraction, the numerator of which
is the outstanding principal amount of the Notes and the
denominator of which is the sum of the outstanding princi-
pal amount of the Notes and such Pari Passu Indebtedness,
if any (subject to proration in the event such amount is
less than the aggregate Asset Sale Offer Price (as defined
in clause (ii) below) of all Notes tendered), and (B) to
the extent required by any such Pari Passu Indebtedness
and provided there is a permanent reduction in the princi-
pal amount of such Pari Passu Indebtedness, the Company
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shall make an offer to purchase such Pari Passu Indebted-
ness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess
Proceeds over the Payment Amount;
(ii) The offer price for the Notes shall be payable
in cash in an amount equal to 100% of the principal amount
of the Notes tendered pursuant to an Asset Sale Offer,
plus accrued and unpaid interest, if any, to the date such
Asset Sale Offer is consummated plus Additional Amounts,
if any (the "Asset Sale Offer Price"), in accordance with
the procedures set forth in the Indenture. To the extent
that the aggregate Asset Sale Offer Price of the Notes
tendered pursuant to an Asset Sale Offer is less than the
Payment Amount relating thereto or the aggregate amount of
the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari Passu Offer is less than the Pari
Passu Indebtedness Amount (such shortfall constituting a
"Net Proceeds Deficiency"), the Company may use such Net
Proceeds Deficiency, or a portion thereof, for general
corporate purposes, subject to Section 4.09;
(iii) If the aggregate Asset Sale Offer Price of Notes
validly tendered and not withdrawn by holders thereof
exceeds the Payment Amount, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such
Asset Sale Offer and Pari Passu Offer, the amount of
Excess Proceeds shall be reset to zero.
(c) Notice of an Asset Sale Offer shall be mailed by
the Company to all Holders of Notes not less than 30 days nor
more than 60 days before the Asset Sale Purchase Date at their
last registered address with a copy to the Trustee and the Pay-
ing Agent. The Asset Sale Offer shall remain open from the
time of mailing for at least 20 Business Days and until at
least 5:00 p.m., New York City time, on the Asset Sale Purchase
Date. The notice, which shall govern the terms of the Asset
Sale Offer, shall include such disclosures as are required by
law and shall state:
(1) that the Asset Sale Offer is being made pursuant
to this Section 4.13;
(2) the Asset Sale Offer Price (including the amount
of accrued interest, if any) for each Note, the Asset Sale
Purchase Date and the date on which the Asset Sale Offer
expires;
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(3) that any Note not tendered or accepted for pay-
ment will continue to accrue interest in accordance with
the terms thereof;
(4) that, unless the Company shall default in the
payment of the Asset Sale Offer Price, any Note accepted
for payment pursuant to the Asset Sale Offer shall cease
to accrue interest after the Asset Sale Purchase Date;
(5) that Holders electing to have Notes purchased
pursuant to an Asset Sale Offer will be required to sur-
render their Notes to the Paying Agent at the address
specified in the notice prior to 5:00 p.m., New York City
time, on the Asset Sale Purchase Date and must complete
any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00
p.m., New York City time, on the Asset Sale Purchase Date,
a tested telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of
Notes the Holder delivered for purchase, the Note certifi-
cate number (if any) and a statement that such Holder is
withdrawing its election to have such Notes purchased;
(7) that if Notes in a principal amount in excess of
the Holder's pro rata share of the amount of Excess Pro-
ceeds are tendered pursuant to the Asset Sale Offer, the
Company shall purchase Notes on a pro rata basis among the
Notes tendered (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denomina-
tions of $1,000 or integral multiples of $1,000 shall be
acquired);
(8) that Holders whose Notes are purchased only in
part will be issued new Notes equal in principal amount to
the unpurchased portion of the Notes surrendered;
(9) the instructions that Holders must follow in
order to tender their Notes; and
(10) information concerning the business of the Com-
pany, the most recent annual and quarterly reports of the
Company filed with the SEC pursuant to the Securities
Exchange Act (or, if the Company is not required to file
any such reports with the Commission, the comparable
<PAGE>
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reports prepared pursuant to Section 4.07), a description
of material developments in the Company's business subse-
quent to the latest of such reports and information with
respect to pro forma historical financial information
after giving effect to such Asset Sale and Asset Sale
Offer, if material.
(d) On the Asset Sale Purchase Date, the Company
shall (i) accept for payment, on a pro rata basis, Notes or
portions thereof tendered pursuant to the Asset Sale Offer,
(ii) deposit with the Paying Agent money, in immediately avail-
able funds, in an amount sufficient to pay the Asset Sale Offer
Price of all Notes or portions thereof so tendered and accepted
and (iii) deliver to the Trustee the Notes so accepted together
with an Officers' Certificate setting forth the Notes or por-
tions thereof tendered to and accepted for payment by the Com-
pany. The Paying Agent shall promptly mail or deliver to Hold-
ers of Notes so accepted payment in an amount equal to the
Asset Sale Offer Price, and the Trustee shall promptly authen-
ticate and mail or deliver to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surren-
dered. Any Notes not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company
will publicly announce the results of the Asset Sale Offer not
later than the first Business Day following the Asset Sale Pur-
chase Date. To the extent that the aggregate principal amount
of Notes tendered pursuant to an offer to purchase is less than
the Excess Proceeds, the Company may use such deficiency for
general corporate purposes. Upon completion of such an offer
to purchase, the amount of Excess Proceeds shall be reset to
zero. For purposes of this Section 4.13, the Trustee shall act
as Paying Agent.
(e) The Company shall comply, to the extent appli-
cable, with the requirements of Section 14(e) and Rule 14e-1 of
the Securities Exchange Act in connection with the repurchase
of Notes pursuant to the Asset Sale Offer.
Section 4.14. Limitation on Transactions
with Affiliates.
The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly, enter into
or suffer to exist any transaction or series of related trans-
actions (including, without limitation, the sale, transfer,
disposition, purchase, exchange or lease of any assets, prop-
erty or services) with, or for the benefit of, any Affiliate of
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the Company (other than a Wholly-Owned Restricted Subsidiary or
a Joint Venture; provided that no Affiliate (other than a Sub-
sidiary of the Company) or beneficial holder of 10% or more of
any class of Capital Stock of the Company shall beneficially
own any Capital Stock in such Restricted Subsidiary or Joint
Venture other than Capital Stock beneficially owned by a Per-
mitted Holder solely by virtue of its ownership of Capital
Stock of the Company) or any beneficial holder of 10% or more
of any class of Capital Stock of the Company except (i) on
terms that are no less favorable to the Company or the
Restricted Subsidiary, as the case may be, than those which
could have been obtained in a comparable transaction at such
time from persons who do not have such a relationship with the
Company, (ii) with respect to any transaction or series of
related transactions involving aggregate payments or value
equal to or greater than $5,000,000, the Company shall have
delivered an Officer's Certificate to the Trustee certifying
that such transaction or series of related transactions comply
with the preceding clause (i) and, with respect to any transac-
tion or series of transactions involving aggregate payments or
value equal to or greater than $10,000,000, further certifying
that such transaction or series of transactions have been
approved by a majority of the Board of Directors, including a
majority of the disinterested directors of the Board of Direc-
tors. For purposes of the foregoing, a director of the Company
shall not be considerd "interested" with respect to a transac-
tion solely by virtue of also being a director of the other
party to such transaction. This Section 4.14 shall not
restrict the Company from (u) paying dividends in respect of
its Capital Stock permitted under Section 4.09; (v) paying rea-
sonable and customary regular fees to directors of the Company
who are not employees of the Company; (w) making loans or
advances to officers of the Company and the Restricted Subsid-
iaries for bona fide business purposes of the Company; (x) the
Company's employee compensation and other benefit arrangements;
(y) complying with the terms of any Permitted Agreement; and
(z) performing any existing obligations in respect of the
transactions set forth on Schedule 4.14 hereto.
Section 4.15. Limitation on Dividends and Other
Payment Restrictions Affecting
Restricted Subsidiaries.
The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any con-
sensual encumbrance or restriction on the ability of any
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Restricted Subsidiary to (a) pay dividends, in cash or other-
wise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness owed to the
Company or any other Restricted Subsidiary, (c) make loans or
advances to the Company or any other Restricted Subsidiary or
(d) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary (other than any customary
restriction on transfers of property subject to a Lien permit-
ted hereunder (other than a Lien on cash not constituting pro-
ceeds of non-cash property subject to a Lien permitted hereun-
der) which would not materially adversely affect the Company's
ability to satisfy its obligations hereunder), except for such
encumbrances or restrictions existing under or by reason of
(i) applicable law or governmental regulation, (ii) customary
non-assignment provisions of any contract or any licensing
agreement entered into by the Company or any of the Restricted
Subsidiaries in the ordinary course of business or any lease
governing a leasehold interest of the Company or any Restricted
Subsidiary, (iii) any agreement or other instrument of a person
acquired by the Company or any Restricted Subsidiary in exis-
tence at the time of such acquisition (but not created in con-
templation thereof), which encumbrance or restriction is not
applicable to any person, or the properties or assets of any
person, other than the person, or the property or assets
(including subsequently acquired property or assets to the
extent subject thereto) of the person, so acquired, (iv) any
encumbrance or restriction existing under the Credit Agreement,
the indenture governing the OPI Notes or any other agreement,
in each case, as in effect on the Issue Date or otherwise modi-
fied from time to time; provided that any such modification is
not materially less favorable to the holders of Notes than the
applicable provision as in effect on the Issue Date and (v) any
encumbrance or restriction pursuant to any agreement that
extends, restructures, refinances, renews, refunds or replaces
any agreement described in clause (ii), (iii) or (iv) above,
which is not materially less favorable to the holders of Notes
than those existing under the agreement being extended,
restructured, refinanced, renewed, refunded or replaced.
Section 4.16. Limitation on Other Senior
Subordinated Indebtedness.
The Company will not incur, directly or indirectly,
any Indebtedness which is expressly subordinate or junior in
right of payment in any respect to Senior Indebtedness unless
such Indebtedness ranks pari passu in right of payment with the
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Notes, or is expressly subordinated in right of payment to the
Notes.
Section 4.17. Limitation on Designations of
Unrestricted Subsidiaries.
(a) The Company may designate any Subsidiary of the
Company as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if (i) no Default shall have occurred and
be continuing at the time of or after giving effect to such
Designation; (ii) the Company would be permitted under this
Indenture to make an Investment at the time of Designation
(assuming the effectiveness of such Designation) in an amount
(the "Designation Amount") equal to the Fair Market Value of
the Capital Stock of such Subsidiary on such date; and
(iii) the Company would be permitted to incur $1.00 of addi-
tional Indebtedness pursuant to the first paragraph of Section
4.08 at the time of Designation (assuming the effectiveness of
such Designation).
In the event of any such Designation, the Company
shall be deemed to have made an Investment constituting a
Restricted Payment pursuant to Section 4.09 for all purposes of
this Indenture in the Designation Amount. The Company shall
not and shall not permit any Restricted Subsidiary to, at any
time (x) provide credit support for, or a guarantee of, any
Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebted-
ness) (provided, that the Company or a Restricted Subsidiary
may provide credit support to an Unrestricted Subsidiary if
(i) such credit support or Indebtedness constitutes a Permitted
Investment or a Restricted Payment permitted by Section 4.09,
in each case at the time of incurrence, or (ii) the credit sup-
port or Indebtedness would be a Permitted Investment at the
time of designation of such Subsidiary as an Unrestricted Sub-
sidiary), (y) be directly or indirectly liable for any Indebt-
edness of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare
a default thereon or cause the payment thereof to be acceler-
ated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any
Unrestricted Subsidiary (including any right to take enforce-
ment action against such Unrestricted Subsidiary), except in
the case of clause (x) or (y) to the extent permitted under
Section 4.09.
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(b) The Company may revoke any Designation of a Sub-
sidiary as an Unrestricted Subsidiary (a "Revocation") if (i)
no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and (ii) all Liens
and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes
of this Indenture.
All Designations and Revocations pursuant to this
Section 4.17 must be evidenced by Board Resolutions delivered
to the Trustee certifying compliance with the foregoing
provisions.
Section 4.18. Limitation on Sale-Leaseback
Transactions.
