-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rnn+/gj2ONi6l060ni07cz0esI7hONzUXmG5JoRa0CJde6PVVseXKmz2x3pgUTAC EphRaZmHrr1/mHdTLssVAg== 0000950144-04-003295.txt : 20040330 0000950144-04-003295.hdr.sgml : 20040330 20040330162826 ACCESSION NUMBER: 0000950144-04-003295 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABULK INTERNATIONAL INC CENTRAL INDEX KEY: 0000922341 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 650524593 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28732 FILM NUMBER: 04701551 BUSINESS ADDRESS: STREET 1: 2200 ELLER DR BLDG 27 STREET 2: PO BOX 13038 CITY: FORT LAUDERDALE STATE: FL ZIP: 33316 BUSINESS PHONE: 954-524-4200 MAIL ADDRESS: STREET 1: 2200 ELLER DR BLDG 27 CITY: FT LAUDERDALE STATE: FL ZIP: 33316 FORMER COMPANY: FORMER CONFORMED NAME: HVIDE MARINE INC DATE OF NAME CHANGE: 19940427 10-K 1 g88084e10vk.txt SEABULK INTERNATIONAL ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 Commission File Number 0-28732 SEABULK INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 65-0966399 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2200 Eller Drive, P.O. Box 13038 Ft. Lauderdale, Florida 33316 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (954) 523-2200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is approximately $29,050,288 based upon the closing market price on June 30, 2003 of $8.72 per share of common stock on the NASDAQ National Market as reported by the Wall Street Journal. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [X] NO [ ] There were 23,407,529 shares of the registrant's common stock par value $0.01 per share outstanding, at March 10, 2004. ================================================================================ SEABULK INTERNATIONAL, INC. 2003 FORM 10-K TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I 1 Business............................................................................................. 2 2 Properties........................................................................................... 25 3 Legal Proceedings.................................................................................... 25 4 Submission of Matters to a Vote of Security Holders.................................................. 25 PART II 5 Market for Registrant's Common Equity and Related Stockholder Matters................................ 26 6 Selected Financial Data.............................................................................. 27 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................ 29 7A Quantitative and Qualitative Disclosures About Market Risk........................................... 47 8 Financial Statements and Supplementary Data.......................................................... 47 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................. 47 9A Controls and Procedures.............................................................................. 48 PART III 10 Directors and Executive Officers of the Registrant................................................... 49 11 Executive Compensation............................................................................... 56 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.................................................................................. 59 13 Certain Relationships and Related Transactions....................................................... 62 14 Principal Accounting Fees and Services............................................................... 62 PART IV 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................... 63 FINANCIAL SUPPLEMENT Consolidated Financial Statements and Schedules...................................................... F-1
i PART I ITEM 1. BUSINESS. A. GENERAL Seabulk International, Inc. is a competitor in each of its three main lines of businesses - offshore energy support, marine transportation, and marine towing. Our offshore energy services fleet, numbering 117 vessels, is one of the world's largest and provides services to operators of offshore oil and gas exploration, development and production facilities in the Gulf of Mexico, the Arabian Gulf, offshore West Africa, South America and Southeast Asia. Our marine transportation fleet, numbering ten tankers, carries petroleum products, crude oil, and specialty chemicals in the U.S. domestic trade and includes five double-hull petroleum product and chemical carriers delivered in 1998 and 1999. Our marine towing fleet numbers 26 vessels and is one of the largest and most modern in the United States. We are currently the sole provider of commercial tug services at Port Canaveral, Florida; and a leading provider of those services in Port Everglades, Florida; Tampa, Florida; Mobile, Alabama; Lake Charles, Louisiana; and Port Arthur, Texas. We also provide offshore towing services primarily in the Gulf of Mexico. As used in this Form 10-K Annual Report (the "Report"), the terms "we", "our", "us" and "the Company" refer