AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 2001
REGISTRATION NO. 333-69826
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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HORNBECK-LEEVAC MARINE SERVICES, INC.*
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 72-1375844 4424
(I.R.S. Employer Identification (Primary Standard Industrial
(State or other jurisdiction of Number)
incorporation or organization) Classification Code Number)
</Table>
414 NORTH CAUSEWAY BOULEVARD
MANDEVILLE, LOUISIANA 70448
(985) 727-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
TODD M. HORNBECK
PRESIDENT, CHIEF OPERATING OFFICER AND SECRETARY
414 NORTH CAUSEWAY BOULEVARD
MANDEVILLE, LOUISIANA 70448
(985) 727-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
R. CLYDE PARKER, JR., ESQ.
MARK W. EISENBRAUN, ESQ.
WINSTEAD SECHREST & MINICK P.C.
910 TRAVIS, SUITE 2400
HOUSTON, TEXAS 77002
(713) 650-8400
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ]
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.
*The subsidiaries of HORNBECK-LEEVAC Marine Services, Inc. guarantee the
securities being registered hereby and therefore are also registrants.
Information about these additional registrants appears on the following page.
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ADDITIONAL REGISTRANTS
HORNBECK OFFSHORE SERVICES, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 4424 76-0497638
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</Table>
---------------------
LEEVAC MARINE, INC.
(Exact name of registrant as specified in its charter)
<Table>
LOUISIANA 4424 72-1053262
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</Table>
---------------------
HORNBECK-LEEVAC
MARINE OPERATORS, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 4424 72-1375845
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</Table>
---------------------
ENERGY SERVICES PUERTO RICO, INC.
(Exact name of registrant as specified in its charter)
<Table>
LOUISIANA 4424 72-1437129
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</Table>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED NOVEMBER 27, 2001
PROSPECTUS
$175,000,000
[HORNBECK LOGO] [LEEVAC
LOGO]
HORNBECK-LEEVAC MARINE SERVICES, INC.
OFFER TO EXCHANGE
10 5/8% SERIES B SENIOR NOTES DUE 2008
REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
10 5/8% SERIES A SENIOR NOTES DUE 2008
THE EXCHANGE OFFER:
- - We are offering to exchange up to $175 million in principal amount of our
10 5/8% Series B Senior notes due 2008 for outstanding Series A notes. The
Series B notes have been registered under the Securities Act of 1933, are
freely tradable and have terms that are substantially identical to the terms
of the Series A notes.
- - We will exchange all Series A notes that you validly tender and do not validly
withdraw before the exchange offer expires for an equal principal amount of
Series B notes.
- - The exchange offer expires at 5:00 p.m., New York City time, on ,
2001, unless extended. While we do not currently intend to extend the exchange
offer, any extension would not continue beyond January 18, 2002.
- - Tenders of Series A notes may be withdrawn at any time before the expiration
of the exchange offer.
- - The exchange of Series B notes for Series A notes will not be a taxable event
for U.S. federal income tax purposes.
- -Each broker-dealer that receives Series B notes in connection with this
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B notes. If a broker-dealer acquired Series A
notes as a result of market-making or other trading activities, such
broker-dealer may use this Prospectus, as supplemented or amended, in
connection with resales of Series B notes.
THE SERIES B NOTES:
- - Maturity. August 1, 2008.
- - Interest Payments. We will pay interest on the Series B notes at an annual
rate of 10.625% on February 1 and August 1 of each year until maturity. We
will make the first payment on February 1, 2002. Interest on the Series B
notes began accruing on July 24, 2001, the date of issuance of the Series A
notes for which the Series B notes will be exchanged.
- - Ranking. The Series B notes will be senior obligations. They will rank
equally in right of payment with our existing and future senior indebtedness.
They will be effectively subordinated to all of our secured obligations to the
extent of the fair value of the assets collateralizing those obligations.
- - Guarantees. The Series B notes are fully and unconditionally guaranteed by
all of our subsidiaries.
- - Optional Redemption. We may, at our option, redeem all or a part of the
Series B notes from time to time at the redemption prices and subject to the
conditions described in this prospectus.
- - Change of Control. If we experience a change of control, any noteholder may
require us to repurchase all or a part of its Series B notes for cash at 101%
of the principal amount of the notes.
- - Listing. We do not intend to list the Series B notes on any securities
exchange or to seek approval for quotation through any automated quotation
system.
SEE THE "RISK FACTORS" SECTION BEGINNING ON PAGE 11 FOR A DISCUSSION OF
FACTORS YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
---------------------
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 PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is November , 2001.
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. In making your investment decision, you
should rely only on the information contained in this prospectus and in the
accompanying letter of transmittal. We have not authorized any person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. You should assume the
information appearing in this prospectus is accurate as of the date on the front
cover of this prospectus only. Our business, financial condition, results of
operations and prospects may change after that date.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 11
EXCHANGE OFFER........................ 19
USE OF PROCEEDS....................... 29
CAPITALIZATION........................ 29
HORNBECK-LEEVAC MARINE SERVICES, INC.
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION............... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 32
SPENTONBUSH/RED STAR GROUP SELECTED
HISTORICAL COMBINED FINANCIAL
INFORMATION......................... 39
</Table>
<Table>
<Caption>
PAGE
----
BUSINESS.............................. 41
DIRECTORS AND MANAGEMENT.............. 57
PRINCIPAL STOCKHOLDERS................ 65
DESCRIPTION OF OTHER INDEBTEDNESS..... 67
DESCRIPTION OF THE SERIES B NOTES..... 68
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES........................ 102
PLAN OF DISTRIBUTION.................. 106
LEGAL MATTERS......................... 108
EXPERTS............................... 108
INDEX TO FINANCIAL STATEMENTS......... F-1
</Table>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus incorporates important business and financial information
about us that we have not included in or delivered with this prospectus. This
information is available without charge upon written or oral request, from James
O. Harp, Jr., Chief Financial Officer, HORNBECK-LEEVAC Marine Services, Inc.,
414 North Causeway Blvd., Mandeville, Louisiana 70448, telephone number: (985)
727-2000, extension 203. To ensure timely delivery, you should request the
information no later than , 2001.
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 related to the Series B
notes offered by this prospectus. As allowed by Commission rules, this
prospectus does not contain all of the information contained in the registration
statement. The complete registration statement and the documents filed as
exhibits to the registration statement are available to the public over the
Internet at the Commission's web site at http://www.sec.gov. If you have a
question on any contract, agreement or other document filed as an exhibit to the
registration statement, please see the exhibits for a more complete description
of the matter involved. You may also read and copy any document we have filed
with the Commission at its public reference facilities at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain copies of these documents at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-800-732-0330 for further information on the operation of the public reference
facilities.
Before filing this registration statement, we were not subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934. We have agreed that, whether or not we are required to do
so by the rules and regulations of the Commission (and within fifteen days of
the date that is
i
or would be prescribed thereby), for so long as any of the notes remain
outstanding, we will furnish to the holders of the notes and file with the
Commission (unless the Commission will not accept the filing)
- all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on forms 10-Q and 10-K if we
were required to file these forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and, with
respect to the annual information only, a report by our independent
auditors and
- all reports that would be required to be filed with the Commission on
Form 8-K if we were required to file these reports.
In addition, we have agreed to make available, upon request, to any prospective
purchaser of the notes and beneficial owner of the notes in connection with a
sale of the notes the information required by Rule 144A(d)(4) under the
Securities Act of 1933 for so long as any of the notes remain outstanding.
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus, including certain
information set forth in "Prospectus Summary" and in the sections entitled
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." We have based these forward-looking statements on our
current views and assumptions about future events and our future financial
performance. You can generally identify forward-looking statements by the
appearance in such a statement of words like "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intend," "may," "plan," "potential,"
"predict," "project," "should" or "will" or the negative of these words or other
comparable words. When you consider our forward-looking statements, you should
keep in mind the risk factors we describe and other cautionary statements we
make in this prospectus.
Among the risks, uncertainties and assumptions to which these
forward-looking statements may be subject are:
- changes in international economic and political conditions, and in
particular in oil and gas prices;
- our ability to manage costs effectively;
- our ability to finance our operations and construct new vessels on
acceptable terms;
- our ability to complete vessels under construction without significant
delays or cost overruns;
- the effects of competition;
- our ability to integrate acquisitions successfully;
- our ability to charter our vessels on acceptable terms;
- our ability to access the debt and equity markets to fund our capital
requirements, which may depend on general market conditions and our
financial condition at the time; and
- our success at managing these risks.
Our forward-looking statements are only predictions based on expectations
that we believe are reasonable. Actual events or results may differ materially
from those described in any forward-looking statement. We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. To the extent these
risks, uncertainties and assumptions give rise to events that vary from our
expectations, the forward-looking events discussed in this prospectus may not
occur.
ii
PROSPECTUS SUMMARY
This prospectus summary highlights selected information from this
prospectus to help you understand our business and the terms of the exchange
offer. We urge you to read all of this prospectus carefully to gain a fuller
understanding of our business and the terms of the exchange offer, as well as
some of the other considerations that may be important to you in considering
whether to participate in the exchange offer. You should pay special attention
to the "Risk Factors" section of this prospectus for a discussion of factors you
should consider before participating in the exchange offer.
In this prospectus, "company," "we," "us" and "our" refer to
HORNBECK-LEEVAC Marine Services, Inc. and its subsidiaries, except as otherwise
indicated.
The term "Series A notes" refers to the 10 5/8% Series A Senior Notes due
2008 that were issued July 24, 2001. The term "Series B notes" refers to the
10 5/8% Series B Senior Notes due 2008 issuable in the exchange offer. The term
"notes" refers to both the Series A notes and the Series B notes.
OUR COMPANY
We are a leading provider of marine transportation services in the markets
we serve through the operation of newly constructed deepwater offshore supply
vessels in the Gulf of Mexico and ocean-going tugs and tank barges in the
northeastern United States and in Puerto Rico. Currently, we own and operate a
fleet of nine deepwater offshore supply vessels and have another four deepwater
vessels under construction. We also own and operate a fleet of thirteen
ocean-going tugs and seventeen ocean-going tank barges.
In the mid-1990s, our founders identified a significant opportunity to
capitalize on the emerging interest in deepwater exploration and production.
Since then, the deepwater Gulf of Mexico has become an increasingly active oil
and gas region as producers seek to counter declining production rates in
existing U.S. basins. The operating environment in the deepwater Gulf of Mexico
differs dramatically from that of the continental shelf. Successful exploration
and development in deepwater areas has required a new generation of high cost
drilling rigs and production platforms and other advanced drilling and
production technology. These expensive projects are best served by a new
generation of offshore supply vessels capable of supporting day-to-day
operations in a manner that avoids costly downtime in terms of both drilling rig
dayrates and lost oil and gas production.
We believe that the existing fleet of offshore supply vessels operating on
the continental shelf is not capable of operating effectively in the deepwater
market. Our founders have assembled a core team of naval architects and other
marine professionals to design and operate offshore supply vessels that
specifically address the challenges of deepwater operations. We believe that our
deepwater vessels, designed with enhanced capabilities, can be used effectively
in all stages of a long-lived deepwater project and for specialty services.
We believe our tug and tank barge business complements our offshore supply
vessel business by providing an additional revenue base and offering another
line of services to integrated oil companies. Demand for tank barge services
results from the consumption of refined petroleum products such as gasoline,
home heating oil, jet fuel and diesel fuel, as well as residual fuel oil and
asphalts. As one of the leading suppliers of this service in the heavily
populated northeastern United States and the dominant provider of tank barge
services in Puerto Rico, we are able to optimize capacity utilization from one
region of operations to another while we benefit from the steady demand provided
by long-term customer relationships with major energy companies.
COMPETITIVE STRENGTHS
We believe that the following strengths provide us with a competitive
advantage in the markets we serve:
- We operate a technologically advanced fleet of new deepwater offshore
supply vessels, representing what we believe to be the youngest fleet in
the Gulf of Mexico.
- We have a leading market presence in our core areas of operations.
1
- We voluntarily hold certifications under numerous industry-recognized
codes, classification societies and programs that are not generally held
by other companies in our industry. All of our offshore supply vessels
are classed by the American Bureau of Shipping.
- We have a proven record of successfully completing new construction of
deepwater offshore supply vessels without significant delays or cost
overruns.
- The majority of our tank barges will not be required by regulations under
the Oil Pollution Act of 1990, generally referred to as OPA 90, to
undergo replacement or refurbishment until 2015.
- Our long-term contracts and diversified fleet provide stable revenues and
cash flow.
- We have an experienced management team with an average of nineteen years
of marine transportation industry experience.
OUR STRATEGY
We intend to strengthen our competitive position through implementation of
the following strategies:
- We intend to maintain our focus on operating high quality offshore supply
vessels capable of working in the deepwater regions of the Gulf of
Mexico.
- We intend to maintain our competitive advantage by using sophisticated
technologies.
- We intend to continue building new vessels as market demand dictates.
- We intend to continue to evaluate strategic acquisitions to expand our
offshore supply vessel and tug and tank barge fleets where we can
increase market share and long-term client relationships.
- We intend to optimize use of our tug and tank barge fleet.
- We intend to continue to pursue long-term contracts.
- We intend to leverage our existing customer relationships by expanding
our services to certain customers with diversified marine transportation
needs.
RECENT DEVELOPMENTS
Acquisition of Self-propelled Tank Barge. On November 15, 2001, we
purchased the M/V W.K. McWilliams, Jr. from Freeport-McMoRan Sulphur LLC. This
vessel is a 402' self-propelled tank barge built in 1992 that is not currently
certificated to transport petroleum products and is not subject to OPA 90
retirement dates. We are evaluating multiple opportunities for its use.
Delivery of the BJ Blue Ray and Signing of Multi-year Specialty Service
Contract. On November 6, 2001, we took delivery of the BJ Blue Ray, our first
265' class offshore supply vessel. The BJ Blue Ray was immediately employed
under a five-year contract with a large oilfield service company to support well
stimulation services. In addition, we recently signed a three-year contract with
another large oilfield service company for the HOS Dominator, our 240' offshore
supply vessel currently under construction and scheduled to be delivered in
February 2002. Under this contract, the HOS Dominator will provide support for
remotely operated vehicles, as well as inspection, maintenance, repair, subsea
intervention, trenching, diving, cargo transportation and cable- and pipe-laying
services.
Equity Offering; Repurchase of Outstanding Warrants. On October 25, 2001,
we completed a private placement of $14.6 million of our common stock. We
repurchased all of our outstanding warrants with $14.5 million of the proceeds.
The remaining funds are available for payment of expenses incurred in the
offering.
Changes in the Board of Directors. On August 22, 2001, Larry D. Hornbeck,
former Chairman of the Board, President, Chief Executive Officer and founder of
the original Hornbeck Offshore Services, Inc., joined our Board of Directors and
one of our directors, R. Clyde Parker, Jr. became a nonvoting advisory director.
In
2
addition, Mark J. Warner, who had been the board designee of our warrantholders,
resigned from our Board of Directors on August 22, 2001, and his position has
been eliminated from our Board of Directors. Jesse E. Neyman, who replaced Mr.
Warner as the board designee of our warrantholders, resigned as a director on
October 25, 2001 in connection with our repurchase of the warrants. On November
21, 2001, our Board of Directors unanimously appointed Bernie W. Stewart as a
director to fill the vacancy created by Mr. Neyman's resignation.
Private Placement of Series A Notes and Use of Proceeds. On July 24, 2001,
we issued $175 million in principal amount of Series A notes to the initial
purchasers of those notes who then resold the Series A notes only to qualified
institutional buyers. We used almost all of the proceeds we received in
connection with this private placement to repay the outstanding indebtedness
under our then existing credit facilities and such facilities have been
terminated. Warrants to purchase 1,404,761 shares of our common stock
outstanding at such time expired in accordance with their terms upon our
repayment of the outstanding indebtedness under one of these credit facilities.
New Credit Facility. We have entered into a commitment letter with one of
our former lenders regarding a new senior secured revolving line of credit of
$50 million. Pursuant to the proposed terms for the new senior secured revolving
credit facility, our borrowings under this facility will initially be limited to
$25 million unless we have obtained the lender's concurrence to borrow in excess
of $25 million. Pursuant to the indenture governing the notes, unless we meet a
specified consolidated interest coverage ratio test, the level of permitted
borrowings under this facility initially will be limited to $25 million plus 15%
of the increase in our consolidated net tangible assets over the consolidated
net tangible assets as of March 31, 2001 determined on a pro forma basis to
reflect the Spentonbush/Red Star Group acquisition discussed below.
Spentonbush/Red Star Group Acquisition. On May 31, 2001, we acquired a
fleet of nine ocean-going tugs and nine ocean-going tank barges and the related
coastwise transportation businesses from the Spentonbush/Red Star Group,
affiliates of Amerada Hess Corporation, for approximately $28 million. As part
of this acquisition, we entered into a contract of affreightment with Amerada
Hess as its exclusive marine logistics provider and coastwise transporter of
petroleum products in the northeastern United States. Under a contract of
affreightment, the vessel owner undertakes to provide space on a vessel for the
carriage of specified goods or a specified quantity of goods on a single voyage
or series of voyages over a given period of time between named ports (or within
certain geographical areas) in return for the payment of an agreed amount per
unit of cargo carried. Generally, the vessel owner is responsible for all
operating and voyage expenses. The contract became effective on June 1, 2001 and
its initial term continues through March 31, 2006. We also entered into a lease
for the Brooklyn marine facility of Amerada Hess where the tug and tank barge
operations that we acquired are based and from which we conduct such operations.
We borrowed under one of our former credit facilities to fund a portion of the
cost of this acquisition. The debt we incurred to partially finance the cost of
the Spentonbush/Red Star Group acquisition was repaid with a portion of the
proceeds we received from the private placement of the Series A notes.
---------------------
Our principal executive offices are located at 414 North Causeway
Boulevard, Mandeville, Louisiana 70448, and our telephone number is (985)
727-2000.
3
SUMMARY OF THE EXCHANGE OFFER
In connection with the private placement of the Series A notes, we entered
into a registration rights agreement with the initial purchasers in the private
placement in which we agreed to complete an exchange offer within 180 days after
the date we issued the Series A notes offering you the opportunity to exchange
your unregistered Series A notes for Series B notes registered under the
Securities Act of 1933. You should read the discussion under the headings
"-- Summary of the Terms of the Series B notes" beginning on page 6,
"Description of the Series B Notes" beginning on page 68 and "Exchange Offer"
beginning on page 19 for further information regarding the Series B notes, the
exchange offer and resales of the Series B notes.
EXCHANGE OFFER................ We are offering to exchange Series B notes for
Series A notes. Series A notes may be exchanged
only in $1,000 increments.
EXPIRATION DATE............... The exchange offer will expire at 5:00 p.m. New
York City time, on , 2001, unless we
decide to extend it. No extension will continue
beyond January 18, 2002.
CONDITION TO THE EXCHANGE
OFFER......................... The registration rights agreement does not
require us to accept outstanding notes for
exchange if the exchange offer or the making of
any exchange by a holder of the outstanding
notes would violate any applicable law or
interpretation of the staff of the Securities
and Exchange Commission. A minimum aggregate
principal amount of outstanding notes being
tendered is not a condition to the exchange
offer.
PROCEDURES FOR TENDERING...... To participate in the exchange offer, you must
complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal, and transmit it together with all
other documents required by the letter of
transmittal, including the Series A notes that
you wish to exchange, to Wells Fargo Bank
Minnesota, National Association, as exchange
agent, at the address indicated on the cover
page of the letter of transmittal. In the
alternative, you can tender your Series A notes
by following the procedures for book-entry
transfer described in this prospectus.
If your Series A notes are held through The
Depository Trust Company and you wish to
participate in the exchange offer, you may do
so through the automated tender offer program
of The Depository Trust Company. If you tender
under this program you will agree to be bound
by the letter of transmittal that we are
providing with this prospectus as though you
had signed the letter of transmittal.
If a broker, dealer, commercial bank, trust
company or other nominee is the registered
holder of your Series A notes, we urge you to
contact that person promptly to tender your
Series A notes in the exchange offer.
For more information on tendering your Series A
notes, please refer to the sections in this
prospectus entitled "Exchange Offer -- Terms of
the Exchange Offer," "-- Procedures for
Tendering" and "-- Book-Entry Transfer."
GUARANTEED DELIVERY
PROCEDURES.................... If you wish to tender your Series A notes but
are unable to deliver the required documents to
the exchange agent on time, you may tender your
Series A notes according to the guaranteed
delivery
4
procedures described in "Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL OF TENDERS......... You may withdraw your tender of Series A notes
at any time before the expiration date. To
withdraw your notes, you must deliver to the
exchange agent at its address indicated on the
cover page of the letter of transmittal, and
the exchange agent must receive, a written or
facsimile transmission notice of withdrawal
before 5:00 p.m. New York City time on the
expiration date of the exchange offer.
ACCEPTANCE AND DELIVERY....... If you fulfill all conditions required for
proper acceptance of Series A notes, we will
accept all Series A notes that you properly
tender in the exchange offer on or before 5:00
p.m. New York City time on the expiration date.
We will return to you without expense any
Series A note that we do not accept for
exchange as promptly as practicable after the
expiration date. We will deliver the Series B
notes as promptly as practicable after the
expiration date and acceptance of the Series A
notes for exchange.
FEES AND EXPENSES............. We will bear all expenses related to the
exchange offer.
USE OF PROCEEDS............... We will not receive any additional proceeds for
the issuance of the Series B notes. We are
making this exchange offer solely to satisfy
our obligations under a registration rights
agreement.
FAILURE TO EXCHANGE........... If you do not exchange your Series A notes in
this exchange offer, you will no longer be able
to require us to register the Series A notes
under the Securities Act of 1933 except in
limited circumstances provided under the
registration rights agreement. In addition, you
will not be able to resell, offer to resell or
otherwise transfer the Series A notes unless we
have registered the Series A notes under the
Securities Act of 1933, or unless you resell,
offer to resell or otherwise transfer them
under an exemption from the registration
requirements of or in a transaction not subject
to the Securities Act of 1933.
TAX CONSIDERATIONS............ The exchange of Series B notes for Series A
notes in the exchange offer should not be a
taxable event for U.S. federal income tax
purposes.
EXCHANGE AGENT................ We have appointed Wells Fargo Bank Minnesota,
National Association as exchange agent for the
exchange offer. You should direct questions and
requests for assistance, additional copies of
this prospectus, the letter of transmittal or
the notice of guaranteed delivery to the
exchange agent addressed as follows: 213 Court
Street, Suite 902, Middletown, CT 06457,
Attention: Robert Reynolds, Vice President.
Eligible institutions may make requests by
facsimile at (860) 704-6219.
5
SUMMARY OF THE TERMS OF THE SERIES B NOTES
The Series B notes will be substantially identical to the Series A notes
except that the Series B notes are registered under the Securities Act of 1933,
and will not have restrictions on transfer, registration rights or provisions
for liquidated damages. The Series B notes will evidence the same debt as the
Series A notes, and the same indenture will govern the Series B notes and the
Series A notes.
The following summary contains basic information about the Series B notes
and is not intended to be complete. For a more complete understanding of the
Series B notes, please refer to the section of this prospectus entitled
"Description of the Series B Notes."
SECURITIES OFFERED............ $175 million aggregate principal amount of
10 5/8% Series B Senior Notes due 2008.
MATURITY...................... August 1, 2008.
INTEREST PAYMENT DATES........ We will pay interest on the Series B notes
semi-annually in arrears on February 1 and
August 1 of each year, commencing February 1,
2002.
GUARANTEES.................... All of our subsidiaries fully and
unconditionally guarantee the Series B notes.
RANKING....................... The Series B notes will be senior unsecured
obligations, ranking equally in right of
payment with all of our existing and future
senior indebtedness and senior in right of
payment to any subordinated indebtedness
incurred by us in the future. The indenture
pursuant to which the Series B notes will be
issued permits us and our subsidiaries to incur
additional indebtedness, if we meet the
financial ratios and tests described in the
indenture. We have described these ratios and
tests under the heading "Description of the
Series B Notes" in this prospectus. The Series
B notes and subsidiary guarantees will be
effectively subordinated to secured
indebtedness we and our subsidiaries, acting as
guarantors of the Series B notes, may incur,
including any indebtedness under our proposed
new revolving credit facility, to the extent of
the fair value of our assets and those of our
subsidiaries collateralizing such indebtedness.
We currently have no indebtedness outstanding
effectively senior to the Series B notes or the
subsidiary guarantees.
OPTIONAL REDEMPTION........... We may, at our option, redeem all or a part of
the Series B notes at any time on or after
August 1, 2005 at the redemption prices
described in this prospectus. In addition, we
may, at our option, redeem up to 35% of the
principal amount of the Series B notes before
August 1, 2004 using the proceeds of certain
equity offerings. At any time before August 1,
2005, we may also redeem all or a part of the
Series B notes at a redemption price equal to
100% of the principal amount of the Series B
notes plus the applicable premium described in
this prospectus.
CHANGE OF CONTROL............. If we experience a change of control, any
noteholder may require us to repurchase all or
a part of its Series B notes for cash at 101%
of the principal amount of the Series B notes.
6
COVENANTS..................... The indenture for the Series B notes contains
covenants that, among other things, limit our
ability and that of certain of our subsidiaries
to:
- incur additional indebtedness,
- pay dividends or make other distributions,
- purchase equity interests or redeem
subordinated indebtedness early,
- create liens on our assets to secure debt,
- enter into transactions with affiliates,
- issue or sell capital stock of our
subsidiaries,
- engage in sale-and-leaseback transactions and
- sell assets or merge or consolidate with
another company.
All of these limitations are subject to a
number of important qualifications. A more
complete description of these covenants may be
found under the heading "Description of the
Series B Notes."
ORIGINAL ISSUE DISCOUNT....... The outstanding Series A notes were issued
subject to an original issue discount and the
Series B notes will continue to be subject to
an original issue discount for federal income
tax purposes. You should be aware that accrued
original issue discount will be included
periodically in your gross income for federal
income tax purposes. Please see "United States
Federal Income Tax Consequences."
NO EXISTING PUBLIC MARKET..... The Series B notes will be freely transferable
under U.S. federal securities laws, but there
is currently no public market for our
securities, including the notes. We can provide
no assurance that any market for the Series B
notes will develop or if a market does develop
that it will offer any significant opportunity
of liquidity.
RISK FACTORS
See "Risk Factors" beginning on page 11 for a discussion of certain factors
you should consider before participating in the exchange offer.
7
HORNBECK-LEEVAC MARINE SERVICES, INC.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT RATIOS AND VESSEL DATA)
The following table presents summary financial information regarding our
company, which should be read in conjunction with, and is qualified in its
entirety by reference to, our historical consolidated financial statements and
notes to those statements, our pro forma condensed consolidated financial
statements, as adjusted, and notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
The summary pro forma condensed consolidated financial information gives
effect to the acquisition of tugs and tank barges from the Spentonbush/Red Star
Group, the application of the net proceeds from the private placement of the
Series A notes as described in "Prospectus Summary -- The Private Placement and
Use of Proceeds," and the application of the net proceeds from the private
placement of the 5,509 shares of common stock described in "Prospectus
Summary -- Our Company -- Recent Developments." The pro forma statements of
operations data are presented as if the Spentonbush/Red Star Group acquisition
and the private placement of the Series A notes had occurred on January 1, 2000.
In addition, the pro forma statements of operations data include certain
acquisition and offering adjustments, among others, to reflect:
- increased revenues related to the new rate structure under our contract
of affreightment with Amerada Hess;
- reduced operating expenses related to the capitalization of drydocking
expenditures, previously classified as operating expenses by Amerada
Hess, to conform with our accounting policy of generally amortizing these
capitalized expenditures over a 30 or 60 month period; and
- increased interest expense related to the issuance of the Series A notes
and increased depreciation expense associated with the tugs and tank
barges acquired from the Spentonbush/Red Star Group at the allocated
purchase price based on the fair value of the acquired vessels.
The pro forma balance sheet data are presented as if the private placement of
the 5,236 shares of common stock issued in October 2001 in the private placement
and the application of the net proceeds therefrom had occurred on September 30,
2001.
The pro forma financial information does not give effect to any
contribution from the HOS Innovator, delivered in April 2001, the BJ Blue Ray,
delivered in November 2001, the anticipated delivery of four additional offshore
supply vessels or the acquisition of the M/V W.K. McWilliams, Jr., except for
the five months of actual operations of the HOS Innovator that is included only
in the nine months ended September 30, 2001. The four additional offshore supply
vessels are scheduled to be delivered as follows: one, the HOS Dominator, in
February 2002, one in April 2002, one in June 2002 and one in July 2002. The HOS
Innovator, the BJ Blue Ray and the HOS Dominator, to be delivered in February
2002, are contracted for three, five and three years, respectively. We believe,
based on current market supply and demand conditions, that the other three
vessels will be fully utilized. In addition, based on current dayrates for
comparable vessels and current customer inquiries, we believe dayrates in the
range of $12,500 to $15,000 or more would be achieved for each of these vessels
and that long-term contracts at such rates would be available. We are currently
bidding contracts at rates exceeding this range, particularly contracts for
specialty service applications.
8
<Table>
<Caption>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
------------------- ----------- ------------------------- -----------
1999 2000 2000 2000 2001 2001
-------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue............................ $ 25,723 $ 36,102 $ 78,198 $ 26,132 $ 47,116 $ 67,623
Operating expenses................. 17,275 20,410 48,693 15,383 21,661 34,816
General and administrative
expenses......................... 2,467 3,355 7,884 2,330 6,228 7,913
Operating income................... 5,981 12,337 21,621 8,419 19,227 24,894
Interest income.................... 170 305 305 223 1,099 1,099
Interest expense................... 5,262 8,216 20,279 6,365 6,737 15,185
Other income (expense)(1).......... (20) (138) (134) (139) -- 2
Income before income taxes and
extraordinary item............... 869 4,288 1,513 2,138 13,589 10,810
Extraordinary item, net of taxes of
$1,150(2)........................ -- -- -- -- 1,877 1,877
Income tax expense................. (341) (1,550) (534) (811) (5,164) (4,037)
Net income......................... 528(3) 2,738 979 1,327 6,548 4,896
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.......... $ 6,144 $ 32,988 N/A $ 4,677 $ 58,711 $ 58,711
Property, plant and equipment,
net.............................. 85,700 98,935 N/A 88,376 168,932 168,932
Total assets....................... 103,486 147,148 N/A 107,070 250,155 249,430
Total debt......................... 83,954 89,391 N/A 85,271 172,589(4) 172,589(4)
Total stockholders' equity(5)...... 13,480 49,745 N/A 14,807 57,153 56,428
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities(6).................... $ 1,559 $ 4,203 N/A $ 2,808 $ 16,125 N/A
OTHER FINANCIAL DATA AND RATIOS
(UNAUDITED):
Ratio of earnings to fixed
charges(7)....................... N/A(8) 1.4x 1.1x 1.3x 2.2x 1.5x
EBITDA(9).......................... $ 9,875 $ 17,806 $ 31,343 $ 12,469 $ 25,526 $ 32,802
Cash interest...................... 4,495 7,145 18,594 4,823 5,577 18,852
Capital expenditures............... 42,293 16,224 16,224 5,827 74,389 74,389
Depreciation and amortization...... 3,724 5,164 9,417 3,827 5,200 6,811
Ratio of EBITDA to cash
interest(10)..................... 2.2x 2.5x 1.7x 2.6x 4.6x 1.7x
OTHER OPERATING DATA (UNAUDITED):
Offshore Supply Vessels:
Average number................... 4.1 6.8 6.8 6.7 7.6 7.6
Average utilization rate(11)..... 93.1% 93.4% 93.4% 91.4% 99.3% 99.3%
Average dayrate(12).............. $ 6,724 $ 8,435 $ 8,435 $ 8,183 $ 11,575 $ 10,575
Tugs and Tank Barges:
Average number of tank
barges(13)..................... 7.1 7.0 16.0 7.0 11.0 16.0
Average fleet capacity
(barrels)(13).................. 434,861 451,655 1,130,727 451,655 753,465 1,130,727
Average barge size
(barrels)(13).................. 61,464 64,522 70,670 64,522 67,254 70,670
Average utilization rate(11)..... 73.9% 71.4% 79.8% 67.6% 83.6% 86.9%
Average dayrate(14).............. $ 8,482 $ 8,982 $ 12,189 $ 9,507 $ 9,288 $ 11,200
</Table>
- ---------------
(1) Includes other operating income and expenses.
(2) A non-cash extraordinary loss of $1,877, net of taxes, was incurred during
the third quarter of 2001 resulting from the early extinguishment of debt.
This extraordinary item relates to the write off of
9
deferred financing costs upon the refinancing of all the Company's debt
through the issuance of the Series A notes.
(3)Excludes a net write off of $108 related to a cumulative effect of change in
accounting principles for start-up costs.
(4)Excludes original issue discount associated with the Series A notes in the
amount of $3,162.
(5)On October 25, 2001, we completed a private placement of $14,600 of our
common stock. We repurchased all of our outstanding warrants with $14,500 of
the proceeds.
(6)For more information regarding cash flows from operating activities and for
information regarding cash flows from investing activities and financing
activities, please refer to our Consolidated Statements of Cash Flows
beginning on page F-13.
(7) Calculated as earnings divided by fixed charges. For purposes of
calculating the ratio of earnings to fixed charges, earnings consists of
earnings before cumulative effect of change in accounting principle and
fixed charges consists of interest expense, including capitalized interest,
and a portion of rent considered to represent interest cost and
amortization of debt discount and issuance costs.
(8) Earnings were insufficient to cover fixed charges by $756 at December 31,
1999.
(9)EBITDA is earnings before interest expense, other income (expense),
provision for income taxes, depreciation and amortization. EBITDA is
presented as it is commonly used by certain investors to analyze and compare
operating performance and to determine a company's ability to service or
incur debt. EBITDA should not be considered in isolation or as a substitute
for net income, cash flow or other income or cash flow data or as a measure
of a company's profitability or liquidity and is not a measure calculated in
accordance with generally accepted accounting principles. EBITDA is not
necessarily comparable with similarly titled measures reported by other
companies.
(10)Calculated as EBITDA divided by cash interest. For purposes of calculating
the ratio of EBITDA to cash interest, EBITDA consists of the components
discussed in footnote (9) above.
(11) Utilization rates are average rates based on a 365-day year. Vessels are
considered utilized when they are generating revenues.
(12) Average dayrates represent average revenue per day, which includes charter
hire and brokerage revenue, based on the number of days during the period
that the offshore supply vessels generated revenue.
(13) Excludes from pro forma, as adjusted amounts, the effect of one tank barge
that was not purchased from the Spentonbush/Red Star Group.
(14) Average dayrates represent average revenue per day, including time
charters, revenues generated on a per-barrel-transported basis, demurrage,
shipdocking and fuel surcharge revenue, based on the number of days during
the period that the tank barges generated revenue.
10
RISK FACTORS
In considering whether to participate in the exchange offer, you should
carefully read and consider the risks described below, together with all of the
information we have included in this prospectus.
RISKS RELATING TO OUR BUSINESS
DEMAND FOR OUR SERVICES SUBSTANTIALLY DEPENDS ON THE LEVEL OF ACTIVITY IN
OFFSHORE OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION.
The level of offshore oil and gas exploration, development and production
activity has historically been volatile and is likely to continue to be so in
the future. The level of activity is subject to large fluctuations in response
to relatively minor changes in a variety of factors that are beyond our control,
including:
- prevailing oil and gas prices and expectations about future prices and
price volatility,
- the cost of exploring for, producing and delivering oil and gas offshore,
- worldwide demand for energy and other petroleum products,
- availability and rate of discovery of new oil and gas reserves in
offshore areas,
- local and international political and economic conditions and policies,
- technological advances affecting energy production and consumption,
- weather conditions,
- environmental regulation and
- the ability of oil and gas companies to generate or otherwise obtain
funds for capital.
We expect levels of oil and gas exploration, development and production activity
to continue to be volatile and affect the demand for our offshore supply
vessels.
Increases in oil and gas prices and higher levels of expenditure by oil and
gas companies for exploration, development and production may not result in
increased demand for our offshore supply vessels. Moreover, a prolonged material
downturn in oil and natural gas prices is likely to cause a substantial decline
in expenditures for exploration, development and production activity, and lower
levels of expenditure and activity result in a corresponding decline in the
demand for offshore supply vessels. The existing deepwater industry fleet is
functioning near maximum operational levels and offshore drilling activity has
increased over the last two years, in part based on new recovery methods and
deepwater drilling programs, but industry participants have also announced
construction of approximately twenty new vessels, including the four vessels we
have under construction. An increase in the capacity of the offshore supply
vessel industry, whether through new construction, refurbishment or conversion
of vessels from other uses, could not only lower charter rates, which would
adversely affect our revenues and profitability, but could also worsen any
impact of a downturn in oil and gas prices on our results of operations and
financial condition.
Our offshore supply vessel operations are currently conducted only in the
Gulf of Mexico and are therefore dependent on levels of activity in that region,
which may from time to time differ from levels of activity in other regions of
the world. Although the recent decline in oil and natural gas prices has
resulted in less offshore drilling activity in the shallow water areas of the
Gulf of Mexico and, consequently, a decrease in the demand for offshore supply
vessel services and lower dayrates in that region, demand for offshore supply
vessels capable of operating in the deepwater Gulf of Mexico continues to be
strong and dayrates in that region remain steady.
THE CONSOLIDATION OR LOSS OF COMPANIES THAT CHARTER OUR OFFSHORE SUPPLY VESSELS
COULD ADVERSELY AFFECT DEMAND FOR OUR VESSELS AND REDUCE OUR REVENUES.
Oil and gas operators and drilling contractors have undergone substantial
consolidation in the last few years and additional consolidation is likely.
Consolidation results in fewer companies to charter our vessels.
11
Also, merger activity among both major and independent oil and gas companies
affects exploration, development and production activity as the consolidated
companies integrate operations to increase efficiency and reduce costs. Less
promising exploration and development projects of the combined company may be
dropped or delayed. Such activity may result in an exploration and development
budget for the combined company that is lower than the total budget of both
companies before consolidation, adversely affecting demand for our vessels and
reducing our revenues.
INTENSE COMPETITION IN THE OFFSHORE SUPPLY VESSEL INDUSTRY COULD RESULT IN
REDUCED PROFITABILITY AND LOSS OF MARKET SHARE FOR US.
Contracts for our vessels are generally awarded on a competitive basis, and
competition is intense. The most important factors determining whether a
contract will be awarded include:
- availability and capability of the vessels,
- ability to meet the customer's schedule,
- price,
- safety record,
- reputation and
- experience.
Many of our major competitors are diversified multinational companies. These
companies have substantially greater financial resources and substantially
larger operating staffs than we do. They may be better able to compete in making
vessels available more quickly and efficiently, meeting the customer's schedule
and withstanding the effect of declines in market prices. They may also be
better able to weather a downturn in the oil and gas industry. As a result, we
could lose customers and market share to these competitors.
FUTURE RESULTS OF OPERATIONS DEPEND UPON SUCCESSFUL COMPLETION OF THE VESSELS WE
CURRENTLY HAVE UNDER CONSTRUCTION AND UTILIZATION AT PROFITABLE LEVELS OF THESE
AND THE OTHER VESSELS IN OUR FLEET.
We currently have four new offshore supply vessels under construction. Our
vessel construction projects are subject to the risks of delay and cost overruns
inherent in any large construction project, including shortages of equipment,
unforeseen engineering problems, work stoppages, weather interference,
unanticipated cost increases, inability to obtain necessary certifications and
approvals and shortages of materials or skilled labor. Significant delays could
have a material adverse effect on anticipated contract commitments with respect
to vessels under construction, and significant cost overruns or delays could
adversely affect our financial condition and results of operations. Moreover,
customer demand for vessels currently under construction may not be as strong as
we presently anticipate, and our inability to obtain contracts on anticipated
terms or at all may have a material adverse effect on our expected financial
results. In addition, our vessels are typically chartered or hired to provide
services to a specified drilling rig. A delay in the availability of the
drilling rig to our customer may have an adverse impact on our utilization of
the contracted vessel and thus on our financial condition and results of
operations.
FUTURE GROWTH DEPENDS ON IDENTIFICATION, COMPLETION AND SUCCESSFUL INTEGRATION
OF ACQUISITIONS.
We recently completed the acquisition of the Spentonbush/Red Star Group
business, including the tug and tank barge fleet, and regularly consider
possible acquisitions of single vessels, vessel fleets and businesses that
complement our existing operations. Consummation of such acquisitions is
typically subject to the negotiation of definitive agreements and various other
conditions, some of which may be beyond our control. We can give no assurance
that we will be able to identify desirable acquisition candidates or that we
will be successful in entering into definitive agreements on terms we regard as
favorable or satisfactory. Moreover, even if we do enter into a definitive
acquisition agreement, the related acquisition may not thereafter be completed.
We may be unable to integrate any particular acquisition into our operations
successfully, including the recent acquisition of the Spentonbush/Red Star
Group, or realize the anticipated benefits of the
12
acquisition. The process of integrating acquired operations into our own may
result in unforeseen operating difficulties, may absorb significant management
attention and may require significant financial resources that would otherwise
be available for the ongoing development or expansion of our existing
operations. Future acquisitions could result in the incurrence of additional
indebtedness and liabilities, which could have a material adverse effect on our
financial condition and results of operations.
REVENUES FROM OUR TUG AND TANK BARGE SERVICES COULD BE ADVERSELY AFFECTED BY A
DECLINE IN DEMAND FOR DOMESTIC REFINED PETROLEUM PRODUCTS AND CRUDE OIL OR A
CHANGE IN EXISTING METHODS OF DELIVERY IN RESPONSE TO CERTAIN CONDITIONS THAT
MAY DEVELOP.
A reduction in domestic consumption of refined petroleum products or crude
oil may adversely affect the revenues of our tug and tank barge services and
therefore our financial condition and results of operation. Weather conditions
also affect demand for our tug and tank barge services. For example, a mild
winter may reduce demand for heating oil in the northeastern United States.
Moreover, alternative methods of delivery of refined petroleum products or crude
oil may develop as a result of insufficient availability of tug and tank barge
services, the cost of compliance with environmental regulations or increased
liabilities connected with the transportation of refined petroleum products and
crude oil.
CONSTRUCTION OF ADDITIONAL REFINED PETROLEUM PRODUCT PIPELINES WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR REVENUES.
Long-haul transportation of refined petroleum products and crude oil is
generally less costly by pipeline than by tank barge. Existing pipeline systems
are either insufficient to meet demand in or do not reach all of the markets
served by our tank barges. While we believe that high capital costs, tariff
regulation and environmental considerations discourage any building in the near
future of new pipelines or pipeline systems capable of carrying significant
amounts of refined petroleum products or crude oil, new pipeline segments may be
built or existing pipelines converted to carry such products. Such activity
could have an adverse effect on our ability to compete in particular markets.
WE ARE SUBJECT TO COMPLEX LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL
REGULATIONS, THAT CAN ADVERSELY AFFECT THE COST, MANNER OR FEASIBILITY OF DOING
BUSINESS.