The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into,
assume, guarantee or otherwise become liable with respect to
any Sale-Leaseback Transaction unless (a) the Attributable
Value of the obligations of the Company or such Restricted Sub-
sidiary with respect thereto is treated as Indebtedness and
would be permitted under Section 4.08, (b) the consideration
received with respect to the property subject to such Sale-
Leaseback Transaction at the time of such Sale-Leaseback Trans-
action is at least equal to the Fair Market Value of the prop-
erty subject to the Sale-Leaseback Transaction and (c) the Com-
pany applies an amount in cash equal to the Net Cash Proceeds
of the Sale-Leaseback Transaction in accordance with and to the
extent required by the provisions of Section 4.13 as if such
Sale-Leaseback Transaction were an Asset Sale by the Company.
Notwithstanding the foregoing, the Company or any Wholly-Owned
Restricted Subsidiary may enter into a Sale-Leaseback Transac-
tion with any Wholly-Owned Restricted Subsidiary or any Joint
Venture, and a Wholly-Owned Restricted Subsidiary may enter
into a Sale-Leaseback Transaction with the Company or any Joint
Venture or another Wholly-Owned Restricted Subsidiary, in each
case subject only to clause (b) of this Section 4.18.
Section 4.19. Payment of Additional Amounts.
All payments made by the Company under or with
respect to the Notes will be made free and clear of and without
withholding or deduction for or on account of any Taxes, unless
the Company is required to withhold or deduct Taxes by law or
by the interpretation or administration thereof. If the
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Company is required to withhold or deduct any amount for or on
account of Indemnifiable Taxes from any payment made under or
with respect to the Notes, the Company will pay such additional
amounts ("Additional Amounts") as may be necessary so that the
net amount received by each holder of Notes (including Addi-
tional Amounts), after withholding or deduction of such
Indemnifiable Taxes will not be less than the amount the holder
would have received if such Indemnifiable Taxes had not been
withheld or deducted. The Company will also (i) make such
withholding or deduction and (ii) remit the full amount
deducted or withheld to the relevant Taxing Authority in accor-
dance with applicable law. The Company will use its best
efforts to obtain certified copies of tax receipts evidencing
the payment of any such Indemnifiable Taxes and furnish certi-
fied copies of such tax receipts to the Holders within 30 days
after the date on which the payment of any such Taxes is due
pursuant to applicable law. If, notwithstanding the Company's
efforts to obtain such receipts, the same are not obtainable,
the Company will provide to the Holders other evidence of such
payments by the Company.
The Company will indemnify and hold harmless each
Holder and, upon written request therefor from a Holder (which
request shall include a reasonable description of the
Indemnifiable Taxes), reimburse such Holder, for the amount of
(i) any Indemnifiable Taxes levied or imposed and paid by such
Holder as a result of the Company's failure to deduct or with-
hold such Indemnifiable Taxes from payments made under or with
respect to the Notes; (ii) any liability (including penalties,
interest and expenses) arising under or with respect to the
foregoing clause (i); and (iii) any Indemnifiable Taxes so lev-
ied or imposed with respect to any reimbursement under the
foregoing clause (i) or (ii), so that the net amount received
by such Holder after such reimbursement will not be less than
the net amount the Holder would have received if Indemnifiable
Taxes on such reimbursement had not been imposed, but excluding
any Taxes on such holder's net income. Neither Additional
Amounts nor amounts required to be reimbursed under the preced-
ing sentence shall be payable for or on account of any
Indemnifiable Taxes that are imposed or withheld by reason of
the failure by such Holder to comply within 45 days of a writ-
ten request of the Company addressed to such Holder or (if it
is not possible for the Company to furnish such request at a
time that would allow at least 45 days for compliance) such
shorter period reasonable in the circumstances as may be neces-
sary to enable the Company to comply with requests from any
Taxing Authority: (x) to provide information concerning the
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nationality, residence or identity of such Holder; or (y) to
make any declaration or other similar claim or satisfy any
information or reporting requirement, which, in the case of
either clause (x) or (y) above, is required or imposed by stat-
ute, treaty, regulation or administrative practice of a Taxing
Authority as a precondition to exemption from all or any part
of such Indemnifiable Taxes.
At least 10 days prior to each date on which payment
under or with respect to the Notes is due and payable, if the
Company will be obligated to pay Additional Amounts with
respect to such payment, the Company will deliver to the Trus-
tee an Officers' Certificate stating the fact that such Addi-
tional Amounts will be payable and the amounts so payable and
setting forth such other information necessary to enable the
Trustee to pay such Additional Amounts to holders of Notes on
the payment date. Whenever in this Indenture there is men-
tioned, in any context, the payment of principal, premium, if
any, interest or any other amount payable under or with respect
to any Note, such mention shall be deemed to include mention of
the payment of Additional Amounts to the extent that, in such
context, Additional Amounts are, were or would be payable in
respect thereof.
Section 4.20. Waiver of Stay, Extension or Usury
Laws.
The Company covenants (to the extent that it may law-
fully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive the Company, as the
case may be, from paying all or any portion of the principal
of, premium, if any, or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trus-
tee, but will suffer and permit the execution of every such
power at though no such law had been enacted.
<PAGE>
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ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01. When Company May Merge, etc.
(a) The Company will not, in any transaction or
series of related transactions, merge or consolidate with or
into, or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and
assets as an entirety to, any person or persons, and the Com-
pany will not permit any of the Restricted Subsidiaries to
enter into any such transaction or series of related transac-
tions if such transaction or series of related transactions, in
the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially
all of the properties and assets of the Company or of the Com-
pany and the Restricted Subsidiaries, taken as a whole, to any
other person or persons, unless at the time and after giving
effect thereto:
(1) either (A) (i) if the transaction or transac-
tions is a merger or consolidation involving the Company
as a constituent to the merger or consolidation, the Com-
pany shall be the surviving person of such merger or con-
solidation or (ii) if the transaction or related transac-
tions is a merger or consolidation involving a Restricted
Subsidiary as a constituent to the merger or consolida-
tion, such Restricted Subsidiary shall be the surviving
person of such merger or consolidation and such surviving
person shall be a Restricted Subsidiary, or (B) (i) the
person formed by such consolidation or into which the Com-
pany or such Restricted Subsidiary is merged or to which
the properties and assets of the Company or such
Restricted Subsidiary, as the case may be, substantially
as an entirety, are transferred (any such surviving person
or transferee person being the "Surviving Entity") shall
be a corporation organized and existing under the laws of
Panama, the United States of America, any State thereof or
the District of Columbia and (2) in the case of a transac-
tion involving the Company as a constituent to the merger
or consolidation, the Surviving Entity shall expressly
assume, by a supplemental indenture, executed and deliv-
ered to the Trustee, in form satisfactory to the Trustee,
all the obligations of the Company under the Notes and
this Indenture, and in each case this Indenture shall
remain in full force and effect;
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(2) immediately after giving effect to such transac-
tion or series of related transactions on a pro forma
basis (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with
or as a result of such transaction or series of transac-
tions), no Default shall have occurred and be continuing
and the Company or the Surviving Entity, as the case may
be, after giving effect to such transaction or series of
transactions on a pro forma basis, could incur $1.00 of
additional Indebtedness under Section 4.08; and
(3) the Company or the Surviving Entity, as the case
may be, shall have delivered to the Trustee, in form rea-
sonably satisfactory to the Trustee, an Officers' Certifi-
cate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer, lease or other disposi-
tion and, if a supplemental indenture is required in con-
nection with such transaction or series of transactions,
such supplemental indenture, comply with this Indenture
and that all conditions precedent herein provided for
relating to such transaction or series of transactions
have been complied with. Such opinion of counsel shall
further state that the transaction will not result in the
Company or the Surviving Entity being required to make any
deduction or withholding on account of any Taxes from any
payments made under or with respect to the Notes unless
the Company or the Surviving Entity shall agree to waive
its rights under Section 3.07 hereof above and pay in full
to the holders of Notes any Additional Amounts which may
become due and payable.
Section 5.02. Successor Substituted.
Upon any consolidation or merger, or any transfer of
all or substantially all of the assets of the Company in accor-
dance with Section 5.01(a) hereof, in which the Company is not
the continuing corporation, the Surviving Entity shall succeed
to, and be substituted for and may exercise every right and
power of the Company under this Indenture with the same effect
as if the Surviving Company has been named the Company herein;
provided that, solely for purposes of computing cumulative Con-
solidated Net Income for purposes of clause (ii) of the first
paragraph of Section 4.09, the cumulative Consolidated Net
Income of any persons other than the Company and the Restricted
Subsidiaries shall only be included for periods subsequent to
the effective time of such merger, consolidation, combination
or transfer of assets.
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For all purposes of this Indenture and the Notes
(including the provision of this Section 5.02 and Sections
4.08, 4.09 and 4.11), Subsidiaries of any Surviving Entity
will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as pro-
vided pursuant to Section 4.17 and all Indebtedness, and all
Liens on property or assets, of the Company and the Restricted
Subsidiaries immediately prior to such transaction or series of
transactions will be deemed to have been incurred upon such
transaction or series of transactions.
ARTICLE SIX
REMEDIES
Section 6.01. Events of Default.
An "Event of Default" means any of the following
events:
(a) default in the payment of the principal of, or
premium, if any, when due and payable, on any Note (at its
Stated Maturity, upon optional redemption, upon required
purchase, upon acceleration or otherwise); or
(b) default in the payment of an installment of
interest on any of the Notes when due and payable, and the
continuation of such default for a period of 30 days or
more; or
(c) the failure of the Company to comply with its
obligations under Section 5.01, the failure to make or
consummate a Change of Control Offer in accordance with
the Company's obligations under Section 4.12, or the fail-
ure to make or consummate an Asset Sale Offer in accor-
dance with the Company's obligations under Section 4.13;
or
(d) the failure of the Company to perform or observe
any other term, covenant or agreement contained in the
Notes or this Indenture (other than a Default specified in
clause (a), (b) or (c) above) for a period of 60 days
after written notice of such failure stating that it is a
"notice of default" hereunder and requiring the Company to
remedy the same shall have been given (i) to the Company
by the Trustee or (ii) to the Company and the Trustee by
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the Holders of at least 25% in aggregate principal amount
of the Notes then outstanding; or
(e) default or defaults under one or more agree-
ments, instruments, mortgages, bonds, debentures or other
evidences of Indebtedness (a "Debt Instrument") under
which the Company or one or more Restricted Subsidiaries
or the Company and one or more Restricted Subsidiaries
then have outstanding Indebtedness in excess of
$15,000,000, individually or in the aggregate, and either
(x) the principal amount of such Indebtedness is already
due and payable in full or (y) such default or defaults
have resulted in the acceleration of the maturity of such
Indebtedness; or
(f) commencement of proceedings, or the taking of
any enforcement action (including by way of set-off), by
any holder of at least $15,000,000 in aggregate principal
amount of Indebtedness of the Company or any Restricted
Subsidiary, after a default under such Indebtedness, to
retain in satisfaction of such Indebtedness or to collect
or seize, dispose of or apply in satisfaction of such
Indebtedness, property or assets of the Company or any
Restricted Subsidiary having a Fair Market Value in excess
of $15,000,000 individually or in the aggregate; or
(g) one or more judgments, orders or decrees of any
court or regulatory or administrative agency of competent
jurisdiction for the payment of money in excess of
$15,000,000 over the coverage under applicable binding
insurance policies issued by a solvent insurer which has
accepted such coverage, either individually or in the
aggregate, shall be entered against the Company or any
Restricted Subsidiary or any of their respective proper-
ties and shall not be discharged, settled or fully bonded
and either (A) commencement by any creditor of an enforce-
ment proceeding upon such judgment (other than a judgment
that is stayed by reason of pending appeal or otherwise)
or (B) there shall have been a period of 60 days after the
date on which any period for appeal has expired and during
which a stay of enforcement of such judgment, order or
decree shall not be in effect; or
(h) the Company, any Significant Subsidiary of the
Company or any Significant Joint Venture pursuant to or
under or within the meaning of any Bankruptcy Law:
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(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for
relief against it in an involuntary case or
proceeding;
(iii) consents to the appointment of a Custodian
of it or for all or substantially all of its prop-
erty; or
(iv) makes a general assignment for the benefit
of its creditors; or
(i) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(i) is for relief against the Company, any Sig-
nificant Subsidiary of the Company or any Significant
Joint Venture in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company, any
Significant Subsidiary of the Company or any Signifi-
cant Joint Venture for all or substantially all of
its properties, or
(iii) orders the liquidation of the Company, any
Significant Subsidiary of the Company or any Signifi-
cant Joint Venture,
and in each case the order or decree remains unstayed and
in effect for a period of 60 consecutive days; or
(j) any Significant Joint Venture defaults under one
or more agreements, instruments, mortgages, bonds, deben-
tures or other evidences of Indebtedness (a "JV Debt
Instrument") under which such Significant Joint Venture
and one or more of its Subsidiaries then have outstanding
Indebtedness in excess of $40,000,000, individually or in
the aggregate, and either (x) the principal amount of such
Indebtedness is already due and payable in full or (y)
such default or defaults have resulted in the acceleration
of the maturity of such Indebtedness; or
(k) the commencement of proceedings, or the taking
of any enforcement action (including by way of set-off),
by any holder of at least $40,000,000 in aggregate princi-
pal amount of Indebtedness of any Significant Joint
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Venture or any Subsidiary of such Significant Joint Ven-
ture, after a default under such Indebtedness, to retain
in satisfaction of such Indebtedness or to collect or
seize, dispose of or apply in satisfaction of such Indebt-
edness, property or assets of such Significant Joint Ven-
ture or such Subsidiary having a Fair Market Value in
excess of $40,000,000 individually or in the aggregate.