to Seabulk International, Inc., a Delaware corporation, and its subsidiaries. Our principal executive offices are located at 2200 Eller Drive, P.O. Box 13038, Fort Lauderdale, Florida 33316, and our telephone number is (954) 523-2200. B. PROJECTIONS AND OTHER FORWARD-LOOKING INFORMATION This Report contains, and other communications by us may contain, projections or other "forward-looking" information. Forward-looking information includes all statements regarding our expected financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital and other expenditures, competitive position, growth opportunities for existing or new services, management plans and objectives, and markets for securities. Like other businesses, we are subject to risks and other uncertainties that could cause our actual results to differ materially from any projections or that could cause other forward-looking information to prove incorrect. In addition to general economic and business risks, some of the specific risks to which our business is subject are: o declines in oil or gas prices, which tend to cause reductions in exploration, development and production activities and, in turn, reductions in the use of offshore energy support vessels and in the rates paid for their use; o increased construction of new offshore energy support vessels or construction of new JONES ACT tankers by competitors, which can cause oversupply in the market and consequent reductions in the use of our offshore energy support vessels and JONES ACT tankers and reductions in the rates paid for their use; o international political instability, which can lead to reductions in exploration, development and production activities, particularly in less developed regions; o fluctuations in weather, which can lead to declines in energy consumption and resulting declines in oil or gas prices; 2 o changes in laws and regulations affecting the marine transportation industry, including any possible weakening of the JONES ACT, which could result in increased competition from non-U.S. companies in our domestic offshore energy support, towing, and petroleum and chemical product transportation businesses; o changes in environmental laws and regulations, including any possible weakening of the U.S. Oil Pollution Act of 1990 ("OPA 90"), which could result in increased competition for the petroleum and chemical product transportation services provided by our modern double-hull fleet; o risks associated with potential oil spills or other environmental pollution incidents, which, although believed to be covered by liability insurance, may result in adverse market reaction and loss of business; and o terrorist attacks or hijackings, which could disable or destroy one of our vessels and result in significant loss of hire and revenue. Additional information regarding these and other factors affecting our business appears elsewhere in this Report under "Additional Business and Corporate Risk Factors." C. RECENT DEVELOPMENTS In January 2004, the Company began operating the SEABULK ENERGY, one of its U.S.-flag double-hull tankers, under a consecutive voyage charter in U.S. foreign commerce. The vessel is expected to charter on forty-two day voyages, approximately 8.5 voyages per year. The charter is to run for a term of four years, replacing the previous bareboat charter of the vessel that was terminated in December 2003. In January 2004, the Company agreed to purchase two four-year-old foreign-flag double-hull product tankers from principals of World-Wide Shipping of Singapore, for a total purchase price of $62 million, the tankers are suitable for worldwide trading. The Company took delivery of the first foreign-flag product tanker in March 2004, and will take delivery of the second tanker at the end of the first quarter or the early part of the second quarter of 2004. The first vessel has been placed in an international tanker pool and the second tanker will be time-chartered to a major oil company or placed in an international tanker pool. In January 2004, the Company entered into a contract with Labroy Marine Ltd. of Singapore, for the construction of a terminal support tug for delivery in March 2005, for the Singapore dollar equivalent of U.S. $10.8 million. The Company has also entered into a currency hedge agreement to fix the price at U.S. $10.8 million. The tug will be employed on a long-term contract in Angola. In February 2004, the Company sold the SEABULK GREBE, an offshore energy support vessel operating in foreign commerce in the West Africa region. The proceeds from the sale of the vessel were $600,000. The gain on the sale of the vessel was approximately $19,000. In March 2004, the Company received $4.5 million in proceeds from the settlement of litigation against two of its suppliers and $400,000 from a previous joint venture partner. 