Increasingly stringent federal, state and local laws and regulations
governing worker health and safety and the manning, construction and operation
of vessels significantly affect our operations. Many aspects of the marine
industry are subject to extensive governmental regulation by the United States
Coast Guard, the National Transportation Safety Board and the United States
Customs Service and to regulation by private industry organizations such as the
American Bureau of Shipping. The Coast Guard and the National Transportation
Safety Board set safety standards and are authorized to investigate vessel
accidents and recommend improved safety standards. The Customs Service is
authorized to inspect vessels at will. Our operations are also subject to
federal, state, local and international laws and regulations that control the
discharge of pollutants into the environment or otherwise relate to
environmental protection. Compliance with such laws, regulations and standards
may require installation of costly equipment or operational changes. Failure to
comply with applicable laws and regulations may result in administrative and
civil penalties, criminal sanctions or the suspension or termination of our
operations. Some environmental laws impose strict liability for remediation of
spills and releases of oil and hazardous substances, which could subject us to
liability without regard to whether we were negligent or at fault. These laws
and regulations may expose us to liability for the conduct of or conditions
caused by others, including charterers. Moreover, these laws and regulations
could change in ways that substantially increase our costs. We cannot be certain
that existing laws, regulations or standards, as currently interpreted or
reinterpreted in the future, or future laws, regulations and standards will not
harm our business, results of operations and financial condition. For more
information, see "Business -- Environmental and Other Governmental Regulation."
We are also subject to the Merchant Marine Act, 1936, which provides that,
upon proclamation by the President of a national emergency or a threat to the
security of the national defense, the Secretary of Transportation may
requisition or purchase any vessel or other watercraft owned by United States
citizens
13
(which includes United States corporations), including vessels under
construction in the United States. If one of our offshore supply vessels, tugs
or tank barges were purchased or requisitioned by the federal government under
this law, we would be entitled to be paid the fair market value of the vessel in
the case of a purchase or, in the case of a requisition, the fair market value
of charter hire. However, if one of our tugs is requisitioned or purchased and
its associated tank barge is left idle, we would not be entitled to receive any
compensation for the lost revenues resulting from the idled barge. We would also
not be entitled to be compensated for any consequential damages we suffer as a
result of the requisition or purchase of any of our offshore supply vessels,
tugs or tank barges. We cannot be certain that the purchase or the requisition
for an extended period of time of one or more of our offshore supply vessels,
tugs or tank barges would not harm our business, results of operations and
financial condition.
Finally, we are subject to the Merchant Marine Act of 1920, commonly
referred to as the Jones Act. The Jones Act requires that vessels used to carry
cargo between U.S. ports be owned and operated by U.S. citizens. To ensure that
we are determined to be a U.S. citizen as defined under these laws, our
certificate of incorporation contains certain restrictions on the ownership of
our capital stock by foreigners and establishes certain mechanisms to maintain
compliance with these laws. If we are determined at any time not to be in
compliance with these citizenship requirements, our vessels would become
ineligible to engage in the coastwise trade in U.S. domestic waters, and our
business and operating results would be adversely affected.
OUR BUSINESS INVOLVES MANY OPERATING RISKS THAT MAY DISRUPT OUR BUSINESS OR
OTHERWISE RESULT IN SUBSTANTIAL LOSSES, AND INSURANCE MAY BE UNAVAILABLE OR
INADEQUATE TO PROTECT US AGAINST THESE RISKS.
Tugs, tank barges and offshore supply vessels are subject to operating
risks such as catastrophic marine disaster, adverse weather and sea conditions,
mechanical failure, collisions, oil and hazardous substance spills, navigation
errors and acts of God, war and terrorism. The occurrence of any of these events
may result in damage to or loss of our vessels and their tow or cargo or other
property and injury to passengers and personnel. If any of these events were to
occur, we could be exposed to liability for resulting damages. Affected vessels
may also be removed from service and thus be unavailable for income-generating
activity. We maintain insurance coverage at levels and against risks we believe
are customary in the industry, but we may be unable to renew such coverage in
the future at commercially reasonable rates. Moreover, existing or future
coverage may not be adequate to cover claims that may arise.
THE LOSS OF OUR CONTRACT OF AFFREIGHTMENT WITH AMERADA HESS CORPORATION OR THE
EARLY TERMINATION OF ANY CONTRACTS ON OUR OFFSHORE SUPPLY VESSELS COULD HAVE AN
ADVERSE EFFECT ON OUR OPERATIONS.
The revenues we derived from our long-term contract of affreightment with
Amerada Hess for June through September 2001, which was the first four months
that the contract was in effect, constituted more than 10% of our total revenues
for such period. Under the terms of the contract of affreightment, we are
required to meet certain performance criteria and, if we fail to meet such
criteria, Amerada Hess would be entitled to terminate the contract. We can
provide no assurance that we will be able to fulfill our performance obligations
under the contract of affreightment, and a decision by Amerada Hess to terminate
the contract of affreightment could adversely affect our financial condition and
results of operations. Our contract of affreightment provides for minimum annual
cargo volume to be transported and allows Amerada Hess to reduce its minimum
commitment, subject to a significant adjustment penalty. Certain of the
contracts for our offshore supply vessels contain early termination options in
favor of the customer, some with substantial early termination penalties
designed to discourage the customers from exercising such options. We cannot
assure that our customers would not choose to exercise their termination rights
in spite of such penalties. Any such early termination could adversely affect
our financial condition and results of operations.
FUTURE RESULTS OF OPERATIONS DEPEND ON THE LONG-TERM FINANCIAL STABILITY OF OUR
CUSTOMERS.
Many of our offshore supply vessels are subject to long-term full
utilization contracts. We enter into such long-term contracts with our customers
based on a credit assessment at the time of execution. Our financial condition
in any period may therefore depend on the long-term stability and
creditworthiness of our customers.
14
We can provide no assurance that our customers will fulfill their obligations
under our long-term contracts and the insolvency or other failure of a customer
to fulfill its obligations under a long-term contract could adversely affect our
financial condition and results of operations.
WE HAVE HIGH LEVELS OF FIXED COSTS THAT WILL BE INCURRED REGARDLESS OF OUR LEVEL
OF BUSINESS ACTIVITY.
Our business has high fixed costs, and downtime or low productivity due to
reduced demand, weather interruptions or other causes can have a significant
negative effect on our operating results.
WE DEPEND ON ATTRACTING AND RETAINING QUALIFIED, SKILLED EMPLOYEES TO OPERATE
OUR BUSINESS AND PROTECT OUR BUSINESS KNOW-HOW.
Our results of operations depend in part upon our business know-how. We
believe that protection of our know-how depends in large part on our ability to
attract and retain highly skilled and qualified personnel. Any inability we
experience in the future to hire, train and retain a sufficient number of
qualified employees could impair our ability to manage and maintain our business
and to protect our know-how.
We require skilled employees who can perform physically demanding work. As
a result of the volatility of the oil and gas industry and the demanding nature
of the work, potential employees may choose to pursue employment in fields that
offer a more desirable work environment at wage rates that are competitive with
ours. With a reduced pool of workers, it is possible that we will have to raise
wage rates to attract workers from other fields and to retain our current
employees. If we are not able to increase our service rates to our customers to
compensate for wage-rate increases, our operating results may be adversely
affected.
OUR EMPLOYEES ARE COVERED BY FEDERAL LAWS THAT MAY SUBJECT US TO JOB-RELATED
CLAIMS IN ADDITION TO THOSE PROVIDED BY STATE LAWS.
Some of our employees are covered by provisions of the Jones Act, the Death
on the High Seas Act and general maritime law. These laws typically operate to
make liability limits established by state workers' compensation laws
inapplicable to these employees and to permit these employees and their
representatives to pursue actions against employers for job-related injuries in
federal courts. Because we are not generally protected by the limits imposed by
state workers' compensation statutes, we may have greater exposure for any
claims made by these employees.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, THE LOSS OF WHOM COULD
DISRUPT OUR BUSINESS OPERATIONS.
We depend to a large extent on the business know-how, efforts and continued
employment of our executive officers and key management personnel. The loss of
services of one or more of our executive officers or key management personnel
could have a negative impact on our operations.
RISKS RELATING TO THE EXCHANGE OFFER AND THE SERIES B NOTES
IF YOU DO NOT PROPERLY TENDER YOUR SERIES A NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED SECURITIES SUBJECT TO SIGNIFICANT RESTRICTIONS ON TRANSFER.
We will only issue Series B notes in exchange for Series A notes that you
timely and properly tender. Therefore, you should allow sufficient time to
ensure timely delivery of the Series A notes and you should carefully follow the
instructions on how to tender your Series A notes. Neither we nor the exchange
agent is required to tell you of any defects or irregularities with respect to
your tender of Series A notes.
If you do not exchange your Series A notes for Series B notes pursuant to
the exchange offer, the Series A notes you hold will continue to be subject to
the existing transfer restrictions. In general, you may not offer or sell the
Series A notes except under an exemption from, or in a transaction not subject
to, the Securities Act of 1933 and applicable state securities laws. We do not
plan to register Series A notes under the Securities Act of 1933 unless our
registration rights agreement with the initial purchasers of the Series A notes
15
requires us to do so. Further, if you continue to hold any Series A notes after
the exchange offer is consummated, you may have difficulty selling them because
there will be fewer Series A notes outstanding.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE SERIES B NOTES, YOU MAY BE
UNABLE TO SELL THE SERIES B NOTES OR TO SELL THE SERIES B NOTES AT A PRICE
SATISFACTORY TO YOU.
The Series B notes will be new securities for which there currently is no
established trading market. Although we are registering the Series B notes under
the Securities Act of 1933, we do not intend to apply for listing of the Series
B notes on any securities exchange or for quotation of the Series B notes in any
automated dealer quotation system. In addition, although the initial purchasers
of the Series A notes have informed us that they intend to make a market in the
Series B notes after the exchange offer, the initial purchasers may stop making
a market at any time. Finally, if a large number of holders of Series A notes do
not tender Series A notes or tender Series A notes improperly, the limited
amount of Series B notes that would be issued and outstanding after we
consummate the exchange offer could adversely affect the development of a market
for these Series B notes.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE SERIES B NOTES WILL BE EFFECTIVELY JUNIOR
TO OUR FUTURE INDEBTEDNESS TO THE EXTENT OF THE VALUE OF ANY ASSETS
COLLATERALIZING SUCH INDEBTEDNESS.
The Series B notes will effectively rank behind any secured indebtedness we
may incur, to the extent of the fair value of the assets which collateralize
such indebtedness, including our proposed new senior secured revolving credit
facility described under the heading "Description of Certain Indebtedness" in
this prospectus. Upon any distribution to our creditors or the creditors of our
subsidiaries in a bankruptcy, liquidation or reorganization or similar
proceeding relating to us, our subsidiaries or our respective property, the
holders of our secured debt will be entitled to be paid in cash, to the extent
of the fair value of the assets collateralizing such debt, before any payment
may be made with respect to the notes.
If we, our subsidiaries or our respective properties undergo a bankruptcy,
liquidation or reorganization or similar proceeding, holders of the notes will
participate with our trade creditors and all other holders of our senior
unsecured indebtedness in the assets remaining. In any of these events, we may
not have sufficient funds to pay all of our creditors, and holders of the notes
may receive less, ratably, than the holders of secured debt.
WE AND OUR SUBSIDIARIES ARE NOT FULLY PROHIBITED FROM INCURRING SUBSTANTIALLY
MORE DEBT, AND SUCH DEBT WILL BE EFFECTIVELY SENIOR TO THE SERIES B NOTES TO THE
EXTENT IT IS COLLATERALIZED BY OUR ASSETS.
The terms of the indenture governing the Series B notes do not fully
prohibit us or our subsidiaries from incurring substantial additional secured or
unsecured indebtedness in the future. We used a substantial portion of the
proceeds we received from the private placement of the Series A notes to repay
all our outstanding indebtedness under then existing credit facilities. We have
received and are evaluating a commitment letter for a senior secured revolving
credit facility that initially will provide for available borrowings of up to
$25 million. All or substantially all of our future borrowings under this
facility will be effectively senior to the Series B notes to the extent of the
fair value of the assets collateralizing any such borrowings. If we add new debt
to our and our subsidiaries' current debt levels, the related risks that we and
they now face could intensify.
WE ARE A HOLDING COMPANY AND WILL RELY ON OUR SUBSIDIARIES FOR FUNDS NECESSARY
TO MEET OUR FINANCIAL OBLIGATIONS, INCLUDING THE SERIES B NOTES.
We conduct all of our activities through our subsidiaries. We will depend
on those subsidiaries for dividends and other payments to generate the funds
necessary to meet our financial obligations, including the payment of principal
and interest on the notes. We cannot assure you that the earnings from, or other
available assets of, these operating subsidiaries will be sufficient to enable
us to pay principal or interest on the Series B notes when due.
16
OUR EARNINGS MAY NOT BE SUFFICIENT TO COVER OUR FIXED CHARGES.
Our earnings for the year ended December 31, 1999 were insufficient to
cover our fixed charges. Our ability to meet our debt service obligations,
including interest payments on the Series B notes, and other fixed charges will
depend on our future performance. We believe that, based on current levels of
operations and anticipated growth, our earnings will be sufficient to cover our
debt service obligations and other fixed charges, but our actual earnings will
be subject to economic conditions and to financial, business and other factors
affecting our operations, many of which are beyond our control. If we are unable
to generate earnings sufficient to service our debt and other fixed charges, we
may have to refinance all or a portion of our existing debt, including the
Series B notes, or to obtain additional financing. Such refinancing may not be
possible or we may not be able to obtain additional financing on terms
satisfactory to us.
ALTHOUGH THE OCCURRENCE OF SPECIFIC CHANGE OF CONTROL EVENTS AFFECTING US WILL
PERMIT YOU TO REQUIRE US TO REPURCHASE YOUR SERIES B NOTES, WE MAY NOT BE ABLE
TO REPURCHASE YOUR SERIES B NOTES.
Upon the occurrence of specific change of control events affecting us, you
will have the right to require us to repurchase your Series B notes at 101% of
their principal amount, plus accrued and unpaid interest and liquidated damages,
if any. Our ability to repurchase your Series B notes upon such a change of
control event would be limited by our access to funds at the time of the
repurchase and the terms of our debt agreements. Upon a change of control event,
we may be required immediately to repay the outstanding principal, any accrued
interest on and any other amounts owed by us under any credit facilities we may
have at the time of such event. The source of funds for these repayments would
be our available cash or cash generated from other sources. We cannot assure you
that we will have sufficient funds available upon a change of control to make
any required repurchases of tendered Series B notes.
A COURT MAY AVOID OR SUBORDINATE A GUARANTEE OF THE SERIES B NOTES BY OUR
SUBSIDIARIES TO THE EXTENT THE GUARANTEE IS DETERMINED TO BE A FRAUDULENT
CONVEYANCE.
Our obligations under the Series B notes will be fully and unconditionally
guaranteed on a general unsecured basis by our subsidiaries. Various fraudulent
conveyance laws have been enacted for the protection of creditors and may be
used by a court to subordinate or avoid any guarantee issued by one or all of
our subsidiaries. It is also possible that under certain circumstances a court
could hold that the direct obligations of a subsidiary would be superior to the
obligations under its guarantee of the Series B notes. Generally, if a court
determines that
- any of our subsidiaries guaranteed our obligations with the intent of
hindering, delaying or otherwise defrauding a creditor or did not receive
fair consideration or a reasonably equivalent value for issuing the
guarantee and
- the subsidiary was insolvent or engaged or about to engage in activity
that could render it insolvent,
the court may avoid or subordinate the guarantee in favor of the subsidiary's
other obligations. A subsidiary may be considered insolvent if the sum of its
debts is greater than its assets, at a fair valuation, or the present fair
salable value of its assets is less than the amount required to pay the probable
liability on its aggregate existing debts and liabilities as they become
absolute and matured. We can give no assurance regarding the standards a court
would use to determine whether a subsidiary was solvent at the relevant time or
whether a guarantee would be otherwise avoided or subordinated. If a subsidiary
guarantee is avoided as a fraudulent conveyance or held unenforceable for any
other reason, a holder of notes would not have any claim against the subsidiary,
but would be a creditor solely of the company.
YOU WILL BE REQUIRED TO INCLUDE ORIGINAL ISSUE DISCOUNT IN ORDINARY INCOME FOR
FEDERAL INCOME TAX PURPOSES.
The Series A notes were issued subject to original issue discount and the
Series B notes will continue to be subject to original issue discount. You will
be required to include original issue discount in ordinary income for federal
income tax purposes as it accrues before you receive cash payments representing
such income, regardless of your method of accounting. If a bankruptcy case is
commenced by or against us after the
17
issuance of the Series B notes, the claim of a holder of the Series B notes may
be limited to an amount equal to the sum of:
- the initial offering price allocable to the Series B notes; plus
- stated interest and original issue discount that has accrued on the
Series B notes as of the date of any bankruptcy filing; less
- any payments made on the Series B notes before the bankruptcy filing.
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EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the Series A notes, we entered into a
registration rights agreement. Under the registration rights agreement, we
agreed to:
- file within 60 days after the original issuance of the Series A notes a
registration statement with the Securities and Exchange Commission with
respect to a registered offer to exchange each Series A note for a Series
B note having terms substantially identical to the Series A notes except
that the Series B notes will not be subject to transfer restrictions;
- use our best efforts to cause the registration statement to be declared
effective under the Securities Act of 1933 within 150 days after the
original issuance of the Series A notes;
- offer the Series B notes in exchange for surrender of the Series A notes,
promptly following the effectiveness of the registration statement; and
- keep the exchange offer open for not less than 20 business days (or
longer if required by applicable law) after the date notice of the
exchange offer is mailed to the holders of the Series A notes.
We have fulfilled the agreements described in the first two of the
preceding bullet points and are offering eligible holders of the Series A notes
the opportunity to exchange their Series A notes for Series B notes registered
under the Securities Act of 1933. Holders are eligible if they are not
prohibited by any law or policy of the Securities and Exchange Commission from
participating in this exchange offer. The Series B notes will be substantially
identical to the Series A notes, except that the Series B notes will not contain
terms with respect to transfer restrictions, registration rights or liquidated
damages.
We have agreed in certain circumstances to use our best efforts to cause
the Securities and Exchange Commission to declare effective a shelf registration
statement for the resale of outstanding notes. We also agreed to use our best
efforts to keep the shelf registration statement effective for up to two years
after its effective date. We are required to do so if:
- applicable interpretations of the staff of the Commission do not permit
us to effect the exchange offer or
- certain holders are prohibited by law or Commission policy from
participating in the exchange offer or may not resell the Series B notes
acquired by them in the exchange offer to the public without delivering a
prospectus and this prospectus is not available for such resales.
We have also agreed, with certain exceptions, to pay liquidated damages to
holders of Series A notes upon the occurrence of any of the following events:
- if the exchange offer is not consummated on or before the 180th day after
the original issuance of the Series A notes;
- if we fail to file a shelf registration statement with the Commission on
or prior to the 60th day after the date on which the obligation to file a
shelf registration statement arises;
- if a required shelf registration statement is not declared effective on
or before the 150th day after we have filed the shelf registration
statement; or
- if this registration statement or the shelf registration statement after
it is declared effective, subsequently ceases to be effective or usable,
with certain exceptions.
Each of the events described above is a "registration default" and we must pay
liquidated damages from the occurrence of a registration default until all then
existing registration defaults have been cured.
Liquidated damages are assessed at $.10 per week per $1,000 principal
amount of Series A notes for the first 90-day period immediately following the
occurrence of a registration default and increase by an additional $.10 per week
per $1,000 principal amount of Series A notes with respect to each subsequent
90-day period
19
until all registration defaults have been cured, up to a maximum amount of
liquidated damages of $.40 per week per $1,000 principal amount of Series A
notes. We are required to pay such liquidated damages on regular interest
payment dates. Such liquidated damages are in addition to any other interest
payable from time to time with respect to the Series A notes and the Series B
notes.
Upon the effectiveness of this registration statement, the consummation of
the exchange offer, the effectiveness of a shelf registration statement or the
effectiveness of a succeeding registration statement, as the case may be, the
accrual of liquidated damages will cease.
To exchange your Series A notes for transferable Series B notes in the
exchange offer, you will be required to make the following representations:
- you will acquire any Series B notes in the ordinary course of your
business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the Series B notes;
- you are not engaged in and do not intend to engage in the distribution of
the Series B notes;
- if you are a broker-dealer that will receive Series B notes for your own
account in exchange for Series A notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such Series B notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities Act
of 1933.
In addition, if your outstanding notes will be included in a shelf
registration statement, we may require you to provide information to be used in
connection with the shelf registration statement to benefit from the provisions
regarding liquidated damages described in the preceding paragraphs. A holder who
sells Series A notes under the shelf registration statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers. Such a holder will also be subject to the
civil liability provisions under the Securities Act of 1933 in connection with
such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a holder, including indemnification
obligations.
The description of the registration rights agreement contained in this
section is a summary only. For more information, you should review the
provisions of the registration rights agreement that we filed with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this prospectus is a part.
RESALE OF SERIES B NOTES
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, we believe that Series B notes may be
offered for resale, resold and otherwise transferred by you without further
compliance with the registration and prospectus delivery provisions of the
Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- you acquire such Series B notes in the ordinary course of your business;
and
- you do not intend to participate in a distribution of the Series B notes.
Because, however, we have not obtained a no-action letter in connection
with the exchange offer for the Series B notes, we cannot assure you that the
Commission would make a similar determination with respect to this exchange
offer.
20
If you tender your Series A notes in the exchange offer with the intention
of participating in any manner in a distribution of the Series B notes, you
- cannot rely on such interpretations by the Commission staff; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with a secondary resale
transaction.
Unless an exemption from registration is otherwise available, any
distribution of Series B notes should be covered by an effective registration
statement under the Securities Act. This registration statement should contain
the selling security holder's information required by Item 507 of Regulation S-K
under the Securities Act. This prospectus may be used for an offer to resell,
resale or other retransfer of Series B notes only as specifically described in
this prospectus. Only broker-dealers that acquired the Series A notes as a
result of market-making activities or other trading activities may participate
in the exchange offer. Each broker-dealer that receives Series B notes for its
own account in exchange for Series A notes, where such Series A notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge in the letter of transmittal that it will
deliver a prospectus in connection with any resale of the Series B notes. Please
read the section captioned "Plan of Distribution" for more details regarding the
transfer of Series B notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any Series A notes properly
tendered and not withdrawn before 5:00 p.m. New York City time on the expiration
date. We will issue Series B notes in principal amount equal to the principal
amount of Series A notes surrendered under the exchange offer. Series A notes
may be tendered only for Series B notes and only in integral multiples of
$1,000. The exchange offer is not otherwise conditioned upon any minimum
aggregate principal amount of Series A notes being tendered for exchange.
As of the date of this prospectus, $175 million in aggregate principal
amount of the Series A notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of Series A notes. There
will be no fixed record date for determining registered holders of Series A
notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission. Series A notes that you
do not tender for exchange in the exchange offer will remain outstanding and
continue to accrue interest. These Series A notes will be entitled to the rights
and benefits such holders have under the indenture relating to the notes and
certain provisions of the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered Series A
notes when we have given oral or written notice of the acceptance to the
exchange agent and complied with the applicable provisions of the registration
rights agreement. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the Series B notes from us.
If you tender Series A notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the letter of
transmittal, transfer taxes with respect to the exchange of Series A notes. We
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the exchange offer. It is important that you read the
section labeled "-- Fees and Expenses" for more details regarding fees and
expenses incurred in the exchange offer.
We will return any Series A notes that we do not accept for exchange for
any reason without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
21
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m. New York City time on
, 2001, unless, in our sole discretion, we extend it. No extension
will continue beyond January 18, 2002.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open to a date no later than
January 18, 2002. We may delay acceptance of any Series A notes by giving oral
or written notice of such extension to their holders. During any such
extensions, all Series A notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange.
If we extend the exchange offer, we will notify the exchange agent orally
or in writing of any extension. We will notify the registered holders of Series
A notes of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right
- to delay accepting for exchange any Series A notes,
- to extend the exchange offer or
- to terminate the exchange offer
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of Series A notes. If we amend the exchange offer in a manner that we
determine material, we will promptly disclose such amendment by means of a
prospectus supplement. The supplement will be distributed to the registered
holders of the Series A notes. Depending upon the significance of the amendment
and the manner of disclosure to the registered holders, we will extend the
exchange offer if the exchange offer would otherwise expire during such period.
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange or to exchange any Series B
notes for any Series A notes if the exchange offer, or participation in the
exchange offer by a holder of Series A notes, would violate applicable law or
any applicable interpretations of the staff of the Securities and Exchange
Commission. In addition, we may terminate the exchange offer as provided in this
prospectus before accepting Series A notes for exchange in the event of such a
potential violation.
We will not be obligated to accept for exchange the Series A notes of any
holder that has not made to us the representations described under "-- Purpose
and Effect of the Exchange Offer," "-- Procedures for Tendering" and "Plan of
Distribution" and such other representations as may be reasonably necessary
under applicable Commission rules, regulations or interpretations to allow us to
use an appropriate form to register the Series B notes under the Securities Act
of 1933.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any Series A notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Series A notes as
promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion.
If we fail at any time to exercise any of these rights, this failure
22
will not mean that we have waived our rights. Each such right will be deemed an
ongoing right that we may assert at any time or at various times.
In addition, we will not accept for exchange any Series A notes tendered,
and will not issue Series B notes in exchange for any such Series A notes, if at
such time any stop order has been threatened or is in effect with respect to the
registration statement, of which this prospectus constitutes a part, or the
qualification of the indenture relating to the notes under the Trust Indenture
Act of 1939.
PROCEDURES FOR TENDERING
HOW TO TENDER GENERALLY
Only a holder of Series A notes may tender such Series A notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires; and
- mail or deliver such letter of transmittal or facsimile to the exchange
agent before 5:00 p.m. New York City time on the expiration date; or
- comply with the automated tender offer program procedures of The
Depository Trust Company, or DTC, described below.
In addition, either:
- the exchange agent must receive Series A notes along with the letter of
transmittal;
- the exchange agent must receive, before 5:00 p.m. New York City time on
the expiration date, a timely confirmation of book-entry transfer of such
Series A notes into the exchange agent's account at DTC according to the
procedure for book-entry transfer described below or a properly
transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address indicated on the cover page of the letter of transmittal. The exchange
agent must receive such documents before 5:00 p.m. New York City time on the
expiration date.
The tender by a holder that is not withdrawn before 5:00 p.m. New York City
time on the expiration date will constitute an agreement between the holder and
us in accordance with the terms and subject to the conditions described in this
prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M. NEW YORK CITY TIME ON THE
EXPIRATION DATE. YOU SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR SERIES A NOTES
TO US. YOU MAY REQUEST YOUR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own Series A notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender those notes, you should contact the registered holder promptly and
instruct it to tender on your behalf. If you are a beneficial owner and wish to
tender on
23
your own behalf, you must, before completing and executing the letter of
transmittal and delivering your outstanding notes, either:
- make appropriate arrangements to register ownership of the Series A notes
in your name; or
- obtain a properly completed bond power from the registered holder of
Series A notes.
The transfer of registered ownership, if permitted under the indenture, may
take considerable time and may not be completed before the expiration date.
SIGNATURES AND SIGNATURE GUARANTEES
You must have signatures on a letter of transmittal or a notice of
withdrawal (as described below) guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. In
addition, such entity must be a member of one of the recognized signature
guarantee programs identified in the letter of transmittal. Signature guarantees
are not required, however, if the Series A notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal;
- for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an eligible guarantor institution.
WHEN YOU NEED ENDORSEMENTS OR BOND POWERS
If the letter of transmittal is signed by a person other than the
registered holder of a Series A note, the Series A note must be endorsed or
accompanied by a properly completed bond power. The bond power must be signed by
the registered holder as the registered holder's name appears on the Series A
notes. A member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an eligible
guarantor institution must guarantee the signature on the bond power.
If the letter of transmittal or any Series A notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the Series A notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent.
An "agent's message" is a message transmitted by DTC, received by the
exchange agent and forming part of the book-entry confirmation, to the effect
that:
- DTC has received an express acknowledgment from a participant in its
automated tender offer program tendering Series A notes that are the
subject of such book-entry confirmation;
24
- such participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against such participant.
WHEN WE WILL ISSUE SERIES B NOTES
In all cases, we will issue Series B notes in exchange for Series A notes
that we have accepted for exchange under the exchange offer only after the
exchange agent timely receives:
- Series A notes or a timely book-entry confirmation of transfer of such
Series A notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
RETURN OF SERIES A NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered Series A notes for exchange or if Series A
notes are submitted for a greater principal amount than the holder desires to
exchange, the unaccepted or non-exchanged Series A notes will be returned
without expense to their tendering holder. In the case of Series A notes
tendered by book-entry transfer in the exchange agent's account at DTC according
to the procedures described above, such non-exchanged Series A notes will be
credited to an account maintained with DTC. These actions will occur as promptly
as practicable after the expiration or termination of the exchange offer.
YOUR REPRESENTATIONS TO US
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- you will acquire any Series B notes that you receive in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the Series B notes;
- you are not engaged in and do not intend to engage in the distribution of
the Series B notes;
- if you are a broker-dealer that will receive Series B notes for your own
account in exchange for Series A notes, you acquired those Series A notes
as a result of market-making activities or other trading activities and
you will deliver a prospectus, as required by law, in connection with any
resale of such Series B notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the Series A
notes at DTC for purposes of the exchange offer promptly after the date of this
prospectus. Any financial institution participating in DTC's system may make
book-entry delivery of Series A notes by causing DTC to transfer such Series A
notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of Series A notes who are unable to deliver
confirmation of the book-entry tender of their Series A notes into the exchange
agent's account at DTC or all other documents required by the letter of
transmittal to the exchange agent on or before 5:00 p.m. New York City time on
the expiration date must tender their Series A notes according to the guaranteed
delivery procedures described below.
25
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your Series A notes but your Series A notes are not
immediately available or you cannot deliver your Series A notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's automated tender offer program before the
expiration date, you may tender if:
- the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or
correspondent in the United States or an eligible guarantor institution,
- before the expiration date, the exchange agent receives from such member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., commercial bank or trust company
having an office or correspondent in the United States or eligible
guarantor institution either a properly completed and duly executed
notice of guaranteed delivery by facsimile transmission, mail or hand
delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth your name and address, the registered number(s) of your
Series A notes and the principal amount of outstanding notes tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three (3) New York Stock Exchange ("NYSE")
trading days after the expiration date, the letter of transmittal or
facsimile thereof, together with the Series A notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution with
the exchange agent, and
- the exchange agent receives such properly completed and executed letter
of transmittal or facsimile thereof, as well as all tendered Series A
notes in proper form for transfer or a book-entry confirmation, and all
other documents required by the letter of transmittal, within three (3)
NYSE trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to you if you wish to tender your Series A notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time before 5:00 p.m. New York City time on the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at the
address indicated on the cover page of the letter of transmittal or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn, and
- identify the outstanding notes to be withdrawn, including the principal
amount of such Series A notes.
If Series A notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with withdrawn Series A notes and
otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any Series A notes so withdrawn not to have
been validly tendered for exchange for purposes of the exchange offer.
26
Any Series A notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder. Series A notes tendered by book-entry transfer into the exchange agent's
account at DTC according to the procedures described above will be credited to
an account maintained with DTC for the outstanding notes. This return or
crediting will take place as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. You may retender properly withdrawn
Series A notes by following one of the procedures described under "-- Procedures
for Tendering" above at any time on or before the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail. We may make additional solicitation by telegraph,
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
Series B notes for Series A notes under the exchange offer. The tendering
holder, however, will be required to pay any transfer taxes, whether imposed on
the registered holder or any other person, if:
- certificates representing Series A notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
Series A notes tendered;
- Series B notes issued for tendered Series A notes are registered in the
name of any person other than the person signing the letter of
transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
Series B notes for Series A notes under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a note
holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Series A notes for Series B notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the Series A notes. In general, you may offer or sell the Series A notes only
if they are registered under the Securities Act of 1933 or if the offer or sale
is exempt from the registration under the Securities Act of 1933 and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the Series A notes under the Securities
Act of 1933.
27
ACCOUNTING TREATMENT
We will record the Series B notes in our accounting records at the same
carrying value as the Series A notes. This carrying value is the aggregate
principal amount of the Series A notes less any applicable original issue
discount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered Series A notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any Series A notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered Series A notes.
28
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the Series B notes in the exchange offer. In consideration for
issuing the Series B notes as contemplated by this prospectus, we will receive
Series A notes in a like principal amount. The form and terms of the Series B
notes are identical in all respects to the form and terms of the Series A notes,
except the Series B notes do not include certain transfer restrictions or grant
any registration rights or liquidated damages. Series A notes surrendered in
exchange for the Series B notes will be retired and cancelled and will not be
reissued. Accordingly, the issuance of the Series B notes will not result in any
change in our outstanding indebtedness.
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of September 30, 2001:
- on a historical basis and
- as adjusted to reflect the completion of a private placement of $14.6
million of our common stock and a repurchase of all of our outstanding
warrants with $14.5 million of the proceeds.
The information in this table is unaudited. This table should be read in
conjunction with our historical consolidated financial statements and their
notes, the historical combined financial statements of the Spentonbush/Red Star
Group and their notes and the unaudited pro forma condensed consolidated
financial statements and their notes included in this prospectus.
<Table>
<Caption>
AS OF SEPTEMBER 30, 2001
------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 58,711 $ 58,711
======== ========
Current portion of long-term debt........................... $ 693 $ 693
Long-term debt, less current portion:
10 5/8% Series A Senior Notes due 2008 (net of original
issue discount)........................................ 171,896 171,896
-------- --------
Total long-term debt........................................ 172,589 172,589
Stockholders' equity........................................ 57,153 56,428
-------- --------
Total capitalization........................................ $229,742 $229,017
======== ========
</Table>
29
HORNBECK-LEEVAC MARINE SERVICES, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT RATIOS AND VESSEL DATA)
Our selected historical consolidated financial information as of and for
the periods ended December 31, 1997, 1998, 1999 and 2000, was derived from our
audited historical consolidated financial statements. Our selected historical
financial information as of and for the nine-month periods ended September 30,
2000 and 2001 was derived from our unaudited historical consolidated financial
statements. The data should be read in conjunction with and is qualified in its
entirety by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Capitalization" and our historical
consolidated financial statements and their notes included elsewhere in this
prospectus.
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- --------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ 6,656 $ 12,822 $ 25,723 $ 36,102 $ 26,132 $ 47,116
Operating expenses.................... 5,906 10,701 17,275 20,410 15,383 21,661
General and administrative expenses... 762 1,699 2,467 3,355 2,330 6,228
Operating income (loss)............... (12) 422 5,981 12,337 8,419 19,227
Interest income....................... 47 130 170 305 223 1,099
Interest expense...................... 324 1,155 5,262 8,216 6,365 6,737
Other income (expense)(1)............. 29 544 (20) (138) (139) --
Income (loss) before income taxes and
extraordinary item.................. (260) (59) 869 4,288 2,138 13,589
Extraordinary item, net of taxes of
$1,150(2)........................... -- -- -- -- -- 1,877
Income tax (expense) benefit.......... 80 156 (341) (1,550) (811) (5,164)
Net income (loss)..................... (180) 97 528(3) 2,738 1,327 6,548
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............. $ 4,621 $ 3,183 $ 6,144 $ 32,988 $ 4,677 $ 58,711
Working capital....................... 4,206 2,129 1,857 29,524 485 57,297
Property, plant and equipment, net.... 14,742 45,819 85,700 98,935 83,376 168,932
Total assets.......................... 25,461 58,216 103,486 147,148 107,070 250,155
Total debt............................ 9,500 34,621 83,954 89,391 85,271 172,589(4)
Stockholders' equity(5)............... 12,350 13,060 13,480 49,745 14,807 57,153
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities(6)....................... $ 950 $ 3,593 $ 1,559 $ 4,203 $ 2,808 $ 16,125
OTHER FINANCIAL DATA AND RATIOS
(UNAUDITED):
Ratio of earnings to fixed
charges(7).......................... N/A(8) N/A(8) N/A(8) 1.4x 1.3x 2.2x
EBITDA(9)............................. $ 511 $ 1,890 $ 9,875 $ 17,806 $ 12,469 $ 25,526
Cash interest......................... 324 418 4,495 7,145 4,823 5,577
Capital expenditures.................. 6,403 33,492 42,293 16,224 5,827 74,389
Depreciation and amortization......... 476 1,338 3,724 5,164 3,827 5,200
Ratio of EBITDA to cash
interest(10)........................ 1.6x 4.5x 2.2x 2.5x 2.6x 4.6x
OTHER OPERATING DATA (UNAUDITED):
Offshore Supply Vessels:
Average number...................... N/A 0.1 4.1 6.8 6.7 7.6
Average utilization rate(11)........ N/A 100% 93.1% 93.4% 91.4% 99.3%
Average dayrate(12)................. N/A $ 8,936 $ 6,724 $ 8,435 $ 8,183 $ 11,575
</Table>
30
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- --------
(UNAUDITED)
Tugs and Tank Barges:
Average number of tank barges....... 7.1 7.0 7.1 7.0 7.0 11.0
Average fleet capacity (barrels).... 406,462 358,108 434,861 451,655 451,655 753,465
Average barge size (barrels)........ 56,770 51,158 61,464 64,522 64,522 67,254
Average utilization rate(11)........ N/A 75.3% 73.9% 71.4% 67.6% 83.6%
Average dayrate(13)................. N/A $ 6,502 $ 8,482 $ 8,982 $ 9,507 $ 9,288
</Table>
- ---------------
(1) Includes other operating income and expenses.
(2)A non-cash extraordinary loss of $1,877, net of taxes, was incurred during
the third quarter of 2001 resulting from the early extinguishment of debt.
This extraordinary item relates to the write off of deferred financing costs
upon the refinancing of all the Company's debt through the issuance of the
Series A notes.
(3) Excludes a net write off of $108 related to a cumulative effect of change
in accounting principle for start-up costs.
(4)Excludes original issue discount associated with the Series A notes in the
amount of $3,162.
(5)On October 25, 2001, we completed a private placement of $14,600 of our
common stock. We repurchased all of our outstanding warrants with $14,500 of
the proceeds.
(6)For more information regarding cash flows from operating activities and for
information regarding cash flows from investing activities and financing
activities, please refer to our Consolidated Statements of Cash Flows
beginning on page F-13.
(7)Calculated as earnings divided by fixed charges. For purposes of calculating
the ratio of earnings to fixed charges, earnings consists of operating
income, and fixed charges consists of interest expense, including
capitalized interest, a portion of rent considered to represent interest
cost and amortization of debt discount and issuance costs.
(8)Earnings were insufficient to cover fixed charges by $260, $828, $756, for
1997, 1998 and 1999 respectively.
(9) EBITDA is earnings before interest expense, other income (expense),
provision for income taxes, depreciation and amortization. EBITDA is
presented as it is commonly used by certain investors to analyze and
compare operating performance and to determine a company's ability to
service or incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flow or other income or cash flow data or
as a measure of a company's profitability or liquidity and is not a measure
calculated in accordance with generally accepted accounting principles.
EBITDA is not necessarily comparable with similarly titled measures
reported by other companies.
(10) Calculated as EBITDA divided by cash interest. For purposes of calculating
the ratio of EBITDA to cash interest, EBITDA consists of the components
discussed in footnote (9) above.
(11) Utilization rates are average rates based on a 365-day year. Vessels are
considered utilized when they are generating revenues.
(12) Average dayrates represent average revenue per day, which includes charter
hire and brokerage revenue, based on the number of days during the period
that the offshore supply vessels generated revenue.
(13) Average dayrates represent average revenue per day, including time
charters, revenues generated on a per-barrel-transported basis, demurrage,
shipdocking and fuel surcharge revenue, based on the number of days during
the period that the tank barges generated revenue.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with our historical consolidated financial statements and their
notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that reflect our current views with respect to future
events and financial performance. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, such as those set forth under "Risk Factors" and elsewhere in this
prospectus.
GENERAL
We operate deepwater offshore supply vessels in the Gulf of Mexico and
ocean-going tugs and tank barges in the northeastern United States, primarily
New York Harbor, and in Puerto Rico. We charter our offshore supply vessels on a
dayrate basis, under which the customer pays us a specified dollar amount for
each day during the term of the contract, under either fixed time charters or
spot market charters. A fixed time charter is a contract in which the charterer
obtains the right for a specified period to direct the movements and utilization
of the vessel in exchange for payment of a specified daily rate, generally paid
monthly, but the vessel owner retains operational control over the vessel.
Typically, the owner fully equips the vessel and is responsible for normal
operating expenses, repairs, wages and insurance, while the charterer is
responsible for voyage expenses, such as fuel, port and stevedoring expenses.
Spot market charters in the offshore supply vessel industry are generally time
charter contracts with terms of less than one year. Generally, we absorb crew,
insurance and repair and maintenance costs in connection with operation of our
offshore supply vessels and our customers absorb other direct operating costs.
All of our offshore supply vessels are currently operating under fixed time
charters, including seven (one of which, the HOS Dominator, is under
construction and scheduled to be delivered in February 2002) that are chartered
with initial terms ranging from two to five years. Our long-term contracts for
our offshore supply vessels are consistent with those used in the industry and
are either fixed for a term of months or years or are tied to the duration of a
long-term contract for a drilling rig for which the vessel provides services.
These contracts generally contain, among others, provisions governing insurance,
reciprocal indemnifications, performance requirements and, in certain instances,
dayrate escalation terms and renewal options.
While offshore supply vessels service existing oil and gas production
platforms as well as exploration and development activities, incremental vessel
demand depends primarily upon the level of drilling activity, which can be
influenced by a number of factors, including oil and gas prices and drilling
budgets of exploration and production companies. As a result, utilization and
dayrates have historically correlated to oil and gas prices and drilling
activity, although the greater investment of time and expense associated with
deepwater production and the consequent long-term nature of deepwater offshore
supply vessel contracts have weakened the significance of the correlation in
recent years.
Generally, we operate an ocean-going tug and tank barge together as a "tow"
to transport petroleum products between U.S. ports and along the coast of Puerto
Rico. We operate our tugs and tank barges under fixed time charters, spot market
charters, contracts of affreightment and consecutive voyage contracts. Spot
market charters in the tug and tank barge industry are generally single-voyage
contracts of affreightment or time charter contracts with terms of less than one
year. A consecutive voyage contract is a contract for the transportation of
cargo for a specified number of voyages between designated ports over a fixed
period of time under which we are paid based on the volume of products we
deliver per voyage. Under consecutive voyage contracts, in addition to earning
revenues for volumes delivered, we earn a standby hourly rate between charters.
One of our tank barges has been chartered to a third party under a bareboat
charter. A bareboat charter is a "net lease" in which the charterer takes full
operational control over the vessel for a specified period of time for a
specified daily rate that is generally paid monthly to the vessel owner. The
bareboat charterer is solely responsible for the operation and management of the
vessel and must provide its own crew and pay all operating and voyage expenses.
32
The primary drivers of demand for our tug and tank barge services are
population growth, the strength of the United States economy and changes in
weather patterns that affect consumption of heating oil and gasoline. The tug
and tank barge market, in general, is marked by steady demand over time. We
believe that demand for refined petroleum products and crude oil will remain
steady or gradually increase for the foreseeable future.
Our operating costs are primarily a function of fleet size and utilization
levels. The most significant direct operating costs are wages paid to vessel
crews, maintenance and repairs and marine insurance. Generally, fluctuations in
vessel utilization affect only that portion of our direct operating costs that
is incurred when our vessels are active. Direct operating costs as a percentage
of revenues may therefore vary substantially due to changes in day rates and
utilization.
In addition to the operating costs described above, we incur fixed charges
related to the depreciation of our fleet and costs for routine drydock
inspections and maintenance and repairs necessary to ensure compliance with
applicable regulations and to maintain certifications for our vessels with the
U.S. Coast Guard and various classification societies. The aggregate number of
drydockings and other repairs undertaken in a given period determines the level
of maintenance and repair expenses and marine inspection amortization charges.
We capitalize costs incurred for drydock inspection and regulatory compliance
and amortize such costs over the period between such drydockings, typically 30
or 60 months.