Subject to the provisions of Sections 7.01 and 7.02,
the Trustee shall not be charged with knowledge of any Default or
Event of Default (other than those set forth in Section 6.01(a)
or (b)) unless written notice thereof shall have been given to a
Trust Officer at the Corporate Trust Office of the Trustee by the
Company, the Paying Agent, any Holder, any holder of Senior
Indebtedness or any of their respective agents.
Section 6.02. Acceleration.
If an Event of Default (other than an Event of
Default specified in Section 6.01(h) with respect to the Com-
pany) shall occur and be continuing, the Trustee, by written
notice to the Company, or the Holders of at least 25% in aggre-
gate principal amount of the Notes then outstanding, by written
notice to the Trustee and the Company, may declare the princi-
pal of, premium, if any, and accrued interest on all the out-
standing Notes to be due and payable immediately, upon which
declaration, all amounts payable in respect of the Notes shall
be immediately due and payable. If an Event of Default speci-
fied in Section 6.01(h) with respect to the Company occurs and
is continuing, then the principal of, premium, if any, and
accrued interest on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any
holder of Notes.
Notwithstanding the foregoing, in the event of a dec-
laration of acceleration in respect of the Notes because an
Event of Default specified in (i) Section 6.01(e) or (j) shall
have occurred and be continuing, such Event of Default and any
consequential acceleration shall be automatically rescinded if
the Indebtedness that is the subject of such Event of Default
has been repaid, or if the default relating to such Indebted-
ness is waived or cured and, if such Indebtedness has been
accelerated, the holders thereof have rescinded their declara-
tion of acceleration in respect of such Indebtedness (provided,
in each case, that such repayment, waiver, cure or rescission
is effected within a period of 10 days from the continuation of
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such default beyond the applicable grace period or the occur-
rence of such acceleration), or (ii) Section 6.01(f) or (k)
shall have occurred and be continuing, such Event of Default
and any consequential acceleration shall be automatically
rescinded if the proceedings or enforcement action with respect
to the Indebtedness that is the subject of such Event of
Default is terminated or rescinded, or such Indebtedness is
repaid and only so long as any holder of such Indebtedness
shall not have applied any property or assets referenced in
such Section 6.01(f) or (k), as the case may be, in satisfac-
tion of such Indebtedness, and, in the case of both (i) and
(ii) above, written notice of such repayment, or cure or waiver
and rescission, as the case may be, shall have been given to
the Trustee by the Company or by the requisite holders of such
Indebtedness or a trustee, fiduciary or agent for such holders,
within 45 days after such declaration of acceleration in
respect of the Notes and no other Event of Default shall have
occurred which has not been cured or waived during such 45-day
period, and so long as such rescission of any such acceleration
does not conflict with any judgment or decree.
At any time after such declaration of acceleration
has been made and before a judgment or decree for payment of
the money due has been obtained by the Trustee, Holders of a
majority in aggregate principal amount of the outstanding
Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if:
(a) the Company has paid or deposited with the Trus-
tee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee
under this Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee,
its agents and counsel,
(ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any
Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at
the rate borne by the Notes, and
(iv) to the extent that payment of such interest
is lawful, interest upon overdue interest and overdue
principal at the rate borne by the Notes which has
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become due otherwise than by such declaration of
acceleration;
(b) such rescission would not conflict with any
judgment or decree of a court of competent jurisdiction;
and
(c) all Events of Default, other than the non-pay-
ment of principal of, premium, if any, and interest on the
Notes that has become due solely by such declaration of
acceleration, have been cured or waived as provided in
Section 6.04.
No such rescission shall affect any subsequent
Default or Event of Default or impair any right consequent
thereon.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if
any, or interest on the Notes or to enforce the performance of
any provision of the Notes or this Indenture.
All rights of action and claims under this Indenture
or the Notes may be enforced by the Trustee even if it does not
possess any of the Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Note-
holder in exercising any right or remedy accruing upon an Event
of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy
is exclusive of any other remedy. All available remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Subject to the provisions of Sections 6.07 and 9.02,
the Holders of not less than a majority in aggregate principal
amount of the outstanding Notes may, on behalf of the Holders
of all the Notes, waive any past Default and its consequences
except a Default specified in Section 6.01(a) or (b) or in
respect of any provision hereof which cannot be modified or
amended without the consent of the Holder so affected pursuant
to Section 9.02. When a Default is so waived, it shall be
deemed cured and shall cease to exist.
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Section 6.05. Control by Majority.
The Holders of at least a majority in aggregate prin-
cipal amount of the outstanding Notes shall have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee, provided, however,
that the Trustee may refuse to follow any direction (a) that
conflicts with any rule of law or this Indenture, (b) that the
Trustee determines may be unduly prejudicial to the rights of
another Noteholder, or (c) that may expose the Trustee to per-
sonal liability unless the Trustee has indemnification satis-
factory to it in its sole discretion against any loss or
expense caused by its following such direction; and provided,
further, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such
direction.
Section 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to insti-
tute any proceeding with respect to this Indenture or remedy
hereunder unless:
(a) the Holder has previously given written notice
to the Trustee of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate princi-
pal amount of the outstanding Notes make a written request
to the Trustee to pursue the remedy;
(c) such Holder or Holders offer and, if requested,
provide to the Trustee reasonable indemnity satisfactory
to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer
and, if requested, provision of indemnity; and
(e) during such 60-day period the Holders of a
majority in aggregate principal amount of the outstanding
Notes do not give the Trustee a direction which is incon-
sistent with the request;
The foregoing limitations shall not apply to a suit
instituted by a Holder for the enforcement of the payment of
principal of, premium, if any, or accrued interest on, such
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Note held by such Holder on or after the respective due dates
set forth in such Note.
A Holder may not use this Indenture to prejudice the
rights of any other Holders or to obtain priority or preference
over such other Holders.
Section 6.07. Right of Holders To Receive Payment.
Notwithstanding any other provision in this Inden-
ture, the right of any Holder of Notes to receive payment of
the principal of and interest on such Note, on or after the
respective Stated Maturities expressed in such Note, or to
bring suit for the enforcement of any such payment on or after
the respective Stated Maturities, is absolute and unconditional
and shall not be impaired or affected without the consent of
the Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b)
of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal of,
premium, if any, and accrued interest remaining unpaid,
together with interest on overdue principal and, to the extent
that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum
borne by the Notes and such further amount as shall be suffi-
cient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claims.
The Trustee may file such proofs of claim and other
papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders allowed
in any judicial proceedings relative to the Company or the Sub-
sidiaries of the Company (or any other obligor upon the Notes),
their creditors or their property and shall be entitled and
empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the
same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the
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Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agent
and counsel, and any other amounts due the Trustee under Sec-
tion 7.08. Nothing herein contained shall be deemed to autho-
rize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrange-
ment, adjustment or composition affecting the Notes or the
rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this
Article Six, it shall pay out such money in the following
order:
First: to the Trustee for amounts due under Section
7.08;
Second: subject to Article Ten, to Holders for
interest accrued on the Notes, ratably, without preference
or priority of any kind, according to the amounts due and
payable on the Notes for interest;
Third: subject to Article Ten, to Holders for prin-
cipal amounts (including any premium) owing under the
Notes, ratably, without preference or priority of any
kind, according to the amounts due and payable on the
Notes for principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Com-
pany, may fix a record date and payment date for any payment to
Noteholders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or rem-
edy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may in
its discretion require the filing by any party litigant in the
suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including
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reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section
6.11 does not apply to any suit by the Trustee, any suit by a
Holder pursuant to Section 6.07, or a suit by Holders of more
than 10% in aggregate principal amount of the outstanding
Notes.
Section 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any pro-
ceeding to enforce any right or remedy under this Indenture or
any Note and such proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to the Trustee
or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in
such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
Section 7.01. Duties.
(a) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree
of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such
person's own affairs.
(b) Except during the continuance of an Event of
Default,
(1) the Trustee need perform only such duties as are
specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, and upon certificates or opinions furnished to
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the Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or
opinions which by provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether
or not they conform to the requirements of this Indenture.
(c) No provision of this Indenture shall be con-
strued to relieve the Trustee from liability for its own negli-
gent action, its own negligent failure to act, or its own will-
ful misconduct, except that
(1) this paragraph does not limit the effect
of paragraph (b) of this Section 7.01;
(2) the Trustee shall not be liable for any
error of judgment made in good faith by a Trust
Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with
respect to any action it takes or omits to take in
good faith in accordance with a direction received
by it pursuant to Section 6.05;
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers if
it shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or lia-
bility is not reasonably assured to it.
(e) Every provision of this Indenture that in any
way relates to the Trustee is subject to paragraphs (a), (b),
(c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on
any assets received by it except as the Trustee may agree with
the Company. Assets held in trust by the Trustee need not be
segregated from other assets except to the extent required by
law.
Section 7.02. Rights of Trustee.
Subject to Section 7.01 hereof and the provisions of
TIA Section 315:
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(a) the Trustee may rely on any document believed by
it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(b) before the Trustee acts or refrains from acting,
it may consult with counsel and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform
to Sections 11.04 and 11.05. The Trustee shall not be
liable for any action it takes or omits to take in good
faith in reliance on such certificate or opinion.
(c) the Trustee may act through its attorneys and
agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) the Trustee shall not be liable for any action
taken or omitted by it in good faith and believed by it to
be authorized or within the discretion, rights or powers
conferred upon it by this Indenture other than any liabil-
ities arising out of its own negligence;
(e) the Trustee may consult with counsel of its own
choosing and the advice or opinion of such counsel as to
matters of law shall be full and complete authorization
and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance
with the advice or opinion of such counsel.
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any res-
olution, certificate, statement, instrument, opinion,
notice, request, direction, consent, order, bond, deben-
ture, or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit.
(g) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request, order or direction of any of the
Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee rea-
sonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
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Section 7.03. Individual Rights of Trustee.
The Trustee, any Paying Agent, Registrar or any other
agent of the Company, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to Sec-
tions 7.11 and 7.12 and TIA Sections 310 and 311, may otherwise deal
with the Company and its Subsidiaries with the same rights it
would have if it were not the Trustee, Paying Agent, Registrar
or such other agent.
Section 7.04. Trustee's Disclaimer.
The Trustee makes no representations as to the valid-
ity or sufficiency of this Indenture or of the Notes, it shall
not be accountable for the Company's use or application of the
proceeds from the Notes, it shall not be responsible for the
use or application of any money received by any Paying Agent
other than the Trustee and it shall not be responsible for any
statement in the Notes other than the Trustee's certificate of
authentication.
Section 7.05. Notice of Default.
If a Default or an Event of Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall
mail to each Holder notice of the Default or Event of Default
within 90 days thereafter; provided, however, that, except in
the case of a Default or Event of Default in the payment of the
principal of, premium, if any or interest on any Note, the
Trustee may withhold such notice if the board of directors, the
executive committee, or a trust committee of directors and/or
responsible officers, of the Trustee in good faith determines
that the withholding of such notice is in the interest of the
Holders.
Section 7.06. Money Held in Trust.