3 D. FLEET OVERVIEW The following table lists the types of vessels, by assigned operating region or segments, the Company owned, operated, or chartered as of March 1, 2004: VESSELS IN FLEET ------------- OFFSHORE ENERGY SUPPORT DOMESTIC: Gulf of Mexico Anchor Handling Tug Supply/Supply Boats 21 Crew/Utility Boats ..................... 22 Other .................................. 2 --- Total Gulf of Mexico ................ 45 INTERNATIONAL: WEST AFRICA Anchor Handling Tug Supply/Supply Boats 33 Anchor Handling Tugs/Tugs .............. 4 Crew/Utility Boats ..................... 3 Other .................................. 0 --- Total West Africa ................... 40 MIDDLE EAST: Anchor Handling Tug Supply/Supply Boats 6 Anchor Handling Tugs/Tugs ............. 5 Crew/Utility Boats .................... 7 Other ................................. 5 --- Total Middle East ................... 23 SOUTHEAST ASIA: Anchor Handling Tug Supply/Supply Boats 8 Other ................................. 1 --- Total Southeast Asia ................ 9 Total Offshore Energy Support ....... 117 MARINE TRANSPORTATION Petroleum/Chemical Product Carriers . 10 MARINE TOWING ................................... 26 --- TOTAL VESSELS ....................... 153 === For the year ended December 31, 2003, one conventional tug was disposed of and three were sold, 18 offshore energy support vessels were sold, including eight in the Gulf of Mexico, six in West Africa (five to a joint venture), two in the Middle East, and two in Southeast Asia. In 2004, as of March 1, the Company sold one offshore energy support vessel operating in the West Africa region. 4 For financial information about our business segments and geographic areas of operation, see Note 13 to our consolidated financial statements. E. LINES OF BUSINESS (1) OFFSHORE ENERGY SUPPORT (SEABULK OFFSHORE) The offshore energy support business accounted for approximately 50.8% of our total revenue in 2003. Offshore energy support vessels are used primarily to transport materials, supplies, equipment, and personnel to drilling rigs and to support the construction, positioning and ongoing operation of oil and gas production platforms. These vessels are hired, or "chartered," by oil companies and others engaged in offshore exploration and production activities. The market for these services is fundamentally driven by the offshore exploration, development, and production activities of oil and gas companies worldwide. The level of these activities depends primarily on the capital expenditures of oil and gas producers, which has traditionally been a function of current and anticipated oil and gas prices. Oil and gas prices are influenced by a variety of factors, including worldwide demand, production levels, inventory levels, governmental policies regarding exploration and development of reserves, and political factors in producing countries. Offshore energy support services are provided primarily by the following types of vessels: o SUPPLY BOATS (also called workboats) are generally steel-hull vessels of at least 150 feet in length. They serve exploration and production facilities and support offshore construction and maintenance activities and are differentiated from other vessel types by cargo flexibility and capacity. In addition to transporting deck cargo, such as drill pipe and heavy equipment, supply boats transport liquid mud, potable and drilling water, diesel fuel, dry bulk cement, and dry bulk mud. With their relatively large liquid mud and dry bulk cement capacity and large areas of open deck space, they are generally in greater demand than other types of support vessels for exploration and workover drilling activities. o ANCHOR HANDLING VESSELS, which include anchor handling tug/supply vessels and some tugs, are more powerful than supply boats and are used to tow and position drilling rigs, production facilities and construction barges. Some of these vessels are specially equipped to assist tankers while they are loading from single-point buoy mooring systems, and others are used in place of supply boats when not performing towing and positioning functions. o CREWBOATS (also called crew/supply boats) are faster and smaller than supply boats and are used primarily to transport personnel and light cargo, including food and supplies, to and among production platforms, rigs and other offshore installations. These vessels are chartered together with supply boats to support drilling or construction operations or, separately, to serve the various requirements of offshore production platforms. Crewboats are typically aluminum-hull vessels and generally have longer useful lives than steel-hull supply boats. Crewboats also provide a cost-effective alternative to helicopter transportation services and can operate reliably in all but the most severe weather conditions. However, our strategy is to focus on higher-value, higher-margin vessels and reduce the smaller, lower-margin crewboat business. As a result, the Company sold 12 crewboats during 2003 and its strategy is to continue to de-emphasize its crewboat business in 2004. Approximately 26.0% of our 2003 offshore revenue was derived from domestic operations under U.S.