Applicable maritime regulations require us to drydock our vessels twice in
a five-year period for inspection and routine maintenance and repair. If we
undertake a large number of drydockings in a particular fiscal period,
comparative results may be affected.
RESULTS OF OPERATIONS
The tables below set forth, by segment, the average dayrates and
utilization rates for our vessels and the average number of vessels owned during
the periods indicated. The average dayrates are based on the number of days the
vessel, for the offshore supply vessel segment, or tank barge, for the tug and
tank barge segment, generated revenue during the period. For the offshore supply
vessel segment, revenue includes charter hire and brokerage revenue. For the tug
and tank barge segment, revenue includes time charters, revenues generated on a
per-barrel-transported basis, demurrage, shipdocking and fuel surcharge revenue.
Utilization rates are average rates based on a 365-day year. Vessels are
considered utilized when they are generating revenues. These offshore supply
vessels and tug and tank barges generate substantially all of our revenues and
operating profit.
<Table>
<Caption>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1998 1999 2000 2000 2001(1)
-------- -------- -------- -------- --------
OFFSHORE SUPPLY VESSELS:
Average number of vessels....... 0.1 4.1 6.8 6.7 7.6
Vessel days available........... 44 1,517 2,490 1,846 2,066
Average utilization rate........ 100.00% 93.1% 93.4% 91.4% 99.3%
Average dayrate................. $ 8,936 $ 6,724 $ 8,435 $ 8,183 $ 11,575
TUGS AND TANK BARGES:
Average number of tank barges... 7.0 7.1 7.0 7.0 11.0
Average fleet capacity
(barrels)..................... 358,108 434,861 451,655 451,655 753,465
Average barge size (barrels).... 51,158 61,464 64,522 64,522 67,254
Average utilization rate........ 75.3% 73.9% 71.4% 67.6% 83.6%
Average dayrate................. $ 6,502 $ 8,482 $ 8,982 $ 9,507 $ 9,288
</Table>
- ---------------
(1) Includes only four months of operations of the nine tugs and nine tank
barges acquired from the Spentonbush/Red Star Group effective May 31, 2001
and only five months of operations from the HOS Innovator, delivered at the
end of April 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2000
Revenues. Revenues were $47.1 million for the nine months ended September
30, 2001, as compared to $26.1 million for the same period in 2000, an increase
of $21.0 million or 80.4%. This increase was primarily
33
attributable to our offshore supply vessel segment, which continued to
experience strong demand for our vessels, and the acquisition of additional tugs
and tank barges on May 31, 2001.
Revenues from our offshore supply vessel segment increased to $23.7 in the
first nine months of 2001 as compared to $13.8 million in the first nine months
of 2000, an increase of $9.9 million or 71.7%. Revenues in the third quarter of
2001 reflected continued strong dayrates and utilization as demand for our
vessels continued to improve. Our utilization rate was 99.3% for the first nine
months of 2001 compared to 91.4% in the same period of 2000 as a result of
higher demand for deepwater drilling, construction and field development
activity in the Gulf of Mexico. Our offshore supply vessel average dayrate was
$11,575 for the first nine months of 2001 compared to $8,183 for the same period
in 2000, an increase of $3,392 or 41.4%. The increase in average dayrates was
due to a combination of higher demand and the addition to our fleet of the
larger, newly constructed HOS Cornerstone on March 11, 2000 and HOS Innovator on
April 28, 2001, at significantly higher dayrates.
Revenues from our tug and tank barge segment totaled $23.4 million for the
first nine months of 2001 as compared to $12.3 million for the same period in
2000, an increase of $11.1 million or 90.2%. The segment revenue increase is
primarily due to increased utilization and the acquisition of nine tugs and nine
tank barges on May 31, 2001, which increased fleet capacity in barrels from
451,655 to 1,130,727. Our utilization rate increased to 83.6% for the first nine
months of 2001 compared to 67.6% for the same period in 2000. Our average
dayrate remained fairly constant at $9,288 for the third quarter compared to
$9,507 in the third quarter of 2000. The increase in utilization was primarily
the result of a change from vessels operating under contracts of affreightment
to time charters, as well as the vessels being out of service for repairs fewer
days in 2001 as compared to 2000.
Operating Expense. Our operating expense, including depreciation and
amortization, increased to $21.7 million for the first nine months of 2001 as
compared to $15.4 million in the same period in 2000, an increase of $6.3
million or 40.9%. Daily operating expenses per vessel in both the offshore
supply vessel segment and the tug and tank barge segment remained fairly
constant. The increase in operating expense resulted primarily from the addition
of vessels to the offshore supply vessel and tank barge fleets during the first
nine months of 2001.
Operating expense for our offshore supply vessel segment increased $1.2
million in the first nine months of 2001 to $8.1 million compared to $6.9
million in the third quarter of 2000. This increase was the result of the HOS
Cornerstone being in service for the entire first nine months of 2001, but only
a portion of the first nine months of 2000 and the HOS Innovator being in
service for a portion of 2001 but not in service during the first nine months of
2000.
Operating expense for our tug and tank barge segment was $13.6 million for
the first nine months of 2001 compared to $8.5 million for the same period in
2000, an increase of $5.1 million or 60.0%. The operating expense increase
resulted primarily from our acquisition of nine tugs and nine tank barges on May
31, 2001.
General and Administrative Expense. Our general and administrative expense
was $6.2 million for the first nine months of 2001 as compared to $2.3 million
for the same period of 2000, an increase of $3.9 million. This increase
primarily resulted from increased overhead relating to the nine tugs and nine
tank barges acquired on May 31, 2001.
Interest Expense. Interest expense was $6.7 million in the first nine
months of 2001 compared to $6.4 million in the first nine months of 2000, an
increase of $0.3 million or 4.7%. The increase in interest expense resulted from
the refinancing of all of the Company's conventional floating rate debt through
the issuance of senior notes in July 2001 with a higher fixed rate, and a higher
average balance of debt outstanding in the 2001 period. This increase was offset
by the capitalization of interest costs relating to new construction which
increased significantly in the first nine months of 2001 due to the construction
in progress of six offshore supply vessels compared to the construction in the
first nine months of 2000 of one vessel completed in March 2000.
Interest Income. Interest income was $1.1 million in the first nine months
of 2001 compared to $0.2 million in the first nine months of 2000, an increase
of $0.9 million or 450%. The increase in interest
34
income resulted from substantially higher cash balances invested during the 2001
period resulting from the excess proceeds of the senior notes available for
investment after the refinancing.
Income Tax Expense. Our effective tax rate for the first nine months of
2001 was 38.0% compared to an effective tax rate of 37.9% for the third quarter
of 2000.
Extraordinary Loss. A non-cash extraordinary loss of $1.9 million, net of
taxes, was incurred during the third quarter of 2001 resulting from the early
extinguishment of debt. This extraordinary item relates to the write-off of
deferred financing costs upon the refinancing of all the Company's debt through
the issuance of the Series A notes in July 2001.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues. Revenues were $36.1 million in the year ended December 31, 2000
compared to $25.7 million in the year ended December 31, 1999, an increase of
$10.4 million or 40%. Substantially all of this increase was attributable to our
offshore supply vessel segment which added five vessels to its fleet during 1999
and one during 2000.
Revenues from our offshore supply vessel segment totaled $19.6 million in
2000 compared to $9.5 million in 1999, an increase of $10.1 million or 106%. The
increase in our revenues in 2000 reflected the continued growth of our offshore
supply vessel fleet through new construction during 1999 and early 2000 as
follows:
<Table>
<Caption>
VESSEL NAME IN SERVICE DATE
- ----------- -----------------
HOS Super H................................................. January 14, 1999
HOS Brigadoon............................................... March 11, 1999
HOS Thunderfoot............................................. May 12, 1999
HOS Dakota.................................................. June 16, 1999
HOS Deepwater............................................... November 15, 1999
HOS Cornerstone............................................. March 11, 2000
</Table>
In addition to the impact of new vessel deliveries, average dayrates in 2000
were $8,435 as compared to $6,724 in 1999, an increase of $1,711 per day or 25%.
This increase reflects the continuing increase in demand for offshore supply
vessels to support deepwater oil and gas exploration, drilling and production in
the Gulf of Mexico, combined with the higher dayrates attributable to two 240'
class vessels entering the fleet in late 1999 and early 2000. Our average
utilization rate was approximately 93% in each year.
Revenues from our tug and tank barge segment totaled $16.5 million in 2000
compared to $16.2 million in 1999, an increase of $0.3 million or 2%. Our
utilization rate decreased to 71.4% in 2000 from 73.9% in 1999, primarily due to
the removal of vessels from service for scheduled maintenance. Although vessel
utilization decreased, our average dayrate increased to $8,982 in 2000 from
$8,482 in 1999, an increase of $500 per day worked or 6%.
Operating Expense. Our operating expense, including depreciation and
amortization, increased from $17.3 million in 1999 to $20.4 million in 2000, an
increase of $3.1 million or 18%. Daily operating expenses per vessel in both the
offshore supply vessel segment and the tug and tank barge segment remained
fairly constant. Changes in operating expenses resulted primarily from changes
in the number of vessels operating in the fleet and fluctuations in direct costs
of sales that are either reimbursed by customers or absorbed as an operating
expense for the vessel.
Operating expense for our offshore supply vessel segment increased $4
million in 2000 to $9.3 million compared to $5.3 million in 1999. This increase
resulted from the inclusion in 2000 of vessels added to our fleet at various
times in 1999 and early 2000.
Operating expense for our tug and tank barge segment decreased $0.9 million
or 8% in 2000 to $11.1 million compared to $12 million in 1999. The operating
expense reduction was the result of changes from contracts of affreightment to
time charters for three tows. During 1999, we had seven tows operating under
contracts of affreightment as compared to six tows operating under a contract of
affreightment and one
35
tow operating under a time charter in 2000. The result was a daily operating
cost of $4,340 per day in 2000 compared to $4,648 per day in 1999, a decrease of
$308 per day or 7%.
General and Administrative Expense. Our general and administrative expense
was $2.5 million in the year ended December 31, 1999 compared to $3.4 million in
the year ended December 31, 2000, an increase of $0.9 million or 36%. This
increase primarily resulted from an increase in shore-based personnel and
associated compensation costs as offshore supply vessel fleet operations
expanded and increased accruals under our profit-based incentive bonus
compensation program as our profitability increased.
Interest Expense. Interest expense was $8.2 million in the year ended
December 31, 2000 compared to $5.3 million in the year ended December 31, 1999,
an increase of $2.9 million or 55%. Interest expense increased as vessels were
delivered in 1998, 1999 and 2000 due to conversion from construction interest,
which was capitalized, to interest expense under term financing. The financing
of the HOS Deepwater and the HOS Cornerstone under one of our former credit
facilities increased our debt balances, leading to increased interest expense.
Income Tax Expense. Our effective tax rate for the year ended December 31,
2000 was 36% compared to an effective tax rate of 39% for the year ended
December 31, 1999. The effective tax rate decreased due to an increase in
operating income and the amount of nondeductible expenses remaining constant
between the periods.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues were $25.7 million in the year ended December 31, 1999
compared to $12.8 million in the year ended December 31, 1998, an increase of
$12.9 million or 101%. The increase in revenue was the result of the delivery of
newly constructed offshore supply vessels in late 1998 and during 1999 and the
acquisition of tugs and tank barges with higher capacities in March 1999.
Revenues from our offshore supply vessel segment totaled $9.5 million in
1999 compared to $0.3 million in 1998, an increase of $9.2 million. The revenue
increase in 1999 reflects the growth of our fleet through new construction from
one vessel, the HOS Crossfire, which commenced service November 6, 1998, to six
vessels at the end of 1999. Moreover, average dayrates decreased to $6,724 in
1999 compared to $8,936 in 1998. Average dayrates fluctuated as vessels entered
the fleet in the spot market before term charters were obtained for the vessels
in late 1998 and early 1999, then stabilized and began a rising trend in the
third quarter due to the increase in demand for offshore supply vessels to
support deepwater oil and gas exploration, development and production in the
Gulf of Mexico. Our utilization rate was 93.1% in 1999 compared to 100% in 1998.
Revenues from our tug and tank barge segment totaled $16.2 million in 1999
compared to $12.5 million in 1998, an increase of $3.7 million or 29%. The
majority of the increase resulted from the purchase in March 1999 of the Energy
6503 and Energy 7002 with capacities of 65,145 barrels and 72,693 barrels,
respectively, which was partially offset by the sale in March 1999 of the LMI
2000 with a capacity of 20,750 barrels, and by the sale in December 1999 of the
LMI 2503 with a capacity of 23,451 barrels, which had been cold stacked in
February. These transactions increased our marine transportation total fleet
capacity from 358,108 barrels to 451,655. Utilization remained relatively stable
with a utilization rate of 73.9% in 1999 compared to 75.3% in 1998. Average
dayrates increased to $8,482 in 1999 from $6,502 in 1998, an increase of $1,980
per day or 30%, due to increased capacity and time charter contracts at rates
higher than historical averages.
Operating Expense. Our operating expense, including depreciation and
amortization, increased from $10.7 million in 1998 to $17.3 million in 1999, an
increase of $6.6 million or 62%. Daily operating expenses per vessel in both the
offshore supply vessel segment and the tug and tank barge segment remained
fairly constant. Changes in operating expenses resulted primarily from changes
in the number and size of vessels operating in the fleet during the periods.
Operating expense for our offshore supply vessel segment increased $5.1
million in 1999 to $5.3 million compared to $0.2 million in 1998. As previously
indicated, this increase resulted from the addition of the newly constructed
vessels placed in service in late 1998 and during 1999.
36
Operating expense for our tug and tank barge segment increased $1.5 million
or 14% in 1999 to $12 million compared to $10.5 million in 1998. This increase
in operating expense resulted from the sale and purchase, previously described,
of certain tank barges and the constructive total loss incurred as the result of
the grounding of the M/V New Jersey in March 1998. The vessel was subsequently
repurchased from the insurance company for salvage value, repaired and returned
to service as the M/V Tradewind Service in March 1999. The barge sale and
purchase in March 1999 resulted in increases in depreciation, insurance and crew
costs. In addition, planned drydocking amortization cost increased as a result
of the cost of regularly scheduled drydock for repair, maintenance and
regulatory recertification. The resulting daily average operating cost increased
from $4,124 per day in 1998 to $4,648 per day in 1999, a change of $524 per day
or 13%.
General and Administrative Expense. Our general and administrative expense
was $1.7 million in the year ended December 31, 1998 compared to $2.5 million in
the year ended December 31, 1999, an increase of $0.8 million or 47%. This
increase primarily resulted from the addition of a shore-based administrative
facility in Puerto Rico to service our Caribbean tug and tank barge operations,
the cost of consolidating operations, accounting and management offices into one
location and an increase in profit-based incentive bonus compensation accruals
as our profitability increased.
Interest Expense. Interest expense was $5.3 million in the year ended
December 31, 1999 compared to $1.2 million in the year ended December 31, 1998,
an increase of $4.1 million or 342%. This increase reflects the incurrence of
debt to construct offshore supply vessels that were delivered in 1998 and 1999.
Interest expense increased as vessels were delivered in late 1998 and throughout
1999 due to the conversion from construction interest, which was capitalized, to
interest expense under term financing. During 1998, the proceeds of a debt
placement provided interest income which partially offset interest expense.
Moreover, the amortization of financing costs and the warrant valuation
adjustment that occurred in connection with the June 1998 debt placement were
reflected for all of 1999 compared to six months in 1998.
Income Tax Expense. The comparison of our effective tax rates for the
years ended December 31, 1998 and 1999 was not meaningful due to the Company's
net operating loss of $59 and other non-deductible expenses of $101 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our principal needs for capital are to fund ongoing operations, capital
expenditures for the construction of new vessels and acquisitions and debt
service. We have historically financed our capital needs with cash flow from
operations, issuances of equity and borrowings under our credit facilities.
Net cash provided by operating activities was $1.6 million in 1999, $4.2
million in 2000 and $16.1 million in the first nine months of 2001. Changes in
cash flow from operating activities are principally the result of higher income
from operations after considering increases in depreciation and amortization due
to increases in our vessel fleet offset by changes in our net working capital.
Net cash used in investing activities was $42.3 million in 1999, $16.2
million in 2000 and $74.4 million in the first nine months of 2001. Net cash
used in investing activities was primarily the result of new vessel construction
and acquisitions. Included in these cash amounts are drydocking expenditures,
predominately related to vessel re-certification, of $1 million in 1999, $1.7
million in 2000 and $1.5 million in the first nine months of 2001. Under our
accounting policy, we generally capitalize drydocking expenditures related to
vessel re-certification and amortize the amount over 30 or 60 months.
Net cash provided by financing activities was $43.7 million in 1999, $38.9
million in 2000 and $84.0 million in the first nine months of 2001. Net cash
provided by financing activities was primarily the result of issuances of equity
and senior notes and borrowings under our former credit facilities offset in
part by the repayment in full of such credit facilities.
On July 24, 2001, we issued $175.0 million in principal of 10 5/8% Series A
senior notes due 2008. Interest on the notes is due February 1 and August 1 of
each year until maturity. We realized net proceeds of $165.0 million which was
used to repay and extinguish our outstanding indebtedness under our then
existing credit facilities, which were terminated.
37
At September 30, 2001, we had outstanding debt of $172.0 million, net of
original issue discount, under our senior notes. We have entered into a
commitment letter with one of our former lenders for a new senior secured
revolving line of credit of $50.0 million. Pursuant to the proposed terms of
this new senior secured revolving credit facility, our borrowings will be
initially limited to $25.0 million unless we obtain the lender's concurrence to
borrow in excess of $25.0 million. Pursuant to the indenture governing the
senior notes, unless we meet a specified consolidated interest coverage ratio
test, the level of permitted borrowings under this facility initially will be
limited to $25.0 million plus 15% of the increase in our consolidated net
tangible assets over the consolidated net tangible assets as of March 31, 2001
determined on a pro forma basis to reflect the Spentonbush/Red Star Group
acquisition.
For a more detailed discussion of the anticipated terms of the proposed new
senior secured revolving credit facility, see "Description of Other
Indebtedness."
In August and October 2001, we issued a total of 5,509,434 shares of our
common stock for proceeds of $14.6 million. We repurchased all of our
outstanding warrants with $14.5 million of the proceeds. The remaining funds are
available for payment of expenses incurred in the offering.
In September 2001, we issued 50,000 shares of our common stock to an
employee for proceeds in the aggregate amount of $0.1 million. These proceeds
are available for general corporate purposes.
In November 2000, we issued 13,207,547 shares of our common stock for
proceeds of $35.0 million. We used the proceeds of the private placement
principally to make initial payments required to begin construction of four
deepwater offshore supply vessels and to pay the non-debt-financed portion of
the acquisition cost of the tugs and tank barges purchased from the
Spentonbush/Red Star Group. Remaining funds have been used or remain available
for acquisitions and general corporate purposes, including working capital.
As of September 30, 2001, we had working capital of approximately $57.3
million. As of September 30, 2001, we were committed under vessel construction
contracts to complete construction of five offshore supply vessels. As of
September 30, 2001, the amount expected to be expended to complete construction
of these vessels was approximately $36.1 million, which becomes due at various
dates from October 1, 2001 through 2002.
During 2000, we made capital expenditures of approximately $16.0 million.
For 2001, through September 30, 2001 we expended approximately $70.8 million for
vessel construction and the Spentonbush/Red Star Group acquisition and we
currently anticipate that we will make capital expenditures of approximately
$14.7 million during the remainder of 2001, primarily for the construction of
offshore supply vessels. We believe that cash on hand and cash generated from
operations will provide sufficient funds for our identified capital projects,
debt service and working capital requirements. Our strategy, however, includes
expanding our fleet through the construction or acquisition of additional
offshore supply vessels, tugs and tank barges as needed to take advantage of the
strong demand for such vessels. Depending on the market demand for offshore
supply vessels, tugs and tank barges and consolidation opportunities that may
arise, we may require additional debt or equity financing. Although we continue
to evaluate potential acquisitions and newbuild opportunities, we do not
presently have any agreements, understandings or arrangements with respect to
any specific acquisition target.
As of December 31, 2000, we had federal net operating loss carryforwards of
approximately $15.7 million available through 2017 to offset future taxable
income. In addition, we expect our federal tax net operating losses to increase
due to our use of accelerated tax depreciation with respect to new vessels. Our
use of these net operating losses may be limited due to U.S. tax laws. Based on
the age and composition of our current fleet, however, we expect to pay a lower
than normal amount of federal income taxes over the next five years. See Note 8
to our Consolidated Financial Statements included elsewhere in this prospectus.
INFLATION
To date, general inflationary trends have not had a material effect on our
operating revenues or expenses.
38
SPENTONBUSH/RED STAR GROUP
SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT VESSEL DATA)
The following table presents selected historical combined financial
information for the Spentonbush/Red Star Group, which should be read in
conjunction with, and is qualified in its entirety by reference to, the combined
financial statements of the Spentonbush/Red Star Group and notes to those
statements included elsewhere in this prospectus. The information includes the
results of operations of one tug and one tank barge owned by the Spentonbush/Red
Star Group that we did not purchase. The selected financial information for each
of the years in the three-year period ended December 31, 2000 has been derived
from the audited combined financial statements of the Spentonbush/Red Star
Group. All interim financial information is unaudited and is derived from the
Spentonbush/Red Star Group unaudited combined financial statements.
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 32,813 $ 30,220 $ 40,848 $ 11,376 $ 12,983
Operating expenses................................ 24,839 21,258 26,159 6,576 8,030
General and administrative expenses............... 4,004 3,936 5,092 1,300 1,099
Operating income.................................. 3,970 5,026 9,597 3,500 3,854
Other income (expense)............................ 1,398 279 4 1 1
Income before income taxes........................ 5,368 5,305 9,601 3,501 3,855
Income tax expense................................ 1,912 1,923 3,405 1,240 1,367
Net income........................................ 3,456 3,382 6,196 2,261 2,488
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 2 $ 2 $ 2 $ 2 $ 2
Working capital deficit........................... (7,843) (6,468) (10,473) (8,233) (8,252)
Property, plant and equipment, net................ 432 286 124 246 83
Total assets...................................... 4,043 3,471 3,795 4,470 5,526
Total debt........................................ -- -- -- -- --
Stockholder's deficit............................. (7,334) (6,149) (10,283) (7,947) (8,097)
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating activities(1)...... $ 5,405 $ 1,939 $ 10,330 $ -- $ --
OTHER FINANCIAL DATA (UNAUDITED):
EBITDA(2)......................................... $ 6,160 $ 5,467 $ 9,763 $ 3,541 $ 3,896
Capital expenditures.............................. 52 16 -- -- --
Depreciation and amortization..................... 792 162 162 40 41
OTHER OPERATING DATA (UNAUDITED):
Tugs and Tank Barges:
Average number of tank barges(3)................ 10 10 10 10 10
Average fleet capacity (barrels)(3)............. 720,505 720,505 720,505 720,505 720,505
Average barge capacity(3)....................... 72,051 72,051 72,051 72,051 72,051
Average utilization rate(4)..................... 73.1% 66.0% 77.7% 81.4% 85.4%
Average dayrate(5).............................. $ 12,298 $ 12,545 $ 14,364 $ 15,538 $ 16,892
</Table>
- ---------------
(1)For more information regarding cash flows from operating activities and for
information regarding cash flows from investing activities and financing
activities, please refer to the Spentonbush/Red Star Group Combined
Statements of Cash Flows beginning on page F-29.
(2) EBITDA is earnings before interest expense, provision for income taxes,
depreciation and amortization. EBITDA is presented as it is commonly used by
certain investors to analyze and compare operating performance and to
determine a company's ability to service or incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flow or
other income or cash flow data or as a measure of a company's profitability
or liquidity and is not a measure calculated in accordance with generally
accepted accounting principles. EBITDA is not necessarily comparable with
similarly titled measures reported by other companies.
39
(3) Includes one barge owned by the Spentonbush/Red Star Group that the Company
did not purchase.
(4) Utilization rates are average rates based on a 365-day year. Tugs and tank
barges are considered utilized when they are generating revenues.
(5) Average dayrates represent average revenue per day, including time charters,
revenues generated on a per-barrel-transported basis, demurrage, shipdocking
and fuel surcharge revenue, based on the number of days during the period
that the tank barges generated revenue.
40
BUSINESS
In becoming a leading provider of marine transportation services in the
markets we serve in the Gulf of Mexico, the northeastern United States and
Puerto Rico, we have since 1997 significantly increased the size of our fleet
from six to 43 vessels. We have expanded our fleet both through new construction
of offshore supply vessels and acquisitions of tugs and tank barges.
COMPETITIVE STRENGTHS
New Technologically Advanced Fleet of Deepwater Offshore Supply
Vessels. Our offshore supply vessels have significantly more capacity and
operate more efficiently than conventional offshore supply vessels. They also
require significantly lower capital expenditures for scheduled drydockings and
maintenance than older vessels. We believe that our larger, faster and more
cost-efficient vessels will remain in high demand as exploration, development
and production activity in the deepwater Gulf of Mexico continues to increase.
We believe that our operation of new technologically advanced offshore
supply vessels specifically designed to meet the needs of deepwater exploration,
development and production activity gives us a competitive advantage in
obtaining long-term contracts for our vessels and in attracting and retaining
crews. Since we accepted delivery of our first offshore supply vessel in
November 1998, our average utilization rate for our offshore supply vessels has
been approximately 95% compared to an industry average of approximately 75% over
the same time period, based on vessels available for service, according to One
Offshore, formerly Offshore Data Services.
We believe that we operate the youngest fleet of offshore supply vessels in
the Gulf of Mexico. Over 80% of the Gulf of Mexico offshore supply vessel fleet
is over 18 years old with many approaching 25 years old, reflecting the absence
of any significant construction activity between the early 1980s and mid-1990s.
The average age of our offshore supply vessel fleet is less than two years, and
we have four additional offshore supply vessels under construction. Moreover,
our offshore supply vessels incorporate sophisticated technologies that allow us
to operate more effectively and more safely in deepwater markets. These
technologies include dynamic positioning, roll reduction systems, controllable
pitch thrusters and our unique cargo handling systems permitting high volume
transfer rates of liquid mud and dry bulk. Our offshore supply vessels are also
capable of operating both on the continental shelf and in the deepwater regions
of the Gulf of Mexico, which we believe gives us a competitive advantage over
operators of conventional offshore supply vessels.
Because our vessels are designed specifically to handle the rougher seas in
the deepwater Gulf of Mexico, we are able to operate more safely than a
conventional offshore supply vessel designed for less challenging environments.
We believe that safety has become an increasingly important consideration for
oil and gas operators due to the environmental and regulatory sensitivity
associated with offshore drilling and production activity. In addition,
operators are especially concerned with a vessel's ability to avoid collisions
with multi-million dollar drilling rigs or production platforms during adverse
weather conditions, but are hesitant to stop operations in such conditions
because of the high daily cost of halting a deepwater operation. Our vessels
have been designed to mitigate the adverse impacts of bad weather conditions and
high seas, providing us with an important competitive advantage.
Leading Market Presence. We believe that we will be the second largest
operator of deepwater offshore supply vessels in the Gulf of Mexico following
delivery of our four offshore supply vessels currently under construction. We
operate the largest fleet of tank barges for the transportation of petroleum
products in Puerto Rico and, as a result of our recent acquisition of tugs and
tank barges from the Spentonbush/Red Star Group, believe that we are also the
fourth largest tank barge transporter of clean and dirty petroleum products in
New York Harbor. Our offshore supply vessel and ocean-going tug and tank barge
fleets also benefit from the restrictions of Section 27 of the Merchant Marine
Act of 1920, commonly referred to as the Jones Act, which requires that vessels
engaged in coastwise U.S. trade, including along the coast of Puerto Rico, be
built in the United States, be U.S.-flagged and be owned and managed by U.S.
citizens.
Numerous Industry-Recognized Certifications. As part of our commitment to
quality and safety, we have pursued on a voluntary basis and have received
certifications and classifications, which are not generally
41
held by other companies in our industry. We maintain ISO 9000 and ISO 14001
certifications for quality and environmental management, respectively, from the
International Standards Organization with respect to the tugs and tank barges
acquired from the Spentonbush/Red Star Group. Our other tugs and tank barges
participate in the Responsible Carrier Program, developed by the American
Waterways Operators to improve marine safety and environmental protection in the
tank barge industry. Our offshore supply vessels participate in the U.S. Coast
Guard's Streamlined Inspection Program in which we and the Coast Guard cooperate
to develop training, inspection and compliance processes, with our personnel
conducting periodic examinations of vessel systems and taking corrective actions
where necessary. Our tugs and tank barges acquired from the Spentonbush/Red Star
Group are also certified under the International Safety Management Code,
developed by the International Maritime Organization to provide internationally
recognized standards for the safe management and operation of ships and for
pollution prevention. Our offshore supply vessels are classed by the American
Bureau of Shipping, which develops and verifies standards for the design,
construction and operational maintenance of vessels and facilities.
History of Successful Deepwater Offshore Supply Vessel Construction. We
employ senior management with significant naval architecture, marine engineering
and shipyard experience. We design our own offshore supply vessels and work
closely with our contracted shipyards in their construction. We typically source
and supply a large portion of the aggregate cost of a vessel with
owner-furnished equipment from vendors other than the shipyard. We delivered our
current fleet of nine deepwater offshore supply vessels substantially on time
and on budget. We believe that our record of delivering new vessels without
significant delays gives us a competitive advantage in obtaining contracts for
our vessels before their actual delivery.
Favorable OPA 90 Fleet Status. Approximately 50% of the existing single
hulled tank barge capacity serving the northeastern United States is required to
be retired or substantially refurbished by December 31, 2005. Eleven of our
seventeen tank barges are not required under OPA 90 to be retired or double
hulled until 2015. Of the remainder, three are required to be retired or
modified by 2004, two by 2009 and one, the M/V W.K. McWilliams, Jr., is not
subject to OPA 90 retirement dates. Because most of our barges are not required
to be double hulled until 2015, we believe we have a competitive advantage over
operators with barges that must be retired or modified to add double hulls
before that date.
Long-term Contracts and a Diversified Fleet Provide Stability of Revenue
and Cash Flow. We pursue long-term contracts to manage our growth and provide a
stable base of revenue and cash flow throughout the energy service industry
cycle. We regularly receive more inquiries regarding the charter of our vessels
than we have vessels to contract, allowing us to select our charterers
carefully. We have recently experienced a significant increase in such inquiries
as potential charterers have become aware of the capabilities and performance of
our newly constructed offshore supply vessels.
Six of our nine current offshore supply vessels, as well as the HOS
Dominator which is under construction and scheduled to be delivered in February
2002, are under contracts with expiration dates ranging from April 2003 through
November 2006. These contracts generally provide for full year-round
utilization, are based on dayrates with a built-in escalation clause and are
exclusively dedicated to the charterer.
In connection with our recent acquisition of tugs and tank barges and
related business from the Spentonbush/Red Star Group, affiliates of Amerada
Hess, we have entered into a long-term contract of affreightment with Amerada
Hess to be its exclusive marine logistics provider and coastwise transporter of
petroleum products in the northeastern United States. This long term contract
with Amerada Hess, when coupled with our operation of tank barges in both the
northeastern United States and Puerto Rico, provides revenue diversification to
complement our offshore supply vessel fleet. We operate four of our tank barges
in Puerto Rico under renewable contracts that have been renewed in each of the
last three years.
Experienced Management Team. Our senior management team has an average of
19 years of marine transportation industry experience. We believe that our team
has successfully demonstrated its ability to grow our fleet through new
construction and strategic acquisitions and to secure profitable contracts for
our vessels in favorable and unfavorable market conditions. Our in-house naval
architecture team enables us to design and
42
manage our new construction of vessels, adapt our vessels for specialized
purposes and oversee and manage the drydocking process. We believe this will
result in a lower overall cost of ownership over the life of our vessels.
OUR STRATEGY
Maintain Focus on Deepwater Gulf of Mexico. We intend to maintain our
focus on operating high quality offshore supply vessels capable of working in
the deepwater regions of the Gulf of Mexico. Increasingly, oil and gas companies
are focusing capital expenditures on the exploration and development of reserves
in the deepwater Gulf of Mexico to replace slowing or declining production from
shallow water fields. We believe that there is a shortage of offshore supply
vessels that can effectively serve the current and planned drilling programs in
this market. Our offshore supply vessels are designed to meet the specialized
needs of these programs.
Maintain Competitive Advantage By Using Sophisticated Technologies. We
designed our offshore supply vessels to meet the higher capacity and performance
needs of our clients' drilling and production programs. This has been
accomplished through the incorporation of sophisticated propulsion and cargo
handling systems and larger capacities. For example, the HOS Innovator and the
BJ Blue Ray are the first U.S.-flagged offshore supply vessels operating in the
Gulf of Mexico to receive Dynamic Positioning Class II Certification from the
American Bureau of Shipping and the BJ Blue Ray is the first U.S.-flagged
offshore supply vessel to be given a Well Stimulation Certificate by the ABS.
Dynamic positioning technology allows a vessel to maintain its position without
the use of anchors. We believe that the advanced features of our offshore supply
vessels give us a competitive advantage in obtaining contracts.
Continue Building New Vessels as Market Demand Dictates. Since we were
formed in 1997, we have designed and delivered nine deepwater offshore supply
vessels. Of these vessels, all were delivered without significant delays or cost
overruns and are currently operating under time charters. We have four other
vessels under construction with anticipated delivery dates from February 2002 to
July 2002. We will continue to monitor demand for vessels in determining the
level and timing of additional vessels under our newbuild program.
Complementary Acquisitions. To date we have completed four acquisitions
involving ocean-going tugs and tank barges. We will continue to evaluate
strategic acquisitions to expand our offshore supply vessel and tug and tank
barge fleets to increase market share and enhance long-term client
relationships.
Optimize Tug and Tank Barge Operations. We have consolidated the
operational management of our fleet in our new Brooklyn facility and intend to
optimize use of our tug and tank barge fleet by increasing services offered to
parties other than Amerada Hess. Before our acquisition of tugs and tank barges
from the Spentonbush/Red Star Group, these vessels were largely dedicated to the
use of Amerada Hess and its affiliates in New York Harbor. Centralized
operational management will allow us to move vessels from one region of
operations to another to take advantage of the changing mix of opportunities.
Pursue Long-term Contracts. The average initial term for our current
offshore supply vessel contracts is approximately three years. Our contract of
affreightment with Amerada Hess for the services of tugs and tank barges in the
northeastern United States has an initial term of June 1, 2001 through March 31,
2006. All of our other tug and tank barge contracts may be, and typically are,
renewed annually. We intend to maintain a significant percentage of our assets
working under long-term contracts, which results in high utilization rates and
provides a stable cash flow base to manage our debt obligations.
Leverage Existing Customer Relationships to Meet Diversified Marine
Transportation Demand. We intend to leverage our existing customer
relationships by expanding our services to certain customers with diversified
marine transportation needs. Many integrated oil companies require offshore
supply vessels to support their exploration and production activities and
ocean-going tug and tank barges to support their refining, trading and retail
distribution activities.
43
OVERVIEW OF OUR INDUSTRY
Offshore Supply Vessel Industry. Oil prices were higher than historical
averages during 1999, 2000 and much of 2001, but have recently declined. During
the same periods natural gas prices also generally increased, although natural
gas prices have also declined in recent months. Increases in the prices of oil
and natural gas and a tightening of inventory levels during the same periods
increased the demand for working drilling rigs and related services, although
the recent declines in the price of oil and natural gas have resulted in less
offshore drilling activity in the shallow water areas of the Gulf of Mexico.
This has decreased demand for offshore supply vessel services on the continental
shelf in the Gulf of Mexico, and dayrates there have also declined. Demand and,
correspondingly, dayrates for offshore supply vessels capable of operating in
the deepwater Gulf of Mexico have not experienced a similar decline, but remain
stable, because the higher cost of deepwater drilling makes it generally less
feasible to abandon a deepwater project upon a short-term decline in the price
of oil and natural gas.
The Gulf of Mexico, a bifurcated market of continental shelf and deepwater
regions, is a critical oil and gas supply basin for the United States,
accounting for 28% and 26%, respectively, of total U.S. oil and gas production
in 2000. Because natural gas production from wells on the continental shelf
declines at a rapid rate and the deepwater regions of the Gulf of Mexico hold
most of the unexplored areas of potential gas reserves, we believe that
deepwater drilling in the Gulf of Mexico will continue to be a primary source of
additions to domestic natural gas reserves. The Minerals Management Service has
adopted royalty relief incentives for natural gas produced from wells drilled in
at least 200 meters of water to encourage deepwater exploration. Moreover, the
deepwater Gulf of Mexico is expected to be the source of a significant
percentage of increased oil production in the United States. The Minerals
Management Service estimates that by 2005 oil production from the deepwater Gulf
of Mexico will represent approximately 65% of total offshore oil production in
the United States.
Despite recent declines in the prices of oil and natural gas, the active
Gulf of Mexico offshore supply vessel fleet operating in the deepwater region
continues to operate at nearly 100% utilization, largely because of continuing
strong deepwater rig utilization as exploration, development and production
companies find larger reserves in the deepwater to meet increased reserve loss
through depletion. The deepwater mobile rig count in the Gulf of Mexico has
increased from 29 in April 1999 to 41 at the end of October 2001. The total
offshore supply vessel fleet in the Gulf of Mexico numbered 356 at the end of
September 2001, of which we believe approximately 54 that operate on the
continental shelf were unavailable for immediate service because they are cold
stacked. Vessels that are cold stacked are available for service but are not
under contract and are in drydock or need of a crew. Approximately one-quarter
of the over 300 active vessels have been built or "stretched" since 1996, and
are designed to operate in the deepwater regions of the Gulf of Mexico.
We anticipate that demand for deepwater offshore supply vessels in the Gulf
of Mexico will increase significantly in the near future. Although development
of deepwater fields has historically been limited by the substantially greater
cost of such development, new technologies, such as improved seismic surveying
and subsea production systems, have lowered deepwater finding and development
costs. Nevertheless, exploration and development activity in deepwater regions,
once begun, remains less sensitive to movements in oil and gas prices than
shallow water projects because the longer duration and higher costs still
associated with the exploration and development of deepwater regions create a
long-term commitment to deepwater projects regardless of short-term price
fluctuations.
The number of deepwater fields under evaluation and development has grown
dramatically in recent years. From 1990 to 2000, production in the deepwater
Gulf of Mexico increased from 4% to 52% of total Gulf of Mexico oil production
and from 1% to 20% of total Gulf of Mexico natural gas production. The Minerals
Management Service estimates that production of oil and gas from deepwater Gulf
of Mexico wells increased 20% and 15%, respectively, in 2000. Of the 72
deepwater Gulf of Mexico fields discovered to date, 42 fields began production
by the end of 2000, and another ten are expected to begin or have begun
production in 2001. Of the total ten billion barrels of oil equivalents of
initial estimated recoverable reserves in these fields, an estimated 85% remain
unproduced. Because offshore supply vessels with larger capacities and longer
ranges
44
are required to work in deepwater regions, we believe that the development of
these fields and other potential discoveries will result in a need for
additional deepwater offshore supply vessels beyond the number of currently
available vessels and vessels being constructed under announced construction
plans. This demand is most likely to be met through new construction.
Tug and Tank Barge Industry. Based upon our analysis of the industry, we
believe approximately 1.2 million barrels of clean and dirty petroleum products
are transported each day by tank barges operating in the coastwise trade in the
northeastern United States. The market is made up of a vast network of
refineries, terminals, tankers and pipelines delivering products to the harbors,
most of which is then transported to smaller distribution terminals by tank
barges.
The primary drivers of demand for tug and tank barge services in the
northeastern United States are population growth, the strength of the U.S.
economy and changes in weather patterns that affect consumption of heating oil
and gasoline. The tank barge market in general is marked by steady demand and we
believe that demand for refined petroleum products and crude oil will remain
steady or gradually increase in the foreseeable future. Specifically, we believe
that:
- demand for home heating oil will remain steady;
- gasoline shipments will continue to be supported by consistent demand
from existing automobile technology;
- diesel fuel consumption will grow slowly as economic activity requires
increased trucking miles and remain unaffected by any alternative fuel
technologies; and
- jet fuel consumption will increase as air travel and air freight activity
slowly increase.
The largest single market in the region is New York Harbor. Imported
petroleum products are primarily delivered to New York Harbor as it has the
capacity to receive products in cargo lots of 50,000 tons or more per tanker. By
contrast, draft limitations in most New England ports and drawbridge limitations
in Boston and Portland, Maine limit the average cargo carrying capacity of
direct imports into many of the largest New England ports to about 30,000 tons
per tanker. This means that ships importing directly into New England must
frequently discharge in multiple ports or terminals or transfer cargoes to tank
barges, involving more time and cost. As existing tankers are retired, they are
typically replaced by larger tankers. As larger petroleum tankers are being
built, we believe that direct delivery into New York Harbor with onward barging
to New England, the Hudson River and Long Island will increase.
We also believe that demand for barging services will be strengthened as
larger oil tankers are being built to replace oil tankers removed from service
due to mandates under the Oil Pollution Act of 1990, commonly referred to as OPA
90. These larger-sized tankers are being built to facilitate the importation of
crude oil and petroleum products into the United States, which is expected to
grow at compounded annual growth rates of 1.7% and 4.9%, respectively, through
2020, according to the Energy Information Agency. These larger tankers will
require lightering services provided by tugs and tank barges.
In addition, OPA 90 has imposed significant limits on the service lives and
capacity of most existing tank barges. Approximately 50% of the existing
combined U.S. flagged tanker and tank barge fleet in the northeastern United
States must be retired or substantially refurbished by December 31, 2005. Based
on the remaining lives of the majority of our tank barge fleet under OPA 90, we
believe we are well positioned to obtain additional customers in the
northeastern United States as currently available capacity is legally required
to be removed from service or substantially refurbished.
OUR OFFSHORE SUPPLY VESSEL BUSINESS
We serve the oil and gas industry in the deepwater region of the Gulf of
Mexico through the operation and management of a fleet of nine newly constructed
deepwater offshore supply vessels by our subsidiary, Hornbeck Offshore Services,
Inc. We also have four additional deepwater offshore supply vessels under
construction. We believe that the increased size of our vessel fleet will enable
us to take further advantage of the strong demand for offshore supply vessels in
the deepwater regions of the Gulf of Mexico, which has
45
resulted in high utilization levels and increased vessel dayrates,
notwithstanding recent declines in the prices of oil and natural gas.
To design, maintain and expand the quality of our offshore supply vessel
fleet, we have gathered a core team of naval architects and other marine
professionals. Where appropriate, we work closely with potential charterers to
design vessels specifically to meet their anticipated needs in operating a
deepwater project that could have a duration of more than twenty years and
require expenditures exceeding $1 billion. In such circumstances, we generally
contract these specially designed vessels for three to five years, with renewal
options, before construction is completed. Moreover, because we have already
established a reputation for ontime delivery and reliability, charterers have
contacted us to construct vessels to meet their needs. Although we will design
vessels to meet the specific needs of a charterer, we ensure in our design that
customization does not preclude efficient operation of these vessels for other
customers, for other purposes or in other situations.
Our offshore supply vessels serve drilling and production facilities and
support offshore construction and maintenance work. Supply boats differ from
other types of marine vessels in their cargo carrying flexibility and capacity.
In addition to transporting deck cargo, such as pipe or drummed material and
equipment, supply boats transport liquid mud, potable and drilling water, diesel
fuel and dry bulk cement. Accordingly, larger supply boats, which have greater
liquid mud and dry bulk cement capacities, as well as larger areas of open deck
space, than smaller supply boats, are generally in higher demand for deepwater
service than vessels without those capabilities.