All moneys received by the Trustee shall, until used
or applied as herein provided, be held in trust for the pur-
poses for which they were received, but need not be segregated
from other funds except to the extent required herein or by
law. The Trustee shall not be under any liability for interest
on any moneys received by it hereunder.
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Section 7.07. Reports by Trustee to Holders.
Within 60 days after each [ ] beginning with the
[ ] following the date of this Indenture, the Trustee
shall, to the extent that any of the events described in TIA
Section 313(a) occurred within the previous twelve months, but not
otherwise, mail to each Holder a brief report dated as of such
[ ] that complies with TIA Section 313(a). The Trustee also
shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to
Holders shall be mailed to the Company and filed with the SEC
and each securities exchange, if any, on which the Notes are
listed.
The Company shall notify the Trustee in writing if
the Notes become listed on any securities exchange.
Section 7.08. Compensation and Indemnity.
The Company covenants and agrees to pay the Trustee
from time to time such compensation as agreed to with the
Trustee for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, expenses and advances
incurred or made by it. Such expenses shall include the rea-
sonable compensation, disbursements and expenses of the Trust-
ee's agents and counsel.
The Company shall indemnify the Trustee for, and hold
it harmless against, any loss or liability incurred by it aris-
ing out of or in connection with the administration of this
trust and its rights or duties hereunder, including the costs
and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its
powers or duties hereunder. The Trustee shall notify the Com-
pany promptly of any claim asserted against the Trustee for
which it may seek indemnity. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need
not pay for any settlement made without its written consent.
The Company need not reimburse any expense or indemnify against
any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
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To secure the Company's payment obligations in this
Section 7.08, the Trustee shall have a Lien prior to the Notes
on all assets held or collected by the Trustee, in its capacity
as Trustee, except assets held in trust to pay principal of,
premium, if any, or interest on particular Notes.
When the Trustee incurs expenses or renders services
in connection with an Event of Default specified in Section
6.01(g) or (h) with respect to the Company, the expenses and
the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The Company's obligations under this Section 7.08 and
any Lien arising hereunder shall survive the resignation or
removal of any trustee, the discharge of the Company's obliga-
tions pursuant to Article Eight and/or the termination of this
Indenture.
Section 7.09. Replacement of Trustee.
The Trustee may resign by so notifying the Company.
The Holders of a majority in principal amount of the outstand-
ing Notes may remove the Trustee by so notifying the Company
and the Trustee and may appoint a successor trustee with the
Company's consent. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.11;
(b) the Trustee is adjudged a bankrupt or an insol-
vent or an order for relief is entered with respect to the
Trustee under any Bankruptcy Law;
(c) a receiver or other public officer takes charge
of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Company
shall notify each Holder of such event and shall promptly
appoint a successor Trustee. The Trustee shall be entitled to
payment of its fees and reimbursement of its expenses while
acting as Trustee, and to the extent such amounts remain
unpaid, the Trustee that has resigned or has been removed shall
retain the Lien afforded by Section 7.08. Within one year
after the successor Trustee takes office, the Holders of a
majority in principal amount of the outstanding Notes may
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appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written accep-
tance of its appointment to the retiring Trustee and to the
Company. Immediately after that, the retiring Trustee shall
transfer all property held by it as Trustee to the successor
Trustee, subject to the Lien provided in Section 7.08, the res-
ignation or removal of the retiring Trustee shall become effec-
tive, and the successor Trustee shall have all the rights, pow-
ers and duties of the Trustee under this Indenture. A succes-
sor Trustee shall mail notice of its succession to each
Noteholder.
If a successor Trustee does not take office within 60
days after the retiring Trustee resigns or is removed, the
retiring Trustee, the Company or the Holders of at least 10% in
principal amount of the outstanding Notes may petition any
court of competent jurisdiction for the appointment of a suc-
cessor Trustee.
If the Trustee fails to comply with Section 7.11, any
Holder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor
Trustee.
Notwithstanding replacement of the Trustee pursuant
to this Section 7.09, the Company's obligations under
Section 7.08 shall continue for the benefit of the retiring
Trustee. No resignation or removal of the Trustee and no
appointment of a successor Trustee shall become effective until
the acceptance of appointment by the successor Trustee pursuant
to this Section 7.09.
Section 7.10. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts
into, or transfers all or substantially all of its corporate
trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation
or national banking association without any further act shall,
if such resulting, surviving or transferee corporation or
national banking association is otherwise eligible hereunder,
be the successor Trustee.
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Section 7.11. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which
shall be eligible to act as Trustee under TIA Sections 310(a)(1) and
310(a)(5) and which shall have a combined capital and surplus
of at least $50 million. If such corporation publishes reports
of condition at least annually, pursuant to law or to the
requirements of federal, state, territorial or District of
Columbia supervising or examining authority, then for the pur-
poses of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and sur-
plus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eli-
gible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the
effect hereinafter specified in this Article. The Trustee
shall comply with the provisions of TIA Section 310(b).
Section 7.12. Preferential Collection of Claims
Against Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). If the pre-
sent or any future Trustee shall resign or be removed, it shall
be subject to TIA Section 311(a) to the extent provided therein.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01. Termination of the Company's
Obligations.
This Indenture shall upon request of the Company
cease to be of further effect (except as provided in the penul-
timate paragraph of this Section 8.01) as to all outstanding
Notes, and the Trustee, at the expense of the Company, shall,
upon payment of all amounts due the Trustee under Section 7.08,
execute proper instruments acknowledging satisfaction and dis-
charge of this Indenture when
(a) either
(1) all Notes theretofore authenticated and
delivered (other than (i) Notes which have been
destroyed, lost or stolen and which have been
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replaced or paid as provided in Section 2.07 and (ii)
Notes for whose payment (x) cash in United States
Dollars or (y) U.S. Government Obligations maturing
as to principal, premium, if any, and interest in
such amounts of money and at such times as are suffi-
cient without consideration of any reinvestment of
such interest, to pay principal of and interest on
the outstanding Notes not later than one day before
the due date of any payment, have theretofore been
deposited in trust with the Trustee or any Paying
Agent) have been delivered to the Trustee for cancel-
lation, or
(2) all such Notes not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense,
of the Company,
and the Company, in the case of (2)(i), (2)(ii) or
(2)(iii) above, has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient
to pay and discharge the entire indebtedness on such Notes
not theretofore delivered to the Trustee for cancellation,
for principal and interest to the date of such deposit (in
the case of Notes which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may
be, together with instructions from the Company irrevoca-
bly directing the Trustee to apply such funds to the pay-
ment thereof at maturity or redemption, as the case may
be;
(b) the Company has paid or caused to be paid all
other sums then due and payable hereunder by the Company;
and
(c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel which,
taken together, state that all conditions precedent herein
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relating to the satisfaction and discharge of this Inden-
ture have been complied with.
Notwithstanding the satisfaction and discharge of
this Indenture, the obligations of the Company under Sections
2.05, 2.06, 2.07, 2.08, 4.01, 4.02 and 7.08 and, if money shall
have been deposited with the Trustee pursuant to this
Section 8.01, the obligations of the Trustee under the last
paragraph of this Section 8.01 shall survive for so long as any
Notes are deemed outstanding under Section 2.08. After the
Notes are no longer outstanding, only the Company's obligations
in Section 7.08 shall survive.
All money deposited with the Trustee pursuant to this
Section 8.01 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture,
to the payment, either directly or through any Paying Agent as
the Trustee may determine, to the Persons entitled thereto of
the principal and interest for whose payment such money has
been deposited with the Trustee.
Section 8.02. Legal Defeasance and Covenant
Defeasance.
(a) The Company may, at its option by Board Resolu-
tion of the Board of Directors which shall be delivered to the
Trustee, at any time, with respect to the outstanding Notes,
elect to have either paragraph (b) or paragraph (c) below be
applied to the outstanding Notes upon compliance with the con-
ditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a)
of the option applicable to this paragraph (b), the Company
shall be deemed to have been released and discharged from its
obligations with respect to the outstanding Notes on the date
the conditions set forth below are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance
means that the Company shall be deemed to have paid and dis-
charged the entire indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of paragraph (e) below and the other Sec-
tions of and matters under this Indenture referred to in (i)
and (ii) below, and to have satisfied all its other obligations
under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), and
Holders of the Notes and any amounts deposited under paragraph
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(d) below shall cease to be subject to any obligations to, or
the rights of, any holder of Senior Indebtedness under Article
Ten or otherwise, except for the following which shall survive
until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Notes to receive solely from
the trust fund described in paragraph (d) below and as more
fully set forth in such paragraph, payments in respect of the
principal of, premium, if any, and interest on such Notes when
such payments are due, (ii) the Company's obligations with
respect to such Notes under Sections 2.06, 2.07 and 4.02, and,
with respect to the Trustee, under Section 7.08 obligations in
respect thereof, (iii) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (iv) this Section 8.02
and Section 8.05. Subject to compliance with this Section
8.02, the Company may exercise its option under this paragraph
(b) notwithstanding the prior exercise of its option under
paragraph (c) below with respect to the Notes.
(c) Upon the Company's exercise under paragraph (a)
of the option applicable to this paragraph (c), the Company
shall be released and discharged from its obligations under any
covenant contained in Articles Five and Ten and in Sections
4.04 through 4.18 with respect to the outstanding Notes on and
after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Notes shall
thereafter be deemed to be not "outstanding" for the purpose of
any direction, waiver, consent or declaration or act of Holders
(and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for
all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of
any reference elsewhere herein to any such covenant or by rea-
son of any reference in any such covenant to any other provi-
sion herein or in any other document and such omission to com-
ply shall not constitute a Default or an Event of Default under
Section 6.01(c) or Section 6.01(d), but, except as specified
above, the remainder of this Indenture and such Notes shall be
unaffected thereby.
(d) The following shall be the conditions to appli-
cation of either paragraph (b) or paragraph (c) above to the
outstanding Notes:
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(i) the Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trus-
tee satisfying the requirements of Section 7.11 who shall
agree to comply with the provisions of this Section 8.02
applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the
Holders of such Notes, (x) cash in United States dollars
or (y) direct non-callable obligations of, or non-callable
obligations guaranteed by, the United States of America
for the payment of which guarantee or obligation the full
faith and credit of the United States is pledged ("U.S.
Government Obligations") maturing as to principal, pre-
mium, if any, and interest in such amounts of money and at
such times as are sufficient without consideration of any
reinvestment of such interest, to pay principal of and
interest on the outstanding Notes not later than one day
before the due date of any payment, or (z) a combination
thereof, sufficient, in the opinion of a nationally recog-
nized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee,
to pay and discharge and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge
principal of, premium, if any, and interest on the out-
standing Notes on the Maturity Date or otherwise in accor-
dance with the terms of this Indenture and of such Notes;
provided, however, that the Trustee (or other qualifying
trustee) shall have received an irrevocable written order
from the Company instructing the Trustee (or other quali-
fying trustee) to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect
to the Notes;
(ii) no Default or Event of Default with respect to
the Notes shall have occurred and be continuing on the
date of such deposit or, insofar as Section 6.01(a) is
concerned, at any time during the period ending on the
91st day after the date of such deposit (it being under-
stood that this condition shall not be deemed satisfied
until the expiration of such period);
(iii) such legal defeasance or covenant defeasance
shall not cause the Trustee to have a conflicting interest
under the Indenture or the Trust Indenture Act with
respect to any Notes of the Company;
<PAGE>
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(iv) such legal defeasance or covenant defeasance
shall not result in a breach or violation of, or consti-
tute a default or event of default under any other mate-
rial agreement or instrument to which the Company is a
party or by which it is bound;
(v) in the case of an election under paragraph (b)
above, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (x) the Company has
received from, or there has been published by, the Inter-
nal Revenue Service a ruling or (y) since the date of this
Indenture, there has been a change in the applicable Fed-
eral income tax law, in either case to the effect that the
Holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a
result of such legal defeasance and will be subject to
Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such
legal defeasance had not occurred;
(vi) in the case of an election under paragraph (c)
above, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of the
outstanding Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such cove-
nant defeasance and will be subject to Federal income tax
on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defea-
sance had not occurred;
(vii) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel which,
taken together, state that (x) all conditions precedent
provided for relating to either the legal defeasance under
paragraph (b) above or the covenant defeasance under
paragraph (c) above, as the case may be, have been com-
plied with and (y) if any other Indebtedness of the Com-
pany shall then be outstanding or committed, such legal
defeasance or covenant defeasance will not violate the
provisions of the agreements or instruments evidencing
such Indebtedness.
(e) All money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this
paragraph (e), the "Trustee") pursuant to paragraph (d) above
in respect of the outstanding Notes shall be held in trust and
<PAGE>
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applied by the Trustee, in accordance with the provisions of
such Notes and this Indenture, to the payment, either directly
or through any Paying Agent (other than the Company or any
Affiliate of the Company) as the Trustee may determine, to the
Holders of such Notes of all sums due and to become due thereon
in respect of principal, premium and interest, but such money
need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed
against the U.S. Government Obligations deposited pursuant to
paragraph (d) above or the principal, premium, if any, and
interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the
Holders of the outstanding Notes.
Anything in this Section 8.02 to the contrary not-
withstanding, the Trustee shall deliver or pay to the Company
from time to time upon the request, in writing, by the Company
any money or U.S. Government Obligations held by it as provided
in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee, are
in excess of the amount thereof which would then be required to
be deposited to effect an equivalent legal defeasance or cove-
nant defeasance.
Section 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Govern-
ment Obligations deposited with it pursuant to Sections 8.01
and 8.02, and shall apply the deposited money and the money
from U.S. Government Obligations in accordance with this Inden-
ture to the payment of principal of, premium, if any, and
interest on the Notes.
Section 8.04. Repayment to Company.
Subject to Sections 7.08, 8.01 and 8.02, the Trustee
shall promptly pay to the Company upon receipt by the Trustee
of an Officers' Certificate, any excess money, determined in
accordance with Section 8.02, held by it at any time. The
Trustee and the Paying Agent shall pay to the Company, upon
receipt by the Trustee or the Paying Agent, as the case may be,
of an Officers' Certificate, any money held by it for the pay-
ment of principal, premium, if any, or interest that remains
<PAGE>
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unclaimed for two years after payment to the Holders is
required; provided, however, that the Trustee and the Paying
Agent before being required to make any payment may, but need
not, at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York
or mail to each Holder entitled to such money notice that such
money remains unclaimed and that after a date specified
therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money
then remaining will be repaid to the Company. After payment to
the Company, Noteholders entitled to money must look solely to
the Company for payment as general creditors unless an appli-
cable abandoned property law designates another person, and all
liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
Section 8.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any
money or U.S. Government Obligations in accordance with Section
8.03 by reason of any order or judgment of any court or govern-
mental authority enjoining, restraining or otherwise prohibit-
ing such application, then and only then the Company's obliga-
tions under this Indenture and the Notes shall be revived and
reinstated as though no deposit had been made pursuant to this
Indenture until such time as the Trustee is permitted to apply
all such money or U.S. Government Obligations in accordance
with Section 8.03; provided, however, that if the Company has
made any payment of principal of, premium, if any, or interest
on any Notes because of the reinstatement of its obligations,
the Company shall be subrogated to the rights of the holders of
such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution of
its Board of Directors, and the Trustee may, at any time and
from time to time, without notice to or consent of any Holder,
amend, waive or supplement this Indenture or the Notes:
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(a) to cure any ambiguity, defect or inconsistency;
provided that such amendment or supplement does not
adversely affect the rights of any Holder;
(b) to comply with Article Five;
(c) to provide for uncertificated Notes in addition
to certificated Notes;
(d) to comply with any requirements of the SEC in
order to effect or maintain the qualification of this
Indenture under the TIA; or
(e) to make any change that would provide any addi-
tional benefit or rights to the Holders or that does not
adversely affect the rights of any Holder.
Notwithstanding the above, the Trustee and the Com-
pany may not make any change that materially and adversely
affects the legal rights of any Holders hereunder.
Section 9.02. With Consent of Holders.
Except as provided in Section 6.04, the Company when
authorized by a Board Resolution of its Board of Directors, and
the Trustee may amend or modify this Indenture or the Notes
with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Notes then out-
standing, and the Holders of not less than a majority in aggre-
gate principal amount of the Notes then outstanding by written
notice to the Trustee may waive future compliance by the Com-
pany with any provision of this Indenture or the Notes except a
default in the payment of principal or premium, if any, or
interest on the Notes.
Notwithstanding the provisions of this Section 9.02,
without the consent of each Holder affected, an amendment, mod-
ification or waiver, including a waiver pursuant to
Section 6.04, may not:
(a) reduce the percentage in outstanding aggregate
principal amount of Notes the Holders of which must con-
sent to an amendment, supplement or waiver of any provi-
sion of this Indenture or the Notes;
(b) reduce or change the rate or time for payment of
interest on any Note;
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(c) reduce the principal amount outstanding of or
extend the fixed maturity of any Note or alter the redemp-
tion provisions with respect thereto;
(d) waive a default in the payment of the principal
of, premium, if any, or interest on, or in the payment
with respect to any redemption or offer to purchase
required hereunder with respect to, any Note;
(e) make the principal of, premium, if any, or
interest on any Note payable in money other than that
stated in the Note;
(f) modify this Section 9.02 or Section 6.04 or Sec-
tion 6.07;
(g) amend, change or modify the obligation of the
Company to make and consummate a Change of Control Offer
in the event of a Change of Control or make and consummate
the offer with respect to any Asset Sale or modify any of
the provisions or definitions with respect thereto in a
manner adverse to the Holders;
(h) modify or change any provision of this Indenture
affecting the subordination of the Notes in a manner
adverse to the Holders; or
(i) impair the right to institute suit for the
enforcement of any payment on or with respect to the
Notes.
Notwithstanding the foregoing, the Company agrees not
to enter into any amendment that would modify any provision of
this Indenture so as to affect adversely the rights of any
holder of Designated Senior Indebtedness representing Credit
Agreement Obligations at the time outstanding which are enti-
tled to the benefits of subordination under this Indenture
without the consent of such holder.
It shall not be necessary for the consent of the
Holders under this Section 9.02 to approve the particular form
of any proposed amendment, supplement or waiver, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this
Section 9.02 becomes effective, the Company shall mail to the
Holders of each Note affected thereby, with a copy to the
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Trustee, a notice briefly describing the amendment, supplement
or waiver. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or
affect the validity of any supplemental indenture.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment of or supplement to this Indenture,
the Notes shall comply with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes
effective, a consent to it by a Holder is a continuing consent
by such Holder and every subsequent Holder of that Note or por-
tion of that Note that evidences the same debt as the consent-
ing Holder's Note, even if notation of the consent is not made
on any Note. However, any such Holder or subsequent Holder may
revoke the consent as to his Note or portion of a Note prior to
such amendment, supplement or waiver becoming effective. Such
revocation shall be effective only if the Trustee receives the
notice of revocation before the date the amendment, supplement
or waiver becomes effective. Notwithstanding the above, noth-
ing in this paragraph shall impair the right of any Holder
under Section 316(b) of the TIA.
The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled
to consent to any amendment, supplement or waiver. If a record
date is fixed, then notwithstanding the second and third sen-
tences of the immediately preceding paragraph, those persons
who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent
to such amendment, supplement or waiver or to revoke any con-
sent previously given, whether or not such persons continue to
be Holders after such record date. Such consent shall be
effective only for actions taken within 90 days after such
record date.
After an amendment, supplement or waiver becomes
effective, it shall bind every Holder; unless it makes a change
described in any of clauses (a) through (i) of Section 9.02; if
it makes such a change, the amendment, supplement or waiver
shall bind every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's
Note.
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Section 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the
terms of a Note, the Trustee shall (if requested by the Company
and in accordance with the specific direction of the Company)
request the Holder of the Note to deliver it to the Trustee.
In that event, the Trustee shall (in accordance with the spe-
cific direction of the Company) place an appropriate notation
on the Note about the changed terms and return it to the
Holder. Alternatively, if the Company so determines, the Com-
pany in exchange for the Note may issue and the Trustee shall
authenticate a new Note that reflects the changed terms. Fail-
ure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supple-
ment or waiver.
Section 9.06. Trustee May Sign Amendments, etc.
The Trustee shall sign any amendment, supplement or
waiver authorized pursuant to this Article Nine if the amend-
ment, supplement or waiver does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If
it does, the Trustee may, but need not, sign it. In signing or
refusing to sign such amendment, supplement or waiver, the
Trustee shall be entitled to receive, and shall be fully pro-
tected in relying upon, an Officers' Certificate and an Opinion
of Counsel stating that the execution of any amendment, supple-
ment or waiver is authorized or permitted by this Indenture,
that it is not inconsistent herewith and that it will be valid
and binding upon the Company in accordance with its terms sub-
ject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights gener-
ally and subject to the effect of general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law) and the discretion of the court before which
any proceeding therefor may be brought.
ARTICLE TEN
SUBORDINATION OF NOTES
Section 10.01. Notes Subordinate to Senior
Indebtedness.
The Company covenants and agrees, and each Holder of
a Note, by his acceptance thereof, likewise covenants and
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agrees for the benefit of the holders, from time to time, of
Senior Indebtedness, that, to the extent and in the manner
hereinafter set forth in this Article Ten, the Indebtedness
represented by the Notes and the payment of and distributions
of or with respect to the Senior Subordinated Note Obligations
are hereby expressly made subordinate and subject in right of
payment as provided in this Article to the prior payment in
full in cash or cash equivalents of all amounts payable under
all existing and future Senior Indebtedness.
This Article Ten shall constitute a continuing offer
to all persons who, in reliance upon such provisions, become
holders of, or continue to hold Senior Indebtedness; and such
provisions are made for the benefit of the holders of Senior
Indebtedness; and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 10.02. Payment Over of Proceeds upon
Dissolution, etc.
In the event of (a) any insolvency or bankruptcy case
or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith,
relating to the Company (or its creditors, as such) or its
assets, or (b) any liquidation, dissolution or other winding-up
of the Company, whether voluntary or involuntary, or (c) any
assignment for the benefit of creditors or other marshalling of
assets or liabilities of the Company, then and in any such
event:
(1) the holders of all Senior Indebtedness shall be
entitled to receive payment in full in cash or cash equiv-
alents of all Senior Indebtedness before the Holders of
the Notes are entitled to receive any direct or indirect
payment or distribution of any kind or character (exclud-
ing Permitted Junior Securities of the Company) on account
of Senior Subordinated Note Obligations; and
(2) any direct or indirect payment or distribution
of assets of the Company of any kind or character, whether
in cash, property or securities (excluding Permitted Jun-
ior Securities of the Company), by set-off or otherwise,
to which the Holders or the Trustee would be entitled but
for the provisions of this Article shall be paid by the
liquidating trustee or agent or other person making such
payment or distribution, whether a trustee in bankruptcy,
a receiver or liquidating trustee or otherwise, directly
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to the holders of Senior Indebtedness or their representa-
tive or representatives or to the trustee or trustees
under any indenture under which any instruments evidencing
any of such Senior Indebtedness may have been issued, rat-
ably according to the aggregate amounts remaining unpaid
on account of the Senior Indebtedness held or represented
by each, to the extent necessary to make payment in full
in cash or cash equivalents of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior
Indebtedness; and
(3) in the event that, notwithstanding the foregoing
provisions of this Section 10.02, the Trustee or the
Holder of any Note shall have received any payment or dis-
tribution of properties or assets of the Company of any
kind or character, whether in cash, property or securi-
ties, by set off or otherwise, in respect of any Senior
Subordinated Note Obligations before all Senior Indebted-
ness is paid or provided for in full, then and in such
event such payment or distribution (excluding Permitted
Junior Securities of the Company) shall be paid over or
delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent
or other person making payment or distribution of assets
of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent neces-
sary to pay all Senior Indebtedness in full, after giving
effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger
of the Company with or into, another person or the liquidation
or dissolution of the Company following the conveyance, trans-
fer or lease of its properties and assets substantially as an
entirety to another person upon the terms and conditions set
forth in Article Five hereof shall not be deemed a dissolution,
winding-up, liquidation, reorganization, assignment for the
benefit of creditors or marshalling of assets and liabilities
of the Company for the purposes of this Article if the person
formed by such consolidation or the surviving entity of such
merger or the person which acquires by conveyance, transfer or
lease such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the condi-
tions set forth in such Article Five to the extent applicable.
<PAGE>
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Section 10.03. Suspension of Payment When Senior
Indebtedness in Default.