We designed our fleet of offshore supply vessels specifically to meet the
demands of the Gulf of Mexico's deepwater areas. Deepwater wells require
specialized equipment to meet the more difficult operating environment compared
to wells drilled on the continental shelf. They also require a substantially
higher volume of supplies to support the drilling operations. Conventional
offshore supply vessels do not have sufficient on-deck or below-deck cargo
capacity to support deepwater drilling operations economically. Our vessels have
two to three times the dry bulk capacity and deck space, three to ten times the
liquid mud capacity and two to four times the deck tonnage as conventional 180'
offshore supply vessels, which are used primarily in shallow water regions on
the continental shelf. Our advanced cargo handling systems allow for dry bulk
and liquid cargoes to be loaded and unloaded three times faster, while the solid
state controls of our engines result in a 20% greater fuel efficiency than
vessels powered by conventional engines.
In addition, drilling rigs and offshore supply vessels operating in
deepwater environments generally require dynamic positioning capability to
enable continued operation in such environments, even in adverse weather
conditions. Conventional offshore supply vessels generally do not have dynamic
positioning capability. Our advanced dynamic positioning systems allow our
vessels to maintain position within a minimal variance. Our unique hull design
and integrated rudder and thruster system provide a more manageable vessel. Our
vessels have been designed with state-of-the-art lifesaving, fire alarm,
monitoring, emergency power and fire suppression systems. Our vessels also have
double-bottomed and double-sided hulls that minimize the environmental impact of
hull penetrations, solid state control that minimizes visible soot and polluting
gases and zero discharge sewage and waste systems that minimize the impact on
regulated marine environments.
While offshore supply vessels service existing oil and gas production
platforms as well as exploration and development activities, incremental vessel
demand depends primarily upon the level of drilling activity, which can be
influenced by a number of factors, including oil and gas prices and drilling
budgets of exploration and production companies. As a result, utilization and
dayrates have historically correlated to oil and gas prices and drilling
activity, although the higher initial costs of deepwater production and the
typically long-term nature of deepwater offshore supply vessel contracts have
weakened the significance of that correlation in recent years. Our operations
are presently limited to the Gulf of Mexico, which is one of the largest natural
gas production areas in the United States. Natural gas currently accounts for
approximately 60% of all hydrocarbon production in the Gulf of Mexico, and as a
result, activity in this region is highly dependent upon natural gas prices.
Based on the growth in deepwater discoveries and announced development
plans, the current and anticipated need for additional drilling rigs to service
such growth and the number of vessels needed to service
46
each rig, we believe that demand for offshore supply vessels capable of
operating efficiently and safely in deepwater areas will continue to increase
over the next two or three years, despite a recent decline in the prices of oil
and natural gas. We expect a continued shortage of adequate vessels serving the
deepwater Gulf of Mexico even though several of our competitors have announced
plans to build new offshore supply vessels greater than 200' in length, which
are specially designed for the deepwater market. Although vessels operating in
overseas locations that continue to be in compliance with the Jones Act
requirements may be remobilized from overseas locations if dayrates increase
significantly, we believe it is unlikely that any such remobilization would have
a significant impact in the near future.
Our offshore supply vessels are also designed to support certain specialty
services, including well stimulation, remotely operated vehicles used in
oilfield construction, underwater inspections, marine seismic operations and
certain non-energy applications such as fiber optics cable installation. We have
designed our offshore supply vessels to include such characteristics as
maneuverability, fuel efficiency and firefighting capacity, which strengthens
demand for their use in specialty situations. One of our vessels, the HOS
Innovator, is currently providing remotely operated vehicle and diving support
under a three-year contract. Our ninth offshore supply vessel, the BJ Blue Ray,
which was delivered in early November 2001, is operating under a five-year
contract to support well stimulation services with a large oilfield service
company. We recently entered into a three-year contract for the HOS Dominator,
our 240' class offshore supply vessel scheduled to be delivered in February
2002, with the same company that is chartering the HOS Innovator. Under this
contract, the HOS Dominator will provide support for remotely operated vehicles,
as well as inspection, maintenance, repair, subsea intervention, trenching,
diving, cargo transportation and cable- and pipe-laying services.
We have focused on providing high quality, responsive service while
maintaining a low cost structure. We believe the quality of our fleet and the
strength of our management team will allow us to develop and maintain long-term
customer relationships. Although we currently operate exclusively in the Gulf of
Mexico, our vessels are capable of operating in deepwater regions around the
world and all of our vessels are either fully SOLAS (Safety of Life at Sea)
certified or SOLAS ready. SOLAS is the international convention that regulates
the technical characteristics of vessels for purposes of ensuring international
standards of safety for vessels engaged in commerce between international ports.
The following table provides information, as of November 15, 2001,
regarding the offshore supply vessels owned by us as well as those under
construction.
OFFSHORE SUPPLY VESSELS
<Table>
<Caption>
BRAKE
CLASS CURRENT SERVICE HORSE-
NAME LENGTH (FEET) FUNCTION(1) DATE IN SERVICE POWER
- ---- ------------- ------------------ -------------------- -------
HOS Crossfire........ 200 Supply November 1998 4,000
HOS Super H.......... 200 Supply January 1999 4,000
HOS Brigadoon........ 200 Supply March 1999 4,000
HOS Thunderfoot...... 200 ROV Support/Supply May 1999 4,000
HOS Dakota........... 200 Supply June 1999 4,000
HOS Deepwater........ 240 Supply November 1999 4,500
HOS Cornerstone...... 240 Supply March 2000 4,500
HOS Innovator........ 240 ROV Support April 2001 4,500
BJ Blue Ray.......... 265 Well Stimulation November 2001 6,700
HOS Dominator........ 240 ROV Support February 2002 (Est.) 4,500
Newbuild 3........... 265 TBD April 2002 (Est.) 6,700
Newbuild 4........... 265 TBD June 2002 (Est.) 6,700
Newbuild 5........... 265 TBD July 2002 (Est.) 6,700
</Table>
- ---------------
(1) ROV: remotely operated vehicle
TBD: to be determined
47
The following table provides a comparison of certain specifications and
capabilities of our deepwater offshore supply vessels in comparison to
conventional 180' offshore supply vessels used primarily on the continental
shelf of the Gulf of Mexico.
<Table>
<Caption>
CONVENTIONAL
180' HORNBECK 200' HORNBECK 240' HORNBECK 265'
OSV(1) CLASS CLASS CLASS
------------ ------------- ------------- -------------
SIZE
Class length overall (ft.)...... 180 200 240 265
Breadth (ft.)................... 40 54 54 60
Depth (ft.)..................... 14 18 18 22
Maximum draft (ft.)............. 12 13 13 16
Deadweight (long tons).......... 950 1,750 2,250 3,560
Clear deck area (sq. ft.)....... 3,450 6,580 8,836 9,212
CAPACITY
Fuel capacity (gallons)......... 79,400 90,000 151,800 151,800
Fuel pumping rate (gallons per
minute)...................... 275 500 500 500
Drill water capacity (cu.
ft.)......................... 141,000 240,000 240,000 332,500
Dry bulk capacity (cu. ft.)..... 4,000 7,000 8,400 10,800
Liquid mud capacity (barrels)... 1,200 3,640 6,475 11,500
Liquid mud pumping rate (gals
per minute).................. 250 550 600 600
Potable water capacity
(gallons).................... 11,500 52,200 52,200 52,200
MACHINERY
Main engines (horsepower)....... 2,250 4,000 4,500 6,700
Auxiliaries (number)............ 2 3 3 3
Total rating (kw)............... 270 750 750 1,000
Bow thruster (horsepower)....... 325 800 1,600 2,400
Type......................... Controllable Controllable Controllable
Fixed Pitch Pitch Pitch Pitch
Stern thruster (horsepower)..... N/A N/A 800 1,600
Type......................... Controllable Controllable
N/A N/A Pitch Pitch
Fire fighting (gallons per
minute)...................... 1,000 1,250 2,700 2,700
Dynamic positioning(2).......... N/A DP1 DP1/2 DP2/3
CREW REQUIREMENTS
Number of personnel(3).......... 5 5 5 7
</Table>
- ---------------
(1) Statistics are for a typical 180' class vessel. Actual specifications and
capabilities may vary from vessel to vessel.
(2) Dynamic positioning permits a vessel to maintain position without the use of
anchors. The numbers "1," "2" and "3" refer to increasing levels of
sophistication and system redundancy features.
(3) Regulatory manning requirements; depending on the services provided,
operators may man vessels with more crew than required by regulations.
OUR TUG AND TANK BARGE BUSINESS
Through our subsidiary, LEEVAC Marine, Inc., we own and operate a fleet of
thirteen ocean-going tugs and seventeen ocean-going tank barges, one of which
has been bareboat chartered to a third party. Generally,
48
a tug and tank barge work together as a "tow" to transport refined or bunker
grade petroleum products along the coast of Puerto Rico and in the Caribbean and
the upper east coast of the United States. A tank barge carries petroleum
products that are typically characterized as either "clean" or "dirty." Clean
products are primarily gasoline, home heating oil, diesel fuel and jet fuel.
Dirty products are mainly residual fuel oil and asphalts.
Our tugs and tank barges serve the northeastern U.S. coast, primarily New
York Harbor, by transporting both clean and dirty petroleum products to and from
refineries and distribution terminals. Our tugs and tank barges also transport
both clean and dirty petroleum products from refineries and distribution
terminals to the Puerto Rico Electric Power Authority and to utilities located
on other Caribbean islands. In addition, we provide ship lightering, bunkering
and docking services in these markets and are well positioned to provide such
services to the new tankers that are too large to make direct deliveries to
distribution terminals and refineries.
On May 31, 2001, we acquired nine ocean-going tugs and nine ocean-going
tank barges from the Spentonbush/Red Star Group, composed of certain affiliates
of Amerada Hess, as well as the business related to these tugs and barges,
greatly expanding our capacity in the northeastern United States and increasing
our market share of the coastwise trade on the U.S. upper east coast. As part of
the acquisition, Amerada Hess entered into a long-term contract of affreightment
with us pursuant to which Amerada Hess has committed to use us as its exclusive
marine logistics provider and transporter of liquid petroleum products in the
northeastern United States. Under this contract, Amerada Hess has committed to
ship a minimum of 45 million barrels annually for an initial period from June 1,
2001 through March 31, 2006 with options to renew for subsequent periods. Also
under the contract, we have the opportunity, on a reasonable commercial efforts
basis, to coordinate the marine logistics for Amerada Hess in the southeastern
United States, subject to Amerada Hess's right to cancel within 30 days after
December 31 of each year of the contract.
The contract of affreightment will provide us with a significant source of
revenues over the life of the contract. Our contract of affreightment allows
Amerada Hess to reduce its minimum annual cargo volume commitment subject to a
significant adjustment penalty. If Amerada Hess does not transport volumes as
contemplated under the contract, we believe that we would be able to replace
such volumes through other customers. We believe that there is currently little
or no excess capacity in the northeastern United States coastwise trade tank
barge market during the peak heating season and it is not likely that there will
be excess capacity in the foreseeable future. Thus, a change by Amerada Hess to
another marine transporter would cause the displacement of such transporter's
other customers. Given the lack of excess capacity in this market, we believe
that such displaced customers would turn to us because we would be the only
marine transporter with available capacity.
49
The following tables provide information, as of November 15, 2001,
regarding the tugs and tank barges we own.
OCEAN-GOING TANK BARGES
<Table>
<Caption>
BARREL OPA 90
NAME CAPACITY LENGTH (FEET) YEAR BUILT DATE(1)
- ---- -------- ------------- ---------- ----------
Energy 11101.............................. 111,844 420 1979 2009
Energy 11102.............................. 111,844 420 1979 2009
Energy 9801............................... 97,432 390 1967 2004
M/V W.K. McWilliams, Jr.(2)............... -- 402 1992 N/A
Energy 9501............................... 94,442 346 1972 2004
Energy 8701............................... 86,454 360 1976 2004
Energy 7002............................... 72,693 351 1971 2015
Energy 7001............................... 72,016 300 1977 2015
Energy 6504............................... 66,333 305 1958 2015
Energy 6505............................... 65,710 328 1978 2015
Energy 6503............................... 65,145 327 1988 2015
Energy 6502............................... 64,317 300 1980 2015
Energy 6501............................... 63,875 300 1974 2015
Energy 5501............................... 57,848 341 1969 2015
Energy 5502............................... 55,761 309 1969 2015
Energy 2201............................... 22,556 242 1973 2015
Energy 2202............................... 22,457 242 1974 2015
</Table>
- ---------------
(1) For a discussion of OPA 90 see "-- Environmental and Other Governmental
Regulations" below.
(2)This self-propelled tank barge, acquired on November 15, 2001, is not
currently certificated to transport petroleum products and, therefore, barrel
capacity is not applicable to this vessel.
OCEAN-GOING TUGS
<Table>
<Caption>
BRAKE
NAME GROSS TONNAGE LENGTH (FEET) YEAR BUILT HORSEPOWER
- ---- ------------- ------------- ---------- ----------
Ponce Service......................... 190 107 1970 4,200
Caribe Service........................ 194 111 1970 4,200
Atlantic Service...................... 198 105 1978 4,000
Brooklyn Service...................... 198 105 1975 4,000
Gulf Service.......................... 198 126 1979 4,000
Tradewind Service..................... 183 105 1975 3,000
Yabucoa Service....................... 183 105 1975 3,000
Spartan Service....................... 126 102 1978 3,000
Sea Service........................... 173 109 1975 2,820
Port Service.......................... 198 95 1957 2,300
North Service......................... 187 100 1978 2,200
Bay Ridge Service..................... 194 100 1981 2,000
Stapleton Service..................... 146 78 1966 1,530
</Table>
50
CUSTOMERS AND CHARTER TERMS
Major integrated oil companies and large independent oil and gas
exploration, development and production companies constitute the majority of our
customers for our offshore supply vessel services, while refining, marketing and
trading companies constitute the majority of our customers for our tug and tank
barge services. The number and identity of our customers vary from year to year,
as does the percentage of revenues attributable to a specific customer. The
percentage of revenues attributable to a customer in any particular year depends
on the level of oil and gas exploration, development and production activities
undertaken or refined petroleum products or crude oil transported by a
particular customer, the availability and suitability of our vessels for the
customer's projects or products and other factors, many of which are beyond our
control.
Currently, seven of our nine offshore supply vessels, as well as the HOS
Dominator, our 240' class offshore supply vessel scheduled to be delivered in
February 2002, are under long-term charter contracts, with initial terms ranging
from two to five years. Certain of the contracts for our offshore supply vessels
contain early termination options in favor of the customer, some with
substantial early termination penalties designed to discourage the customers
from exercising such options. Similarly, thirteen of our seventeen tank barges
provide services under long-term contracts of one year or longer. Our offshore
supply vessels have performed services for 34 different customers, and our tugs
and tank barges have performed services for 84 different customers. Because of
the variety and number of customers historically using the services of our
fleet, we believe that the loss of any one customer would not have a material
adverse effect on our business.
We enter into a variety of contract arrangements with our customers,
including spot and time charters, contracts of affreightment and consecutive
voyage contracts. Our contracts are obtained through competitive bidding or,
with established customers, through negotiation.
COMPETITION
We operate in a highly competitive industry. Competition in the offshore
supply vessel and ocean-going tug and tank barge segments of the marine
transportation industry primarily involves factors such as:
- availability and capability of the vessels,
- ability to meet the customer's schedule,
- price,
- safety record,
- reputation and
- experience.
Under the terms of the Merchant Marine Act of 1920, also known as the Jones
Act, competition in the coastwise trade in the United States and Puerto Rico is
restricted to vessels built in the United States that are U.S. flagged and owned
and managed by U.S. citizens.
We believe we operate the second largest fleet of offshore supply vessels
designed for service in the deepwater Gulf of Mexico. We operate the largest
tank barge fleet in Puerto Rico and we believe that we are the fourth largest
transporter by tank barge of petroleum products in New York Harbor.
We do not anticipate significant competition in the near term from
pipelines as an alternative method of petroleum product delivery in the
northeastern United States or Puerto Rico. No pipelines are currently under
construction that could provide significant competition to tank barges in the
northeastern United States or
51
Puerto Rico, nor are any new pipelines likely to be built in the near future due
to cost constraints and logistical and environmental requirements.
Although some of our principal competitors are larger and have greater
financial resources and international experience, we believe that our operating
capabilities and reputation enable us to compete effectively with other fleets
in the market areas in which we operate. In particular, we believe that the
relatively young age and advanced features of our offshore supply vessels
provide us with a competitive advantage in both the shelf and deepwater segments
of the Gulf of Mexico. The ages of our offshore supply vessels range from one
month to 35 months, while approximately 80% of the offshore supply vessels
operating in the Gulf of Mexico continental shelf areas are over 18 years old,
with many approaching 25 years old. We believe that many of these older vessels
will be retired in the next few years. In addition to the young age of our
fleet, the advanced capabilities of our fleet position us to take advantage of
the expanding deepwater segment of the Gulf of Mexico. Operators in the
deepwater segment of the Gulf of Mexico typically require larger offshore supply
vessels with greater capacities than conventional 180' class offshore supply
vessels. All of our existing supply vessels provide faster horsepower and
greater capacities for drill water, dry bulk, drilling mud and mud pumping than
conventional vessels. Upon completion of our five vessels currently under
construction, we believe that we will be in an even better position to provide
continuing service in the growing deepwater segment of the Gulf of Mexico. We
also believe we hold a competitive advantage with respect to our tank barges:
most of our barges will not be required to be removed from service under OPA 90
until January 1, 2015, while many of the tank barges in the fleets of our
competitors currently operating in the northeastern U.S. must be retired or
modified by 2005. We also believe we have a competitive advantage with respect
to our tank barge operations in Puerto Rico because labor restrictions and tax
laws in Puerto Rico and mobilization/demobilization costs make it impractical
for competitors to provide occasional transportation services without entering
the market on a long-term basis.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
Our operations are significantly affected by a variety of federal, state
and local laws and regulations governing worker health and safety and the
manning, construction and operation of vessels. Certain governmental agencies,
including the U.S. Coast Guard, the National Transportation Safety Board, the
U.S. Customs Service and the Maritime Administration of the U.S. Department of
Transportation, have jurisdiction over our operations. In addition, private
industry organizations such as the American Bureau of Shipping oversee aspects
of our business. The Coast Guard and the National Transportation Safety Board
establish safety criteria and are authorized to investigate vessel accidents and
recommend improved safety standards.
The U.S. Coast Guard regulates and enforces various aspects of marine
offshore vessel operations. Among these are classification, certification,
routes, dry-docking intervals, manning requirements, tonnage requirements and
restrictions, hull and shafting requirements and vessel documentation. Coast
Guard regulations require that each of our vessels be dry-docked for inspection
at least twice within a five-year period.
Under Section 27 of the Merchant Marine Act of 1920, also known as the
Jones Act, the privilege of transporting merchandise or passengers for hire in
the coastwise trade in U.S. domestic waters extends only to vessels that are
owned and managed by U.S. citizens and are built in and registered under the
laws of the United States. A corporation is not considered a U.S. citizen
unless, among other things:
- the corporation is organized under the laws of the United States or of a
state, territory or possession of the United States,
- at least 75% of the ownership of voting interest with respect to its
capital stock is held by U.S. citizens,
- the corporation's chief executive officer, president and chairman of the
board are U.S. citizens and
- no more than a minority of the number of directors necessary to
constitute a quorum for the transaction of business are foreigners.
52
If we fail to comply with these requirements, our vessels lose their eligibility
to engage in coastwise trade within U.S. domestic waters. To facilitate
compliance, our certificate of incorporation:
- limits ownership by foreigners of any class of our capital stock
(including our common stock) to 22.5%, so that foreign ownership will not
exceed the 25% permitted;
- permits withholding of dividends and suspension of voting rights with
respect to any shares held by foreigners that exceed 22.5%;
- permits a stock certification system with two types of certificates to
aid tracking of ownership and
- permits our board of directors to make such determinations to ascertain
ownership and implement such measures as reasonably may be necessary.
Our operations are also subject to a variety of federal, state, local and
international laws and regulations regarding the discharge of materials into the
environment or otherwise relating to environmental protection. The requirements
of these laws and regulations have become more complex and stringent in recent
years and may, in certain circumstances, impose strict liability, rendering a
company liable for environmental damages and remediation costs without regard to
negligence or fault on the part of such party. Aside from possible liability for
damages and costs associated with releases of hazardous materials including oil
into the environment, such laws and regulations may expose us to liability for
the conditions caused by others or even acts of ours that were in compliance
with all applicable laws and regulations at the time such acts were performed.
Failure to comply with applicable laws and regulations may result in the
imposition of administrative, civil and criminal penalties, revocation of
permits, and issuance of corrective action orders. Moreover, it is possible that
changes in the environmental laws, regulations or enforcement policies or claims
for damages to persons, property, natural resources or the environment could
result in substantial costs and liabilities to us. We believe that we are in
substantial compliance with currently applicable environmental laws and
regulations.
OPA 90 and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills and
liability for damages resulting from such spills. A "responsible party" includes
the owner or operator of an onshore facility, pipeline or vessel or the lessee
or permittee of the area in which an offshore facility is located. OPA 90
assigns liability to each responsible party for oil removal costs and a variety
of public and private damages. Under OPA 90, "tank vessels" of over 3,000 gross
tons that carry oil or other hazardous materials in bulk as cargo, a term which
includes our tank barges, are subject to liability limits of the greater of
$1,200 per gross ton or $10 million. For any vessels, other than "tank vessels,"
that are subject to OPA 90, the liability limits are the greater of $0.5 million
or $600 per gross ton. A party cannot take advantage of liability limits if the
spill was caused by gross negligence or willful misconduct or resulted from
violation of a federal safety, construction or operating regulation. If the
party fails to report a spill or to cooperate fully in the cleanup, the
liability limits likewise do not apply.
OPA 90 also imposes ongoing requirements on a responsible party, including
preparedness and prevention of oil spills, preparation of an oil spill response
plan and proof of financial responsibility (to cover at least some costs in a
potential spill) for vessels in excess of 300 gross tons. We have engaged the
National Response Corporation to serve as our independent contractor for
purposes of providing stand-by oil spill response services in all geographical
areas of our fleet operations. In addition, our Oil Spill Response Plan has been
approved by the U.S. Coast Guard. Finally, we have provided satisfactory
evidence of financial responsibility to the U.S. Coast Guard for all of our
vessels over 300 tons.
OPA 90 requires that all newly-built tank vessels used in the transport of
petroleum products be built with double-hulls and provides for a phase-out
period for existing single-hull vessels. Modifying existing vessels to provide
for double-hulls will be required of all tank barges and tankers in the industry
by the year 2015. We are in a favorable position concerning this provision
because a significant number of vessels in our fleet of tank barges weigh less
than 5,000 gross tons. Vessels of such tonnage may continue to operate without
double-hulls through the year 2015. Under existing legal requirements,
therefore, we will not be required to modify or replace most of our tank barges
before 2015. Although we are not aware of anything that would lead us to believe
this will change, a change in the law affecting the requirement for double-hulls
or other aspects of
53
our operations may occur that would require us to modify or replace our existing
tank barge fleet earlier than currently anticipated.
The Clean Water Act imposes strict controls on the discharge of pollutants
into the navigable waters of the United States. The Clean Water Act also
provides for civil, criminal and administrative penalties for any unauthorized
discharge of oil or other hazardous substances in reportable quantities and
imposes substantial liability for the costs of removal and remediation of an
unauthorized discharge. Many states have laws that are analogous to the Clean
Water Act and also require remediation of accidental releases of petroleum in
reportable quantities. Our vessels routinely transport diesel fuel to offshore
rigs and platforms and also carry diesel fuel for their own use. Our supply
boats transport bulk chemical materials used in drilling activities and liquid
mud, which contains oil and oil by-products. We maintain vessel response plans
as required by the Clean Water Act to address potential oil spills.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, also known as "CERCLA" or "Superfund," and similar laws impose
liability for releases of hazardous substances into the environment. CERCLA
currently exempts crude oil from the definition of hazardous substances for
purposes of the statute, but our operations may involve the use or handling of
other materials that may be classified as hazardous substances. CERCLA assigns
strict liability to each responsible party for all response and remediation
costs, as well as natural resource damages and thus we could be held liable for
releases of hazardous substances that resulted from operations by third parties
not under our control or for releases associated with practices performed by us
or others that were standard in the industry at the time.
The Resource Conservation and Recovery Act regulates the generation,
transportation, storage, treatment and disposal of onshore hazardous and
non-hazardous wastes and requires states to develop programs to ensure the safe
disposal of wastes. We generate non-hazardous wastes and small quantities of
hazardous wastes in connection with routine operations. We believe that all of
the wastes that we generate are handled in compliance with the Resource
Conservation and Recovery Act and analogous state statutes.
In or around early September 2000, LEEVAC Marine, a subsidiary of ours, was
one of approximately 130 companies that received a letter from the U.S.
Environmental Protection Agency, also known as the "EPA," directing LEEVAC
Marine to respond to a request for information on hazardous substances that may
have been sent by it to the Palmer Barge Line Site in Port Arthur, Texas. The
Palmer Barge Line Site was listed as a federal Superfund site in July 2000.
According to records furnished by EPA, LEEVAC Marine had two tank cleaning jobs
performed at this site in September-October 1988 at a cost of approximately
$12,000. We believe that the cleaning services performed by Palmer Barge Line
involved the removal of non-hazardous waste. In late September 2001, LEEVAC
Marine received a letter from the EPA notifying LEEVAC Marine that it is no
longer identified as a potentially responsible party in this matter and,
therefore, we do not believe that we will have any ultimate liability with
respect to this matter. LEEVAC Marine was notified in March 1996 regarding the
possibility of remediating on a voluntary basis certain waste pits at the SBA
Shipyards site in Jennings, Louisiana. This site is not identified as a
Superfund site. Subsequent to this initial notice, in December 2000, LEEVAC
Marine was one of approximately 14 companies that formed a limited liability
company referred to as "SSCI Remediation, LLC" to address this matter. LEEVAC
Marine accrued a $97,500 liability at the time of the formation of the company
to cover this expense. LEEVAC Marine's current percentage of liability for
cleanup efforts at this site is estimated at approximately 1.7%, and, to date,
it has contributed approximately $34,000 towards this cleanup effort. This
amount represents LEEVAC Marine's share of a $2 million voluntary clean-up plan
submitted to the limited liability company's member group by an independent
contractor whose contract is to clean up the site in a manner that will meet
both state and federal standards. Remedial activities have begun at the SBA
Shipyards site. Pursuant to the agreement in June 1997, Cari Investment Company
agreed to indemnify us for certain matters, which would include those discussed
in this paragraph. The indemnity would be applicable to all liabilities,
obligations, damages and expenses related to the Superfund matter and to all
liabilities, obligations, damages and expenses in excess of $0.1 million related
to the SBA Shipyards matter. Christian G. Vaccari, our Chairman and Chief
Executive Officer, is a minority shareholder and President of Cari Investment
Company.
54
The Outer Continental Shelf Lands Act gives the federal government broad
discretion to regulate the release of offshore resources of oil and gas. Because
our operations rely primarily on offshore oil and gas exploration, development
and production, if the government were to exercise its authority under the Outer
Continental Shelf Lands Act to restrict the availability of offshore oil and gas
leases, such an action would have a material adverse effect on our financial
condition and results of operations.
In addition to laws and regulations affecting us directly, our operations
are also influenced by laws, regulations and policies which affect our
customers' drilling programs and the oil and gas industry as a whole.
We currently have in place pollution insurance coverage for oil spills in
navigable waters of the United States. Our eight offshore supply vessels have $5
million in primary insurance coverage for such offshore oil spills, with an
additional $100 million in excess umbrella coverage. In addition, sixteen of our
seventeen tank barges have $10 million in primary insurance coverage for such
offshore oil spills, with an excess umbrella coverage of $1 billion. Our
seventeenth tank barge is leased under a bareboat charter, and the operator of
that tank barge is responsible for insuring the tank barge for offshore oil
spills. Finally, our thirteen tugs have $5 million in primary insurance coverage
for these offshore oil spills, with an excess umbrella coverage of $1 billion.
Our tugs and tank barges acquired from the Spentonbush/Red Star Group have
obtained ISO 14001 certifications for environmental management from the
International Standards Organization and are also certified under the
International Safety Management Code, developed by the International Maritime
Organization to provide internationally recognized standards for, among other
things, pollution prevention. Our other tugs and tank barges participate in the
Responsible Carrier Program developed by the American Waterways Operators to
improve marine safety and environmental protection in the tank barge industry.
Our offshore supply vessels participate in the U.S. Coast Guard's Streamlined
Inspection Program to maintain the overall quality of our vessels and their
operating systems. We believe that our voluntary attainment and maintenance of
these certifications and participation in these programs provides evidence of
our commitment to operate in a manner that minimizes our impact on the
environment.
In connection with the terrorist attacks in New York on September 11, 2001,
certain of our tugs operating in New York Harbor were requisitioned by the U.S.
Coast Guard for four days pursuant to federal law authorizing the requisition of
U.S. owned vessels in a national emergency. We have been advised by the Federal
Emergency Management Association that we will be compensated for its use of our
tugs and we do not believe that the loss of revenues associated with such
requisition by the Coast Guard will have a material adverse impact on our
financial condition or results of operations.
OPERATING HAZARDS AND INSURANCE
The operation of our vessels is subject to various risks, such as
catastrophic marine disaster, adverse weather conditions, mechanical failure,
collision and navigation errors, all of which represent a threat to personnel
safety and to our vessels and cargo. We maintain insurance coverage that we
consider customary in the industry against certain of these risks, including, as
discussed above, $1 billion in pollution insurance for the tug and tank barge
fleet and $100 million of pollution coverage for the offshore supply vessels. We
believe that our current level of insurance is adequate for our business and
consistent with industry practice, and we have not experienced a loss in excess
of our policy limits. We may not be able to obtain insurance coverage in the
future to cover all risks inherent in our business, or insurance, if available,
may be at rates that we do not consider to be commercially reasonable. In
addition, as more single-hulled vessels are retired from active service,
insurers may be less willing to insure and customers less willing to hire
single-hulled vessels.
EMPLOYEES
At October 31, 2001, we had 358 employees in the United States and Puerto
Rico, including 298 operating personnel and 60 corporate, administrative and
management personnel. None of our employees are
55
represented by a union or employed pursuant to a collective bargaining agreement
or similar arrangement. The International Organization of Masters, Mates and
Pilots, ILA, AFL-CIO, recently initiated action to organize a union covering our
19 employees in Puerto Rico. We have not experienced any strikes or work
stoppages. Our management believes that we have good relations with our
employees.
PROPERTIES
Our headquarters are located in Mandeville, Louisiana in a leased facility
consisting of approximately 6,500 square feet. This facility houses our
principal executive and administrative offices. The lease on this facility is
month to month. For local support, we have an office in Puerto Rico consisting
of approximately 1,900 square feet. To support our operations in the
northeastern United States, we lease office space and warehouse space in
Brooklyn, New York, consisting of approximately 66,760 square feet. We also
lease dock space, consisting of approximately 36,000 square feet, in Brooklyn,
New York. We operate our tug and tank barge fleet from these New York
facilities. The lease on the dock space expires in 2006. We believe that our
facilities, including waterfront locations used for vessel dockage and certain
vessel repair work, provide an adequate base of operations for the foreseeable
future. Information regarding our fleet is set forth above in "Business -- Our
Offshore Supply Vessel Business" and "-- Our Tug and Tank Barge Business."
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings, although we
may from time to time be subject to various legal proceedings and claims that
arise in the ordinary course of business.
SEASONALITY OF BUSINESS
Demand for our offshore supply vessel services is directly affected by the
levels of offshore drilling activity. Budgets of many of our customers are based
upon a calendar year, and demand for our services has historically been stronger
in the third and fourth calendar quarters when allocated budgets are expended by
our customers and weather conditions are more favorable for offshore activities.
Many other factors, such as the expiration of drilling leases and the supply of
and demand for oil and gas, may affect this general trend in any particular
year. These factors have less impact on our offshore supply vessel business due
to the long-term full utilization nature of most of our contracts.
Tank barge services are significantly affected by demand for refined
petroleum products and crude oil. Such demand is seasonal and often dependent on
weather conditions. Unseasonably mild winters result in significantly lower
demand for heating oil in the northeastern United States, which is a significant
market for our tank barge services. Conversely, the summer driving season can
increase demand for automobile fuel and, accordingly, the demand for our
services.
56
DIRECTORS AND MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Christian G. Vaccari............. 42 Chairman of the Board and Chief Executive Officer
Todd M. Hornbeck................. 33 President, Chief Operating Officer, Secretary and
Director
James O. Harp, Jr. .............. 41 Vice President and Chief Financial Officer
Carl G. Annessa.................. 44 Vice President of Operations
Paul M. Ordogne.................. 49 Treasurer and Controller
Richard W. Cryar................. 53 Director
Larry D. Hornbeck................ 63 Director
Bruce W. Hunt.................... 43 Director
Bernie W. Stewart................ 57 Director
Andrew L. Waite.................. 40 Director
</Table>
Christian G. Vaccari has served as our Chairman of the Board and Chief
Executive Officer since our formation in June 1997. Since 1989, Mr. Vaccari has
served as President, Chief Executive Officer and Chairman of the Board of Cari
Investment Company, the former parent of LEEVAC Marine, Inc. From 1988 to 1994,
he served as Director of Corporate Development and Marketing for JAMO, Inc., a
leading building materials company in the southeastern United States. From 1984
to 1988, Mr. Vaccari was an investment advisor with Thomson McKinnon, Inc., an
investment banking firm. Since July 1997, Mr. Vaccari has served as a director
of Riverbarge Excursion Lines, Inc. and since October 1999, he has served as a
general partner in the equity fund, Audubon Capital Fund I, L.P.
Todd M. Hornbeck has served as our President, Chief Operating Officer and
Secretary and as a director since our formation in June 1997. Mr. Hornbeck
worked for the original Hornbeck Offshore Services, Inc., a publicly held
offshore service vessel company, from 1986 to 1996, serving in various positions
relating to business strategy and development. Following the merger of Hornbeck
Offshore Services, Inc. with Tidewater, Inc. (NYSE:TDW) in March 1996, he
accepted a position as Marketing Director -- Gulf of Mexico with Tidewater,
where his responsibilities included managing relationships and overall business
development in the Gulf of Mexico region. Mr. Hornbeck remained with Tidewater
until our formation. Mr. Hornbeck is the son of Larry D. Hornbeck.
James O. Harp, Jr. has served as our Vice President and Chief Financial
Officer since January 2001. Before joining us, Mr. Harp served as Vice President
in the Energy Group of RBC Dominion Securities Corporation, an investment
banking firm, from August 1999 to January 2001 and as Vice President in the
Energy Group of Jefferies & Company, Inc., an investment banking firm, from June
1997 to August 1999. From July 1982 to June 1997 he served in a variety of
capacities, most recently as Tax Principal, with Arthur Andersen LLP. Since
April 1992, he has also served as Treasurer and Director of SEISCO, Inc., a
seismic brokerage company.
Carl G. Annessa has served as our Vice President of Operations since
September 1997. Mr. Annessa's responsibilities include not only operational
oversight but, based on his education as a naval architect, design and
implementation of our vessel construction program. Before joining us, he was
employed for seventeen years by Tidewater, Inc., in various technical and
operational management positions, including management of large fleets of
offshore supply vessels in the Arabian Gulf, Caribbean and West African markets.
Mr. Annessa was employed for two years by Avondale Shipyards, Inc. as a naval
architect before joining Tidewater.
57
Paul M. Ordogne has served as our Treasurer and Controller since our
formation in June 1997. From 1980 to June 1997, he worked for Cari Investment
Company, serving in various financial and accounting positions, including those
of controller and assistant treasurer. Mr. Ordogne is a certified public
accountant.
Richard W. Cryar has served as one of our directors since our formation in
June 1997. Since 1994, he has served as Managing Member of Cari Capital Company,
L.L.C., a merchant banking firm. Since October 1999, Mr. Cryar has served as a
general partner in the equity fund, Audubon Capital Fund I, L.P.
Larry D. Hornbeck joined our Board of Directors effective August 22, 2001.
Mr. Hornbeck was the founder of the original Hornbeck Offshore Services, Inc.
From its inception in 1981 until its merger with Tidewater, Inc., Mr. Hornbeck
served as the Chairman of the Board, President and Chief Executive Officer of
Hornbeck Offshore Services. Following the merger, Mr. Hornbeck served as a
director of Tidewater from March 1996 until October 2000. Mr. Hornbeck is the
father of Todd M. Hornbeck.
Bruce W. Hunt has served as one of our directors since August 1997. He has
been President of Petrol Marine Corporation since 1988 and President and
Director of Petro-Hunt, L.L.C. since 1997. Mr. Hunt served as a director of the
former Hornbeck Offshore Services, Inc., a public company, from November 1992 to
March 1996.
Bernie W. Stewart joined our Board of Directors effective November 21,
2001. Mr. Stewart was Senior Vice President, Operations of R&B Falcon
Corporation and President of R&B Falcon Drilling U.S., its domestic operating
subsidiary, from May 1999 until R&B Falcon Corporation merged with Transocean
Sedco Forex Inc. (NYSE:RIG) in January 2001. Between April 1996 and May 1999, he
served as Chief Operating Officer of R&B Falcon Holdings, Inc. and as President
of such company since January 1998. From 1993 until joining R&B Falcon Holdings,
he was Chief Operating Officer for the original Hornbeck Offshore Services,
Inc., where he was responsible for overall supervision of the company's
operations. From 1986 until 1993, he was President of Western Oceanics, Inc., an
offshore drilling contractor. Since leaving R&B Falcon Corporation upon its
merger with Transocean Sedco Forex, Mr. Stewart has been an independent business
consultant.
Andrew L. Waite has served as one of our directors since November 2000. He
was appointed to our board as the designee of SCF IV, L.P. Mr. Waite is a
Managing Director of L.E. Simmons & Associates, Incorporated and has been an
officer of that company since October 1995. He was previously Vice President of
Simmons & Company International, where he served from August 1993 to September
1995. From 1984 to 1991, Mr. Waite held a number of engineering and management
positions with the Royal Dutch/Shell Group, an integrated energy company. He
currently serves as a director of Oil States International, Inc. (NYSE:OIS), a
diversified oilfield and equipment service company, WorldOil.com Inc., an online
oilfield services portal, and Canyon Offshore, Inc., a provider of remotely
operated vehicle services.
Advisory Director. R. Clyde Parker, Jr. serves as a non-voting advisory
director to our Board of Directors. Mr. Parker served as one of our directors
from our formation in June 1997 until August 2001. He has been a shareholder
with the law firm of Winstead Sechrest & Minick P.C. since May 1996. Mr. Parker
was previously a partner with the law firm of Keck, Mahin & Cate from February
1992 to May 1996. Mr. Parker was also an attorney with Weil, Gotshal & Manges
from June 1986 to February 1992 and with Vinson & Elkins from April 1983 to June
1986. He was a certified public accountant and practiced in public accounting
with A.M. Pullen & Company (now McGladrey & Pullen) from June 1971 through July
1980.
Voting Agreements. Under the terms of a voting agreement among Todd M.
Hornbeck, Troy A. Hornbeck, Cari Investment Company and the company, the
Hornbecks and Cari Investment Company have agreed to vote their shares in such
manner as to maintain equal representation of Todd and Troy Hornbeck, on the one
hand, and Cari Investment Company, on the other hand, on our board and on any
committee designated by our board until the earlier of completion of an initial
public offering, the tenth anniversary of the agreement or certain other events
specified in the agreement. Under the terms of a stockholders' agreement among
SCF-IV, L.P., Todd Hornbeck, Troy Hornbeck, Cari Investment Company and the
company, Todd and Troy Hornbeck and Cari Investment Company have agreed to vote
their shares in favor of SCF-IV, L.P.'s designee to our board, so long as it
owns at least 5% of the company's outstanding common stock or, prior to an
initial public offering, it owns at least 80% of the common stock it acquired in
November 2000.
58
SCF-IV, L.P. also agrees to vote its shares in favor of the two designees of
Todd and Troy Hornbeck and the two designees of Cari Investment Company.
Pursuant to a voting arrangement entered into between SCF-IV, L.P. and the
company in connection with our private equity offering completed in October
2001, SCF is restricted from voting 562,081 of its shares.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has a compensation committee, which currently
consists of Messrs. Larry Hornbeck, Hunt, Cryar and Waite. The compensation
committee:
- reviews and recommends to the board of directors the compensation and
benefits of our executive officers,
- establishes and reviews general policies relating to our compensation and
benefits and
- administers our stock incentive plan.
The board has also established an audit committee comprised of the same
members that serve on the compensation committee. Subject to shareholder
approval, the audit committee selects the independent public accountants to
audit our annual financial statements. The audit committee also establishes the
scope of, and oversees, the annual audit.
Our board may establish other committees from time to time to facilitate
the management of the business and affairs of our company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of a compensation
committee or board of directors of any other entity which has an executive
officer serving as a member of our board of directors.
TERM AND COMPENSATION OF DIRECTORS
The members of our board of directors are divided into three classes and
are elected for a term of three years, or until a successor is duly elected and
qualified. The terms of office of the Class I, Class II and Class III directors
expire at the annual meeting of stockholders to be held in 2004, 2002 and 2003,
respectively.
Directors who are also our employees receive no additional compensation for
serving as directors or committee members. Non-employee directors receive
compensation in the form of stock option grants for their service as directors.
All directors are reimbursed for their out-of-pocket expenses incurred in
connection with serving on our board.
As compensation for their service as directors during 2000, each of Messrs.
Cryar, Hunt, Parker and former director Mark J. Warner were granted options to
purchase 10,000 shares of our common stock. Messrs. Waite and Larry Hornbeck
were also each granted options to purchase 10,000 shares of our common stock at
an exercise price of $2.65 per share in connection with the commencement of
their service as directors. One-fifth of these options was exercisable as of the
date of the grant and one-fifth will become exercisable on each of the four
following anniversaries of such dates.
59
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the chief
executive officer and certain of our other executive officers whose total annual
salary and bonus exceeded $100,000 for the year ended December 31, 2000.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION(1) YEAR SALARY BONUS(2) COMPENSATION(3) OPTIONS(4) COMPENSATION(5)
- -------------------- ------ -------- -------- --------------- ------------ ---------------
Christian G. Vaccari
Chairman of the
Board and Chief
Executive Officer... 2000 $168,750 $70,000 -- 300,000 $ --
Todd M. Hornbeck
President, Chief
Operating Officer
and Secretary....... 2000 $165,625 $70,000 -- 300,000 1,206
Carl G. Annessa
Vice President of
Operations.......... 2000 $121,771 $39,000 -- 100,000 1,286
Paul M. Ordogne
Treasurer and
Controller.......... 2000 $103,021 $30,804 -- 48,000 648
</Table>
- ---------------
(1) James O. Harp, Jr., our Vice President and Chief Financial Officer, is not
included in the Summary Compensation Table because he joined us on January
15, 2001. For a discussion of the terms of Mr. Harp's compensation under his
employment agreement, please see "-- Employment Agreements." In addition,
Mr. Harp was granted options, vesting in equal amounts on the first, second
and third anniversaries of the grant, to purchase 100,000 shares of our
common stock at an exercise price of $2.65 per share. The vesting of Mr.
Harp's options scheduled to vest on the first anniversary of the date of the
grant will accelerate if we complete an initial public offering of our
common stock before the first anniversary.
(2) Bonuses were paid in 2001 as compensation for services provided in 2000.
(3) None of the perquisites and other benefits paid to each named executive
officer exceeded the lesser of $50,000 or 10% of the total annual salary and
bonus received by each named executive officer.