(a) Unless Section 10.02 shall be applicable, upon
the occurrence of a Payment Default, no direct or indirect pay-
ment or distribution of any assets of the Company of any kind
or character shall be made by or on behalf of the Company on
account of the Senior Subordinated Note Obligations or on
account of the purchase or redemption or other acquisition of
any Senior Subordinated Note Obligations unless and until such
Payment Default shall have been cured or waived or shall have
ceased to exist or such Senior Indebtedness shall have been
discharged or paid in full in cash in cash equivalents, after
which, subject to Section 10.02 (if applicable), the Company
shall resume making any and all required payments in respect of
the Notes and the other Senior Subordinated Note Obligations,
including any missed payments.
(b) Unless Section 10.02 shall be applicable, upon
(1) the occurrence of a Non-payment Default and (2) receipt by
the Trustee from a Senior Representative of written notice of
such occurrence stating that such notice is a Payment Blockage
Notice pursuant to Section 10.03(b) of this Indenture, no pay-
ment or distribution of any assets of the Company of any kind
or character shall be made by or on behalf of the Company on
account of any Senior Subordinated Note Obligations or on
account of the purchase or redemption or other acquisition of
Senior Subordinated Note Obligations for a period ("Payment
Blockage Period") commencing on the date of receipt by the
Trustee of such notice unless and until the earlier to occur of
the following events (subject to any blockage of payments that
may then be in effect under Section 10.02 or subsection (a) of
this Section 10.03) (w) 179 days shall have elapsed since
receipt of such written notice by the Trustee, (x) the date, as
set forth in a written notice to the Company or the Trustee
from the Senior Representative initiating such Payment Blockage
Period, on which such Non-payment Default shall have been cured
or waived or shall have ceased to exist (provided that no other
Payment Default or Non-payment Default has occurred and is then
continuing after giving effect to such cure or waiver),
(y) such Designated Senior Indebtedness shall have been dis-
charged or paid in full in cash or cash equivalents or (z) such
Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the Senior Represen-
tative initiating such Payment Blockage Period, after which,
subject to Section 10.02 (if applicable), the Company shall
promptly resume making any and all required payments in respect
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of the Senior Subordinated Note Obligations, including any
missed payments. Notwithstanding any other provision of this
Indenture, only one Payment Blockage Period may be commenced
within any 360 consecutive day period. No Non-payment Default
with respect to Designated Senior Indebtedness that existed or
was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebted-
ness initiating such Payment Blockage Period shall be, or can
be made, the basis for the commencement of a second Payment
Blockage Period, whether or not within a period of 360 consecu-
tive days, unless such default shall have been cured or waived
for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any
financial covenant for a period commencing after the date of
commencement of such Payment Blockage Period, that, in either
case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed
or was continuing shall constitute a new Non-payment Default
for this purpose; provided that, in the case of a breach of a
particular financial covenant, the Company shall have been in
compliance for at least one full 90 consecutive day period com-
mencing after the date of commencement of such Payment Blockage
Period). In no event shall a Payment Blockage Period extend
beyond 179 days from the date of the receipt of the notice
referred to in clause (2) hereof and there must be a 181 con-
secutive day period in any 360 consecutive day period during
which no Payment Blockage Period is in effect pursuant to this
Section 10.03(b).
(c) In the event that, notwithstanding the fore-
going, the Trustee or the Holder of any Note shall have
received any payment or distribution prohibited by the fore-
going provisions of this Section 10.03, then and in such event
such payment or distribution shall be paid over and delivered
forthwith to the Senior Representatives or as a court of compe-
tent jurisdiction shall direct for application to the payment
of any due and unpaid Senior Indebtedness, to the extent neces-
sary to pay all such due and unpaid Senior Indebtedness in cash
or cash equivalents, after giving effect to any concurrent pay-
ment to or for the holders of Senior Indebtedness.
Section 10.04. Trustee's Relation to Senior
Indebtedness.
With respect to the holders of Senior Indebtedness,
notwithstanding any other provisions of the Indenture, the
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Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this
Article Ten, and no implied covenants or obligations with
respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and the Trustee shall not be liable to any holder
of Senior Indebtedness if it shall mistakenly pay over or
deliver to Holders, the Company or any other person moneys or
assets to which any holder of Senior Indebtedness shall be
entitled by virtue of this Article Ten or otherwise.
Section 10.05. Subrogation to Rights of Holders
of Senior Indebtedness.
Upon the payment in full in cash or cash equivalents
of all Senior Indebtedness, the Holders of the Notes shall be
subrogated (equally and ratably with the holders of all indebt-
edness of the Company which by its express terms is subordi-
nated to Senior Indebtedness to substantially the same extent
as the Notes are so subordinated and which is entitled to like
rights of subrogation as a result of the payments made to the
holders of Senior Indebtedness) to the rights of the holders of
such Senior Indebtedness to receive payments and distributions
of cash, property and securities applicable to the Senior
Indebtedness until the principal of, premium, if any, and
interest on the Notes shall be paid in full in cash or cash
equivalents. For purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any
cash, property or securities to which the Holders of the Notes
or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions
of this Article to the holders of Senior Indebtedness by Hold-
ers of the Notes or the Trustee shall, as among the Company,
its creditors other than holders of Senior Indebtedness, and
the Holders of the Notes, be deemed to be a payment or distri-
bution by the Company to or on account of the Senior
Indebtedness.
If any payment or distribution to which the Holders
would otherwise have been entitled but for the provisions of
this Article Ten shall have been applied, pursuant to the pro-
visions of this Article Ten, to the payment of all amounts pay-
able under the Senior Indebtedness of the Company and such pay-
ments or distributions received by such holders of such Senior
Indebtedness shall be in excess of the amount sufficient to pay
all amounts payable under or in respect of such Senior
<PAGE>
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Indebtedness in full in cash or cash equivalents, then and in
such case the Holders shall be entitled to receive the amount
of such excess from the Company upon and to the extent of any
return of such excess by the holders of such Senior
Indebtedness.
Section 10.06. Provisions Solely To Define Relative
Rights.
The provisions of this Article Ten are and are
intended solely for the purpose of defining the relative rights
of the Holders of the Notes on the one hand and the holders of
Senior Indebtedness on the other hand. Nothing contained in
this Article Ten or elsewhere in this Indenture or in the Notes
is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the
Holders of the Notes, the obligation of the Company, which is
absolute and unconditional, to pay to the Holders of the Notes
the principal of, premium, if any, and interest on the Notes as
and when the same shall become due and payable in accordance
with their terms; or (b) affect the relative rights against the
Company of the Holders of the Notes and creditors of the Com-
pany other than the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Note from exer-
cising all remedies otherwise permitted by applicable law upon
a Default or an Event of Default under this Indenture, subject
to the rights, if any, under this Article Ten of the holders of
Senior Indebtedness.
The failure to make a payment on account of any
Senior Subordinated Note Obligations by reason of any provision
of this Article Ten shall not be construed as preventing the
occurrence of a Default or an Event of Default hereunder.
Section 10.07. Trustee To Effectuate Subordination.
Each Holder of a Note by his acceptance thereof
authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the
subordination provided in this Article Ten and appoints the
Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liqui-
dation or reorganization of the Company whether in bankruptcy,
insolvency, receivership proceedings, or otherwise, the timely
filing of a claim for the unpaid balance of the Indebtedness of
the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If
<PAGE>
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the Trustee does not file such a claim prior to 30 days before
the expiration of the time to file such a claim, the holders of
Senior Indebtedness, or any Senior Representative, may file
such a claim on behalf of Holders of the Notes.
Section 10.08. No Waiver of Subordination
Provisions.
(a) No right of any present or future holder of any
Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection
(a) of this Section 10.08, the holders of Senior Indebtedness
may, at any time and from time to time, without the consent of
or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes and with-
out impairing or releasing the subordination provided in this
Article Ten or the obligations hereunder of the Holders of the
Notes to the holders of Senior Indebtedness, do any one or more
of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or
any agreement under which Senior Indebtedness is outstanding or
any liability of any obligor thereon; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged
or otherwise securing Senior Indebtedness; (3) settle or com-
promise any Senior Indebtedness or any liability of any obligor
thereon or release any person liable in any manner for the col-
lection or payment of Senior Indebtedness; and (4) exercise or
refrain from exercising any rights against the Company and any
other person; provided, however, that in no event shall any
such actions limit the right of the Holders of the Notes to
take any action to accelerate the maturity of the Notes pursu-
ant to Article Six hereof or to pursue any rights or remedies
hereunder or under applicable laws if the taking of such action
does not otherwise violate the terms of this Indenture.
Section 10.09. Notice to Trustee.
(a) The Company shall give prompt written notice to
the Trustee of any fact known to the Company which would
<PAGE>
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prohibit the making of any payment to or by the Trustee in
respect of the Notes. Notwithstanding the provisions of this
Article Ten or any other provision of this Indenture, the Trus-
tee shall not be charged with knowledge of the existence of any
facts which would prohibit the making of any payment to or by
the Trustee in respect of the Notes, unless and until the Trus-
tee shall have received written notice thereof from the Company
or a holder of Senior Indebtedness or from any trustee, fidu-
ciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of this
Section 10.09, shall be entitled in all respects to assume that
no such facts exist; provided, however, that if the Trustee
shall not have received the notice provided for in this
Section 10.09 at least two Business Days prior to the date upon
which by the terms hereof any money may become payable for any
purpose under this Indenture (including, without limitation,
the payment of the principal of, premium, if any, or interest
on any Note), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of
the holders of Senior Indebtedness or any trustee, fiduciary or
agent thereof, the Trustee shall have full power and authority
to receive such money and to apply the same to the purpose for
which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two
Business Days prior to such date; nor shall the Trustee be
charged with knowledge of the curing of any such default or the
elimination of the act or condition preventing any such payment
unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) Subject to the provisions of Section 7.01, the
Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee by a person representing himself
to be a holder of Senior Indebtedness (or a trustee, fiduciary
or agent therefor) to establish that such notice has been given
by a holder of Senior Indebtedness (or a trustee, fiduciary or
agent therefor). In the event that the Trustee determines in
good faith that further evidence is required with respect to
the right of any person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such person to furnish
evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such person, the
extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the
rights of such person under this Article Ten, and if such evi-
dence is not furnished, the Trustee may defer any payment to
<PAGE>
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such person pending judicial determination as to the right of
such person to receive such payment.
Section 10.10. Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the
Company referred to in this Article Ten, the Trustee, subject
to the provisions of Section 7.01, and the Holders, shall be
entitled to rely upon any order or decree entered by any court
of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution,
winding-up or similar case or proceeding is pending, or a cer-
tificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors,
agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of
ascertaining the persons entitled to participate in such pay-
ment or distribution, the holders of Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or pay-
able thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article; pro-
vided that the foregoing shall apply only if such court has
been fully apprised of the provisions of this Article Ten.
Section 10.11. Rights of Trustee as a Holder of
Senior Indebtedness; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be enti-
tled to all the rights set forth in this Article Ten with
respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder. Nothing in this
Article Ten shall apply to claims of, or payments to, the Trus-
tee under or pursuant to Section 7.08.
Section 10.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the
Trustee shall have been appointed by the Company and be then
acting hereunder, the term "Trustee" as used in this Article
shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if
such Paying Agent were named in this Article Ten in addition to
<PAGE>
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or in place of the Trustee; provided, however, that
Section 10.11 shall not apply to the Company or any Affiliate
of the Company if it or such Affiliate acts as Paying Agent.
Section 10.13. No Suspension of Remedies.
Nothing contained in this Article Ten shall limit the
right of the Trustee or the Holders of Notes to take any action
to accelerate the maturity of the Notes pursuant to Article Six
or to pursue any rights or remedies hereunder or under appli-
cable law, subject to the rights, if any, under this Article
Ten of the holders, from time to time, of Senior Indebtedness.
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01. Trust Indenture Act of 1939.
This Indenture is subject to the provisions of the
TIA that are required to be a part of this Indenture, and
shall, to the extent applicable, be governed by such provi-
sions. If and to the extent that any provision of this Inden-
ture limits, qualifies or conflicts with the duties imposed by
Section 310 through 318, inclusive, of the Trust Indenture Act,
or conflicts with any provision (an "incorporated provision")
required by or deemed to be included in this Indenture by oper-
ation of the Trust Indenture Act, such imposed duties or incor-
porated provision shall control.