(4) In connection with the adoption of an incentive compensation program for
executive officers, we granted options in 2001 in part as compensation for
services provided in 2000.
(5) These amounts represent (i) employer matching contributions made under our
401(k) savings plan in the amount of $630, $796 and $360 for Messrs.
Hornbeck, Annessa and Ordogne, respectively, and (ii) premiums of $576, $490
and $288 for Messrs. Hornbeck, Annessa and Ordogne, respectively, associated
with life insurance policies.
OPTION GRANTS
The following table shows all grants of options to acquire shares of our
common stock granted during the year ended December 31, 2000 and to date in 2001
to the executive officers named in the Summary
60
Compensation Table above under the HORNBECK-LEEVAC Marine Services, Inc.
Incentive Compensation Plan.
<Table>
<Caption>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE OR FOR OPTION TERM(2)
OPTIONS GRANTED IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR ($/SHARE)(1) DATE 5% 10%
- ---- ---------- ----------- ------------ ------------- ----------- -------------
Christian G.
Vaccari............ 50,000(3) 21% $2.04 March 1, 2005 $ 28,000 $ 62,500
300,000(4) 28% $2.65 March 9, 2011 501,000 1,266,000
Todd M. Hornbeck..... 50,000(3) 21% $2.04 March 1, 2005 28,000 62,500
300,000(4) 28% $2.65 March 9, 2011 501,000 1,266,000
Carl G. Annessa...... 30,000(3) 13% $2.04 March 1, 2010 16,800 37,500
100,000(4) 9% $2.65 March 9, 2011 167,000 422,000
Paul M. Ordogne...... 20,000(3) 9% $2.04 March 1, 2010 11,200 25,000
48,000(4) 4% $2.65 March 9, 2011 80,160 202,560
</Table>
- ---------------
(1) The options were granted at or above the fair market value of our common
stock on the date of grant.
(2) In accordance with the rules of the Securities and Exchange Commission, the
gains or "option spreads" that would exist for the respective options
granted are shown. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. These assumed annual compound rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of
future appreciation.
(3) One-third of these options are exercisable as of the date of grant, and
one-third become exercisable on each of the first and second anniversaries
of the date of grant.
(4) One-fifth of these options are exercisable as of the date of grant, and
one-fifth become exercisable on each of the first, second, third and fourth
anniversaries of the date of grant.
FISCAL YEAR END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 2000 AT DECEMBER 31, 2000
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Christian G. Vaccari.................. 40,000 345,000 $18,666 $29,667
Todd M. Hornbeck...................... 40,000 345,000 18,666 29,667
Carl G. Annessa....................... 23,333 126,667 16,766 17,534
Paul M. Ordogne....................... 11,667 63,833 8,067 10,133
</Table>
EXERCISES OF STOCK OPTIONS
None of the executive officers named in the Summary Compensation Table have
exercised any options to purchase our common stock.
EMPLOYMENT AGREEMENTS
Christian G. Vaccari serves as our Chairman of the Board and Chief
Executive Officer, Todd M. Hornbeck serves as our President, Chief Operating
Officer and Secretary, James O. Harp, Jr. serves as our Vice President and Chief
Financial Officer, Carl G. Annessa serves as our Vice President of Operations
and Paul M. Ordogne serves as our Treasurer and Controller, each under an
employment agreement with an initial term expiring December 31, 2003. Each
agreement may be renewed on an annual basis for up to three additional years
(two years in the case of Mr. Ordogne), unless terminated by the employee or us.
61
The employment agreements of Messrs. Vaccari, Hornbeck, Harp, Annessa and
Ordogne provide for annual base salaries of $200,000, $200,000, $170,000,
$160,000 and $116,000, respectively. Our board has agreed to award a bonus or
bonuses to each of Messrs. Vaccari, Hornbeck, Harp and Annessa if our company
meets certain EBITDA and earnings per share targets with respect to any year
during which their respective employment agreement is in effect. Our board may,
in its discretion, award a smaller bonus if our company does not meet such
targets or an additional bonus if our company exceeds such targets. Mr. Ordogne
is eligible for a bonus each year at the discretion of the Board. Under each of
their respective employment agreements, the employee's salary will be reviewed
from time to time by our compensation committee for possible increases based on
the employee's performance.
If we terminate the employment of Mr. Vaccari or Mr. Hornbeck for any
reason other than for cause, he will be entitled to receive his salary until the
actual termination date of his agreement or two years after the date of
termination, whichever is later. If we terminate the employment of Mr. Harp, Mr.
Annessa or Mr. Ordogne for any reason other than for cause, he will be entitled
to receive his salary until the actual termination date of his agreement or one
year, as to Messrs. Harp and Annessa, and six months, as to Mr. Ordogne, after
the date of termination, whichever is later. If we should undergo a change in
control while the agreements are in effect and Mr. Vaccari, Mr. Hornbeck, Mr.
Harp or Mr. Annessa is either constructively or actually terminated under the
conditions set forth in his agreement, then he will be entitled to receive three
times his salary for the year in which the termination occurs and, in general,
three times the bonus he received for the previous year. If we should undergo a
change in control while Mr. Ordogne's agreement is in effect and he is either
constructively or actually terminated under the conditions set forth in his
agreement, then he will be entitled to receive one and one-half times his salary
for the year in which the termination occurs and, in general, one and one-half
times the bonus he received for the previous year.
Messrs. Vaccari and Hornbeck have each agreed that during the term of their
respective agreements and Messrs. Harp, Annessa and Ordogne have each agreed
that during the term of their respective agreements and for a period of one year
(six months in the case of Mr. Ordogne) after termination, they will not (i) be
employed by or associated with or own more than five percent (5%) of the
outstanding securities of any entity which competes with us in the locations in
which we operate, (ii) solicit any of our employees to terminate their
employment or (iii) accept employment with or payments from any of our clients
or customers who did business with us while employed by us. We may elect to
extend Mr. Annessa's noncompetition period for an additional year by paying his
compensation and other benefits for an additional year, and we may elect to
extend Mr. Ordogne's noncompetition period for an additional six months by
paying his compensation and other benefits for an additional six months.
INCENTIVE COMPENSATION PLAN
Our board of directors and shareholders adopted an Incentive Compensation
Plan in 1997. The purpose of the HORNBECK-LEEVAC Marine Services, Inc. Incentive
Compensation Plan is to strengthen our company by providing an incentive to our
employees, officers, consultants, non-employee directors and advisors to devote
their abilities and energies to our success. The plan provides for the granting
or awarding of incentive and nonqualified stock options, stock appreciation and
dividend equivalent rights, restricted stock and performance shares. With the
approval of our shareholders, we have reserved 3.5 million shares of our common
stock for issuance pursuant to awards made under the plan.
The HORNBECK-LEEVAC Marine Services, Inc. Incentive Compensation Plan is
administered by the compensation committee. Subject to the express provisions of
the plan, the compensation committee has full authority, among other things:
- to select the persons to whom stock, options and other awards will be
granted,
- to determine the type, size and terms and conditions of stock options and
other awards and
- to establish the terms for treatment of stock options and other awards
upon a termination of employment.
62
Under the plan, awards other than stock options and stock appreciation
rights given to any of our executive officers whose compensation must be
disclosed in our annual proxy statement and who is subject to the limitations
imposed by Section 162(m) of the tax code must be based on the attainment of
certain performance goals established by the Board or the compensation
committee. The performance measures are limited to earnings per share, return on
assets, return on equity, return on capital, net profit after taxes, net profits
before taxes, operating profits, stock price and sales or expenses.
Additionally, the performance goals must include formulas for calculating the
amount of compensation payable if the goals are met; both the goals and the
formulas must be sufficiently objective so that a third party with knowledge of
the relevant performance results could assess that the goals were met and
calculate the amount to be paid.
Consistent with certain provisions of the tax code, there are other
restrictions providing for a maximum number of shares that may be granted in any
one year to a named executive officer and a maximum amount of compensation
payable as an award under the plan (other than stock options and stock
appreciation rights) to a named executive officer.
401(k) RETIREMENT PLAN
We have adopted a 401(k) plan for our employees. Employees are eligible to
participate in the plan following three months of employment with us if they are
at least 21 years of age. Under the plan, eligible employees are permitted,
subject to legal limitations, to contribute up to 20% of compensation. The plan
provides that we will match an amount equal to a percentage set by us of up to
6% of an employee's contribution before the end of each calendar year. We are
also permitted to make qualified non-elective and discretionary contributions in
proportion to each eligible employee's compensation as a ratio of the aggregate
compensation of all eligible employees. The amounts held under the plan are
invested in investment funds maintained under the plan in accordance with the
directions of each participant.
All employees' contributions are immediately 100% vested. Contributions by
us to the plan vest at a rate of 20% each year after the second year of service.
Upon attaining age 65, participants are automatically 100% vested, even with
respect to our contributions. Subject to certain limitations imposed under the
tax code, participants or their designated beneficiaries are entitled to payment
of vested benefits upon termination of employment. On attaining age 65,
participants are entitled to distribution of the full value of their benefits
even if they continue to be employed by us. Such employees also have the option
of deferring payment until April 1 following the year they attain the age of
70 1/2. In addition, hardship and other in-service distributions are available
under certain circumstances and subject to certain conditions. The amount of
benefits ultimately payable to a participant under the plan depends on the level
of the participant's salary deferral contributions under the plan, the amount of
our discretionary and matching contributions made to the plan and the
performance of the investment funds maintained under the plan in which
participants are invested.
CERTAIN COMPANY TRANSACTIONS
The following is a discussion of transactions between our company and its
executive officers, directors and shareholders owning more than five percent of
our common stock. We believe that the terms of each of these transactions were
at least as favorable as could have been obtained in similar transactions with
unaffiliated third parties. Because of the existence of these transactions, the
parties to these transactions could have interests different from those of other
shareholders.
Christian G. Vaccari, our Chairman of the Board and Chief Executive
Officer, is a member of LEEVAC Industries, LLC and Chairman of the Board of
LEEVAC Shipyards, Inc. Three of our recently constructed offshore supply vessels
were built by LEEVAC Shipyards, two were built by LEEVAC Industries and we have
existing contracts with LEEVAC Industries for the construction of two additional
offshore supply vessels currently in process. Our current contracts with LEEVAC
Industries, as well as our past contracts with LEEVAC Industries and LEEVAC
Shipyards, were entered into following a competitive bidding process. In 2000,
we made payments under such shipyard contracts aggregating $9.9 million, and at
December 31, 2000, after giving effect to subsequent change orders, we had
contracts calling for the payment of an additional $32.5 million over the course
of construction of the four offshore supply vessels.
63
Until November 2000, we bareboat chartered a tank barge from an entity in
which we owned a 60% interest. The other 40% of such entity was owned by Gateway
Offshore, Inc., which was owned by members of the Vaccari family, including a
minority interest owned by Christian G. Vaccari, our Chairman of the Board and
Chief Executive Officer. The barebarge charter rate was $700 per day or $255,500
per year. In November 2000, we purchased Gateway Offshore Inc., and thus the
remaining 40% interest in the tank barge owning entity from the Vaccari family
in exchange for 339,624 shares of our common stock at a per share price of $2.65
or an aggregate of $900,000. The price represented 40% of the value of the tank
barge based on an independent appraisal.
On June 5, 1998, Enron North America Corp. and Joint Energy Development
Investments II Limited Partnership entered into an agreement with us and
Hornbeck Offshore Services, Inc. and LEEVAC Marine Inc., which we refer to as
Facility C and pursuant to which Enron North America and Joint Energy
Development Investments agreed to lend these subsidiaries $20 million. In
connection with Facility C, our subsidiaries issued to each of Enron North
America and Joint Energy Development Investments a promissory note in the amount
of $10 million, which each bore interest at 7% annually.
ENA CLO I Holding Company I L.P., an affiliate of Enron North America,
subsequently succeeded to the interests, obligations, duties and rights of both
Joint Energy Development Investments and Enron North America as lenders under
Facility C. For the year ended December 31, 2000, we paid $1.8 million in
interest under this Facility C, including interest paid in kind by the issuance
of additional notes as permitted under Facility C totaling $0.5 million. These
notes were paid in full with proceeds from the private placement of the Series A
notes and this credit facility has been terminated.
In connection with Facility C, Enron North America and Joint Energy
Development Investments were each issued warrants to purchase shares of our
common stock. On October 25, 2001, we repurchased all of the warrants for an
aggregate purchase price of $14.5 million. In order to finance the repurchase of
the warrants, we completed a private placement of $14.6 million of our common
stock.
Also on June 5, 1998, our subsidiaries, Hornbeck Offshore Services and
LEEVAC Marine entered into a credit agreement with Joint Energy Development
Investments and Enron Capital Management, an affiliate of Enron North America
Corp. Under this credit agreement, Enron Capital Management and Joint Energy
Development Investments agreed to lend up to $15 million to our subsidiaries. We
guaranteed the obligations of our subsidiaries in connection with this credit
facility. On July 14, 2000, the principal and interest outstanding under this
credit facility was paid in full and this credit facility was terminated.
64
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our voting securities as of October 31, 2001 by:
- each person who is known to us to be the beneficial owner of more than 5%
of our voting securities;
- each of our directors; and
- each of our named executive officers and all of our executive officers
and directors as a group.
Unless otherwise indicated, each person named below has an address c/o our
principal executive offices and has sole power to vote and dispose of the shares
of voting securities beneficially owned by them, subject to community property
laws where applicable.
<Table>
<Caption>
DIRECT OWNERSHIP BENEFICIAL OWNERSHIP
-------------------------- -----------------------------
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OUTSTANDING SHARES OUTSTANDING(1)
--------- ------------- ---------- --------------
SCF-IV, L.P................... 9,864,912 32.7 9,864,912(2) 32.7
Cari Investment Company....... 5,129,364 17.0 5,497,315(3) 18.2
Christian G. Vaccari.......... 239,618 *
William Herbert Hunt Trust
Estate...................... 5,065,976 16.8 5,113,976(4) 17.0
Bruce W. Hunt................. 25,000 *
Todd M. Hornbeck.............. 1,537,736 5.1 3,166,069(5) 10.5
Rock Creek Partners II, Ltd... 2,660,904 8.8 2,660,904 8.8
Carl G. Annessa............... 70,000 * 130,000(6) *
James O. Harp, Jr. ........... 35,088 * 35,088 *
Paul M. Ordogne............... 99,300 * 129,733(7) *
Richard W. Cryar.............. 43,143 * 66,143(8) *
Larry D. Hornbeck............. 159,120 * 161,120(9) *
Bernie W. Stewart............. 35,714 * 35,714 *
Andrew L. Waite............... 2,210 * 4,210(10) *
All shares owned or controlled
by executive officers and
directors as a group (10
persons).................... 2,246,929 7.5 14,339,368(11) 47.0
</Table>
- ---------------
* Less than 1%.
(1) Percentages of outstanding common stock beneficially owned for each
beneficial owner and for the officers and directors as a group have been
calculated by dividing (1) the outstanding shares held by such owner or
such group plus additional shares such owner or such group, respectively,
is entitled to acquire pursuant to options or warrants exercisable within
sixty (60) days by (2) the total outstanding shares of our common stock
plus the additional shares only such owner or such group, respectively, is
entitled to acquire pursuant to such options or warrants.
(2) SCF-IV, L.P. is a limited partnership of which the ultimate general partner
is L.E. Simmons & Associates, Incorporated. The Chairman of the Board and
President of L.E. Simmons & Associates, Incorporated is Mr. L.E. Simmons.
As such Mr. Simmons may be deemed to have voting and dispositive power over
the shares owned by SCF-IV, L.P. The address of Mr. Simmons and SCF-IV,
L.P. is 6600 Chase Bank Tower, 600 Travis Street, Houston, Texas 77002.
Pursuant to a voting arrangement agreed to by SCF-IV, L.P. and the company
in connection with our private equity offering completed in October 2001,
SCF is restricted from voting 562,081 of those shares.
(3) Cari Investment Company is owned entirely by Christian G. Vaccari and other
members of his family. Mr. Vaccari also serves as its chief executive
officer and may be deemed to share voting and dispositive
65
power with respect to the 5,129,364 shares of common stock owned by Cari
Investment Company. Cari Investment Company's address is 1100 Poydras
Street, Suite 2000, New Orleans, LA 70163. Beneficial ownership includes
options to purchase 128,333 shares of common stock that are currently
exercisable by Mr. Vaccari.
(4) Mr. Bruce W. Hunt is a representative of the William Herbert Hunt Trust
Estate and may be deemed to share voting and dispositive power with respect
to the 5,065,976 shares of common stock owned by the Trust Estate. Also
includes options to purchase 23,000 shares of common stock that are
currently exercisable by Mr. Hunt. The Trust Estate's address is 3900
Thanksgiving Tower, 1601 Elm Street, Dallas, TX 75201.
(5)Troy A. Hornbeck has granted a power of attorney to Todd M. Hornbeck
covering the voting interest in his 1,500,000 shares, and therefore Todd
Hornbeck has control of all voting decisions with respect to a total of
3,315,417 shares. Beneficial ownership includes options to purchase 128,333
shares of common stock that are currently exercisable by Todd Hornbeck.
(6) Beneficial ownership includes options to purchase 60,000 shares of common
stock that are currently exercisable.
(7) Beneficial ownership includes options to purchase 30,433 shares of common
stock that are currently exercisable.
(8) Beneficial ownership includes options to purchase 23,000 shares of common
stock that are currently exercisable.
(9) Beneficial ownership includes options to purchase 2,000 shares of common
stock that are currently exercisable.
(10) Mr. Waite serves as Managing Director of L.E. Simmons & Associates,
Incorporated, the ultimate general partner of SCF-IV, L.P. As such, Mr.
Waite may be deemed to have voting and dispositive power over the shares
owned by SCF-IV, L.P. Mr. Waite disclaims beneficial ownership of the
shares owned by SCF-IV, L.P. Beneficial ownership includes options to
purchase 2,000 shares of common stock that are currently exercisable.
(11) Beneficial ownership includes options to purchase 397,099 shares of common
stock that are currently exercisable.
66
DESCRIPTION OF OTHER INDEBTEDNESS
We have entered into a commitment letter with one of our former lenders
regarding a new senior secured revolving line of credit of $50.0 million. Two of
our subsidiaries, Hornbeck Offshore Services, Inc. and LEEVAC Marine, Inc. will
be the borrowers under this credit facility and we and certain of our
subsidiaries will guarantee the outstanding debt. Pursuant to the proposed terms
for this facility, our borrowings under this facility will initially be limited
to $25.0 million unless we obtain the lender's concurrence to borrow in excess
of $25.0 million. Pursuant to the indenture governing the notes, unless we meet
a specified consolidated interest coverage ratio test, the level of permitted
borrowings under this facility will be initially limited to $25.0 million plus
15% of the increase in our consolidated net tangible assets over the
consolidated net tangible assets as of March 31, 2001 determined on a pro forma
basis to reflect the Spentonbush/Red Star Group acquisition. The debt under the
facility will be secured by a first preferred ship mortgage on certain offshore
supply vessels and tugs having a minimum orderly liquidation value of $75.0
million and blanket lien first priority security interests in all personal
property related to the mortgaged vessels.
67
DESCRIPTION OF THE SERIES B NOTES
GENERAL
The Series B notes will be issued, and the Series A notes were issued,
under an Indenture dated as of July 24, 2001 (the "Indenture") among the
Company, the Guarantors and Wells Fargo Bank Minnesota, National Association, as
trustee (the "Trustee"). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). References to the
"Notes" in this section of the prospectus include both the Series A notes and
the Series B notes.
This "Description of the Notes" is intended to be a useful overview of the
material provisions of the Notes, the Indenture and the Registration Rights
Agreement. As this description is only a summary, you should refer to the
Indenture and the Registration Rights Agreement for a complete description of
the obligations of the Company and your rights. The Company has filed the
Indenture as an exhibit to the registration statement which includes this
prospectus.
You will find the definitions of capitalized terms used in this description
under the heading "-- Certain Definitions."
For purposes of this description, references to the "Company" mean
HORNBECK-LEEVAC Marine Services, Inc., but not any of its subsidiaries.
The Series B Notes:
- are general unsecured obligations of the Company;
- are issued in denominations of $1,000 and integral multiples of $1,000;
- are represented by one or more registered Notes in global form, but in
certain circumstances may be represented by Notes in certificated form;
- rank equally in right of payment to all existing and any future senior
indebtedness of the Company;
- rank senior in right of payment to any future subordinated indebtedness
of the Company;
- are issued with original issue discount for federal income tax purposes;
and
- are unconditionally guaranteed on a senior basis by each Subsidiary of
the Company.
The Indenture provides the Company the flexibility of issuing additional
Notes in the future in an unlimited amount; however, any issuance of such
additional Notes would be subject to the covenant described in the first
paragraph under "-- Certain Covenants -- Incurrence of Indebtedness and Issuance
of Preferred Stock." References to the "Notes" in this section of the prospectus
also include any such additional notes.
Any Series A notes that remain outstanding after the completion of the
exchange offer, together with the Series B notes issued in connection with the
exchange offer and any additional notes issued in the future, will be treated as
a single class of securities under the Indenture.
Initially, all of the Company's Subsidiaries will be Restricted
Subsidiaries. Under certain circumstances, the Company will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set forth
in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on August 1, 2008. Interest on the Notes will:
- accrue at the rate of 10.625% per annum;
- accrue from July 24, 2001;
68
- be payable in cash semi-annually in arrears on February 1 and August 1,
commencing on February 1, 2002;
- be payable to the holders of record on the January 15 and July 15
immediately preceding the related interest payment dates; and
- be computed on the basis of a 360-day year comprised of twelve 30-day
months.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by all of the Company's present and
future Significant Subsidiaries (the "Guarantors"). The Guarantors include
Hornbeck Offshore Services, Inc. and LEEVAC Marine, Inc., the Company's
principal operating subsidiaries. The Subsidiary Guarantees are full and
unconditional.
The obligations of each Guarantor under its Subsidiary Guarantee are a
general unsecured obligation of such Guarantor, ranking equally in right of
payment with all other current or future senior indebtedness of such Guarantor,
including any borrowings under the Credit Facility, and senior in right of
payment to any subordinated indebtedness incurred by such Guarantor in the
future. The Subsidiary Guarantees will be effectively subordinated, however, to
all current and future secured obligations of the Guarantors, including any
borrowings under the Credit Facility, to the extent of the value of the assets
collateralizing such obligations.
The obligations of each Guarantor under its Subsidiary Guarantee will be
limited to the maximum amount that will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under bankruptcy, fraudulent conveyance and fraudulent transfer and
similar laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Subsidiary
Guarantee, result in the obligations of such Guarantor under its Subsidiary
Guarantee not constituting a fraudulent transfer or conveyance.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
(other than the Company or another Guarantor), whether or not affiliated with
such Guarantor, unless:
(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) executes a supplement to the indenture and delivers an Opinion
of Counsel in accordance with the terms of the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(3) such Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction), equal to or greater than the
Consolidated Net Worth of such Guarantor immediately preceding the
transaction; and
(4) the Company would be permitted by virtue of the Company's pro
forma Consolidated Interest Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Interest Coverage Ratio test set forth in the
covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
The Indenture provides that, in the event of a sale or other disposition
(including by way of merger or consolidation) of all or substantially all of the
assets or all of the Capital Stock of any Guarantor, then such Guarantor or the
Person acquiring its assets will be released and relieved of any obligations
under its Subsidiary Guarantee; provided, however, that the Net Proceeds of such
sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "-- Repurchase at the Option of Holders --
Asset Sales." In addition, the Indenture provides that, in the event the Board
of Directors designates a Guarantor to be an Unrestricted Subsidiary, then such
Guarantor will be released and relieved of any
69
obligations under its Subsidiary Guarantee, provided that such designation is
conducted in accordance with the applicable provisions of the Indenture.
OPTIONAL REDEMPTION
At any time prior to August 1, 2005, the Company may redeem the Notes at
its option, in whole or in part, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest and liquidated damages, if any, to, the date of redemption.
The Notes will also be redeemable at the Company's option on or after
August 1, 2005, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and liquidated damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on August 1 of the
years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2005........................................................ 105.3125%
2006........................................................ 102.6563%
2007 and thereafter......................................... 100.0000%
</Table>
Further, prior to August 1, 2004, the Company may redeem up to 35% of the
aggregate principal amount of Notes originally issued at a redemption price of
110.625% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more Qualified Equity Offerings, provided that
(a) at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after the occurrence of each such
redemption and
(b) each such redemption occurs within 60 days of the date of the
closing of each such Qualified Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such method as the Trustee considers fair and appropriate; provided, however,
that no Notes of $1,000 or less may be redeemed in part.
Notices of redemption will be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address.
Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note will state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on Notes
or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to repurchase the Notes or to make mandatory
redemption or sinking fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. The Indenture provides that, upon the occurrence of a
Change of Control, the Company will be required to make an offer (a "Change of
Control Offer") to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of each holder's Notes at an offer price in cash equal to 101%
of the
70
aggregate principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of repurchase (the "Change of
Control Payment").
Within 30 days following a Change of Control, the Company will mail a
notice to each holder of Notes and the Trustee describing the transaction that
constitutes the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
Change of Control provisions of the Indenture, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Change of Control provisions of the Indenture
by virtue of such conflict.
On or before the Change of Control Payment Date, the Company will, to the
extent lawful,
(a) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(b) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered and
(c) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided, however, that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. In addition, the Company
could enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that could affect the Company's capital structure or
the value of the Notes, but that would not constitute a Change of Control. The
occurrence of a Change of Control may result in a default under the Credit
Facility and give the lenders thereunder the right to require the Company to
repay all outstanding obligations thereunder. The Company's ability to
repurchase Notes following a Change of Control may also be limited by the
Company's then existing financial resources.
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
A "Change of Control" will be deemed to have occurred upon the occurrence
of any of the following:
(a) the sale, lease, transfer, conveyance or other disposition (other
than by merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole,
(b) the adoption of a plan relating to the liquidation or dissolution
of the Company,
(c) the consummation of any transaction (including, without
limitation, any merger or consolidation, but excluding the effect of any
voting arrangement pursuant to any agreement among the Company
71
and any stockholders of the Company as in effect on the Issue Date) the
result of which is that any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly through one or more intermediaries, of more than 50% of the
voting power of the outstanding Voting Stock of the Company or
(d) the first day on which more than a majority of the members of the
Board of Directors are not Continuing Directors;
provided, however, that a transaction in which the Company becomes a Subsidiary
of another Person (other than a Person that is an individual) shall not
constitute a Change of Control if
(1) the stockholders of the Company immediately prior to such
transaction "beneficially own" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly through one or
more intermediaries, at least a majority of the voting power of the
outstanding Voting Stock of the Company immediately following the
consummation of such transaction and
(2) immediately following the consummation of such transaction, no
"person" (as such term is defined above), other than such other Person (but
including the holders of the Equity Interests of such other Person),
"beneficially owns" (as such term is defined above), directly or indirectly
through one or more intermediaries, more than 50% of the voting power of
the outstanding Voting Stock of the Company.
For purposes of this definition, a time charter of marine vessels to customers
in the ordinary course of business shall not be deemed to be a "lease" under
clause (a) above.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who
(a) was a member of the Board of Directors on the Issue Date or
(b) was nominated for election to the Board of Directors with the
approval of, or whose election to the Board of Directors was ratified by,
at least two-thirds of the directors who were members of the Board of
Directors on the Issue Date or who were so elected to the Board of
Directors thereafter.
The definition of Change of Control includes an event by which the Company
sells, leases, transfers, conveys or otherwise disposes of all or substantially
all of the assets of the Company and its Subsidiaries, taken as a whole.
Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries, taken as whole, may be uncertain.
Asset Sales. The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
(excluding for this purpose an Event of Loss) unless
(a) 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 (as determined in accordance with the definition of such
term, the results of which determination shall be set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests
issued or sold or otherwise disposed of and
(b) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided, however, that the amount of
(1) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or such Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the Notes or any Subsidiary Guarantee) that are
assumed by the transferee of any such assets or Equity Interests shall be
assumed pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and
72
(2) any securities, notes or other obligations received by the Company
or such Restricted Subsidiary from such transferee that are converted
within 30 days by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received) shall be deemed to be cash for purposes of
this provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale
(including, without limitation, an Event of Loss), the Company or any such
Restricted Subsidiary may apply such Net Proceeds to
(a) permanently repay all or any portion of the principal of any
secured Indebtedness (to the extent of the fair value of the assets
collateralizing such Indebtedness, as determined by the Board of Directors)
or
(b) acquire (including by way of a purchase of assets or stock,
merger, consolidation or otherwise) Productive Assets, provided that if the
Company or such Restricted Subsidiary enters into a binding agreement to
acquire such Productive Assets within such 365-day period, but the
consummation of the transactions under such agreement has not occurred
within such 365-day period, and the agreement has not been terminated, then
the 365-day period will be extended to 18 months to permit such
consummation; provided further, however, if such consummation does not
occur, or such agreement is terminated within such 18-month period, then
the Company may apply, or cause such Restricted Subsidiary to apply, within
90 days after the end of the 18-month period or the effective date of such
termination, whichever is earlier, such Net Proceeds as provided in clauses
(a) and (b) of this paragraph.
Pending the final application of any such Net Proceeds, the Company or any such
Restricted Subsidiary may temporarily reduce outstanding revolving credit
borrowings, including borrowings under the Credit Facility, or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will be required to make an offer to all holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and liquidated damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture; provided, however, that, if the
Company is required to apply such Excess Proceeds to repurchase, or to offer to
repurchase, any Pari Passu Indebtedness, the Company shall only be required to
offer to repurchase the maximum principal amount of Notes that may be purchased
out of the amount of such Excess Proceeds multiplied by a fraction, the
numerator of which is the aggregate principal amount of Notes outstanding and
the denominator of which is the aggregate principal amount of Notes outstanding
plus the aggregate principal amount of Pari Passu Indebtedness outstanding.
To the extent that the aggregate principal amount of Notes tendered
pursuant to an Asset Sale Offer is less than the amount that the Company is
required to repurchase, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by holders thereof exceeds the amount that the Company is required
to repurchase, the Trustee will select the Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into or suffer to exist any agreement (other than any agreement governing
the Credit Facility) that would place any restriction of any kind (other than
pursuant to law or regulation) on the ability of the Company to make an Asset
Sale Offer. The agreement governing the Credit Facility may contain prohibitions
of certain events, including events that would constitute a Change of Control or
an Asset Sale. In addition, the exercise by the holders of Notes of their right
to require the Company to repurchase the Notes upon a Change of Control or an
Asset Sale could cause a default under these other agreements, even if the
Change of Control or Asset Sale itself does not, due to the financial effect of
such repurchases on the Company. Finally, the Company's ability to pay cash to
the holders of Notes upon a repurchase may be limited by the Company's then
existing financial resources.
73
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of the Notes as a result of an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the Indenture by virtue of such
conflict.
CERTAIN COVENANTS
Restricted Payments. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any such
payment in connection with any merger or consolidation involving the
Company) or to the direct or indirect holders of the Company's Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the
Company);
(b) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any of its Restricted Subsidiaries (other than any such Equity Interests
owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company);
(c) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness that is
subordinated in right of payment to the Notes or the Subsidiary Guarantees,
except a payment of interest or principal at Stated Maturity (other than an
interim payment of principal on the Subordinated Notes); or
(d) make any Restricted Investment
(all such payments and other actions set forth in clauses (a) through (d) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (b), (c), (d), (f), (g), (h) and (i), but including Restricted
Payments permitted by clauses (a) and (e), of the next succeeding
paragraph), is less than the sum of the following:
(A) 50% of the cumulative Consolidated Net Income of the Company
for the period (taken as one accounting period) from April 1, 2001 to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus
(B) subject to clause (b) of the next succeeding paragraph, 100% of
the aggregate net cash proceeds received by the Company since the Issue
Date from the issue or sale of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of
the Company that have been converted into, or exchanged for, such Equity
Interests (other than any such Equity Interests, Disqualified Stock or
convertible debt securities sold to a Restricted
74
Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into, or exchanged
for, Disqualified Stock), plus
(C) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (1) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(2) the initial amount of such Restricted Investment, plus
(D) in the event that any Unrestricted Subsidiary is redesignated
as a Restricted Subsidiary, the lesser of (1) an amount equal to the
fair market value of the Investments in such Subsidiary previously made
by the Company and its Restricted Subsidiaries as of the date of such
redesignation and (2) the amount of such Investments, plus
(E) $10 million.
The preceding provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(b) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any
Guarantor or Equity Interests of the Company or any of its Restricted
Subsidiaries in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any
Disqualified Stock), provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3)(B) of the
preceding paragraph;
(c) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness of the Company or any Guarantor
with the net cash proceeds from an incurrence of, or in exchange for,
Permitted Refinancing Indebtedness;
(d) the payment of any dividend or distribution by a Restricted
Subsidiary of the Company to the Company or any of its Wholly Owned
Restricted Subsidiaries;
(e) so long as no Default or Event of Default has occurred and is
continuing, the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any of its Restricted
Subsidiaries held by any employee of the Company or any of its Restricted
Subsidiaries, provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $500,000 in any calendar year;
(f) the acquisition of Equity Interests by the Company in connection
with the exercise of stock options or stock appreciation rights by way of
cashless exercise or in connection with the satisfaction of withholding tax
obligations;
(g) in connection with an acquisition by the Company or by any of its
Restricted Subsidiaries, the return to the Company or any of its Restricted
Subsidiaries of Equity Interests of the Company or any of its Restricted
Subsidiaries constituting a portion of the purchase price consideration in
settlement of indemnification claims; and
(h) the purchase by the Company of fractional shares of Equity
Interests arising out of stock dividends, splits or combinations or
business combinations.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment will be determined in the manner
contemplated by the definition of the term "fair market value," and the results
of such determination will be evidenced by an Officers' Certificate delivered to
the Trustee. Not later than the date of making any Restricted Payment (other
than a Restricted
75
Payment permitted by clause (b), (c), (d), (f), (g), (h) or (i) of the preceding
paragraph), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed.
Incurrence of Indebtedness and Issuance of Preferred Stock. The Indenture
provides that the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur" or an "incurrence") any Indebtedness
(including, without limitation, any Acquired Indebtedness) and that the Company
will not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company and its Restricted Subsidiaries may incur Indebtedness, and the Company
may issue Disqualified Stock, in each case if the Consolidated Interest Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least as great as the ratio indicated in the following
table at the time such additional Indebtedness is incurred or such Disqualified
Stock is issued (such time being called the "Incurrence Time"), in each case as
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness or Disqualified Stock had
been issued or incurred at the beginning of such four-quarter period.
<Table>
<Caption>
INCURRENCE TIME RATIO
- --------------- -----
When the Notes are rated at least Ba3 by Moody's and at
least BB- by S&P.......................................... 2.50 to 1
At any other time as follows:
From the Issue Date through December 31, 2002............. 2.50 to 1
From January 1, 2003 through June 30, 2004................ 2.75 to 1
After June 30, 2004....................................... 3.00 to 1
</Table>
The preceding provisions will not apply to the incurrence by the Company or
any of its Restricted Subsidiaries of any of the following Indebtedness:
(a) Indebtedness under the Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed the sum of (1) $25 million
and (2) 15% of the amount of the increase, if any, in Consolidated Net
Tangible Assets between (A) the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available and
(B) March 31, 2001, with the amount of Consolidated Net Tangible Assets at
March 31, 2001 to be determined on a pro forma basis to reflect the
Company's acquisition on May 31, 2001 of tugs and tank barges from the
Spentonbush/Red Star Group, plus any fees, premiums, expenses (including
costs of collection), indemnities and similar amounts payable in connection
with such Indebtedness;
(b) Existing Indebtedness;
(c) Hedging Obligations;
(d) Indebtedness represented by the Offered Notes, the Exchange Notes
or any Subsidiary Guarantees;
(e) intercompany Indebtedness between or among the Company and any of
its Wholly Owned Restricted Subsidiaries, provided that any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary of the Company, or any sale or other transfer
of any such Indebtedness to a Person that is neither the Company nor a
Wholly Owned Restricted Subsidiary of the Company, shall be deemed to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, as of the date such issuance,
sale or other transfer is not permitted by this clause (e);
(f) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company or any Restricted Subsidiary thereof in the
ordinary course of business, including guarantees or
76
obligations of the Company or any Restricted Subsidiary thereof with
respect to letters of credit supporting such bid, performance or surety
obligations (in each case other than for an obligation for money borrowed);
(g) the guarantee by the Company of Indebtedness of any of its
Restricted Subsidiaries or by any Restricted Subsidiary of Indebtedness of
the Company or another Restricted Subsidiary, in each case, that was
permitted to be incurred by another provision of this covenant;
(h) Permitted Refinancing Debt incurred in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund Indebtedness that was incurred pursuant to the first paragraph of
this covenant or clause (b), (d) or (h) of the second paragraph of this
covenant;
(i) Subordinated Notes; and
(j) other Indebtedness in a principal amount not to exceed $10 million
at any one time outstanding.
The Indenture also provides that the Company will not, and will not permit
any Guarantor to, directly or indirectly, incur any Indebtedness which by its
terms (or by the terms of any agreement governing such Indebtedness) is
subordinated to any other Indebtedness of the Company or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the terms
of any agreement governing such Indebtedness) made expressly subordinate to the
Notes or the Subsidiary Guarantee of such Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated pursuant
to subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company or of such Guarantor, as the case may be; provided,
however, that no Indebtedness will be deemed to be contractually subordinated in
right of payment to any other Indebtedness solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Indebtedness described in clauses (a) through (i) of the second
paragraph, or is entitled to be incurred pursuant to the first paragraph, of
this covenant, the Company will be permitted to classify such item of
Indebtedness on the date of its incurrence, or later reclassify all or a portion
of such item of Indebtedness, in any manner that complies with this covenant,
and such item of Indebtedness will be treated as having been incurred pursuant
to such category. There are no restrictions in the Indenture on the ability of
an Unrestricted Subsidiary to incur Indebtedness or issue preferred stock.
Liens. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom, except Permitted Liens, to secure:
(a) any Indebtedness of the Company or such Restricted Subsidiary (if
it is not also a Guarantor), unless prior to, or contemporaneously
therewith, the Notes are equally and ratably secured, or
(b) any Indebtedness of any Guarantor, unless prior to, or
contemporaneously therewith, the Subsidiary Guarantees are equally and
ratably secured;
provided, however, that if such Indebtedness is expressly subordinated to the
Notes or the Subsidiary Guarantees, the Lien securing such Indebtedness will be
subordinated and junior to the Lien securing the Notes or the Subsidiary
Guarantees, as the case may be, with the same relative priority as such
Indebtedness has with respect to the Notes or the Subsidiary Guarantees. The
incurrence of secured Indebtedness by the Company and its Restricted
Subsidiaries is subject to further limitations on the incurrence of Indebtedness
as described under "-- Incurrence of Indebtedness and Issuance of Preferred
Stock."
Sale-and-Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, enter into
any sale-and-leaseback transaction; provided, however,
77
that the Company or any Restricted Subsidiary, as applicable, may enter into a
sale-and-leaseback transaction if:
(a) the Company or such Restricted Subsidiary could have
(1) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale-and-leaseback transaction pursuant to
the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" and
(2) incurred a Lien to secure such Indebtedness pursuant to the
covenant described under the caption "-- Liens,"
(b) the gross cash proceeds of such sale-and-leaseback transaction are
at least equal to the fair market value (as determined in accordance with
the definition of such term, the results of which determination shall be
set forth in an Officers' Certificate delivered to the Trustee) of the
assets that are the subject of such sale-and-leaseback transaction and
(c) the transfer of assets in such sale-and-leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
Issuances and Sales of Capital Stock of Restricted Subsidiaries. The
Indenture provides that the Company
(a) will not, and will not permit any Restricted Subsidiary of the
Company to, transfer, convey, sell or otherwise dispose of any Capital
Stock of any Restricted Subsidiary of the Company to any Person (other than
the Company or a Wholly Owned Restricted Subsidiary of the Company), unless
(1) such transfer, conveyance, sale, or other disposition is of all
the Capital Stock of such Restricted Subsidiary and
(2) the Net Proceeds from such transfer, conveyance, sale or other
disposition are applied in accordance with the covenant described above
under the caption "-- Repurchase at the Option of Holders -- Asset
Sales," and
(b) will not permit any Restricted Subsidiary of the Company to issue
any of its Equity Interests to any Person other than to the Company or a
Wholly Owned Restricted Subsidiary of the Company;
except, in the case of both clauses (a) and (b) above, with respect to (i)
dispositions or issuances by a Wholly Owned Restricted Subsidiary of the Company
as contemplated in clauses (a) and (b) of the definition of "Wholly Owned
Restricted Subsidiary" or (ii) other dispositions or issuances of up to 35% of
the outstanding Capital Stock of a Wholly Owned Restricted Subsidiary of the
Company, provided that, after giving pro forma effect thereto, the Investment of
the Company and its Wholly Owned Restricted Subsidiaries in all Restricted
Subsidiaries that are not Wholly Owned Restricted Subsidiaries of the Company,
determined on a consolidated basis in accordance with GAAP, does not exceed 15%
of Consolidated Net Tangible Assets of the Company. For purposes of this
covenant, the creation or perfection of a Lien on any Capital Stock of a
Restricted Subsidiary of the Company to secure any Indebtedness of the Company
or any of its Restricted Subsidiaries will not be deemed to be a disposition of
such Capital Stock, provided that any sale by the secured party of such Capital
Stock following foreclosure of its Lien will be subject to this covenant.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to do any of the following:
(a) (i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries on its Capital Stock or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries,
78
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries or
(c) transfer any of its assets to the Company or any of its Restricted
Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(1) the Credit Facility or Existing Indebtedness, each as in effect on
the Issue Date,
(2) the Indenture, the Notes and the Subsidiary Guarantees,
(3) applicable law,
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person or the assets of
any Person, other than the Person, or the assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred,
(5) by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past practices,
(6) by reason of customary provisions restricting the transfer of
copyrighted or patented materials consistent with industry practice,
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (c) above on the property so acquired,
(8) customary provisions in bona fide contracts for the sale of
assets,
(9) Permitted Refinancing Indebtedness with respect to any
Indebtedness referred to in clauses (1) and (2) above, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are not materially more restrictive, taken as a
whole, than those contained in the agreements governing the Indebtedness
being refinanced or
(10) provisions with respect to the disposition or distribution of
assets in joint venture agreements, asset sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course
of business.
Merger, Consolidation or Sale of Assets. The Indenture provides that the
Company may not consolidate or merge with or into (whether or not the Company is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets in one or more
related transactions to another Person unless
(a) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia,
(b) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made assumes all
the obligations of the Company under the Notes and the Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the
Trustee,
(c) immediately after such transaction no Default or Event of Default
exists and
(d) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made
79
(1) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction and
(2) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Consolidated
Interest Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its assets to, or
purchase any assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless:
(a) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person or, if there is no such
comparable transaction, on terms that are fair and reasonable to the
Company or such Restricted Subsidiary, and
(b) the Company delivers to the Trustee
(1) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1
million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors and
(2) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5
million, an opinion as to the fairness to the Company or the relevant
Subsidiary of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm that is,
in the judgment of the Board of Directors, qualified to render such
opinion and is independent with respect to the Company, provided that
such opinion will not be required with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
shipyard contracts that are awarded following a competitive bidding
process and approved by a majority of the disinterested members of the
Board of Directors;
provided, however, that the following shall be deemed not to be Affiliate
Transactions:
(A) any employment agreement or other employee compensation plan or
arrangement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
Restricted Subsidiary;
(B) transactions between or among the Company and its Restricted
Subsidiaries;
(C) Permitted Investments and Restricted Payments that are permitted
by the provisions of the Indenture;
(D) loans or advances to officers, directors and employees of the
Company or any Restricted Subsidiary made in the ordinary course of
business and consistent with past practices of the Company and its
Restricted Subsidiaries in an aggregate amount not to exceed $500,000
outstanding at any one time;
(E) indemnities of officers, directors and employees of the Company or
any of its Restricted Subsidiaries permitted by bylaw or statutory
provisions;
(F) maintenance in the ordinary course of business of customary
benefit programs or arrangements for officers, directors and employees of
the Company or any Restricted Subsidiary, including without limitation
vacation plans, health and life insurance plans, deferred compensation
plans, retirement or savings plans and similar plans;
80
(G) registration rights or similar agreements with officers, directors
or significant shareholders of the Company or any Restricted Subsidiary;
(H) issuance of Equity Interests (other than Disqualified Stock) by
the Company; and
(I) the payment of reasonable and customary regular fees to directors
of the Company or any of its Restricted Subsidiaries who are not employees
of the Company or any Affiliate.