If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be
so modified or excluded, the latter provision shall be deemed
to apply to this Indenture as so modified or excluded, as the
case may be.
Section 11.02. Notices.
Any notice or communication shall be sufficiently
given if in writing and delivered in person or mailed by first
class mail, postage prepaid, addressed as follows:
<PAGE>
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If to the Company to:
J. Ray McDermott, S.A.
1450 Poydras Street
New Orleans, LA 70112
Attention: Chief Financial Officer
With a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: Walter J. Smith, Esq.
If to the Trustee to:
Citibank, N.A.
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Corporate Trust Administration
The parties hereto by notice to the other parties may
designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed, postage prepaid,
to a Holder, including any notice delivered in connection with
TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA
Section 315(b), shall be mailed by first class mail to such Holder
at the address of such Holder as it appears on the Notes register
maintained by the Registrar and shall be sufficiently given to
such Holder if so mailed within the time prescribed. Copies of
any such communication or notice to a Holder shall also be
mailed to the Trustee.
Failure to mail a notice or communication to a Note-
holder or any defect in it shall not affect its sufficiency
with respect to other Holders. Except for a notice to the
Trustee, which is deemed given only when received, if a notice
or communication is mailed in the manner provided above, it is
duly given, whether or not the addressee receives it. Where
this Indenture provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such
notice, either before or after the event, and such waiver shall
be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a
<PAGE>
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condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregulari-
ties in regular mail service or by reason of any other cause it
shall become impracticable to mail notice of any event to Hold-
ers when such notice is required to be given pursuant to the
provisions of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed
a sufficient giving of such notice for every purpose hereunder.
Section 11.03. Communication by Holders with
Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture
or the Notes and the Trustee shall comply with the provisions
of TIA Section 312(b). The Company, the Trustee, the Registrar and
any other person shall have the protection of TIA Section 312(c).
Section 11.04. Certificate and Opinion as to
Conditions Precedent.
Upon any request or application by the Company to the
Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opin-
ion of such counsel, all such conditions precedent have
been complied with.
Section 11.05. Statements Required in Certificate
or Opinion.
Each certificate or opinion with respect to compli-
ance with a condition or covenant provided for in this Inden-
ture shall include:
(1) a statement that the person making such certifi-
cate or opinion has read such covenant or condition;
<PAGE>
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(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statement
or opinions contained in such certificate or opinion are
based;
(3) a statement that, in the opinion of such person,
he has made such examination or investigation as is neces-
sary to enable him to express an opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been com-
plied with; provided, however, that with respect to mat-
ters of fact an Opinion of Counsel may rely on an Offic-
ers' Certificate or certificates of public officials.
Section 11.06. Rules by Trustee, Paying Agent,
Registrar.
The Trustee may make reasonable rules for action by
or at a meeting of Noteholders. The Paying Agent or Registrar
may make reasonable rules for its functions.
Section 11.07. Governing Law.
The laws of the State of New York shall govern this
Indenture and the Notes without regard to principles of con-
flicts of law. The Trustee, the Company and the Holders agree
to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to
this Indenture and the Notes.
Section 11.08. Legal Holidays.
In any case where any Interest Payment Date, Redemp-
tion Date or Stated Maturity or Maturity Date of any Notes
shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Notes) payment of inter-
est or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment
Date or Redemption Date or at the Stated Maturity or Maturity
Date.
<PAGE>
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Section 11.09. No Interpretation of Other
Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or any of
their respective Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 11.10. No Recourse Against Others.
A director, officer, employee, stockholder or Affili-
ate, as such, of the Company shall not have any liability for
any obligations of the Company under the Notes or this Inden-
ture or for any claim based on, in respect of or by reason of,
such obligations or their creation. Each Holder, by accepting
a Note, waives and releases all such liability.
Section 11.11. Successors.
All agreements of the Company in this Indenture and
the Notes shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 11.12. Duplicate Originals.
The parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all such
executed copies together represent the same agreement.
Section 11.13. Separability.
In case any provision in this Indenture or the Notes
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby, and a Holder
shall have no claim therefor against any party hereto.
Section 11.14. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and
headings of the Articles and Sections of this Indenture have
been inserted for convenience of reference only, are not to be
considered a part hereof, and shall not affect the construction
hereof.
<PAGE>
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Section 11.15. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or
implied, shall give to any person, other than the parties
hereto, any Paying Agent, any Registrar and their successors
hereunder, and the Holders, any benefit or any legal or equi-
table right, remedy or claim under this Indenture.
Section 11.16. Agent for Service; Submission
to Jurisdiction; Waiver of
Immunities.
By the execution and delivery of this Indenture, the
Company, (i) acknowledges that it has, by separate written
instrument, designated and appointed Corporation Trust System
as its authorized agent upon which process may be served in any
suit, action or proceeding arising out of or relating to the
Notes or this Indenture that may be instituted in any Federal
or State court in the State of New York, Borough of Manhattan,
or brought under Federal or State securities laws or brought by
the Trustee (whether in its individual capacity or in its
capacity as Trustee hereunder), and acknowledges that Corpora-
tion Trust System has accepted such designation, (ii) submits
to the jurisdiction of any such court in any such suit, action
or proceeding, and (iii) agrees that service of process upon
Corporation Trust System and written notice of said service to
it (mailed or delivered to its General Counsel at its principal
office as specified in Section 11.2), shall be deemed in every
respect effective service of process upon it in any such suit
or proceeding. The Company further agrees to take any and all
action, including the execution and filing of any and all such
documents and instruments as may be necessary to continue such
designation and appointment of Corporation Trust System in full
force and effect so long as this Indenture shall be in full
force and effect; provided that the Company may and shall (to
the extent Corporation Trust System ceases to be able to be
served on the basis contemplated herein), by written notice to
the Trustee, designate such additional or alternative agents
for service of process under this Section 11.15 that (i) main-
tains an office located in the Borough of Manhattan, The City
of New York in the State of New York, (ii) are either (x) coun-
sel for the Company or (y) a corporate service company which
acts as agent for service of process for other Persons in the
ordinary course of its business and (iii) agrees to act as
agent for service of process in accordance with this Section
11.15. Such notice shall identify the name of such agent for
process and the address of such agent for process in the
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Borough of Manhattan, The City of New York, State of New York.
Upon the request of any Holder, the Trustee shall deliver such
information to such Holder. Notwithstanding the foregoing,
there shall, at all times, be at least one agent for service of
process for the Company appointed and acting in accordance with
this Section 11.15.
To the extent that the Company has or hereafter may
acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment
prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, the Company
hereby irrevocably waives such immunity in respect of its obli-
gations under this Indenture and the Notes, to the extent per-
mitted by law.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, and their respective corpo-
rate seals to be hereunto affixed and attested, all as of the
day and year first above written.
J. RAY McDERMOTT, S.A.
By: _____________________________
Name:
Title:
CITIBANK, N.A.,
as Trustee
By: _____________________________
Name:
Title:
<PAGE>
SCHEDULE 4.14
Permitted Transactions
<PAGE>
EXHIBIT A
Unless this certificate is presented by an authorized represen-
tative of The Depository Trust Company, a New York corporation
("DTC"), to the Company or its agent for registration of trans-
fer, exchange, or payment, and any certificate issued is regis-
tered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any pay-
ment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANS-
FER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.*
Unless and until this Global Note is exchanged in whole or in
part for the individual Notes represented hereby, this Global
Note may not be transferred except as a whole by the Depository
to a nominee of the Depository or by a nominee of the Deposi-
tory to the Depository or by a Depository or any such nominee
to a successor Depository or a nominee of a successor
Depository.**
J. RAY McDERMOTT, S.A.
% SENIOR SUBORDINATED NOTE DUE 2006
No. ______ $__________
J. RAY McDERMOTT, S.A., a corporation incorporated
under the laws of the Republic of Panama (herein called the
"Company", which term includes any successor corporation under
the Indenture hereinafter referred to), for value received,
hereby promises to pay to _______________ or registered
assigns, the principal sum of _______________ Dollars on
, 2006, at the office or agency of the Company
referred to below, and to pay interest thereon on and
, in each year, commencing on , 1996, accru-
ing from , 1996 or from the most recent Interest
Payment Date to which interest has been paid or duly provided
for, at the rate of % per annum, until the principal
_________________________
* Include this legend on any Global Note issued to
Cede & Co. as nominee of The Depository Trust Company.
** Include this legend on any Global Note.
A-1
<PAGE>
hereof is paid or duly provided for. Interest shall be com-
puted on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in
the Indenture referred to on the reverse hereof, be paid to the
person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on the Regular
Record Date for such interest, which shall be or
(whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date (each a "Regular
Record Date"). Any such interest not so punctually paid, or
duly provided for, and interest on such defaulted interest at
the rate borne by the Notes, to the extent lawful, shall forth-
with cease to be payable to the Holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of
business on a special record date for the payment of such
defaulted interest to be fixed by the Trustee, notice of which
shall be given to Holders of Notes not less than 10 days prior
to such special record date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and
upon such notice as may be required by such exchange, all as
more fully provided in such Indenture.
Payment of the principal of, premium, if any, and
interest on this Note will be made at the office or agency of
the Company maintained for that purpose in the Borough of Man-
hattan in The City of New York, or at such other office or
agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and pri-
vate debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the
address of the person entitled thereto as such address shall
appear on the Note register maintained by the Registrar.
Reference is hereby made to the further provisions of
this Note set forth on the reverse hereof.
Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to on the reverse
hereof by manual signature, and a seal has been affixed hereon,
this Note shall not be entitled to any benefit under the Inden-
ture, or be valid or obligatory for any purpose.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.
Dated: , 1996 J. RAY McDERMOTT, S.A.
By:_____________________________
Name:
Title:
[SEAL]
A-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-
mentioned Indenture.
CITIBANK, N.A.,
as Trustee
Dated: _________________ By _____________________
Authorized Officer
A-4
<PAGE>
(Reverse of Note)
1. Indenture. This Note is one of a duly authorized
issue of Notes of the Company designated as its % Senior
Subordinated Notes due 2006, limited (except as otherwise pro-
vided in the Indenture referred to below) in aggregate princi-
pal amount to $ , which may be issued under an inden-
ture (herein called the "Indenture") dated as of ,
1996, among J. Ray McDermott, S.A., a Republic of Panama corpo-
ration, as issuer (the "Company"), and Citibank, N.A., as trus-
tee (herein called the "Trustee," which term includes any suc-
cessor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company,
the Trustee and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and
delivered.
All capitalized terms used in this Note which are
defined in the Indenture and not otherwise defined herein shall
have the meanings assigned to them in the Indenture.
No reference herein to the Indenture and no provi-
sions of this Note or of the Indenture shall alter or impair
the obligation of the Company, which is absolute and uncondi-
tional, to pay the principal of, premium, if any, and interest
on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Subordination. The Indebtedness evidenced by the
Notes is, to the extent and in the manner provided in the
Indenture, subordinate and subject in right of payment to the
prior payment in full in cash or cash equivalents of all Senior
Indebtedness as defined in the Indenture, and this Note is
issued subject to such provisions. Each Holder of this Note,
by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf
of such Holder, to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such
Holder for such purpose.
A-5
<PAGE>
3. Redemption.
(a) Optional Redemption. The Notes are subject to
redemption, at the option of the Company, in whole or in part,
in principal amounts of $1,000 or any integral multiple of
$1,000, at any time on or after , 2001 upon not less
than 30 nor more than 60 days' prior notice at the following
Redemption Prices (expressed as percentages of the princi
pal amount) if redeemed during the 12-month period beginning
of the years indicated below:
Redemption
Year Price
----- ----------
2001 %
2002 %
2003 %
2004 and thereafter 100%
plus accrued and unpaid interest, if any, to the Redemption
Date.
(b) Redemption for Changes in Withholding Taxes.