Additional Subsidiary Guarantees. The Indenture provides that if the
Company or any of its Restricted Subsidiaries, after the Issue Date, acquires or
creates another Restricted Subsidiary, then such newly acquired or created
Subsidiary shall execute a supplement to the Indenture and deliver an Opinion of
Counsel in accordance with the terms of the Indenture.
Conduct of Business. The Company will not, and will not permit any of its
Restricted Subsidiaries to, engage in the conduct of any business other than the
marine transportation business and such other businesses as are complementary or
related thereto as determined in good faith by the Board of Directors of the
Company.
Reports. Whether or not the Company is required to do so by the rules and
regulations of the Commission, the Company will file with the Commission within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and, within fifteen days of filing, or
attempting to file, the same with the Commission, furnish to the holders of the
Notes and the Trustee
(a) all quarterly and annual financial and other information with
respect to the Company and its Subsidiaries that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants, provided that the obligation
to file and to furnish such quarterly information will commence with
respect to the quarterly period ending September 30, 2001, and
(b) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, the Company and the Guarantors will furnish to the holders of
the Notes, prospective purchasers of the Notes and securities analysts, upon
their request, the information, if any, required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
Future Designation of Restricted and Unrestricted Subsidiaries. The
preceding covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness) may be affected
by the designation by the Company of any existing or future Subsidiary of the
Company as an Unrestricted Subsidiary, or by the redesignation by the Company of
an Unrestricted Subsidiary as a Restricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the greater of (a) the net book
value of such Investments at the time of such designation and (b) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payments would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The Board of Directors of the Company may also redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if such redesignation complies with the
requirements of the Indenture described in the definition of "Unrestricted
Subsidiary." If the aggregate amount of all Restricted Payments calculated for
purposes of the first paragraph of the covenant described under "-- Restricted
Payments" above includes an
81
Investment in an Unrestricted Subsidiary that subsequently becomes a Restricted
Subsidiary pursuant to the terms of this paragraph, then the aggregate amount of
such Restricted Payments will be reduced by the lesser of (a) an amount equal to
the fair market value of the Investments previously made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary at the time it becomes a
Restricted Subsidiary and (b) the amount of such Investments.
Any designation or redesignation pursuant to this covenant by the Board of
Directors will be evidenced by the filing with the Trustee of a Board Resolution
giving effect to such action and evidencing the valuation of any Investment
relating thereto (as determined in good faith by the Board of Directors) and an
Officers' Certificate certifying that such action and valuation complied with
the preceding requirements.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(a) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Notes;
(b) default in payment when due of the principal of or premium, if
any, on the Notes;
(c) failure by the Company to comply with the provisions described
under the caption "-- Repurchase at the Option of Holders" or "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets";
(d) failure by the Company for 60 days after notice to comply with any
of its other agreements in the Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the Issue Date, which default
(1) is caused by a failure to pay principal of or premium or
interest on such Indebtedness prior to the expiration of any grace
period provided in such Indebtedness (a "Payment Default") or
(2) results in the acceleration of such Indebtedness prior to its
express maturity and
(3) in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10 million or more and
provided, further, that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period of 10
days from the continuation of such default beyond the applicable grace period or
the occurrence of such acceleration, as the case may be, such Event of Default
and any consequential acceleration of the Notes shall be automatically
rescinded, so long as such rescission does not conflict with any judgment or
decree;
(f) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $10 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(g) failure by any Guarantor to perform any covenant set forth in its
Subsidiary Guarantee, or the repudiation by any Guarantor of its
obligations under its Subsidiary Guarantee or the unenforceability of any
Subsidiary Guarantee against a Guarantor for any reason other than as
provided in the Indenture; and
(h) certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
preceding, in the case of an Event of Default arising from certain events of
bankruptcy or
82
insolvency with respect to the Company or any Significant Subsidiary, all
outstanding Notes will become due and payable without further action or notice.
The holders of a majority in principal amount of the then outstanding Notes by
written notice to the Trustee may on behalf of all of the holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest, premium or Liquidated Damages that have become due solely
because of the acceleration) have been cured or waived. Holders of the Notes may
not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal, premium, interest or liquidated damages,
if any) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
by notice to the Trustee may on behalf of the holders of all of the Notes waive
any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of the
principal of, premium interest or liquidated damages, if any, on the Notes.
Except to enforce the right to receive payment of principal, premium, if
any, interest or liquidated damages, if any, when due, no holder of the Notes
may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue such remedy;
(3) such holders have offered the Trustee indemnity satisfactory to it
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of indemnity; and
(5) holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company will be required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, member, partner or
stockholder of the Company or any Guarantor, as such, shall have any liability
for any obligations of the Company or any Guarantor under the Notes, the
Subsidiary Guarantees or the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the Commission that such a waiver is against public policy.
83
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of itself and the Guarantors discharged with respect to the
outstanding Notes and the Subsidiary Guarantees ("Legal Defeasance") except for
(a) the rights of holders of outstanding Notes to receive payments in
respect of the principal of and premium, interest and liquidated damages,
if any, on such Notes when such payments are due from the trust referred to
below,
(b) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of transfer or exchange of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office
or agency for payment and money for security payments held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's and any Guarantor's obligations in connection therewith
and
(d) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations will not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy and
insolvency events) described under "Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the Notes, cash in U.S. dollars,
non-callable U.S. Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of and
premium, interest and liquidated damages, if any, on the outstanding Notes
on the Stated Maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being defeased
to maturity or to a particular redemption date,
(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling
or (B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred,
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred,
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit
or the grant of Liens securing such borrowings) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in
the period ending on the 91st day after the date of deposit,
84
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company or
any of its Restricted Subsidiaries is bound,
(6) the Company must have delivered to the Trustee an Opinion of
Counsel to the effect that, after the 91st day following the date of
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally,
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others and
(8) the Company must deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.
If the Company exercises either Legal Defeasance or Covenant Defeasance, any
Liens securing the Notes that were created pursuant to the requirements of the
"Liens" covenant will be released.
AMENDMENT AND WAIVER
Except as provided below, the Indenture or the Notes may be amended with
the consent of the holders of at least a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing non-payment default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose holders must consent to
an amendment or waiver,
(b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption or repurchase of the
Notes (other than provisions relating to the covenants described above
under the caption "-- Repurchase at the Option of Holders"),
(c) reduce the rate of or change the time for payment of interest on
any Note,
(d) waive a Default or Event of Default in the payment of principal of
or premium, interest or liquidated damages, if any, on the Notes (except a
rescission of acceleration of the Notes by the holders of at least a
majority in principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration),
(e) make any Note payable in money other than that stated in the
Notes,
(f) make any change in the provisions of the Indenture relating to
waivers of past defaults or the rights of holders of Notes to receive
payments of principal of or premium, interest or liquidated damages, if
any, on the Notes (except as permitted in clause (g) hereof),
(g) waive a redemption or repurchase payment with respect to any Note
(other than a payment required by one of the covenants described above
under the caption "-- Repurchase at the Option of Holders"),
(h) alter the ranking of the Notes relative to other Indebtedness of
the Company or any Subsidiary Guarantee relative to other Indebtedness of
the Guarantors, in either case in a manner adverse to the holders, or
85
(i) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of Notes,
the Company, the Guarantors and the Trustee may amend the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such holder, to secure the Notes pursuant to the
requirements of the "Liens" covenant, to add any additional Guarantor or to
release any Guarantor from its Subsidiary Guarantee, in each case as provided in
the Indenture, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the Indenture
or the Notes, unless such consideration is offered to be paid or agreed to be
paid to all holders of the Notes which so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:
(a) either:
(1) all Notes that have been authenticated (except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Company) have been delivered to the Trustee for
cancellation or
(2) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the giving of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Guarantor has irrevocably deposited or
caused to be irrevocably deposited with the Trustee as trust funds in
trust solely for the benefit of the Holders, cash in U.S. dollars,
non-callable U.S. Government Securities or a combination thereof, in
such amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire indebtedness
on the Notes not delivered to the Trustee for cancellation for
principal, premium, if any, liquidated damages, if any, and accrued
interest to the date of maturity or redemption;
(b) no Default or Event of Default has occurred and is continuing on
the date of such deposit or will occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company or any Guarantor
is a party or by which the Company or any Guarantor is bound;
(c) the Company or any Guarantor has paid or caused to be paid all
other sums payable by it under the Indenture; and
(d) the Company has delivered an Officers' Certificate and an Opinion
of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
Wells Fargo Bank Minnesota, National Association, will serve as trustee,
registrar and paying agent under the Indenture.
86
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if after an Event of Default
has occurred and is continuing, the Trustee acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which is not cured), the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture provides that it, the Notes and the Subsidiary Guarantees
shall be governed by the laws of the State of New York.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture
without charge by contacting HORNBECK-LEEVAC Marine Services, Inc., 414 N.
Causeway Boulevard, Mandeville, Louisiana 70448, Attention: James O. Harp, Jr.,
Chief Financial Officer, telephone (985) 727-2000, extension 203.
BOOK ENTRY, DELIVERY AND FORM
The Series B notes will be issued in the form of a global note. The global
note will be deposited with, or on behalf of, the Depository and registered in
the name of the Depository or its nominee. Except as set forth below, the global
note may be transferred, in whole and not in part, only to the Depository or
another nominee of the Depository. Investors may hold their beneficial interests
in the global note directly through the Depository if they have an account with
the Depository or indirectly through organizations which have accounts with the
Depository.
Series B notes that are issued as described below under "-- Certificated
Notes" will be issued in definitive form. Upon the transfer of Series B notes in
definitive form, such Series B notes will, unless the global note has previously
been exchanged for Series B notes in definitive form, be exchanged for an
interest in the global note representing the aggregate principal amount of
Series B notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company organized under the laws 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
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository'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,
whether directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository, upon the issuance of the global note, the Depository will credit, on
its book-entry registrations and transfer system, the aggregate principal amount
of Series B notes represented by such global note to the accounts of
participants exchanging
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Series A notes. Ownership of beneficial interests in the global note will be
limited to participants or Persons that may hold interests through participants.
Ownership of beneficial interests in the global note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interest) and such
participants (with respect to the owners of beneficial interests in the global
note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the global note.
So long as the Depository, or its nominee, is the Holder of the global
note, the Depository or such nominee, as the case may be, will be considered the
sole legal owner and Holder of the Series B notes for all purposes of the Series
B notes and the Indenture. Except as set forth below, you will not be entitled
to have the Series B notes represented by the global note registered in your
name, will not receive or be entitled to receive physical delivery of
certificated notes in definitive form and will not be considered to be the owner
or Holder of any Series B notes under the global note. The Company understands
that under existing industry practice, in the event an owner of a beneficial
interest in the global note desires to take any action that the Depository, as
the Holder of the global note, is entitled to take, the Depository will
authorize the participants to take such action, and that the participants will
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
The Company will make all payments on Series B notes represented by the
global note registered in the name of and held by the Depository or its nominee
to the Depository or its nominee, as the case may be, as the owner and Holder of
the global note.
The Company expects that the Depository or its nominee, upon receipt of any
payment in respect of the global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the aggregate principal amount of the global note as shown on the records of the
Depository or its nominee. The Company also expects that payments by
participants to owners of beneficial interest in the global note held through
such participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants. The Company will
not 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
note for any Series B notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for any other aspect
of the relationship between the Depository and its participants or the
relationship between such participants and the owners of beneficial interests in
the global note owning through such participants.
Although the Depository has agreed to the preceding procedures in order to
facilitate transfers of interests in the global note among participants of the
Depository, it is under no obligations to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
Subject to certain conditions, the Series B notes represented by the global
note will be exchangeable for certificated notes in definitive form of like
tenor as such Series B notes if:
(1) the Depository notifies the Company that it is unwilling or unable
to continue as Depository for the global note and a successor is not
promptly appointed or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act; or
(2) the Company in its discretion at any time determines not to have
all of the Series B notes represented by the global note. Any Series B
notes that are exchangeable pursuant to the preceding sentence will be
exchanged for certificated notes issuable in authorized denominations and
registered in such names as the Depository shall direct. Subject to the
preceding, the global note is not exchangeable, except for a global note of
the same aggregate denomination to be registered in the name of the
Depository or its nominee.
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EXCHANGE AND TRANSFERS
A holder of Series B Notes may transfer or exchange Series B notes in
accordance with the Indenture. The Registrar and the Trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company will not be required
to transfer or exchange any Series B note selected for redemption. Also, the
Company will not be required to transfer or exchange any Series B note for a
period of 15 days before a selection of Notes to be redeemed.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with acquisitions of assets from such Person. Acquired Indebtedness will be
deemed to be incurred on the date the acquired Person becomes a Restricted
Subsidiary or the date of the related acquisition of assets from such Person.
"Affiliate" of any specified Person means an "affiliate" of such Person, as
such term is defined for purposes of Rule 144 under the Securities Act.
"Applicable Premium" means, with respect to any Note on any redemption
date, the greater of:
(a) 1.0% of the principal amount of the Note and
(b) the excess of (1) the present value at such redemption date of (A)
the redemption price of the Note at August 1, 2005 (such redemption price
being set forth in the table appearing above under the caption "-- Optional
Redemption") plus (B) all required interest payments due on the Note during
the period from such redemption date through August 1, 2005 (excluding
accrued but unpaid interest), computed using a discount rate equal to the
Treasury Rate as of such redemption date plus 50 basis points over (2) the
principal amount of the Note, if greater.
"Asset Sale" means
(a) the sale, lease, conveyance or other disposition (a "disposition")
of any assets or rights (including, without limitation, by way of a sale
and leaseback), excluding dispositions in the ordinary course of business
(provided that the disposition of all or substantially all of the assets of
the Company and its Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and the
provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sales covenant),
(b) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, and
(c) any Event of Loss,
whether, in the case of clause (a), (b) or (c), in a single transaction or a
series of related transactions, provided that such transaction or series of
related transactions (1) involves assets or rights having a fair market value in
excess of $1 million or (2) results in the payment of net proceeds (including
insurance proceeds from an Event of Loss) in excess of $1 million.
Notwithstanding the preceding provisions of this definition, the following
transactions will be deemed not to be Asset Sales:
(A) a disposition of obsolete or excess equipment or other assets;
(B) a disposition of assets (including Equity Interests) by the
Company to a Wholly Owned Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary;
89
(C) a disposition of cash or Cash Equivalents;
(D) disposition of assets (including Equity Interests) that
constitutes a Permitted Investment or Restricted Payment that is permitted
by the provisions of the Indenture described above under "-- Certain
Covenants -- Restricted Payments";
(E) any charter or lease of any equipment or other assets entered into
in the ordinary course of business and with respect to which the Company or
any Restricted Subsidiary thereof is the lessor, except any such charter or
lease that provides for the acquisition of such assets by the lessee during
or at the end of the term thereof for an amount that is less than the fair
market value thereof at the time the right to acquire such assets occurs;
and
(F) any trade or exchange by the Company or any Restricted Subsidiary
of the Company of equipment or other assets for equipment or other assets
owned or held by another Person, provided that the fair market value of the
assets traded or exchanged by the Company or such Restricted Subsidiary
(together with any cash or Cash Equivalents) is reasonably equivalent to
the fair market value of the assets (together with any cash or Cash
Equivalents) to be received by the Company or such Restricted Subsidiary.
The fair market value of any non-cash proceeds of a disposition of assets and of
any assets referred to in the foregoing clause (F) of this definition shall be
determined in the manner contemplated in the definition of the term "fair market
value," the results of which determination shall be set forth in an Officers'
Certificate delivered to the Trustee.
"Attributable Indebtedness" in respect of a sale-and-leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale-and-lease-back transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payments" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease that is terminable by the lessee upon
payment of penalty, such net rental payment shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means
(a) in the case of a corporation, corporate stock,
(b) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock,
(c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and
(d) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means
(a) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of acquisition,
90
(b) certificates of deposit and Eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with or issued by any commercial bank organized
under the laws of any country that is a member of the Organization for
Economic Cooperation and Development having capital and surplus in excess
of $500 million and whose long-term debt securities are rated at least A3
by Moody's and at least A- by S&P,
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and (b) above
entered into with any financial institution meeting the qualifications
specified in clause (b) above,
(d) commercial paper having a rating of at least P-1 from Moody's or
at least A-1 from S&P and in each case maturing within 270 days after the
date of acquisition,
(e) deposits available for withdrawal on demand with any commercial
bank not meeting the qualifications specified in clause (b) above, provided
all deposits referred to in this clause (e) are made in the ordinary course
of business and do not exceed $2 million in the aggregate at any one time,
and
(f) money market mutual funds substantially all of the assets of which
are of the type described in the foregoing clauses (a) through (d).
"Common Stock" means the Common Stock of the Company, par value $.01 per
share.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted or excluded in calculating Consolidated Net Income for such period,
(a) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale,
(b) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries,
(c) Consolidated Interest Expense of such Person and its Restricted
Subsidiaries, and
(d) depreciation and amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) of such Person and its Restricted
Subsidiaries,
in each case, on a consolidated basis and determined in accordance with
GAAP.
"Consolidated Interest Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Consolidated Interest Expense of such Person for such period;
provided, however, that the Consolidated Interest Coverage Ratio shall be
calculated giving pro forma effect to each of the following transactions as if
each such transaction had occurred at the beginning of the applicable
four-quarter reference period:
(a) any incurrence, assumption, guarantee, repayment, purchase or
redemption by such Person or any of its Restricted Subsidiaries of any
Indebtedness (other than revolving credit borrowings) subsequent to the
commencement of the period for which the Consolidated Interest Coverage
Ratio is being calculated but prior to the date on which the event occurred
for which the calculation of the Consolidated Interest Coverage Ratio is
made (the "Calculation Date");
(b) any acquisition that has been made by such Person or any of its
Restricted Subsidiaries, or approved and expected to be consummated within
30 days of the Calculation Date, including, in each case, through a merger
or consolidation, and including any related financing transactions, during
the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date (in which case Consolidated Cash
Flow for such reference period shall be calculated without giving effect to
clause (c) of the proviso set forth in the definition of Consolidated Net
Income);
91
(c) any delivery to such a Person or any of its Restricted
Subsidiaries of any newly constructed offshore supply vessel (or vessels)
after March 31, 2001, that is (or are) subject to a Qualified Services
Contract; and
(d) any other transaction that may be given pro forma effect in
accordance with Article 11 of Regulation S-X as in effect from time to
time;
provided further, however, that (1) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded and
(2) the Consolidated Interest Expense attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Consolidated Interest Expense will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date. For purposes of clause (c) of this definition,
the amount of Consolidated Cash Flow attributable to such vessel (or vessels)
shall be calculated in good faith by a responsible financial or accounting
officer of such Person and shall include in the calculation of the Consolidated
Interest Coverage Ratio the revenues to be earned pursuant to the Qualified
Services Contract relating to such vessel (or vessels) and the estimated
expenses related thereto. Such estimated expenses shall be based on the expenses
of the most nearly comparable offshore supply vessel in such Person's fleet or,
if no such comparable vessel exists, then on the industry average for expenses
of comparable offshore supply vessels; provided, however, in determining the
estimated expenses attributable to such new vessel (or vessels), the calculation
shall give effect to the interest expense attributable to the incurrence,
assumption or guarantee of any Indebtedness relating to the construction of such
new vessel (or vessels) in accordance with clause (a) of this definition.
Notwithstanding the foregoing, in any calculation of Consolidated Interest
Coverage Ratio based on the preceding clause (c):
(1) the pro forma inclusion of Consolidated Cash Flow attributable to
such Qualified Services Contract for the four-quarter reference period
shall be reduced by (A) the actual Consolidated Cash Flow from such
Qualified Services Contract previously earned and accounted for in the
actual results for the four-quarter reference period and (B) any
Consolidated Cash Flow resulting from spot market activities prior to
commencement of the Qualified Services Contract, and
(2) if the contracted dayrate for such new vessel (or vessels) is
subject to reduction at any time prior to one year from the commencement of
service under such contract then the period for which such pro forma effect
shall be given to revenues and related expenses, if any, attributable to
such new vessel (or vessels) shall include only that number of days that is
equal to the number of days from the commencement of services under such
contract to the first date of such potential reduction in rate, provided,
however, that the calculation of interest expense pursuant to the proviso
in the immediately preceding sentence shall be on the basis of four
quarters of interest expense.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of
(a) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments (if any) pursuant to Hedging Obligations but excluding
amortization of debt issuance costs) and
(b) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
provided that
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(a) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof,
(b) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders,
(c) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and
(d) the cumulative effect of a change in accounting principles shall
be excluded.
"Consolidated Net Tangible Assets" means, with respect to any Person as of
any date, the sum of the amounts that would appear on a consolidated balance
sheet of such Person and its consolidated Restricted Subsidiaries as the total
assets of such Person and its consolidated Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP and after deducting therefrom,
(a) to the extent otherwise included, unamortized debt discount and
expenses and other unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, licenses, organization
or development expenses and other intangible items and
(b) the aggregate amount of liabilities of the Company and its
Restricted Subsidiaries which may be properly classified as current
liabilities (including tax accrued as estimated), determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of
(a) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus
(b) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less
(1) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such
business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such
Person,
(2) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Restricted Subsidiaries and
(3) all unamortized debt discount and expense and unamortized
deferred charges as of such date, in each case determined in accordance
with GAAP.
"Credit Facility" means that certain Credit Agreement to be entered into by
and among the Company, its Subsidiaries named therein, Hibernia National Bank
and the other banks named therein, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, in each case as amended, restated, modified, supplemented, extended,
renewed, replaced, refinanced or restructured from time to time, whether by the
same or any other agent or agents, lender or group of lenders, whether
represented by one or more agreements and whether one or more Subsidiaries are
added or removed as borrowers or guarantors thereunder or as parties thereto.
93
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as a result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature or are
redeemed or retired in full; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof (or of
any security into which it is convertible or for which it is exchangeable) have
the right to require the issuer to repurchase such Capital Stock (or such
security into which it is convertible or for which it is exchangeable) upon the
occurrence of any of the events constituting an Asset Sale or a Change of
Control shall not constitute Disqualified Stock if such Capital Stock (and all
such securities into which it is convertible or for which it is exchangeable)
provides that the issuer thereof will not repurchase or redeem any such Capital
Stock (or any such security into which it is convertible or for which it is
exchangeable) pursuant to such provisions prior to compliance by the Company
with the provisions of the Indenture described under the caption "Repurchase at
the Option of Holders -- Change of Control" or "Repurchase at the Option of
Holders -- Asset Sales," as the case may be.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any asset of the Company or any
Restricted Subsidiary,
(a) any damage to such asset that results in an insurance settlement
with respect thereto on the basis of a total loss or a constructive or
compromised total loss or
(b) the confiscation, condemnation or requisition of title to such
asset by any government or instrumentality or agency thereof.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Credit Facility) in
existence on the Issue Date, until such amounts are repaid, but shall not
include any Indebtedness that is repaid with the proceeds of the Offered Notes.
The term "fair market value" means, with respect to any asset or
Investment, the fair market value of such asset or Investment at the time of the
event requiring such determination, as determined in good faith by the Board of
Directors of the Company, or, with respect to any asset or Investment in excess
of $10 million (other than cash or Cash Equivalents), as determined by a
reputable appraisal firm that is, in the judgment of the disinterested members
of such Board of Directors, qualified to perform the task for which such firm
has been engaged and independent with respect to the Company.
"Funded Indebtedness" means any Indebtedness for money borrowed that by its
terms matures at, or is extendable or renewable at the option of the obligor to,
a date more than 12 months after the date of the incurrence of such
Indebtedness.
"GAAP" means generally accepted accounting principles in the United States,
which are in effect from time to time.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under
(a) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements,
(b) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates and
(c) any foreign currency futures contract, option or similar agreement
or arrangement designed to protect such Person against fluctuations in
foreign currency rates,
in each case to the extent such obligations are incurred in the ordinary course
of business of such Person and not for speculative purposes.
94
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of (1) borrowed money including,
without limitation, any guarantee thereof, or (2) evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the deferred and unpaid purchase price of any property, or
representing any Hedging Obligations, if and to the extent any of the preceding
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, provided, however, that any accrued expense or trade payable of such
Person shall not constitute Indebtedness. The amount of any Indebtedness
outstanding as of any date shall be
(a) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest, and
(b) the principal amount thereof, in the case of any other
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of such Person and its
Restricted Subsidiaries thereunder).
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP; provided, however, that the following shall not constitute Investments:
(a) extensions of trade credit or other advances to customers on
commercially reasonable terms in accordance with normal trade practices or
otherwise in the ordinary course of business,
(b) Hedging Obligations and
(c) endorsements of negotiable instruments and documents in the
ordinary course of business.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments."
"Issue Date" means the first date on which the Notes are issued under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement respecting a lease not intended as a
security agreement) or any assignment (or agreement to assign) any right to
income or profits from any asset by way of security.
"Merger" includes a compulsory share exchange, a conversion of a
corporation into another business entity and any other transaction having
effects substantially similar to a merger under the General Corporation Law of
the State of Delaware.
"Moody's" means Moody's Investors Service, Inc. or any successor to its
rating agency business.
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"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however,
(a) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with
(1) any Asset Sale (including, without limitation, dispositions
pursuant to sale-and-leaseback transactions) or
(2) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and
(b) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of (without duplication)
(a) the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, sales
commissions, recording fees, title transfer fees, title insurance premiums,
appraiser fees and costs incurred in connection with preparing such asset
for sale) and any relocation expenses incurred as a result thereof,
(b) taxes paid or estimated to be payable as a result thereof (after
taking into account any available tax credits or deductions and any tax
sharing arrangements),
(c) amounts required to be applied to the repayment of Indebtedness
(other than under the Credit Facility) secured by a Lien on the assets that
were the subject of such Asset Sale and
(d) any reserve established in accordance with GAAP or any amount
placed in escrow, in either case for adjustment in respect of the sale
price of such assets, until such time as such reserve is reversed or such
escrow arrangement is terminated, in which case Net Proceeds shall include
only the amount of the reserve so reversed or the amount returned to the
Company or its Restricted Subsidiaries from such escrow arrangement, as the
case may be.
"Non-Recourse Debt" means Indebtedness
(a) as to which neither the Company nor any of its Restricted
Subsidiaries
(1) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness) or is
otherwise directly or indirectly liable (as a guarantor or otherwise) or
(2) constitutes the lender,
(b) no default with respect to which (including any rights the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) the holders
of Indebtedness of the Company or any of its Restricted Subsidiaries to
declare a default on such Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity and
(c) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Pari Passu Indebtedness" means, with respect to any Net Proceeds from
Asset Sales, Indebtedness of the Company or any of its Restricted Subsidiaries
the terms of which require the Company or such Restricted Subsidiary to apply
such Net Proceeds to offer to repurchase such Indebtedness.
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"Permitted Investments" means
(a) any Investment in the Company (including, without limitation, any
acquisition of the Notes) or in a Wholly Owned Restricted Subsidiary of the
Company, other than any Investment described in clause (a) of the
definition of "Restricted Payments,"
(b) any Investment in Cash Equivalents,
(c) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person if as a result of such Investment
(1) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or
(2) such Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of
the Company,
(d) any Investment made as a result of the receipt of non-cash
consideration from
(1) an Asset Sale that was made pursuant to and in compliance with
the covenant described above under the caption "-- Repurchase at the
Option of Holders -- Asset Sales" or
(2) a disposition of assets that does not constitute an Asset Sale,
(e) Investments in a Person engaged principally in the business of
providing marine transportation services or other businesses reasonably
complementary or related thereto as determined in good faith by the Board
of Directors, provided that the aggregate amount of all such Investments at
any one time outstanding pursuant to this clause (e) in Persons that are
not Restricted Subsidiaries of the Company shall not exceed the greater of
(1) $10 million and
(2) 5% of Consolidated Net Tangible Assets determined as of the end
of the Company's most recently computed fiscal quarter for which
internal financial statements are available, and
(f) Investments in stock, obligations or securities received in
settlement of any debts owing to the Company or any Restricted Subsidiary
of the Company as a result of bankruptcy or insolvency proceedings or upon
the foreclosure, perfection or enforcement of any Lien in favor of the
Company or any Restricted Subsidiary of the Company, in each case as to any
debt owing to the Company or any Restricted Subsidiary of the Company, that
arose in the ordinary course of business of the Company or any such
Restricted Subsidiary.
"Permitted Liens" means
(a) Liens securing Indebtedness incurred pursuant to clause (a) of the
second paragraph of the covenant entitled "-- Incurrence of Indebtedness
and Issuance of Preferred Stock",
(b) Liens in favor of the Company and its Restricted Subsidiaries,
(c) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company, provided that such Liens were in existence prior to its
contemplation of such merger or consolidation and do not extend to any
property other than those of the Person merged into or consolidated with
the Company or any of its Restricted Subsidiaries,
(d) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to its contemplation of such acquisition and
do not extend to any other property of the Company or any of its Restricted
Subsidiaries,
(e) Liens securing the performance of tenders, bids, statutory
obligations, surety, appeal, return-of-money or performance bonds,
government contracts, insurance obligations or other obligations of a like
nature incurred in the ordinary course of business,
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(f) Liens securing Hedging Obligations,
(g) Liens existing on the Issue Date,
(h) Liens securing Non-Recourse Debt,
(i) any interest or title of a lessor under a Capital Lease Obligation
or an operating lease,
(j) Liens arising by reason of deposits necessary to obtain standby
letters of credit in the ordinary course of business,
(k) Liens on real or personal property or assets of the Company or a
Restricted Subsidiary of the Company thereof to secure Indebtedness
incurred for the purpose of
(1) financing all or any part of the purchase price of such
property or assets incurred prior to, at the time of, or within 120 days
after, completion of the acquisition of such property or assets or
(2) financing all or any part of the cost of construction or
improvement of any such property or assets,
provided that the amount of any such financing shall not exceed the amount
expended in the acquisition of, or the construction or improvement of, such
property or assets and such Liens shall not extend to any other property or
assets of the Company or a Restricted Subsidiary of the Company (other than any
associated accounts, contracts and insurance proceeds),
(l) Liens securing Permitted Refinancing Indebtedness with respect to
any Indebtedness referred to in clauses (c), (d), (g) and (k) above and in
this clause (l),
(m) Liens securing Indebtedness of the Company or any Restricted
Subsidiary of the Company that does not exceed $10 million at any one time
outstanding,
(n) Liens on assets of the Company or any Restricted Subsidiary of the
Company that were substituted or exchanged as collateral for other assets
of the Company or any Restricted Subsidiary of the Company that are
referred to in any of the preceding clauses (c), (d) and (k) of this
definition, provided that the fair market value of the substituted or
exchanged assets substantially approximates, at the time of the
substitution or exchange, the fair market value of the other assets so
referred to,
(o) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceeding that may have been duly initiated for the
review of such judgment has not been finally terminated or the period
within which such proceeding may be initiated has not expired,
(p) rights of banks to set off deposits against Indebtedness owed to
said banks,
(q) Liens upon specific items of inventory or other goods and proceeds
of the Company or its Restricted Subsidiaries securing the Company's or any
such Restricted Subsidiary's obligations in respect of bankers' acceptances
issued or created for the account of any such Person to facilitate the
purchase, shipment or storage of such inventory or other goods in the
ordinary course of business, and
(r) legal or equitable Liens deemed to exist by reason of negative
pledge covenants and other covenants or undertakings of a like nature.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided, however, that
(a) the principal amount of such Permitted Refinancing Indebtedness
does not exceed the principal amount of, plus premium, if any, and accrued
interest on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith),
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(b) such Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded,
(c) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes or
the Subsidiary Guarantees, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes or the Subsidiary Guarantees,
as the case may be, on terms at least as favorable, taken as a whole, to
the holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded and
(d) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded;
provided, however, that a Restricted Subsidiary may guarantee Permitted
Refinancing Indebtedness incurred by the Company, whether or not such Restricted
Subsidiary was an obligor or guarantor of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; provided further, however,
that if such Permitted Refinancing Indebtedness is subordinated to the Notes,
such guarantee shall be subordinated to such Restricted Subsidiary's Subsidiary
Guarantee to at least the same extent.
"Productive Assets" means Vessels or other assets (other than assets that
would be classified as current assets in accordance with GAAP) of the kind used
or usable by the Company or its Restricted Subsidiaries in the business of
providing marine transportation services (or any other business that is
reasonably complementary or related thereto as determined in good faith by the
Board of Directors).
"Qualified Equity Offering" means
(a) any sale of Equity Interests (other than Disqualified Stock) of
the Company for cash pursuant to an underwritten offering registered under
the Securities Act or
(b) any other sale of Equity Interests (other than Disqualified Stock)
of the Company for cash,
in each case so long as such sale does not result in a Change of Control.
"Qualified Services Contract" means, with respect to any newly constructed
offshore supply vessel delivered to the Company or any of its Restricted
Subsidiaries, a contract that the Board of Directors of the Company, acting in
good faith, designates as a "Qualified Services Contract" pursuant to a
resolution of the Board of Directors, which contract:
(a) is between the Company or one of its Restricted Subsidiaries, on
the one hand, and (1) a Person or a Subsidiary of a Person with a rating of
either a BBB- or higher from S&P or Baa3 or higher from Moody's, or if such
ratings are not available, then a similar investment grade rating from
another nationally recognized statistical rating agency or (2) any other
Person provided such contract is supported by letters of credit,
performance bonds or guarantees, from an entity that has an investment
grade rating, for the full amount of the remaining contracted payments over
the contract term;
(b) provides for services to be performed by the Company or one of its
Restricted Subsidiaries involving the use of such vessel or a charter
(bareboat or otherwise) of such vessel by the Company or one of its
Restricted Subsidiaries, in either case for a minimum period of at least
one year;
(c) provides for a fixed dayrate for such vessel; and
(d) provides for commencement of the payments of the dayrate referred
to in clause (c) of this definition within 60 days of the date the Company
or one of its Restricted Subsidiaries has entered into the contract.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poors Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor to its rating agency business.
"Significant Subsidiary" means
(a) any Restricted Subsidiary of the Company that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the Issue Date,
(b) any other Restricted Subsidiary of the Company that (1) represents
more than 5% of the Consolidated Net Tangible Assets of the Company, based
upon the most recent internal financial statements of the Company, and (2)
provides a guarantee under the Credit Facility or incurs any Funded
Indebtedness and
(c) their respective successors and assigns.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person,
(a) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof),
(b) any partnership (1) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(2) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof) and
(c) any other Person whose results for financial reporting purposes
are consolidated with those of such Person in accordance with GAAP.
"Treasury Rate" means, as of any redemption date in respect to the Notes,
the yield to maturity as of such redemption date of United States Treasury
securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H.15(519) that has become publicly
available at least two business days prior to the redemption date, or if such
Statistical Release is no longer published, any publicly available source of
similar market data) most nearly equal to the period from the redemption date to
August 1, 2005; provided, however, that if the period from the redemption date
to August 1, 2005 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution and any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate a Subsidiary as an Unrestricted Subsidiary only to the
extent that such Subsidiary at the time of such designation
(a) has no Indebtedness other than Non-Recourse Debt,
(b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless such agreement, contract, arrangement or understanding does not
violate the terms of the Indenture described under the caption "-- Certain
Covenants -- Transactions with Affiliates," and
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(c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation
(1) to subscribe for additional Equity Interests or
(2) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the preceding conditions and was permitted by the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if:
(A) such Indebtedness is permitted under the covenant described under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred
at the beginning of the four-quarter reference period, and
(B) no Default or Event of Default would be in existence following
such designation.
"Voting Stock" of a Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the board of
directors, managers or trustees of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(a) the sum of the products obtained by multiplying
(1) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(2) the number of years (calculated to the nearest one twelfth)
that will elapse between such date and the making of such payment, by
(b) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person to the extent that
(a) all of the outstanding Capital Stock of which (other than
directors' qualifying shares and Capital Stock held by other statutorily
required minority shareholders) shall at the time be owned directly or
indirectly by such Person or
(b) such Restricted Subsidiary is organized in a foreign jurisdiction
and is required by the applicable laws and regulations of such foreign
jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign
jurisdiction in order for such Restricted Subsidiary to transact business
in such foreign jurisdiction,
provided that such Person, directly or indirectly, owns the remaining Capital
Stock in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Restricted
Subsidiary.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of the exchange offer and the ownership and disposition of
Series B notes as of the date of this prospectus. Except where noted, it deals
only with the holders of Series B notes who are the initial holders of the
Series A notes who acquired such Series A notes as part of the initial
distributions of such notes at their issue price and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, tax-exempt entities, insurance companies, persons who hold the
notes through partnerships or other pass-through entities, persons holding notes
as a part of a hedging, integrated, conversion, or constructive sale transaction
or a straddle, traders in securities that elect to use a mark-to-market method
of accounting for their securities holdings, persons liable for alternative
minimum tax or holders of notes whose "functional currency" is not the U.S.
dollar. Furthermore, the discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings
and judicial decisions thereunder as of the date hereof, and such authorities
may be repealed, revoked or modified so as to result in United States federal
income tax consequences different from those discussed below. Persons
considering participating in the exchange offer or the ownership or disposition
of notes should consult their own tax advisors concerning the United States
federal income tax consequences in light of their particular situations as well
as any consequences arising under the laws of any other taxing jurisdiction.
As used herein, a "U.S. Holder" means a beneficial owner of a note who
purchased such note pursuant to private placement of the Series A notes that is
(i) a citizen or resident of the United States, (ii) a corporation, or other
entity taxable as a corporation for U.S. federal income tax purposes, that was
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust (X) that
is subject to the supervision of a court within the United States and the
control of one or more United States persons as described in section 7701(a)(30)
of the Code or (Y) that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a United States person. A "Non-U.S.
Holder" is a beneficial owner of a note who purchased such note pursuant to
private placement of the Series A notes that is not a U.S. Holder. If a
partnership holds our notes, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding our notes, you should consult your
tax advisors.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS.
THE EXCHANGE OFFER
We believe that the exchange of Series A notes for Series B notes should
not be an exchange or otherwise a taxable event to a holder for United States
federal income tax purposes. Accordingly, a holder should have the same adjusted
issue price, adjusted basis and holding period in the Series B notes as it had
in the Series A notes immediately before the exchange.
PAYMENTS OF INTEREST
Stated interest on a Series B note will continue to be taxable to a U.S.
Holder as ordinary income at the time it is paid or accrued in accordance with
the U.S. Holder's method of accounting for tax purposes in the same manner
applicable to the Series A notes.
ORIGINAL ISSUE DISCOUNT ON THE NOTES
The Series A notes were issued at a discount from their principal amount at
maturity. For U.S. federal income tax purposes, the excess of the principal
amount of a note over its issue price constitutes original issue discount
("OID"). Since the Series A notes were subject to OID rules, the Series B notes
will also be subject to OID rules and, as a holder of a Series B note, you will
continue to be required to include OID in income as it accrues, in accordance
with a constant yield method, before receipt of the cash attributable to such
income,
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regardless of your regular method of accounting for U.S. federal income tax
purposes. Under these rules, you will have to continue to include in gross
income increasingly greater amounts of OID in each successive accrual period.
Your original tax basis for determining gain or loss on the sale or other
disposition of a Series B note will be increased by any accrued OID included in
your gross income.
For the taxable year in which you acquired the Series A notes, you may
elect, subject to certain limitations, to include all interest that accrues on
any Series B note you receive in the exchange offer in gross income on a
constant yield basis. For purposes of this election, interest includes stated
interest and OID. When applying the constant yield method to a Series B note for
which this election has been made, the issue price of the Series B note will
equal your basis in the Series B note immediately after its acquisition and the
issue date of the Series B note will be the date of its acquisition by you. This
election generally will apply only to the Series B note with respect to which it
is made and may not be revoked without IRS consent. If this election was made
with respect to your Series A note, then any Series B notes you receive in the
exchange offer will be subject to such previously made election.
We do not intend to treat the possibility of an optional redemption or
repurchase of the Series B notes as affecting the determination of the yield to
maturity of the Series B notes or giving rise to any additional accrual of OID
or recognition of ordinary income upon redemption, sale or exchange of the
Series B notes.
SALE, EXCHANGE AND RETIREMENT OF SERIES B NOTES
A U.S. Holder's tax basis in a Series B note will, in general, be the U.S.
Holder's cost for the original Series A notes, reduced by any cash payments on
such holder's Series A notes or Series B notes other than qualified stated
interest. Upon the sale, exchange, retirement or other disposition of a Series B
note, a U.S. Holder will recognize gain or loss equal to the difference between
the amount realized upon the sale, exchange, retirement or other disposition
(less any accrued qualified stated interest, which will be taxable as such) and
the adjusted tax basis of the Series B note. Such gain or loss will be capital
gain or loss.
NON-U.S. HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by us or any paying agent of principal
or interest on a Series B note owned by a Non-U.S. Holder, provided (i)
that the beneficial owner does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Code and
the regulations thereunder, (ii) the beneficial owner is not a controlled
foreign corporation that is related to us through stock ownership, (iii)
the beneficial owner is not a bank whose receipt of interest on a note is
described in section 881(c)(3)(A) of the Code, and (iv) the beneficial
owner satisfies the statement requirement (described generally below) set
forth in section 871(h) and section 881(c) of the Code and the regulations
thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-U.S. Holder
upon the sale, exchange, retirement or other disposition of a Series B
note; and
(c) a Series B note beneficially owned by an individual who at the
time of death is a Non-U.S. Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to vote
within the meaning of section 871(h)(3) of the Code and provided that the
interest payments with respect to such Series B note would not have been,
if received at the time of such individual's death, effectively connected
with the conduct of a United States trade or business by such individual.
(d) To satisfy the requirement referred to in (a)(iv) above, the
beneficial owner of such Series B note, (1) must provide his name and
address on an IRS Form W-8BEN (or successor form), and certify,
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under penalties of perjury, that he is not a United States person, or (2)
if he holds the note through certain foreign intermediaries or certain
foreign partnerships, he satisfies the certification requirements of
applicable United States Treasury regulations. Special certification rules
apply to certain Non-U.S. Holders that are entities rather than
individuals.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of interest made to such
Non-U.S. Holder will be subject to a 30% withholding tax unless the beneficial
owner of the Series B note provides us or our paying agent, as the case may be,
with a properly executed (1) IRS Form W-8BEN claiming an exemption from or
reduction in withholding under the benefit of a tax treaty or (2) IRS Form
W-8ECI stating that interest paid on the Series B note is not subject to
withholding tax because it is effectively connected with the beneficial owner's
conduct of a trade or business in the United States. Alternative documentation
may be applicable in certain situations.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest on the Series B note is effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will be subject to United States federal income
tax on such interest on a net income basis in the same manner as if it were a
U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or lesser rate under an applicable
tax treaty) of its effectively connected earnings and profits for the taxable
year, subject to adjustments. For this purpose, interest on a Series B note will
be included in such foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Series B note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-U.S. Holder, or (ii) in the
case of a Non-U.S. Holder who is an individual, such individual is present in
the United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition, and certain other conditions are met.
Special Rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations," "passive foreign investment companies" and "foreign
personal holding companies," that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the U.S.
federal, state, local and other tax consequences that may be relevant to them.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting will apply to payments of principal
and interest (including the amount of OID accrued) made by us on, or the
proceeds of the sale or other disposition of, the Series B notes with respect to
certain noncorporate U.S. Holders, and backup withholding may apply unless the
recipient of such payment provides the appropriate intermediary with a taxpayer
identification number, certified under penalties of perjury, as well as certain
other information or otherwise establishes an exemption from backup withholding.
Any amount withheld under the backup withholding rules is allowable as a credit
against the U.S. Holder's federal income tax, provided the required information
is provided to the IRS.
Non-U.S. Holders. Backup withholding and information reporting will not
apply to payments of principal and interest on the Series B notes to a Non-U.S.
Holder if he has certified or certifies as to his Non-U.S. Holder status under
penalties of perjury or otherwise qualifies for an exemption (provided that
neither our company nor its agent knows or has reason to know that he is a U.S.
person or that the conditions of any other exemptions are not in fact
satisfied).
The payment of the proceeds of the disposition of Series B notes to or
through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding unless the Non-U.S. Holder provides
the certification described above or otherwise qualifies for an exemption. The
proceeds of a disposition effected outside the United States by a Non-U.S.
Holder to or through a foreign office of a broker generally will not be subject
to backup withholding or information reporting. However, if such broker is a
U.S. person, a controlled foreign corporation for U.S. tax purposes, a foreign
person 50% or more of whose gross income from all sources for certain periods is
effectively connected with a trade or business in the United States, or a
foreign partnership that is engaged in the conduct of a trade or business in the
United States or
104
that has one or more partners that are U.S. persons who in the aggregate hold
more than 50 percent of the income or capital interests in the partnership,
information reporting requirements will apply unless such broker has documentary
evidence in its files of the holder's non-U.S. status and has no actual
knowledge or reason to know to the contrary or unless the holder otherwise
qualifies for an exemption. Any amount withheld under the backup withholding
rules will be refunded or is allowable as a credit against the Non-U.S. Holder's
federal income tax liability, if any, provided the required information or
appropriate claim for refund is provided to the IRS.
105
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Securities and Exchange
Commission in no-action letters issued to third parties, we believe that you may
transfer Series B notes issued under the exchange offer in exchange for the
Series A notes if:
- you acquire the Series B notes in the ordinary course of your business;
and
- you are not engaged in, do not intend to engage in and have no
arrangement or understanding with any person to participate in a
distribution of such Series B notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act
of 1933; or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives Series B notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B notes. To date, the
staff of the Commission has taken the position that broker-dealers may fulfill
their prospectus delivery requirements with respect to transactions involving an
exchange of securities such as this exchange offer, other than a resale of an
unsold allotment from the original sale of the Series A notes, with the
prospectus contained in this registration statement. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Series B notes received in exchange for Series A
notes where such Series A notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of up
to 180 days after the effective date of this registration statement, we will
make this prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, until such date, all
dealers effecting transactions in new notes may be required to deliver a
prospectus.
If you wish to exchange Series B notes for your Series A notes in the
exchange offer, you will be required to make representations to us as described
in "Exchange Offer -- Purpose and Effect of the Exchange Offer" and
"-- Procedures for Tendering -- Your Representations to Us" in this prospectus
and in the letter of transmittal. In addition, if you are a broker-dealer who
receives Series B notes for your own account in exchange for Series A notes that
were acquired by you as a result of market-making activities or other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale by you of such Series B notes.
We will not receive any proceeds from any sale of Series B notes by
broker-dealers. Series B notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the new notes or a combination of such
methods of resale;
- at market prices prevailing at the time of resale; and
- at prices related to such prevailing market prices or negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such Series B notes. Any
broker-dealer that resells Series B notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such Series B notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933.
106
For a period of 180 days after the effective date of this registration
statement, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the outstanding notes) other than commissions or concessions of any
broker-dealers and will indemnify the holders of the outstanding notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act of 1933.
107
LEGAL MATTERS
Certain legal matters in connection with the validity of the Series B notes
offered in this exchange offer will be passed on for us by Winstead Sechrest &
Minick P.C., Houston, Texas in reliance on the opinion of Burke & Mayer, A
Professional Corporation, with respect to matters of Louisiana law. R. Clyde
Parker, Jr., a shareholder in Winstead Sechrest & Minick, is a nonvoting
advisory director to our Board of Directors and owns 114,500 shares of our
common stock and has options to acquire 34,000 shares of our common stock.
EXPERTS
The consolidated financial statements of HORNBECK-LEEVAC Marine Services,
Inc. and its consolidated subsidiaries as of December 31, 1999, and 2000 and for
each of the three years in the period ended December 31, 2000 and the combined
financial statements of the Spentonbush/Red Star Group for the same periods,
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
108
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
Introductory Note......................................... F-2
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 2000................... F-3
Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 2001........... F-5
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 2001..................................... F-7
CONSOLIDATED FINANCIAL STATEMENTS OF HORNBECK-LEEVAC MARINE
SERVICES, INC.:
Report of Independent Public Accountants.................. F-9
Consolidated Balance Sheets as of December 31, 1999 and
2000 and September 30, 2001 (Unaudited)................ F-10
Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 2000 and
for the Nine Months Ended September 30, 2000 and 2001
(Unaudited)............................................ F-11
Consolidated Statements of Changes in Stockholders' Equity
for Each of the Four Years in the Period Ended December
31, 2000 and for the Nine Months Ended September 30,
2001 (Unaudited)....................................... F-12
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 2000 and
for the Nine Months Ended September 30, 2000 and 2001
(Unaudited)............................................ F-13
Notes to Consolidated Financial Statements................ F-14
COMBINED FINANCIAL STATEMENTS OF SPENTONBUSH/RED STAR GROUP:
Report of Independent Public Accountants.................. F-26
Combined Balance Sheets as of December 31, 1999 and 2000
and March 31, 2001 (Unaudited)......................... F-27
Statement of Combined Income and Retained Earnings for
Each of the Three Years in the Period Ended December
31, 2000 and for the Three Months Ended March 31, 2000
and 2001 (Unaudited)................................... F-28
Combined Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 2000 and for the
Three Months Ended March 31, 2000 and 2001
(Unaudited)............................................ F-29
Notes to Combined Financial Statements.................... F-30
</Table>
F-1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE INFORMATION)
The following unaudited pro forma condensed consolidated financial
statements are derived from our historical consolidated financial statements as
set forth elsewhere in this prospectus and from the historical combined
financial statements of the Spentonbush/Red Star Group included elsewhere in
this prospectus with pro forma adjustments based on assumptions we have deemed
appropriate. The unaudited pro forma combined statements of operations give
effect to the acquisition of the Spentonbush/Red Star Group tug and tank barge
fleet and the application of the net proceeds from the private placement of the
Series A notes as described in "The Private Placement and Use of Proceeds." The
pro forma statements of operations are presented as if the transactions had
occurred on January 1, 2000. The pro forma balance sheet is presented as if the
private placement of 5,236 shares of common stock issued in October 2001 as part
of the 5,509 shares issued in the private placement, described in "Prospectus
Summary -- Our Company -- Recent Developments," and the application of the net
proceeds therefrom occurred on September 30, 2001. The transactions and the
related adjustments are described in the accompanying notes. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the pro forma condensed consolidated financial statements.
The following unaudited pro forma condensed consolidated financial
statements are presented for illustrative purposes only. They do not purport to
be indicative of the financial position or results of operations that would
actually have occurred if the transaction described had occurred as presented in
such statements or that may be obtained in the future. In addition, future
results may vary significantly from the results reflected in such statements due
to factors described in "Risk Factors" included elsewhere in this prospectus.
The following unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical consolidated
financial statements of the Company and the notes thereto and the combined
financial statements of the Spentonbush/Red Star Group and the notes thereto
included elsewhere in this prospectus.
The pro forma financial information does not give effect to any
contribution from the HOS Innovator, delivered on April 27, 2001, the BJ Blue
Ray, delivered on November 6, 2001, the anticipated delivery of four additional
offshore supply vessels or the acquisition of the M/V W.K. McWilliams, Jr.,
purchased on November 15, 2001, except for the five months of actual operations
of the HOS Innovator that is included only in the nine months ended September
30, 2001. The four additional offshore supply vessels are scheduled to be
delivered as follows: one in February 2002, one in April 2002, one in June 2002
and one in July 2002. The HOS Innovator, the BJ Blue Ray and the HOS Dominator,
to be delivered in February 2002, are contracted for three, five and three
years, respectively. We believe, based on current market supply and demand
conditions, that the other three vessels will be fully utilized. In addition,
based on current dayrates for comparable vessels and current customer inquiries,
we believe dayrates in the range of $12,500 to $15,000 or more will be achieved
for each of these vessels and that long-term contracts at such rates would be
available. This anticipated dayrate level is less than the average dayrate for
our recently contracted offshore supply vessels of comparable size.
F-2
HORNBECK-LEEVAC MARINE SERVICES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
HISTORICAL
----------------------
SPENTONBUSH/
RED STAR ACQUISITION PRO OFFERING AS
COMPANY GROUP ADJUSTMENTS FORMA ADJUSTMENTS ADJUSTED
------- ------------ ----------- ------- ----------- --------
Revenue....................... $36,102 $40,848 $ 1,248(a) $78,198 $ -- $ 78,198
Operating expenses............ 15,246 25,997 (1,967)(b) 39,276 -- 39,276
General and administrative
expenses.................... 3,355 5,092 (563)(c) 7,884 -- 7,884
Depreciation and
amortization................ 5,164 162 4,091(d) 9,417 -- 9,417
------- ------- ------- ------- -------- --------
Operating income (expense).... 12,337 9,597 (313) 21,621 -- 21,621
Interest income............... 305 -- -- 305 -- 305
Interest expense.............. (8,216) -- (1,926)(e) (10,142) (10,137)(g) (20,279)
Other income (expense), net... (138) 4 -- (134) -- (134)
------- ------- ------- ------- -------- --------
Income before income taxes.... 4,288 9,601 (2,239) 11,650 (10,137) 1,513
Income tax (expense)
benefit..................... (1,550) (3,405) 850(f) (4,105) 3,571(h) (534)
------- ------- ------- ------- -------- --------
Net income.................... $ 2,738 $ 6,196 $(1,389) $ 7,545 $ (6,566) $ 979
======= ======= ======= ======= ======== ========
</Table>
F-3
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
The following notes set forth the adjustments made in preparing the
unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 2000. The pro forma adjustments are based on estimates made
by us using information currently available and upon certain assumptions that we
believe are reasonable.
ACQUISITION ADJUSTMENTS
(a) Reflects a decrease in operating revenues of $2,478 to remove the
revenues associated with two vessels owned by the Spentonbush/Red Star Group
which were not purchased by the Company; a net increase of $812 to adjust
revenue to the terms of the contract of affreightment entered into with Amerada
Hess in connection with the acquisition from the Spentonbush/Red Star Group; and
an increase of $2,914 to reflect the revenue from a contract obtained from
Amerada Hess for work in the southeastern United States (the "Southeast
Revenues") not previously performed by the Spentonbush/Red Star Group but by
another affiliate of Amerada Hess.
(b) Reflects a decrease in operating expenses of $2,245 to remove expenses
for the two vessels owned by the Spentonbush/Red Star Group which were not
purchased by the Company; an increase of $2,852 to record expenses related to
the Southeast Revenues associated with the contract obtained from Amerada Hess
in connection with the acquisition from the Spentonbush/Red Star Group; and a
decrease of $2,574 to remove drydocking costs accrued by the Spentonbush/Red
Star Group.
(c) Reflects a decrease in general and administrative expenses of $563 to
remove the expenses associated with the two vessels owned by the Spentonbush/Red
Star Group which were not purchased by the Company.
(d) Reflects a net increase in depreciation expense of $2,251 associated
with the vessels acquired from the Spentonbush/Red Star Group at the allocated
purchase price based on the fair value of the acquired vessels; a reduction of
$162 to remove the depreciation expense recorded on these vessels by the
Spentonbush/ Red Star Group; and an increase of $2,002 to record amortization
expense for vessels acquired from the Spentonbush/Red Star Group that were
drydocked during 1998, 1999, and 2000 and have not been fully amortized.
(e) Represents an increase in interest expense of $1,926 as a result of the
incurrence of indebtedness to finance the Spentonbush/Red Star Group
acquisition.
(f) Represents an income tax benefit of $850 calculated at a statutory rate
of 35%.
OFFERING ADJUSTMENTS
(g) Reflects a decrease in interest expense of $10,042 due to the
prepayment of all outstanding debt under existing credit facilities; an increase
in interest expense of $19,250 as a result of the issuance of the notes; and an
increase of $929 to record the amortization of underwriting discounts and
commissions and other costs of issuance of the notes.
(h) Represents an income tax benefit of $3,571 calculated at a statutory
rate of 35%.
F-4
HORNBECK-LEEVAC MARINE SERVICES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
HISTORICAL
----------------------
SPENTONBUSH/
RED STAR ACQUISITION PRO OFFERING AS
COMPANY GROUP ADJUSTMENTS FORMA ADJUSTMENTS ADJUSTED
------- ------------ ----------- ------- ----------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Revenue...................... $47,116 $19,149 $1,358(a) $67,623 $ -- $ 67,623
Operating expenses........... 16,461 12,252 (708)(b) 28,005 -- 28,005
General and administrative
expenses................... 6,228 1,874 (189)(c) 7,913 -- 7,913
Depreciation and
amortization............... 5,200 68 1,543(d) 6,811 -- 6,811
------- ------- ------ ------- ------- --------
Operating income............. 19,227 4,955 712 24,894 -- 24,894
Interest income.............. 1,099 -- -- 1,099 -- 1,099
Interest expense............. (6,737) -- (752)(e) (7,489) (7,696)(g) (15,185)
Other income................. -- 2 -- 2 -- 2
------- ------- ------ ------- ------- --------
Income before income taxes
and extraordinary item..... 13,589 4,957 (40) 18,506 (7,696) 10,810
Income tax (expense)
benefit.................... (5,164) (1,762) 15(f) (6,911) 2,874(h) (4,037)
------- ------- ------ ------- ------- --------
Net income before
extraordinary item......... $ 8,425 $ 3,195 $ (25) $11,595 $(4,822) $ 6,773
======= ======= ====== ======= ======= ========
</Table>
F-5
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
The following notes set forth the adjustments made in preparing the
unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 2001. The pro forma adjustments are based on
estimates made by us using information currently available and upon certain
assumptions that we believe are reasonable.
ACQUISITION ADJUSTMENTS
(a) Reflects a decrease in operating revenues of $1,223 to remove the
revenues associated with two vessels owned by the Spentonbush/Red Star Group
which were not purchased by the Company; a net increase of $1,373 to adjust to
the terms of the contract of affreightment entered into with Amerada Hess in
connection with the acquisition from the Spentonbush/Red Star Group; and an
increase of $1,208 to reflect the Southeast Revenues associated with a contract
obtained from Amerada Hess in connection with the acquisition from the
Spentonbush/Red Star Group.
(b) Reflects a decrease in operating expense of $872 to remove expenses for
the two vessels owned by the Spentonbush/Red Star Group which were not purchased
by the Company; an increase of $1,179 to record expenses related to the
Southeast Revenues associated with the contract obtained from Amerada Hess in
connection with the acquisition from the Spentonbush/Red Star Group; and a
decrease of $1,015 to remove drydocking costs accrued by the Spentonbush/Red
Star Group.
(c) Reflects a decrease in general and administrative expenses of $189 to
remove the expenses associated with the two vessels owned by the Spentonbush/Red
Star Group which were not purchased by the Company.
(d) Reflects a net increase in depreciation expense of $938 associated with
the vessels acquired from the Spentonbush/Red Star Group at the allocated
purchase price based on the fair value of the acquired vessels; a reduction of
$68 to remove the depreciation expense recorded on these vessels by the
Spentonbush/Red Star Group; and an increase of $673 as a result of amortization
expense for vessels acquired from the Spentonbush/ Red Star Group that were
drydocked during 1998, 1999, 2000 and the first five months of 2001 and have not
been fully amortized.
(e) Represents an increase in interest expense of $752 as a result of the
incurrence of indebtedness to finance the Spentonbush/Red Star Group
acquisition.
(f) Represents an income tax benefit of $15 calculated at a statutory rate
of 37%.
OFFERING ADJUSTMENTS
(g) Reflects a decrease in interest expense of $7,414 due to the prepayment
of all outstanding debt under existing credit facilities; an increase in
interest expense of $14,440 as a result of the issuance of the Series A notes;
and an increase of $670 to record the amortization of the underwriting discounts
and commissions and other costs of issuance of the Series A notes.
(h) Represents an income tax benefit of $2,874 calculated at a statutory
rate of 37%.
F-6
HORNBECK-LEEVAC MARINE SERVICES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
HISTORICAL OFFERING AS
COMPANY ADJUSTMENTS ADJUSTED
---------- ----------- --------
Current Assets:
Cash and cash equivalents.............................. $ 58,711 $ --(a) $ 58,711
Accounts and claims receivable......................... 9,928 -- 9,928
Other current assets................................... 1,838 (725)(b) 1,113
-------- ---------- --------
Total current assets........................... 70,477 -- 69,752
-------- ---------- --------
Property, plant and equipment............................ 181,326 -- 181,326
Accumulated depreciation............................... 12,394 -- 12,394
-------- ---------- --------
Net fixed assets............................... 168,932 -- 168,932
Other assets............................................. 10,746 -- 10,746
-------- ---------- --------
Total assets................................... $250,155 $ (725) $249,430
======== ========== ========
Current Liabilities:
Notes payable, current................................. $ 693 $ -- $ 693
Accounts payable....................................... 4,524 -- 4,524
Other accrued liabilities.............................. 7,963 -- 7,963
-------- ---------- --------
Total current liabilities...................... 13,180 -- 13,180
-------- ---------- --------
Long-term debt........................................... 171,896 -- 171,896
Other long-term liabilities.............................. 7,926 -- 7,926
-------- ---------- --------
Total liabilities.............................. 193,002 -- 193,002
-------- ---------- --------
Common stock............................................. 249 55(c) 304
Additional paid-in-capital............................... 52,276 8,225(d) 60,501
Retained earnings (deficit).............................. 4,628 (9,005)(e) (4,377)
-------- ---------- --------
Total stockholders' equity..................... 57,153 (725) 56,428
-------- ---------- --------
Total liabilities and stockholders' equity..... $250,155 $ (725) $249,430
======== ========== ========
</Table>
F-7
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following is to set forth the adjustments made in preparing the
unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30,
2001. The pro forma adjustments are based on estimates made by us using
information currently available and upon certain assumptions that we believe are
reasonable.
OFFERING ADJUSTMENTS
(a) Reflects an increase of $14,600 to record issuance of additional shares
of common stock; a decrease of $14,500 to repurchase outstanding warrants; and a
decrease of $100 to pay for estimated expenses of the issuance of the shares.
(b) Reflects a decrease of $725 to eliminate the non-refundable deposit
paid to the warrantholders in August 2001 from the repurchase of the warrants.
(c) Reflects an increase of $55 for the issuance of additional shares.
(d) Reflects an increase of $13,720 for the issuance of additional shares
and a decrease to remove the carrying value of $5,495 of the outstanding
warrants.
(e) Reflects a decrease of $9,005 for the repurchase price of the
outstanding warrants in excess of their carrying value.
F-8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
HORNBECK-LEEVAC Marine Services, Inc.
We have audited the accompanying consolidated balance sheets of
HORNBECK-LEEVAC Marine Services, Inc. and subsidiaries (formerly HV Marine
Services, Inc.) as of December 31, 1999 and 2000 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HORNBECK-LEEVAC
Marine Services, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
results of their operations, changes in stockholders' equity and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
January 23, 2001
F-9
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)
<Table>
<Caption>
DECEMBER 31,
------------------- SEPTEMBER 30,
1999 2000 2001
-------- -------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $ 6,144 $ 32,988 $ 58,711
Accounts and claims receivable, net of allowance for
doubtful accounts of $86, $55 and $98, respectively... 3,221 6,349 9,928
Prepaid insurance........................................ 576 668 790
Other current assets..................................... 287 333 1,048
-------- -------- --------
Total current assets............................. 10,228 40,338 70,477
-------- -------- --------
Property, plant and equipment, net....................... 85,700 98,935 168,932
Goodwill, net of accumulated amortization of $369, $495
and $590, respectively................................ 2,881 2,755 2,660
Deferred charges, net.................................... 3,417 5,120 8,086
Investment in unconsolidated entity...................... 1,260 -- --
-------- -------- --------
Total assets..................................... $103,486 $147,148 $250,155
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 2,608 $ 1,492 $ 4,524
Current portion of long-term debt........................ 4,878 6,834 693
Other accrued liabilities................................ 885 2,488 7,963
-------- -------- --------
Total current liabilities........................ 8,371 10,814 13,180
-------- -------- --------
Long-term debt........................................... 79,076 82,557 171,896
Deferred tax liabilities, net............................ 2,325 3,875 7,691
Other liabilities........................................ 234 157 235
-------- -------- --------
Total liabilities................................ 90,006 97,403 193,002
-------- -------- --------
Stockholders' Equity:
Preferred stock; $0.01 par value; 5,000 shares
authorized; no shares issued and outstanding.......... -- -- --
Common stock: $0.01 par value; 100,000 shares authorized;
11,367, 24,575 and 24,875 shares issued and
outstanding, respectively............................. 114 246 249
Additional paid-in capital............................... 13,646 48,301 52,276
Retained earnings(deficit)............................... (280) 1,198 4,628
-------- -------- --------
Total stockholders' equity....................... 13,480 49,745 57,153
-------- -------- --------
Total liabilities and stockholders' equity....... $103,486 $147,148 $250,155
======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-10
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1998 1999 2000 2000 2001
------- ------- ------- ------- -------
(UNAUDITED)
Revenue...................................... $12,822 $25,723 $36,102 $26,132 $47,116
Costs and Expenses:
Operating expenses......................... 10,701 17,275 20,410 15,383 21,661
General and administrative expenses........ 1,699 2,467 3,355 2,330 6,228
------- ------- ------- ------- -------
12,400 19,742 23,765 17,713 27,889
------- ------- ------- ------- -------
Operating income........................... 422 5,981 12,337 8,419 19,227
Other Income (Expense):
Interest income............................ 130 170 305 223 1,099
Interest expense........................... (1,155) (5,262) (8,216) (6,365) (6,737)
Other income (expense), net................ 544 (20) (138) (139) --
------- ------- ------- ------- -------
(481) (5,112) (8,049) (6,281) (5,638)
------- ------- ------- ------- -------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle and extraordinary item........... (59) 869 4,288 2,138 13,589
Income tax (expense)benefit.................. 156 (341) (1,550) (811) (5,164)
------- ------- ------- ------- -------
Income before cumulative effect of change in
accounting principle and extraordinary
item....................................... 97 528 2,738 1,327 8,425
------- ------- ------- ------- -------
Extraordinary item, net of taxes of $1,150... -- -- -- -- 1,877
Cumulative effect on prior years of change in
accounting for start-up costs, net of taxes
of $55..................................... -- (108) -- -- --
------- ------- ------- ------- -------
Net income................................... $ 97 $ 420 $ 2,738 $ 1,327 $ 6,548
======= ======= ======= ======= =======
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-11
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<Table>
<Caption>
CAPITAL STOCK ADDITIONAL RETAINED TOTAL
--------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ---------- --------- -------------
BALANCE AT DECEMBER 31, 1997................ 11,300 $113 $12,417 $ (180) $12,350
Issuance of common stock.................... 67 1 112 -- 113
Issuance of warrants........................ -- -- 500 -- 500
Net income.................................. -- -- -- 97 97
------ ---- ------- ------- -------
BALANCE AT DECEMBER 31, 1998................ 11,367 114 13,029 (83) 13,060
Amortization of put feature of warrants..... -- -- 617 (617) --
Net income.................................. -- -- -- 420 420
------ ---- ------- ------- -------
BALANCE AT DECEMBER 31, 1999................ 11,367 114 13,646 (280) 13,480
Shares issued............................... 13,208 132 33,395 -- 33,527
Amortization of put feature of warrants..... -- -- 1,260 (1,260) --
Net income.................................. -- -- -- 2,738 2,738
------ ---- ------- ------- -------
BALANCE AT DECEMBER 31, 2000................ 24,575 246 48,301 1,198 49,745
Shares issued............................... 325 3 857 -- 860
Amortization of put feature of warrants..... -- -- 3,118 (3,118) --
Net income.................................. -- -- -- 6,548 6,548
------ ---- ------- ------- -------
BALANCE AT SEPTEMBER 30, 2001 (Unaudited)... 24,900 $249 $52,276 $ 4,628 $57,153
====== ==== ======= ======= =======
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-12
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- ------- ---------
(UNAUDITED)
Cash Flows From Operating Activities:
Net income........................................ $ 97 $ 420 $ 2,738 $ 1,327 $ 6,548
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 1,338 3,724 5,164 3,827 5,200
Provision for bad debts........................ 30 78 (77) 37 43
Deferred tax expense........................... 124 286 1,550 809 3,973
Gain on sale of assets......................... (1,284) -- (3) (3) --
Amortization of financing costs and initial
warrant valuation............................ 161 391 496 375 544
Changes in operating assets and liabilities:
Accounts and claims receivable............... (323) (1,570) (3,051) (1,725) (3,622)
Prepaid expenses............................. (201) (513) (50) 132 (123)
Deferred charges and other assets............ (3,149) (1,718) (2,975) (1,793) (5,019)
Accounts payable and deferred revenue........ 6,484 (191) (1,002) 81 8,505
Other liabilities............................ 316 652 1,413 (259) 76
-------- -------- -------- ------- ---------
Net cash provided by (used in) operating
activities................................ 3,593 1,559 4,203 2,808 16,125
-------- -------- -------- ------- ---------
Cash Flows From Investing Activities:
Capital expenditures.............................. (33,492) (42,293) (15,324) (5,827) (46,359)
Acquisition of tugs and tank barges from
Spentonbush/ Red Star Group.................... -- -- -- -- (28,030)
Proceeds from involuntary conversion of vessel.... 2,800 -- -- -- --
-------- -------- -------- ------- ---------
Net cash used in investing activities........ (30,692) (42,293) (15,324) (5,827) (74,389)
-------- -------- -------- ------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of senior notes............ -- -- -- -- 171,896
Proceeds from borrowings under debt agreements.... 44,071 43,695 8,329 4,543 40,750
Payments on long-term debt........................ (18,523) -- (2,991) (2,991) (129,519)
Proceeds from issuance of common stock............ 113 -- 32,627 -- 860
-------- -------- -------- ------- ---------
Net cash provided by (used in) financing
activities..................................... 25,661 43,695 37,965 1,552 83,987
-------- -------- -------- ------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... (1,438) 2,961 26,844 (1,467) 25,723
Cash and cash equivalents at beginning of
period......................................... 4,621 3,183 6,144 6,144 39,988
-------- -------- -------- ------- ---------
Cash and cash equivalents at end of period........ $ 3,183 $ 6,144 $ 32,988 4,677 58,711
======== ======== ======== ======= =========
Supplemental Disclosures Of Cash Flow Activities:
Interest paid..................................... $ 418 $ 4,495 $ 7,145 $ 4,823 $ 5,577
======== ======== ======== ======= =========
</Table>
The accompanying notes are an integral part of these consolidated statements.
F-13
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS AND SHARES IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
FORMATION
HORNBECK-LEEVAC Marine Services, Inc. (formerly HV Marine Services, Inc.
and referred to in these financial statements as the Company) is incorporated in
the state of Delaware. The Company wholly owns LEEVAC Marine, Inc., Hornbeck
Offshore Services, Inc., HORNBECK-LEEVAC Marine Operators, Inc, and Energy
Services Puerto Rico, Inc. The accompanying financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
NATURE OF OPERATIONS
Hornbeck Offshore Services, Inc. (HOS) operates offshore supply vessels to
furnish support to the offshore oil and gas exploration and production industry,
primarily in the United States Gulf of Mexico, and to provide specialty
services. Prior to 2000, HOS operated six vessels with one additional vessel
being added in March 2000 and another in April 2001. LEEVAC Marine, Inc. (LMI)
operates ocean-going tugs and tank barges which provide vessel and barge
charters for the transportation of petroleum products. In 2000, LMI operated an
average of seven ocean-going tank barges and associated tugs. On May 31, 2001,
the Company purchased a fleet of nine ocean-going tugs and nine ocean-going tank
barges and the related coastwise transportation businesses from the
Spentonbush/Red Star Group, affiliates of Amerada Hess Corporation, for
approximately $28 million in cash. The results from this acquisition has been
included since the date of the acquisition (See Note 14). HORNBECK-LEEVAC Marine
Operators, Inc. (HLMOI) is a service subsidiary that provides administrative and
personnel support to the other subsidiaries. Energy Services Puerto Rico, Inc.
(ESPRI) provides administrative and personnel support to employees residing in
Puerto Rico.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of
September 30, 2001 and for the nine months ended September 30, 2000 and 2001
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal and recurring adjustments) necessary to present a
fair statement of the Company's financial position and results of operations for
the interim periods included herein have been made, and the disclosures
contained herein are adequate to make the information presented not misleading.
Operating results for the nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
HOS contracts its offshore supply vessels to clients under time charters
based on a daily rate of hire and recognizes revenue as earned on a daily basis
during the contract period of the specific vessel.
LMI also contracts its vessels to clients under time charters based on a
daily rate of hire. Revenue is recognized on such contracts as earned on a daily
basis during the contract period of the specific vessel. Under other contracts,
primarily contracts of affreightment, revenue is recognized based on the
percentage of days incurred for the voyage to total estimated days applied to
total estimated revenues. Voyage related costs are expensed as incurred.
Substantially all voyages under these contracts are less than 10 days in length.
F-14
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization of equipment and leasehold improvements are computed using the
straight-line method based on the estimated useful lives of the related assets.
Improvements and major repairs that extend the useful life of the related asset
are capitalized. Gains and losses from retirements or other dispositions are
recognized currently.
The estimated useful lives by classification are as follows:
<Table>
Tugs........................................................ 14-25 years
Tank Barges................................................. 17-25 years
Offshore supply vessels..................................... 25 years
Machinery and equipment..................................... 5 years
</Table>
Certain of the tank barges may have shorter estimated useful lives based on
their classification under the Oil Pollution Act of 1990.
DEFERRED CHARGES
The Company's tank barges, tugs and offshore supply vessels are required by
regulation to be recertified after certain periods of time. The Company defers
certain costs related to the recertification of the vessels. Deferred
recertification costs are amortized over the length of time in which the
improvement made during the recertification is expected to last (generally
thirty or sixty months). Financing charges are amortized over the term of the
related debt using the interest method.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The Company's temporary differences primarily relate to depreciation and
deferred drydocking costs.
Deferred tax assets and liabilities are measured using currently enacted
tax rates. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The provision for income taxes includes provisions for both federal and state
income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
ACCOUNTS RECEIVABLE
Customers are primarily major domestic and international oil companies. The
Company's customers are granted credit on a short-term basis and related credit
risks are considered minimal.
GOODWILL
Goodwill reflects the excess of cost over the estimated fair value of the
net assets acquired. Goodwill is being amortized on a straight-line basis over
its estimated useful life of 25 years. Realization of goodwill is periodically
assessed by management based on the expected future profitability and
undiscounted future cash
F-15
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
flows of acquired entities and their contribution to the overall operations of
the Company. Should the review indicate that the carrying value is not
recoverable, the excess of the carrying value over the undiscounted cash flow
would be recognized as an impairment loss. See Recent Accounting Pronouncements
below.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. In June 1999,
the FASB delayed SFAS 133's effective date by one year to fiscal years beginning
after June 15, 2000 with earlier application permitted. The Company adopted SFAS
133 effective January 1, 2001; however, adoption will not have a material impact
on its financial position as the Company has not entered into any derivative
instruments.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards Statement No. 141, Business Combinations ("SFAS
141") and Financial Accounting Standards Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for qualifying business
combinations that were initiated prior to July 1, 2001. The purchase method of
accounting is required to be used for all business combinations initiated after
June 30, 2001. SFAS 141 also requires separate recognition of intangible assets
that meet certain criteria.
Under SFAS 142, goodwill and indefinite-lived intangible assets are no
longer amortized but are reviewed for impairment annually, or more frequently if
circumstances indicate potential impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives. For goodwill and indefinite-lived intangible assets acquired
prior to July 1, 2001, goodwill will continue to be amortized through the
remainder of 2001 at which time amortization will cease and a transitional
goodwill impairment test will be performed. Any impairment charges resulting
from the initial application of the new rules will be classified as a cumulative
change in accounting principle. The Company will adopt SFAS 142 effective
January 1, 2002. Management is currently evaluating the impact of the new
accounting standards on existing goodwill and other intangible assets. Goodwill
amortization for the year ended December 31, 2000 and each of the nine months
ended September 30, 2000 and 2001 was $126, $95 and $95, respectively.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires recording the fair value of a liability
for an asset retirement obligation in the period incurred. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application permitted. Upon adoption of the standard, the Company will be
required to use a cumulative effect approach to recognize transition amounts for
any existing retirement obligation liabilities, asset retirement costs and
accumulated depreciation. The Company does not have any known asset retirement
obligations, therefore management believes that adoption of this statement will
have no effect on the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This new statement also supersedes certain aspects of
APB 30, "Reporting the Results of Operations-Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", with regard to reporting the effects of a
disposal of a segment of a business and will require expected future operating
losses from discontinued operations to be reported in discontinued operations in
the period incurred rather than as of the measurement date as presently required
by APB 40. Additionally, certain dispositions may now qualify for discounted
operations treatment. The provisions of this statement are required to be
applied for fiscal years
F-16
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning after December 15, 2001 and interim periods within those fiscal years.
The Company has not yet determined what effect this statement will have on its
financial statements.
3. DEFINED CONTRIBUTION PLAN
HLMOI is a participating employer in a defined contribution plan with a
cash or deferred arrangement pursuant to Section 401(k) of the Internal Revenue
Code, which was, until September 30, 2001, sponsored by an affiliate. Employees
must be at least twenty-one years of age and have completed three months of
service to be eligible for participation. Participants may elect to defer up to
20% of their compensation, subject to certain statutorily established limits.
The Company may elect to make annual matching and/or profit sharing
contributions to the plan. During the years ended December 31, 1998, 1999 and
2000 and the nine months ended September 30, 2000 and 2001 the Company made
contributions of $5, $6, $6, $5 and $59 respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<Table>
<Caption>
DECEMBER 31,
----------------- SEPTEMBER 30,
1999 2000 2001
------- ------- -------------
(UNAUDITED)
Tugs................................................... $ 9,215 $ 9,467 $ 27,895
Tank Barges............................................ 11,993 14,614 24,614
Supply vessels......................................... 58,512 69,744 83,025
Construction in progress............................... 8,710 12,294 45,277
Machinery and equipment................................ 1,050 818 515
Less: Accumulated depreciation......................... (3,780) (8,002) (12,394)
------- ------- --------
$85,700 $98,935 $168,932
======= ======= ========
</Table>
Interest expense of $1,628, $365, $225 and $2,086 was capitalized for the
years ended December 31, 1999 and 2000 and the nine month periods ended
September 30, 2000 and 2001, respectively.
5. INVESTMENT IN UNCONSOLIDATED ENTITY
In prior years and for over ten months in 2000 the Company had a 60%
limited partner interest in a partnership. The other 40% was owned by an entity
in which the Company's Chairman and Chief Executive Officer had a minority
interest. The partnership's only asset was a barge which was leased by the
Company on a short-term basis. The Company accounted for this investment using
the cost-method of accounting because it did not exert significant influence
over the operations of the partnership. Monthly lease payments were charged to
expense, and partnership profit distributions were netted against the lease
expense. During the years ended December 31, 1998, 1999 and 2000 and the nine
month periods ended September 30, 2000 and 2001 LMI's lease expense, net of
distributions, related to this partnership was approximately $106, $105, $88,
$78 and $0, respectively. As part of its $35,000 private equity offering in
November 2000, the Company issued approximately 340 shares of common stock at a
per share price of $2.65 for an aggregate of $900 in exchange for the remaining
40% of the partnership. The price represented 40% of the value of the tank barge
based on an independent appraisal. As a result, the barge was recorded as an
asset in the Company's consolidated property, plant and equipment.
F-17
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
On June 5, 1998, the Company entered into a $43,000 line of credit
agreement with two banks (Facility A) and $15,000 and $20,000 line of credit
agreements (Facility B and C, respectively) with two venture capital companies.
These "Credit Agreements" were used to refinance existing indebtedness and
partially finance the construction of offshore supply vessels (see Note 8).
Facilities A and B converted to term loans on the completion of the last
offshore supply vessel. The indebtedness under the Credit Agreements is
collateralized by substantially all of the assets of the Company other than
those collateralizing Facility D discussed below. The Credit Agreements require
the Company, on a consolidated basis, to maintain a minimum net worth and EBITDA
to debt service ratio (as defined in the Credit Agreements). The Credit
Agreements also contain other covenants, which, among other things, restrict
capital expenditures and the payment of dividends. In connection with Facility
C, the Company issued detachable warrants to purchase 11,905 shares of common
stock. The warrants were assigned an estimated market value of $500. The
warrants for the purchase of 10,500 shares of common stock are currently
exercisable with an exercise price of $1.68 per share. The remaining warrants
become exercisable only on the occurrence of an event of default under Facility
C, the Company filing for bankruptcy or if the indebtedness under Facility C has
not been discharged in full by June 5, 2003. All of the warrants issued in
connection with the establishment of Facility C provide the holders with a put
option whereby the holders have the right, if the Company's stock is not
publicly traded by June 5, 2003, to require the Company to repurchase the
warrants at their fair market value. The Company is amortizing, through retained
earnings, the fair market value of the warrants through June 5, 2003, the first
date on which the put may be exercised. The warrants are revalued each period
end with changes in value accounted for prospectively. If Facility C is not
repaid by June, 2002, 2003 or 2004, the exercise price is adjusted to $1.63,
$1.58 and $1.53 per share, respectively.
On March 5, 1999, the Facility A credit agreement was amended by the
Company with the two banks by which it was then maintained. The commitment was
increased from $43,000 to $49,400 along with an extension of the outside date
for conversion of construction loans to term loans. The conversion date occurred
at the delivery of the last offshore supply vessel in March 2000.
In July and November, 2000, the Company entered into two new credit
facilities (collectively, Facility D) totaling $41,400 with a new lender. Of the
proceeds, $15,000 was used to repay in full Facility B. The remaining amounts
are being used to pay the construction costs of additional offshore supply
vessels. At December 31, 2000, Facility D was collateralized by two existing
vessels and four vessels under construction.
In November 2000, the Facility A credit agreement was amended by the
Company. The commitment was increased from $49,400 to $69,000. These additional
funds are being used to build additional vessels.
On July 24, 2001, the Company issued $175,000 in principal amount of Senior
Notes. The Company realized net proceeds of approximately $165,000 which was
used to repay and fully extinguish all of the credit facilities. The Senior
Notes mature on August 1, 2008 and require semi-annual interest payments at an
annual rate of 10 5/8% on February 1 and August 1 of each year until maturity,
with the first payment due on February 1, 2002. No principal payments are due
until maturity. The Senior Notes are senior obligations and rank equally in
right of payment with other existing and future senior indebtedness and senior
in right of payment to any subordinated indebtedness incurred by the Company in
the future. The Senior Notes are guaranteed by all of the Company's
subsidiaries. The Company may, at its option, redeem all or part of the Senior
Notes from time to time at specified redemption prices and subject to certain
conditions required by the Indenture. The Company is permitted under the terms
of the Indenture to incur additional indebtedness in the future, provided that
certain financial conditions set forth in the Indenture are satisfied by the
Company.
The Company has entered into a letter of intent with one of its former
lenders regarding a new senior secured revolving line of credit of $50,000.
Pursuant to the proposed terms for the new senior secured revolving credit
facility, the Company's borrowings under this facility will initially be limited
to $25,000 unless
F-18
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
it has obtained the lender's concurrence to borrow in excess of $25,000.
Pursuant to the indenture governing the Senior Notes, unless the Company meets a
specified consolidated interest coverage ratio test, the level of permitted
borrowings under this facility initially will be limited to $25,000 plus 15% of
the increase in the Company's consolidated net tangible assets over the
consolidated net tangible assets as of March 31, 2001 determined on a pro forma
basis to reflect the Spentonbush/Red Star Group acquisition.
As of the dates indicated, the Company had the following outstanding
long-term debt:
<Table>
<Caption>
DECEMBER 31,
----------------- SEPTEMBER 30,
1999 2000 2001
------- ------- -------------
(UNAUDITED)
Non-revolving line of credit payable to two banks at
9.9% (Facility A) due 2004, with interest paid at
libor traunch renewals, but no greater than 90
days................................................. $45,895 $44,869 $ --
Non-revolving line of credit payable to two venture
capital companies at 12% (Facility B)................ 15,000 -- --
Senior subordinated notes, payable to two venture
capital companies at 7% (Facility C) due 2005, with
interest paid quarterly.............................. 23,018 23,542 --
Term note, payable to a financing company at 10.3%
(Facility D) due 2013, with interest paid monthly.... -- 20,700 --
10 5/8% Series A Senior Notes due 2008................. -- -- 171,896
Insurance notes payable and other...................... 368 506 693
------- ------- --------
84,281 89,617 172,589
Less: Debt discount, 7% senior subordinated notes due
2005................................................. (327) (226) --
------- ------- --------
83,954 89,391 172,589
Less: Current maturities............................... 4,878 6,834 693
------- ------- --------
$79,076 $82,557 $171,896
======= ======= ========
</Table>
Annual maturities of long-term debt during each year ending December 31,
are as follows:
<Table>
2001........................................................ $ 693
2002........................................................ --
2003........................................................ --
2004........................................................ --
2005........................................................ --
Thereafter.................................................. 171,896
--------
$172,589
========
</Table>
7. STOCK OPTION PLANS
SFAS No. 123, "Accounting for Stock-Based Compensation," which became
effective January 1, 1996, established financial accounting and reporting
standards for stock-based compensation plans. The Company's plan includes all
arrangements by which employees and directors receive shares of stock or other
equity instruments of the Company, or the Company incurs liabilities to
employees or directors in amounts based on the price of the stock. SFAS No. 123
defines a fair-value-based method of accounting for stock-based compensation.
SFAS No. 123, however, also allows an entity to continue to measure stock-based
compensa-
F-19
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion cost using the intrinsic value method of APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Entities electing to retain the accounting
prescribed in APB No. 25 must make pro forma disclosures of net income assuming
dilution as if the fair-value-based method of accounting defined in SFAS No. 123
had been applied. The Company retained the provisions of APB No. 25 for expense
recognition purposes. Under APB No. 25, where the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company established an incentive stock option plan which provides that
options for a maximum of 3,500 shares of common stock may be granted by the
Company. The purchase price of the stock subject to each option is determined by
the Board of Directors of the Company and cannot be less than the fair market
value of the stock at the date of grant. No options have been exercised to date.
All options granted expire 5-10 years after vesting, have an exercise price
equal to or greater than the estimated market price of the Company's stock at
the date of grant and vest over a 3 to 4 year period.