The Notes will be subject to redemption in whole, but not in
part, at the option of the Company at any time at 100% of the
principal amount thereof, plus accrued interest, if any, to the
Redemption Date, if the Company has become or would become
obligated to pay, on the next date on which any amount would be
payable with respect to the Notes, any Additional Amounts as a
result of a change in, or amendment to or promulgation of any
treaty or law (or regulation thereunder) with respect to
Indemnifiable Taxes, or any change in, amendment to or promul-
gation of any official position (whether administrative, judi-
cial or otherwise) regarding the application or interpretation
of any such treaty, law or regulation, which change, amendment
or promulgation is announced or becomes effective on or after
the Issue Date; provided that the Company determines, in its
business judgment, that the obligation to pay such Additional
Amounts cannot be avoided by the use of reasonable measures
available to the Company (not including substitution of the
obligor hereunder) or that such reasonable measures cannot be
taken without the Company suffering any material economic,
legal or regulatory disadvantage.
(c) Interest Payments. In the case of any redemp-
tion of Notes, interest installments whose Stated Maturity is
on or prior to the Redemption Date will be payable to the
A-6
<PAGE>
Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Record Date
referred to on the face hereof. Notes (or portions thereof)
for whose redemption and payment provision is made in accor-
dance with the Indenture shall cease to bear interest from and
after the Redemption Date.
(d) Partial Redemption. In the event of redemption
of this Note in part only, a new Note or Notes for the
unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
4. Offers to Purchase. Sections 4.12 and 4.13 of
the Indenture provide that upon the occurrence of a Change of
Control and following any Asset Sale, and subject to further
limitations contained therein, the Company shall make an offer
to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
5. Defaults and Remedies. If an Event of Default
shall occur and be continuing, the principal of all of the out-
standing Notes, plus all accrued and unpaid interest, if any,
to and including the date the Notes are paid, may be declared
due and payable in the manner and with the effect provided in
the Indenture.
6. Defeasance. The Indenture contains provisions
(which provisions apply to this Note) for defeasance at any
time of (a) the entire indebtedness of the Company and (b) cer-
tain restrictive covenants and related Defaults and Events of
Default, in each case upon compliance by the Company with cer-
tain conditions set forth therein.
7. Amendments and Waivers. The Indenture permits,
with certain exceptions as therein provided, the amendment
thereof and the modification of the rights and obligations of
the Company and the rights of the Holders under the Indenture
at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal
amount of the Notes at the time outstanding. The Indenture
also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the
time outstanding, on behalf of the Holders of all the Notes, to
waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and
this Note and their consequences. Any such consent or waiver
by or on behalf of the Holder of this Note shall be conclusive
A-7
<PAGE>
and binding upon such Holder and upon all future Holders of
this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon
this Note. Without the consent of any Holder, the Company and
the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency and to make cer-
tain other specified changes and other changes that do not
adversely affect the interests of any Holder in any material
respect.
8. Denominations, Transfer and Exchange. The Notes
are issuable only in registered form without coupons in denomi-
nations of $1,000 and any integral multiple thereof. As pro-
vided in the Indenture and subject to certain limitations
therein set forth, the Notes are exchangeable for a like aggre-
gate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is
registrable on the note register of the Company, upon surrender
of this Note for registration of transfer at the office or
agency of the Company maintained for such purpose in the Bor-
ough of Manhattan in The City of New York or at such other
office or agency of the Company as may be maintained for such
purpose, duly endorsed by, or accompanied by a written instru-
ment of transfer in form satisfactory to the Company and the
Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee
or transferees.
No service charge shall be made for any registration
of transfer or exchange or redemption of Notes, but the Company
may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
9. Persons Deemed Owners. Prior to and at the time
of due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the
Trustee may treat the person in whose name this Note is regis-
tered as the owner hereof for all purposes, whether or not this
Note shall be overdue, and neither the Company, the Trustee nor
any agent shall be affected by notice to the contrary.
A-8
<PAGE>
10. No Recourse Against Others. A director, offi-
cer, employee, incorporator, stockholder or Affiliate of the
Company, as such, shall not have any personal liability under
this Note or the Indenture by reason of his or its status as
such director, officer, employee, incorporator, stockholder or
Affiliate. Each Holder, by accepting this Note, waives and
releases all such liability. Such waiver and release are part
of the consideration for the issuance of this Note.
11. Governing Law. This Note shall be governed by
and construed in accordance with the laws of the State of New
York, without regard to conflicts of law principles.
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Com-
pany pursuant to Section 4.12 or 4.13 of the Indenture, check
the appropriate box:
Section 4.12 [ ]
Section 4.13 [ ]
If you wish to have a portion of this Note purchased
by the Company pursuant to Section 4.12 or 4.13 of the Inden-
ture, state the amount:
$______________
Date: __________________ Your Signature: ______________________
(Sign exactly as your
name appears on the
other side of this
Note)
Signature Guarantee: ______________________
A-10
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to
- ---------------------------------------------------------------
(Insert assignee's social security or tax ID number)
-----------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irre-
vocably appoint
- ----------------------------------------------------------------
agent to transfer this Note on the books of the Company. The
agent may substitute another to act for him.
- ----------------------------------------------------------------
Date: _____________ Your signature: ___________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signatures must be guaranteed by a member firm of a national
securities exchange, a member of the National Association of
Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or
<PAGE>
another eligible guarantor institution (as defined pursuant to
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended).
Signature(s) Guaranteed by:
____________________________________
<PAGE>
EXHIBIT 5.1
DURLING & DURLING
RICARDO A. DURLING ABOGADOS EDIFICIO VALLARINO
LUIS A. DURLING PENTHOUSE
ORLANDO LOPEZ A. CALLE 52 Y ELVIRA MENDEZ
PATRICIA D. DE LA ESPRIELLA APARTADO POSTAL 1450
PANAMA 1. PANAMA
------
TEL: 263-8244
FAX: (507) 263-8234
(507) 223-9115
June 6, 1996
J. Ray McDermott, S.A.
1450 Poydras Street
New Orleans, Louisiana 70112-6050
Re: Registration Statement on Form S-3 (No. 333-01971)
Ladies and Gentlemen:
This firm has acted as Panama counsel for J. Ray McDermott, S.A., a Panama
corporation (the "Company"), in connection with the registration under the
United States Securities Act of 1933, as amended (the "Act"), on a Registration
Statement on Form S-3 (Reg. No. 333-01971) (the "Registration Statement") of the
offer and sale by the Company of up to U.S. $250,000,000 aggregate principal
amount of senior subordinated notes due 2006 of the Company (the "Notes"). We
are delivering this opinion for use as an exhibit to the Registration Statement.
In connection therewith, we have examined and relied upon the original or
copies, certified to our satisfaction, of (i) the Certificate of Incorporation
and the Bylaws of the Company; (ii) resolutions of the Board of Directors of the
Company (the "Board") authorizing the registration of the Notes; (iii) the
Registration Statement and exhibit thereto; (iv) the indenture between the
Company and Citibank, N.A., as trustee (the "Trustee"), relating to the Notes
(the "Indenture"); and (v) such other documents and instruments as we have
deemed necessary for the expression of the opinions herein contained.
Based upon our examination as aforesaid, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing in good
standing under the laws of the Republic of Panama.
2. The Notes, when duly executed, authenticated and delivered in accordance
with the terms of the Indenture and duly purchased and paid for, will be legally
issued, fully paid and non-assessable and will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforcement is subject to (i) any applicable
bankruptcy, insolvency, reorganization or other law relating to or affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
We are lawyers qualified to practice law only in the Republic of Panama
and, therefore, we do not express any opinion with respect to the laws of
another jurisdiction.
We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement, to all references to us in the prospectus forming a part
of the Registration Statement, and to the reliance by either or both of Baker &
Botts, L.L.P. and John Tsai, Esq. in connection with their respective opinions,
if any, that may be given in connection with the issuance and sale of the Notes.
Very truly yours,
Durling & Durling
<PAGE>
[LETTERHEAD OF BAKER & BOTTS APPEARS HERE]
EXHIBIT 5.2
June 6, 1996
J. Ray McDermott, S.A.
1450 Poydras Street
New Orleans, Louisiana 70112-6050
Re: Registration Statement on Form S-3 (No. 333-01971)
Ladies and Gentlemen:
This firm has acted as special U.S. counsel for J. Ray McDermott, S.A., a
Panama corporation (the "Company"), in connection with the registration under
the United States Securities Act of 1933, as amended (the "Act"), pursuant to a
Registration Statement on Form S-3 (Reg. No. 333-01971) (the "Registration
Statement") of the offer and sale by the Company of up to U.S. $250,000,000
aggregate principal amount of senior subordinated notes due 2006 of the Company
(the "Notes"). As set forth in the Registration Statement, certain legal
matters in connection with the Notes are being passed upon by us. We understand
that the Notes are to be sold pursuant to the terms of a Purchase Agreement (the
"Purchase Agreement") in substantially the form filed as Exhibit 1.1 to the
Registration Statement and an Indenture in substantially the form filed as
Exhibit 4.1 to the Registration Statement (the "Indenture"). At your request,
this opinion is being furnished to you for filing as Exhibit 5.2 to the
Registration Statement.
In our capacity as your counsel in the connection referred to above, we
have examined and relied upon the original or copies, certified to our
satisfaction, of (i) the Certificate of Incorporation and the Bylaws of the
Company; (ii) resolutions of the Board of Directors of the Company (the "Board")
authorizing the registration of the Notes; (iii) the Registration Statement and
exhibits thereto, including the form of Indenture; and (iv) such other documents
and instruments as we have deemed necessary for the expression of the opinions
herein contained.
On the basis of the foregoing, we are of the opinion that, assuming (i) the
taking of all necessary corporate action by the Company, including action by the
Board and the duly authorized Pricing Committee of the Board to approve the
terms of the offering of the Notes, including approval of the terms and
conditions of, and the authorization, execution and delivery of, the Purchase
Agreement, the Indenture and the Notes, (ii) the due execution and delivery of
the
<PAGE>
2
J. Ray McDermott, S.A. June 6, 1996
Indenture, (iii) the qualification of the Indenture under the Trust Indenture
Act of 1939, as amended, and (iv) the due execution and authentication of the
Notes pursuant to and in accordance with the Indenture, the Notes, when
delivered in accordance with the terms of the Indenture and duly purchased and
paid for in accordance with the terms of the Indenture and the Purchase
Agreement, will be validly issued, and will constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforcement is subject to (i) any applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or other laws relating to or affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
The opinion set forth above is limited in all respect to matters of the
laws of the State of New York and the federal laws of the United States of
America, to the extent applicable.
We hereby consent to the filing of this opinion letter as Exhibit 5.2 to
the Registration Statement, and to the reference to us under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
Baker & Botts, L.L.P.
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- ---------
1992 1993 1994 1995 1996 1996
------- -------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before
provision for income
taxes and cumulative
effect of accounting
changes.............. $16,798 $138,516 $147,187 $69,585 $ 5,079 $5,428
Adjust for:
Minority interest
income............... (137) (44) (2,912) -- (1,781) (1,781)
Equity in
undistributed
earnings of
affiliates........... 6,487 (39,293) (10,927) 21,585 (6,166) (6,166)
Plus:
Interest expense...... 32,041 28,211 22,704 26,855 44,061 52,476
Portion of rents
representative of the
interest factor...... 51,968 43,514 40,355 37,733 38,401 32,358
------- -------- -------- ------- ------- ------
107,157 170,904 196,407 155,758 79,594 82,315
------- -------- -------- ------- ------- ------
Fixed Charges:
Interest expense,
including amount
capitalized.......... 32,659 28,869 23,084 27,022 45,386 53,801
Portion of rents
representative of the
interest factor...... 51,968 43,514 40,355 37,733 38,401 32,358
------- -------- -------- ------- ------- ------
84,627 72,383 63,439 64,755 83,787 86,159
------- -------- -------- ------- ------- ------
Ratio of earnings to
fixed charges.......... 1.27 2.36 3.10 2.41 -- --
------- -------- -------- ------- ------- ------
Earnings surplus ....... $22,530 $ 98,521 $132,968 $91,003 $ -- $ --
======= ======== ======== ======= ======= ======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use and the incorporation by reference from J. Ray McDermott, S.A.'s Annual
Report (Form 10-K) for the fiscal year ended March 31, 1996, of our report
dated May 15, 1996, with respect to the consolidated financial statements of J.
Ray McDermott, S.A. included and incorporated by reference in Amendment No. 1
to the Registration Statement (Form S-3) and the related Prospectus of J. Ray
McDermott, S.A. for the registration of $250,000,000 principal amount of its
Senior Subordinated Notes due 2006.
ERNST & YOUNG LLP
New Orleans, Louisiana
June 3, 1996