The following summarizes the option activity in the plans during each of
the periods as indicated:
<Table>
<Caption>
NINE MONTHS ENDED
1998 1999 2000 SEPTEMBER 30, 2001
----------------------- ----------------------- ----------------------- -----------------------
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
OPTIONS PRICE PER OPTIONS PRICE PER OPTIONS PRICE PER OPTIONS PRICE PER
OUTSTANDING SHARE OUTSTANDING SHARE OUTSTANDING SHARE OUTSTANDING SHARE
----------- --------- ----------- --------- ----------- --------- ----------- ---------
Balance, beginning of
year................ -- $ -- 52.5 $1.85 150 $1.85 386 $1.97
Granted............. 52.5 1.85 97.5 1.85 236 2.04 1,420 2.65
Cancelled........... -- -- -- -- -- -- (66) 2.36
---- ----- ----- ----- --- ----- ------- -----
Balance, end of
year................ 52.5 $1.85 150.0 $1.85 386 $1.97 1,740 $2.51
==== ===== ===== ===== === ===== ======= =====
</Table>
There were 2, 76, 196 and 557 options exercisable at December 31, 1998,
1999, 2000 and September 30, 2001, respectively.
Had compensation cost for the Company's stock options been determined based
on the fair value at the grant date consistent with the method under SFAS No.
123, the Company's income available to common stockholders for the years ended
December 31, 1998, 1999 and 2000 and the nine-month period ended September 30,
2001, would have been the pro forma amounts indicated below:
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------
1998 1999 2000 2000 2001
---- ---- ------ ------ ------
Income available to common stockholders --
As reported................................. $97 $420 $2,738 $1,327 $6,548
Pro forma................................... 95 405 2,697 1,296 6,430
</Table>
The weighted average fair value at the date of grant for options granted
during the periods presented was $.61, $.38, and $.52 and $.52 for December 31,
1998, 1999, 2000 and September 30, 2001, respectively.
The fair value of the options granted under the Company's stock option plan
during the year ended December 31, 2000, was estimated using the Black-Scholes
Pricing Model with the following assumptions used: risk-free interest rate of
six percent, expected life of five to seven years, no volatility and no expected
dividends.
The Company also issued, during 1998, warrants for the purchase of a total
of 11,905 shares of common stock with an exercise price of $1.68 per share. The
initial warrants issued for 10,500 shares have an expiration date of May 15,
2005. The additional warrants issued for 1,405 shares have no expiration date.
The fair value of the warrants at the issue date was $500. The warrants were
repurchased in October 2001 (see Note 15).
F-20
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The net long-term deferred tax liabilities (assets) in the accompanying
balance sheets include the following components:
<Table>
<Caption>
1999 2000
------- -------
Deferred tax liabilities:
Fixed assets.............................................. $ 5,215 $ 8,605
Deferred charges.......................................... 471 711
------- -------
Total deferred tax liabilities.................... 5,686 9,316
------- -------
Assets:
Net operating loss carryforward........................... (3,313) (5,422)
------- -------
Allowance for doubtful accounts........................... (53) (19)
------- -------
Other..................................................... (87) (92)
------- -------
Total deferred tax assets......................... (3,453) (5,533)
------- -------
Valuation allowance......................................... 92 92
------- -------
Total deferred tax liabilities, net............... $ 2,325 $ 3,875
======= =======
</Table>
The components of the income tax benefit follow:
<Table>
<Caption>
1998 1999 2000
----- ---- ------
Current tax expense......................................... $ -- $ 55 $ --
Deferred tax expense (benefit).............................. (156) 286 1,550
----- ---- ------
Income tax expense (benefit)................................ $(156) $341 $1,550
===== ==== ======
</Table>
At December 31, 1998, 1999 and 2000, the Company had federal net operating
loss carryforwards of approximately $1,300, $9,500 and $15,700, respectively.
The carryforward benefit from the federal operating carryforwards loss begin to
expire in 2017. These carryforwards can only be utilized if the Company
generates taxable income in the appropriate tax jurisdiction. The Company had
state net operating loss carryforwards of approximately $1,515. A valuation
allowance has been established to fully offset the deferred tax asset related to
the state carryforward.
The following table reconciles the difference between the statutory federal
income tax rate for the Company to the effective income tax rate:
<Table>
<Caption>
1999 2000
---- ----
Statutory Rate.............................................. 34.0% 34.0%
State Taxes................................................. 2.0% 1.0%
Non-deductible expense...................................... 2.0% 1.0%
Other....................................................... 1.0% 0.0%
---- ----
39.0% 36.0%
==== ====
</Table>
The reconciliation of the statutory federal income tax rate for the Company
to the effective income tax rate was not meaningful for 1998 due to the
Company's net operating loss of $59 and other non-deductible expenses of $101.
F-21
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS
VESSEL CONSTRUCTION
At September 30, 2001, the Company was committed under a vessel
construction contract with a shipyard affiliated with the Company's Chairman of
the Board and Chief Executive Officer to construct three offshore supply
vessels. At that date, the remaining amount expected to be expended to complete
construction with respect to such contract was $15,814. At September 30, 2001,
the Company was also committed under a vessel construction contract with another
shipyard to construct two additional offshore supply vessels. At that date, the
remaining amount expected to be expended to complete construction with respect
to such contract was $20,270.
The Company is obligated under the terms of both contracts to remit funds
to the shipyards based on vessel construction milestones, which are subject to
change during vessel construction. As of September 30, 2001, the Company had
remaining total obligations under the contracts of $36,084. Based on the most
recent construction schedules, the Company expects to remit $14,665 and $21,419
under the contracts for the remainder of the year ended December 31, 2001 and
for the year ended December 31, 2002, respectively.
OPERATING LEASES
The Company is obligated under certain long-term operating leases for
marine vessels used in operations, office space and vehicles. The office space
lease provides for a term of five years with five one-year renewal options.
Future minimum payments under noncancelable leases for years subsequent to
2000 follow:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
- -----------------------
2001........................................................ $107
2002........................................................ 43
2003........................................................ 7
----
$157
====
</Table>
In addition, the Company leases marine vessels used in its operations under
short-term operating lease agreements. See Note 5 for information regarding a
short-term vessel operating lease from an affiliate. The Company is also
obligated under several month-to-month leases for various purposes. Total rent
expense related to leases was $4,101, $3,104, $1,758, $1,281 and $1,781 during
the years ended December 31, 1998, 1999 and 2000, and the nine months ended
September 30, 2000 and 2001, respectively.
See Note 14 for a description of the lease entered into in connection with
the Spentonbush/Red Star Group acquisition.
F-22
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DEFERRED CHARGES:
Deferred charges include the following:
<Table>
<Caption>
DECEMBER 31,
--------------- SEPTEMBER 30,
1999 2000 2001
------ ------ -------------
(UNAUDITED)
Deferred loan costs, net of accumulated amortization of
$552, $889 and $1,448, respectively..................... $2,034 $3,004 $6,408
Deferred drydockings costs, net of accumulated
amortization of $589, $1,372 and $2,044, respectively... 1,383 2,086 1,657
Other..................................................... -- 30 21
------ ------ ------
Total........................................... $3,417 $5,120 $8,086
====== ====== ======
</Table>
11. RELATED PARTY TRANSACTIONS
The Company utilizes the services of a law firm and a venture capital
company, certain members of which are related parties of the Company. During the
year ended December 31, 1998, the Company paid approximately $264 and $104 for
these services, respectively. During the year ended December 31, 1999, the
Company paid approximately $123 and $351 for these services, respectively.
During the year ended December 31, 2000, the Company paid approximately $475 to
the law firm and no amounts to the venture capital company for these services.
During the nine months ended September 30, 2000, the Company paid approximately
$126 to the law firm and no amount to the venture capital company for their
services, and for the nine months ended September 30, 2001 the Company paid
approximately $898 to the law firm and no amounts to the venture capital company
for these services. As discussed in Notes 1 and 9, the Company was committed
under a vessel construction contract to construct four offshore supply vessels
with a shipyard affiliated with the Company's Chairman of the Board and Chief
Executive Officer. The Company used another shipyard affiliated with the
Company's Chairman of the Board and Chief Executive Officer to complete
construction of three of its seven. See Note 5 for additional information.
12. MAJOR CUSTOMERS
In the years ended December 31, 1998, 1999 and 2000 and the nine months
ended September 30, 2000 and 2001 revenue from three, three, two, one and three
customers respectively individually exceeded ten percent of total revenue.
13. SEGMENT INFORMATION
The Company provides marine transportation services through two business
segments. The Company operates newly constructed deepwater offshore supply
vessels in the Gulf of Mexico through its offshore supply vessel segment. The
offshore supply vessels principally support offshore drilling and production
operations in the deepwater regions of the Gulf of Mexico by transporting cargo
to offshore drilling rigs and production facilities and provide support for
specialty services. The tug and tank barge segment operates ocean-going tugs and
tank barges in the northeastern United States and in Puerto Rico. The
ocean-going tugs and tank barges provide coastwise transportation of refined and
bunker grade petroleum products from one port to another. The following shows
reportable segment information for the years ended December 31, 1998, 1999 and
2000
F-23
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and for the interim periods ended September 30, 2000 and 2001 reconciled to
consolidated totals and prepared on the same basis as the Company's consolidated
financial statements.
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1998 1999 2000 2000 2001
------- ------- ------- ------- -------
OPERATING REVENUE:
Offshore supply vessels.............. $ 318 $ 9,492 $19,626 $13,810 $23,741
Tugs and tank barges................. 12,503 16,231 16,476 12,322 23,375
------- ------- ------- ------- -------
Total...................... $12,821 $25,723 $36,102 $26,132 $47,116
======= ======= ======= ======= =======
OPERATING EXPENSES:
Offshore supply vessels.............. $ 163 $ 5,263 $ 9,291 $ 6,859 $ 8,086
Tugs and tank barges................. 10,538 12,012 11,119 8,524 13,575
------- ------- ------- ------- -------
Total...................... $10,701 $17,275 $20,410 $15,383 $21,661
======= ======= ======= ======= =======
OPERATING INCOME:
Offshore supply vessels.............. $ 216 $ 3,498 $ 8,784 $ 5,958 $12,887
Tugs and tank barges................. 336 2,483 3,553 2,461 6,340
------- ------- ------- ------- -------
Total...................... $ 552 $ 5,981 $12,337 $ 8,419 $19,227
======= ======= ======= ======= =======
CAPITAL EXPENDITURES:
Offshore supply vessels.............. $31,523 $35,136 $14,473 $ 5,150 $42,795
Tugs and tank barges................. 1,841 6,979 1,609 562 31,520
Corporate............................ 128 178 142 115 74
------- ------- ------- ------- -------
Total...................... $33,492 $42,293 $16,224 $ 5,827 $74,389
======= ======= ======= ======= =======
DEPRECIATION AND AMORTIZATION:
Offshore supply vessels.............. $ 177 $ 1,685 $ 2,823 $ 2,095 $ 2,492
Tugs and tank barges................. 1,161 2,039 2,341 1,732 2,708
------- ------- ------- ------- -------
Total...................... $ 1,338 $ 3,724 $ 5,164 $ 3,827 $ 5,200
======= ======= ======= ======= =======
</Table>
<Table>
<Caption>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------- -------------------
1998 1999 2000 2001
------- -------- -------- -------------------
IDENTIFIABLE ASSETS:
Offshore supply vessels.............. $34,543 $ 74,407 $ 87,866 $127,576
Tugs and tank barges................. 19,161 28,472 28,569 66,039
Corporate............................ 4,512 607 30,713 56,540
------- -------- -------- --------
Total...................... $58,216 $103,486 $147,148 $250,155
======= ======== ======== ========
LONG-LIVED ASSETS:
Offshore supply vessels.............. $32,691 $ 66,380 $ 78,143 $118,599
Tugs and tank barges................. 12,966 19,040 20,449 49,989
Corporate............................ 162 280 343 344
------- -------- -------- --------
$45,819 $ 85,700 $ 98,935 $168,932
======= ======== ======== ========
</Table>
F-24
HORNBECK-LEEVAC MARINE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SPENTONBUSH/RED STAR GROUP ACQUISITION (UNAUDITED)
On May 31, 2001, the Company purchased a fleet of nine ocean-going tugs and
nine ocean-going tank barges and the related coastwise transportation businesses
from the Spentonbush/Red Star Group, affiliates of Amerada Hess Corporation, for
approximately $28 million in cash. As part of the acquisition, the Company
entered into a contract of affreightment with Amerada Hess as its exclusive
marine logistics provider and coastwise transporter of petroleum products in the
northeastern United States. The contract became effective on June 1, 2001 and
its initial term continues through March 31, 2006. The Company also entered into
a five-year lease for the Brooklyn marine facility of Amerada Hess where the tug
and tank barge operations that were acquired are based and from which such
operations will be conducted. Future minimum lease payments under the terms of
the lease are $117 -- 2001, $203 -- 2002, $208 -- 2003, $213 -- 2004,
$219 -- 2005, and $55 -- 2006. The lease expires in March 2006. The Company
incurred approximately $600 in acquisition cost.
The purchase method was used to account for the acquisition of the tugs and
tank barges from the Spentonbush/Red Star Group. There was no goodwill recorded
as a result of the acquisition. The purchase price was allocated to the acquired
assets based on the estimated fair value as of May 31, 2001 as follows (in
thousands):
<Table>
Property, Plant and Equipment............................... $27,030
Other Assets................................................ 1,000
-------
Purchase Price............................................ $28,030
</Table>
The following summarized unaudited pro-forma income statement data reflects
the impact the Spentonbush/Red Star Group acquisition would have had on 2000,
had the acquisition taken place at the beginning of the fiscal year (in
thousands):
<Table>
<Caption>
UNAUDITED PRO-FORMA
RESULTS FOR THE
--------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
Revenue............................................ $78,198 $67,623
Operating income................................... 21,621 24,892
Net Income....................................... 7,546 9,718
</Table>
15. SUBSEQUENT EVENTS (UNAUDITED)
In August and October 2001, the Company issued, in a private placement,
5,509 shares of its common stock for gross proceeds of $14,600. The Company
repurchased all of its outstanding warrants with $14,500 of the proceeds. The
remaining funds are available for payment of expenses incurred in the offering.
As a result of the repurchase of the warrants, the unamortized value of the
warrants was accelerated and will be charged to retained earnings in the fourth
quarter of 2001.
F-25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of the
Spentonbush/Red Star Group:
We have audited the accompanying combined balance sheets of Spentonbush/Red
Star Group (as discussed in Note 1) as of December 31, 1999 and 2000 and the
related combined statements of income and retained earnings and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Spentonbush/Red Star Group as of December 31, 1999 and 2000 and the combined
results of their income and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 30, 2001
F-26
SPENTONBUSH/RED STAR GROUP
COMBINED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
------------------- MARCH 31,
1999 2000 2001
-------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets:
Cash...................................................... $ 2 $ 2 $ 2
Accounts receivable -- trade.............................. 1,214 1,034 1,367
-- other............................ 99 47 58
Prepaid expenses.......................................... 613 792 2,034
Deferred income taxes..................................... 1,224 1,730 1,910
-------- -------- --------
Total current assets.............................. 3,152 3,605 5,371
-------- -------- --------
Property, Plant and Equipment, at cost:
Barges.................................................... 26,682 26,682 26,682
Tugs...................................................... 16,930 16,930 16,930
Other..................................................... 108 108 108
-------- -------- --------
43,720 43,720 43,720
Less -- reserve for depreciation.......................... (43,434) (43,596) (43,637)
-------- -------- --------
Property, plant and equipment, net..................... 286 124 83
-------- -------- --------
Other Assets:
Deferred income taxes..................................... 33 66 72
-------- -------- --------
Total assets...................................... $ 3,471 $ 3,795 $ 5,526
======== ======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 1,326 $ 1,328 $ 2,706
Accrued liabilities....................................... 7,038 8,828 9,356
Income taxes payable...................................... 1,256 3,922 1,561
-------- -------- --------
Total current liabilities......................... 9,620 14,078 13,623
-------- -------- --------
Stockholder's Deficit:
Common stock --
Spentonbush/Red Star Companies Inc., authorized and
issued -- 1,000 shares; par value $8................. 8 8 8
Hygrade Operators, Inc., authorized and issued -- 200
shares; par value $10................................ 2 2 2
Red Star Towing and Transportation Company, authorized
and issued -- 400 shares; par value $125............. 50 50 50
Sheridan Towing, Co., Inc., authorized -- 600 shares;
issued -- 300 shares; par value $100................. 30 30 30
Capital in excess of par value............................ 13,199 13,199 13,199
Retained earnings......................................... 2,488 1,684 4,172
Accounts receivable -- affiliates (Note 3)................ (21,149) (24,479) (24,781)
Treasury stock -- at cost (300 shares).................... (777) (777) (777)
-------- -------- --------
Total stockholder's deficit....................... (6,149) (10,283) (8,097)
-------- -------- --------
Total liabilities and stockholder's deficit....... $ 3,471 $ 3,795 $ 5,526
======== ======== ========
</Table>
The accompanying notes are an integral part of these combined statements.
F-27
SPENTONBUSH/RED STAR GROUP
STATEMENT OF COMBINED INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1998 1999 2000 2000 2001
------- ------- ------- -------- --------
(UNAUDITED)
Revenue:
Marine transportation -- affiliates........ $27,165 $24,962 $34,120 $ 8,715 $10,546
Marine transportation -- third party....... 5,648 5,258 6,728 2,661 2,437
Other...................................... 1,398 279 4 1 1
------- ------- ------- ------- -------
Total revenues..................... 34,211 30,499 40,852 11,377 12,984
------- ------- ------- ------- -------
Costs and Expenses:
Operating expenses......................... 24,047 21,096 25,997 6,536 7,989
Depreciation............................... 792 162 162 40 41
General and administrative................. 4,004 3,936 5,092 1,300 1,099
------- ------- ------- ------- -------
Total costs and expenses........... 28,843 25,194 31,251 7,876 9,129
------- ------- ------- ------- -------
Income before income taxes................... 5,368 5,305 9,601 3,501 3,855
Provision for income taxes -- federal........ 1,884 1,845 3,363 1,220 1,346
-- state......... 28 78 42 20 21
------- ------- ------- ------- -------
Net Income................................... 3,456 3,382 6,196 2,261 2,488
Retained earnings at beginning of period..... 1,577 1,833 2,488 2,488 1,684
Dividends paid............................... (3,200) (2,727) (7,000) -- --
------- ------- ------- ------- -------
Retained earnings at end of period........... $ 1,833 $ 2,488 $ 1,684 $ 4,749 $ 4,172
======= ======= ======= ======= =======
</Table>
The accompanying notes are an integral part of these combined statements.
F-28
SPENTONBUSH/RED STAR GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1998 1999 2000 2000 2001
------- ------- -------- -------- --------
(UNAUDITED)
Cash Flows From Operating Activities:
Net income................................ $ 3,456 $ 3,382 $ 6,196 $ 2,261 $ 2,488
Adjustments to reconcile net income to net
cash provided by operating
activities --
Depreciation........................... 792 162 162 40 41
Change in deferred income taxes........ (83) 620 (539) -- --
(Increase) Decrease in accounts
receivable........................... 361 20 232 (218) (186)
Increase (decrease) in accounts
payable.............................. 284 (53) 2 (3,776) (646)
Increase (decrease) in accrued
liabilities.......................... 1,081 (953) 1,790 1,167 1,378
(Increase) decrease in other assets and
liabilities.......................... 914 (965) 2,487 1,426 528
Gain on sale of vessel................. (1,400) (274) -- (900) (3,603)
------- ------- -------- ------- -------
Net cash provided by operating
activities...................... 5,405 1,939 10,330 -- --
------- ------- -------- ------- -------
Cash Flows From Investing Activities:
Capital expenditures...................... (52) (16) -- -- --
Proceeds from sale of vessel.............. 1,400 274 -- -- --
------- ------- -------- ------- -------
Net cash provided by investing
activities...................... 1,348 258 -- -- --
------- ------- -------- ------- -------
Cash Flows From Financing Activities:
Dividends paid............................ (3,200) (2,727) (7,000) -- --
Amounts advanced under accounts
receivable -- affiliates............... (3,553) 530 (3,330) -- --
------- ------- -------- ------- -------
Net cash used in investing
activities...................... (6,753) (2,197) (10,330) -- --
------- ------- -------- ------- -------
Net change in cash.......................... -- -- -- -- --
Cash at beginning of period................. 2 2 2 2 2
------- ------- -------- ------- -------
Cash at end of period....................... $ 2 $ 2 $ 2 $ 2 $ 2
======= ======= ======== ======= =======
Cash paid for income taxes.................. $ 1,106 $ 2,007 $ 1,256 $ -- $ --
======= ======= ======== ======= =======
</Table>
The accompanying notes are an integral part of these combined statements.
F-29
SPENTONBUSH/RED STAR GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999, AND 2000
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENTS
The Spentonbush/Red Star Group (the "Group") is comprised of the following
three New York corporations and one Delaware corporation:
Spentonbush/Red Star Companies, Inc. (New York)
Hygrade Operators, Inc. (New York)
Red Star Towing & Transportation Company (New York)
Sheridan Towing Co., Inc. (Delaware)
Each is an indirect wholly owned subsidiary of Amerada Hess Corporation
("Parent") and is included in its Parent's consolidated financial statements.
The Group is an owner and operator of vessels engaged in tug and tank barge
operations. A significant portion of the Group's business is transacted with the
Parent and its affiliates (see Note 3).
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the Group. All
intergroup transactions have been eliminated.
BASIS OF PRESENTATION -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited combined financial statements as of and for the
three months ended March 31, 2000 and 2001 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal and
recurring adjustments) necessary to present a fair statement of the Group's
financial position and results of operations for the interim periods included
herein have been made and the disclosures contained herein are adequate to make
the information presented not misleading. Operating results for the three months
ended March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001.
REVENUE RECOGNITION
Revenues and related voyage expenses are recognized on an accrual basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment is computed using the straight-line method based
on the estimated useful lives of the related assets. Improvements that extend
the useful life of the related asset are capitalized; all other expenditures for
maintenance and repairs, excluding drydock, are expensed as incurred. Gains and
losses from retirements or other dispositions are recognized as incurred.
F-30
SPENTONBUSH/RED STAR GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DRYDOCK RESERVES
The Group's vessels are required to be recertified by the United States
Coast Guard after certain periods of time. The Group maintains a drydock reserve
to accrue for estimated drydocking costs over the operating period preceding
each scheduled drydocking. Drydocking expenses are recognized as the reserves
are accrued and the reserves are included in accrued liabilities.
INCOME TAXES
The Group is included in the consolidated federal income tax return of the
Parent. In 1998, 1999 and 2000, the Parent allocated federal income tax expense
at a rate of 35%. This allocation is comparable to the amount that would be
provided for income taxes if the provision was determined on a stand-alone
basis. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using currently enacted
tax rates. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
The components of income tax expense (benefit) were as follows:
<Table>
<Caption>
1998 1999 2000
------ ------ ------
Current.................................................... $2,026 $1,303 $3,935
Deferred................................................... (114) 620 (530)
------ ------ ------
Total............................................ $1,912 $1,923 $3,405
====== ====== ======
</Table>
Total income tax expense for 2000, 1999 and 1998 was different from the
amount computed by applying the statutory federal income tax rate due primarily
to state income taxes and certain non-deductible travel and entertainment
expenses. The tax effect of significant temporary differences that give rise to
the net deferred tax assets are differences in the basis of property, plant and
equipment and drydock reserves.
The current taxes payable of the Group which are owed to its Parent are
$1,225 and $3,893 at December 31, 1999 and 2000, respectively.
3. TRANSACTIONS WITH AFFILIATES
Following is a summary of material transactions between the Group and its
Parent and other affiliates:
<Table>
<Caption>
YEAR ENDED
---------------------------
1998 1999 2000
------- ------- -------
Vessel income........................................... $27,165 $24,962 $34,120
Vessel operating expenses............................... 235 747 702
Selling, general and administrative expenses............ 1,001 998 1,874
</Table>
F-31
SPENTONBUSH/RED STAR GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
DECEMBER 31,
-----------------
1999 2000
------- -------
Accounts receivable -- affiliates........................... $21,149 $24,479
Current taxes payable....................................... (1,225) (3,893)
</Table>
Effective January 1, 2000, the Group entered into Service Level Agreements
with its Parent. Under these agreements the Parent provides information systems
services, human resources, risk management and other administrative related
functions to the Group. The fee charged for these services is based upon
estimated level of time expended for human resources, risk management and other
administrative functions plus volume-related charges for information systems
activities. Prior to January 1, 2000, the Parent allocated an amount to the
Group for the services provided. The fees allocated for these services are
reported as selling, general and administrative expenses in the table above and
in the accompanying statement of income and retained earnings.
During the years ended December 31, 1998, 1999 and 2000, affiliates of the
Group provided certain vessel operating expenses which included fuel costs and
insurance related to vessel operations.
Accounts receivable from affiliates represent non-interest bearing advances
of cash to the Parent. Accordingly, affiliate receivables are recorded as a
component of stockholder's equity in the accompanying combined balance sheet.
4. DRYDOCK RESERVES
Drydock reserves are in accrued liabilities and the rollforward of these
reserves as of the periods indicated are as follows:
<Table>
<Caption>
DECEMBER 31,
--------------------------- MARCH 31,
1998 1999 2000 2001
------- ------- ------- -----------
(UNAUDITED)
Drydock reserve, beginning of period........ $ 3,647 $ 3,913 $ 2,588 $4,108
Drydock expense............................. 1,880 2,095 2,927 686
Payments on completed drydock costs......... (1,614) (3,420) (1,407) --
------- ------- ------- ------
Drydock reserve, end of period.............. $ 3,913 $ 2,588 $ 4,108 $4,794
======= ======= ======= ======
</Table>
F-32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT OFFERING THE SERIES B NOTES IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED. WE DO NOT CLAIM THE INFORMATION
IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE STATED ON THE
COVER.
$175,000,000
HORNBECK-LEEVAC MARINE SERVICES, INC.
OFFER TO EXCHANGE
10 5/8% SERIES B SENIOR NOTES DUE 2008
REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
10 5/8% SERIES A SENIOR NOTES DUE 2008
-------------------------
PROSPECTUS
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware, under which HORNBECK-LEEVAC is
incorporated, authorizes the indemnification of directors and officers under the
circumstances described below. To the extent a present or former director or
officer of HORNBECK-LEEVAC is successful on the merits or otherwise in defense
of any action, suit or proceeding described below, the General Corporation Law
of Delaware requires that such person be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by such person in connection
with such action, suit or proceeding. Article VIII of the Certificate of
Incorporation of HORNBECK-LEEVAC requires indemnification of its directors and
officers to the extent permitted by law. Section 6.10 of the bylaws of
HORNBECK-LEEVAC provides for, and sets forth the procedures for obtaining, such
indemnification. These provisions may be sufficiently broad to indemnify such
persons for liabilities under the Securities Act of 1933. In addition,
HORNBECK-LEEVAC maintains insurance which insures its directors and officers
against certain liabilities.
The General Corporation Law of Delaware gives HORNBECK-LEEVAC the power to
indemnify each of its officers and directors against expenses, including
attorneys' fees, and judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with any action, suit or
proceeding by reason of such person being or having been a director, officer,
employee or agent of HORNBECK-LEEVAC, or of any other corporation, partnership,
joint venture, trust or other enterprise at the request of HORNBECK-LEEVAC. To
be entitled to such indemnification, such person must have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of HORNBECK-LEEVAC and, if a criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful. The General Corporation Law of
Delaware also gives HORNBECK-LEEVAC the power to indemnify each of its officers
and directors against expenses, including attorneys' fees, actually and
reasonably incurred by such person in connection with the defense or settlement
of any action or suit by or in the right of HORNBECK-LEEVAC to procure a
judgment in its favor by reason of such person being or having been a director,
officer, employee or agent of HORNBECK-LEEVAC, or of any other corporation,
partnership, joint venture, trust or other enterprise at the request of
HORNBECK-LEEVAC, except that HORNBECK-LEEVAC may not indemnify such person with
respect to any claim, issue or matter as to which such person was adjudged to be
liable to HORNBECK-LEEVAC in the absence of a determination by the court that,
despite the adjudication of liability, such person is fairly and reasonably
entitled to indemnity. To be entitled to such indemnification, such person must
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of HORNBECK-LEEVAC.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are included as part of this Registration
Statement:
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
1.1 -- Purchase Agreement dated July 19, 2001 among the Company,
RBC Dominion Securities Corporation and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
3.1 -- Restated Certificate of Incorporation of HORNBECK-LEEVAC
Marine Services, Inc. filed with the Secretary of State of
the State of Delaware on December 13, 1997.
3.2 -- Certificate of Amendment of the Restated Certificate of
Incorporation of HORNBECK-LEEVAC Marine Services, Inc. filed
with the Secretary of State of Delaware on December 1, 1999.
3.3 -- Certificate of Amendment of the Restated Certificate of
Incorporation of HORNBECK-LEEVAC Marine Services, Inc. filed
with the Secretary of State of the State of Delaware on
October 23, 2000.
</Table>
II-1
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.4 -- Certificate of Correction to Certificate of Amendment of the
Restated Certificate of Incorporation of HORNBECK-LEEVAC
Marine Services, Inc. filed with the Secretary of State of
the State of Delaware on November 14, 2000.
3.5 -- Second Restated Bylaws of HORNBECK-LEEVAC Marine Services,
Inc., adopted October 4, 2000.
3.6 -- Certificate of Incorporation of HORNBECK-LEEVAC Marine
Operators, Inc. filed with the Secretary of State of the
State of Delaware on June 2, 1997.
3.7 -- Certificate of Amendment of the Certificate of Incorporation
of HORNBECK-LEEVAC Marine Operators, Inc. filed with the
Secretary of State of the State of Delaware on December 1,
1999.
3.8 -- Bylaws of HORNBECK-LEEVAC Marine Operators, Inc. adopted
June 5, 1997.
3.9 -- Certificate of Incorporation of Hornbeck Offshore Services,
Inc. filed with the Secretary of State of the State of
Delaware on March 18, 1996.
3.10 -- Amended and Restated Bylaws of Hornbeck Offshore Services,
Inc., adopted February 27, 1998.
3.11 -- Restated Articles of Incorporation of LEEVAC Marine, Inc.
filed with the Secretary of State of the State of Louisiana
on March 4, 1998.
3.12 -- Amended and Restated Bylaws of LEEVAC Marine, Inc. adopted
February 27, 1998.
3.13 -- Articles of Incorporation of Energy Services Puerto Rico,
Inc. filed with the Secretary of State of the State of
Louisiana on February 10, 1999.
*3.14 -- Bylaws of Energy Services Puerto Rico, Inc. adopted November
13, 2001.
4.1 -- Indenture dated as of July 24, 2001, between Wells Fargo
Bank Minnesota, National Association (as Trustee) and the
Company, including table of contents and cross-reference
sheet.
4.2 -- Specimen 10 5/8% Series A Senior Note due 2008.
4.3 -- Specimen 10 5/8% Series A Regulation S Temporary Global Note
due 2008.
4.4 -- Specimen 10 5/8% Series B Senior Note due 2008.
4.5 -- Registration Rights Agreement dated as of July 24, 2001
among the Company, RBC Dominion Securities Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
*5.1 -- Legal Opinion of Winstead Sechrest & Minick P.C.
*5.2 -- Legal Opinion of Burke & Mayer, A Professional Law
Corporation.
10.1 -- Employment Agreement dated effective January 1, 2001 by and
between Christian G. Vaccari and the Company.
10.2 -- Employment Agreement dated effective January 1, 2001 by and
between Todd M. Hornbeck and the Company.
10.3 -- Employment Agreement dated effective January 1, 2001 by and
between Carl Annessa and the Company.
10.4 -- Employment Agreement dated effective January 1, 2001 by and
between Paul M. Ordogne and the Company.
10.5 -- Employment Agreement dated effective January 1, 2001 by and
between James O. Harp, Jr. and the Company.
10.6 -- Incentive Compensation Plan.
10.7 -- Amendment No. 1 to Incentive Compensation Plan.
10.8 -- Asset Purchase Agreement dated as of May 31, 2001 among
LEEVAC Marine, Inc., Hygrade Operators, Inc., Red Star
Towing and Transportation Company, Inc., Sheridan Towing
Co., Inc., R.S. Bushey & Sons, Inc., and Amerada Hess
Corporation.
</Table>
II-2
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.9 -- Contract of Affreightment dated as of May 31, 2001 among
LEEVAC Marine, Inc. and Amerada Hess Corporation (certain
portions omitted based on a request for confidential
treatment filed separately with the Commission).
*12 -- Calculation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of HORNBECK-LEEVAC Marine Services, Inc.
*23.1 -- Consent of Winstead Sechrest & Minick P.C. (set forth in
Exhibit 5.1).
*23.2 -- Consent of Burke & Mayer, A Professional Law Corporation
(set forth in Exhibit 5.2).
*23.3 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney(5).
*24.2 -- Power of Attorney (Bernie W. Stewart).
25 -- Statement of Eligibility of Wells Fargo Bank Minnesota,
National Association.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Registered Holders and Depository Trust
Company Participants.
99.4 -- Form of Letter to Clients, including Instructions to
Registered Holder and/or Book Entry Transfer Participant
from Beneficial Owner.
99.5 -- Guidelines for Certificate of Taxpayer Identification Number
on Substitute Form W-9.
</Table>
- ---------------
* Filed herewith.
(b) Financial Statement Schedules.
None.
ITEM 22. UNDERTAKINGS
(i) The undersigned co-registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(ii) The co-registrants undertake that every prospectus (i) that is filed
pursuant to paragraph (i) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining liability
under the Securities Act, each such post-effective amendment 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.
(iii) The undersigned co-registrants hereby undertake to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(iv) The undersigned co-registrants hereby undertake to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
(v) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the co-registrants have 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 co-registrants of
expenses incurred or paid by a director, officer or controlling person of the
registrant 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 co-registrants 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 policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mandeville, the State of Louisiana, on November 26, 2001.
HORNBECK-LEEVAC MARINE SERVICES, INC.
By: /s/ CHRISTIAN G. VACCARI
------------------------------------
Christian G. Vaccari
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTIAN G. VACCARI Chairman of the Board and Chief November 26, 2001
- ------------------------------------------------ Executive Officer (Principal
(Christian G. Vaccari) Executive Officer)
/s/ TODD M. HORNBECK President, Chief Operating November 26, 2001
- ------------------------------------------------ Officer, Secretary and Director
(Todd M. Hornbeck) (Principal Executive Officer)
/s/ JAMES O. HARP, JR. Vice President and Chief November 26, 2001
- ------------------------------------------------ Financial Officer (Principal
(James O. Harp, Jr.) Financial and Accounting
Officer)
* /s/ RICHARD W. CRYAR Director November 26, 2001
- ------------------------------------------------
(Richard W. Cryar)
* /s/ LARRY D. HORNBECK Director November 26, 2001
- ------------------------------------------------
(Larry D. Hornbeck)
* /s/ BRUCE W. HUNT Director November 26, 2001
- ------------------------------------------------
(Bruce W. Hunt)
* /s/ BERNIE W. STEWART Director November 26, 2001
- ------------------------------------------------
(Bernie W. Stewart)
* /s/ ANDREW L. WAITE Director November 26, 2001
- ------------------------------------------------
(Andrew L. Waite)
*By: /s/ JAMES O. HARP, JR.
-----------------------------------------
JAMES O. HARP, JR.
PURSUANT TO POWER OF ATTORNEY
</Table>
II-5
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mandeville, the State of Louisiana, on November 26, 2001.
HORNBECK-LEEVAC MARINE OPERATORS, INC.
By: /s/ CHRISTIAN G. VACCARI
------------------------------------
Christian G. Vaccari
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTIAN G. VACCARI Chairman of the Board and Chief November 26, 2001
- ------------------------------------------------ Executive Officer (Principal
(Christian G. Vaccari) Executive Officer)
/s/ TODD M. HORNBECK President, Chief Operating November 26, 2001
- ------------------------------------------------ Officer, Secretary and Director
(Todd M. Hornbeck) (Principal Executive Officer)
/s/ JAMES O. HARP, JR. Vice President and Chief November 26, 2001
- ------------------------------------------------ Financial Officer (Principal
(James O. Harp, Jr.) Financial and Accounting
Officer)
</Table>
II-6
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mandeville, the State of Louisiana, on November 26, 2001.
HORNBECK OFFSHORE SERVICES, INC.
BY: /s/ CHRISTIAN G. VACCARI
------------------------------------
Christian G. Vaccari
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTIAN G. VACCARI Chairman of the Board and November 26, 2001
---------------------------------------------------- Chief Executive Officer
(Christian G. Vaccari) (Principal Executive
Officer)
/s/ TODD M. HORNBECK President, Chief Operating November 26, 2001
---------------------------------------------------- Officer, Secretary and
(Todd M. Hornbeck) Director (Principal
Executive Officer)
/s/ JAMES O. HARP, JR. Vice President and Chief November 26, 2001
---------------------------------------------------- Financial Officer
(James O. Harp, Jr.) (Principal Financial and
Accounting Officer)
</Table>
II-7
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mandeville, the State of Louisiana, on November 26, 2001.
LEEVAC MARINE, INC.
BY: /s/ CHRISTIAN G. VACCARI
------------------------------------
Christian G. Vaccari
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTIAN G. VACCARI Chairman of the Board and November 26, 2001
---------------------------------------------------- Chief Executive Officer
(Christian G. Vaccari) (Principal Executive
Officer)
/s/ TODD M. HORNBECK President, Chief Operating November 26, 2001
---------------------------------------------------- Officer, Secretary and
(Todd M. Hornbeck) Director (Principal
Executive Officer)
/s/ JAMES O. HARP, JR. Vice President and Chief November 26, 2001
---------------------------------------------------- Financial Officer
(James O. Harp, Jr.) (Principal Financial and
Accounting Officer)
</Table>
II-8
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mandeville, the State of Louisiana, on November 26, 2001.
ENERGY SERVICES PUERTO RICO, INC.
By: /s/ CHRISTIAN G. VACCARI
------------------------------------
Christian G. Vaccari
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTIAN G. VACCARI Chairman of the Board and Chief November 26, 2001
- ----------------------------------------- Executive Officer (Principal
(Christian G. Vaccari) Executive Officer)
/s/ TODD M. HORNBECK President, Chief Operating November 26, 2001
- ----------------------------------------- Officer, Secretary and Director
(Todd M. Hornbeck) (Principal Executive Officer)
/s/ JAMES O. HARP, JR. Vice President and Chief November 26, 2001
- ----------------------------------------- Financial Officer (Principal
(James O. Harp, Jr.) Financial and Accounting Officer)
</Table>
II-9
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
1.1 -- Purchase Agreement dated July 19, 2001 among the Company,
RBC Dominion Securities Corporation and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
3.1 -- Restated Certificate of Incorporation of HORNBECK-LEEVAC
Marine Services, Inc. filed with the Secretary of State of
the State of Delaware on December 13, 1997.
3.2 -- Certificate of Amendment of the Restated Certificate of
Incorporation of HORNBECK-LEEVAC Marine Services, Inc. filed
with the Secretary of State of Delaware on December 1, 1999.
3.3 -- Certificate of Amendment of the Restated Certificate of
Incorporation of HORNBECK-LEEVAC Marine Services, Inc. filed
with the Secretary of State of the State of Delaware on
October 23, 2000.
3.4 -- Certificate of Correction to Certificate of Amendment of the
Restated Certificate of Incorporation of HORNBECK-LEEVAC
Marine Services, Inc. filed with the Secretary of State of
the State of Delaware on November 14, 2000.
3.5 -- Second Restated Bylaws of HORNBECK-LEEVAC Marine Services,
Inc., adopted October 4, 2000.
3.6 -- Certificate of Incorporation of HORNBECK-LEEVAC Marine
Operators, Inc. filed with the Secretary of State of the
State of Delaware on June 2, 1997.
3.7 -- Certificate of Amendment of the Certificate of Incorporation
of HORNBECK-LEEVAC Marine Operators, Inc. filed with the
Secretary of State of the State of Delaware on December 1,
1999.
3.8 -- Bylaws of HORNBECK-LEEVAC Marine Operators, Inc. adopted
June 5, 1997.
3.9 -- Certificate of Incorporation of Hornbeck Offshore Services,
Inc. filed with the Secretary of State of the State of
Delaware on March 18, 1996.
3.10 -- Amended and Restated Bylaws of Hornbeck Offshore Services,
Inc., adopted February 27, 1998.
3.11 -- Restated Articles of Incorporation of LEEVAC Marine, Inc.
filed with the Secretary of State of the State of Louisiana
on March 4, 1998.
3.12 -- Amended and Restated Bylaws of LEEVAC Marine, Inc. adopted
February 27, 1998.
3.13 -- Articles of Incorporation of Energy Services Puerto Rico,
Inc. filed with the Secretary of State of the State of
Louisiana on February 10, 1999.
*3.14 -- Bylaws of Energy Services Puerto Rico, Inc. adopted November
13, 2001.
4.1 -- Indenture dated as of July 24, 2001, between Wells Fargo
Bank Minnesota, National Association (as Trustee) and the
Company, including table of contents and cross-reference
sheet.
4.2 -- Specimen 10 5/8% Series A Senior Note due 2008.
4.3 -- Specimen 10 5/8% Series A Regulation S Temporary Global Note
due 2008.
4.4 -- Specimen 10 5/8% Series B Senior Note due 2008.
4.5 -- Registration Rights Agreement dated as of July 24, 2001
among the Company, RBC Dominion Securities Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
*5.1 -- Legal Opinion of Winstead Sechrest & Minick P.C.
*5.2 -- Legal Opinion of Burke & Mayer, A Professional Law
Corporation.
10.1 -- Employment Agreement dated effective January 1, 2001 by and
between Christian G. Vaccari and the Company.
10.2 -- Employment Agreement dated effective January 1, 2001 by and
between Todd M. Hornbeck and the Company.
10.3 -- Employment Agreement dated effective January 1, 2001 by and
between Carl Annessa and the Company.
</Table>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.4 -- Employment Agreement dated effective January 1, 2001 by and
between Paul M. Ordogne and the Company.
10.5 -- Employment Agreement dated effective January 1, 2001 by and
between James O. Harp, Jr. and the Company.
10.6 -- Incentive Compensation Plan.
10.7 -- Amendment No. 1 to Incentive Compensation Plan.
10.8 -- Asset Purchase Agreement dated as of May 31, 2001 among
LEEVAC Marine, Inc., Hygrade Operators, Inc., Red Star
Towing and Transportation Company, Inc., Sheridan Towing
Co., Inc., R.S. Bushey & Sons, Inc., and Amerada Hess
Corporation.
10.9 -- Contract of Affreightment dated as of May 31, 2001 among
LEEVAC Marine, Inc. and Amerada Hess Corporation (certain
portions omitted based on a request for confidential
treatment filed separately with the Commission).
*12 -- Calculation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of HORNBECK-LEEVAC Marine Services, Inc.
*23.1 -- Consent of Winstead Sechrest & Minick P.C. (set forth in
Exhibit 5.1).
*23.2 -- Consent of Burke & Mayer, A Professional Law Corporation
(set forth in Exhibit 5.2).
*23.3 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney(5).
*24.2 -- Power of Attorney (Bernie W. Stewart).
25 -- Statement of Eligibility of Wells Fargo Bank Minnesota,
National Association.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Registered Holders and Depository Trust
Company Participants.
99.4 -- Form of Letter to Clients, including Instructions to
Registered Holder and/or Book Entry Transfer Participant
from Beneficial Owner.
99.5 -- Guidelines for Certificate of Taxpayer Identification Number
on Substitute Form W-9.
</Table>
- ---------------
* Filed herewith.