-flag vessel registration in the Gulf of Mexico, directed from offices in Amelia, Louisiana. Offices in Amelia, and Lafayette, 5 Louisiana were downsized and consolidated in Amelia during the first quarter of 2004. The balance was derived from international operations, including offshore West Africa, the Arabian Gulf and adjacent areas, such as India, and Southeast Asia. We also operate offshore energy support vessels in other regions, including Brazil. Operations in the Arabian Gulf, Southeast Asia and adjacent areas are directed from facilities in Dubai, United Arab Emirates; operations in offshore West Africa and certain other international areas are directed from facilities in Nyon, Switzerland; and operations in Mexico and Brazil are directed from our Amelia, Louisiana facility. We also have sales offices and/or maintenance and other facilities in many of the countries where our vessels operate. The average age of our offshore energy support vessels, based on the later of the date of construction or rebuilding, is approximately 17 years. Of the U.S. offshore fleet, approximately 26% are less than 10 years old and approximately 47% are more than 20 years old. After a vessel has been in service for approximately 30 years, the costs of repair, vessel certification and maintenance may not be economically justifiable. (2) MARINE TRANSPORTATION (SEABULK TANKERS) The Company provides marine transportation services, principally for petroleum products and specialty chemicals, in the U.S. domestic or "coastwise" trade, a market largely insulated from direct international competition under the JONES ACT. Marine transportation consists of our ten U.S.-flag tankers, five of which are double-hulled, and our two double-hull foreign-flag tankers, one of which began international service in the first quarter of 2004 with the other expected to begin service in the second quarter of 2004. This business accounted for approximately 37.6% of our total revenue in 2003. PETROLEUM PRODUCT TRANSPORTATION. In the domestic energy transportation trade, oceangoing and inland-waterway vessels transport fuel and other petroleum products, primarily from refineries and storage facilities along the coast of the U.S. Gulf of Mexico to utilities, waterfront industrial facilities and distribution facilities along the U.S. Gulf of Mexico, the Atlantic and Pacific coasts and inland rivers, as well as transportation of petroleum crude and product between Alaska, the West Coast and Hawaii. The number of U.S.-flag oceangoing vessels eligible to participate in the U.S. domestic trade and capable of transporting fuel or petroleum products has steadily decreased since 1980, as vessels have reached the end of their useful lives and the cost of constructing vessels in the United States (a requirement for U.S. domestic coastwise trade participation) has substantially increased. 6 At March 1, 2004, the Company operated the following petroleum product carriers:
CAPACITY TONNAGE OPA 90 NAME OF VESSEL IN BARRELS IN "DWT"(1) RETIREMENT DATE - -------------- ---------- ----------- --------------- SEABULK TRADER 360,000 49,900 2011 SEABULK CHALLENGE 360,000 49,900 2011 SEABULK ENERGY (formerly known as S/R BRISTOL BAY) 341,000 45,000 None SEABULK ARCTIC 340,000 46,000 None SEABULK MARINER 340,000 46,000 None SEABULK PRIDE 340,000 46,000 None SEABULK POWER (formerly known as DEFENDER) 260,000 36,600 2008
- ----------- (1) Dead weight tons or "dwt". Since January 2002, the SEABULK ENERGY was operated by a major oil company on a bareboat charter. The bareboat charter was terminated in December 2003 and was replaced by a consecutive voyage charter. The vessel began trading in foreign commerce in January 2004. The SEABULK ENERGY, SEABULK ARCTIC, SEABULK MARINER and SEABULK PRIDE are four of our five double-hull carriers. These vessels are the newest and most technologically advanced product carriers in the JONES ACT market. The fifth double-hull, BRENTON REEF, is listed below under chemical tankers. The Company acquired the SEABULK POWER in March 1998. Under OPA 90, this vessel cannot be used to transport petroleum and petroleum products in U.S. commerce after 2008. The Company acquired the SEABULK CHALLENGE and SEABULK TRADER in August 1996. Their OPA 90 retirement date is 2011. The four double-hulls have no retirement date under OPA 90. At March 1, 2004, six of the Company's petroleum product carriers were operating under time charters and one under a consecutive voyage charter. CHEMICAL TRANSPORTATION. In the U.S. domestic coastwise chemical transportation trade, vessels carry chemicals, primarily from chemical manufacturing plants and storage tank facilities along the coast of the U.S. Gulf of Mexico to industrial users in and around Atlantic and Pacific coast ports. The chemicals transported consist primarily of caustic soda, alcohol, chlorinated solvents, paraxylene, alkylates, toluene, ethylene glycol, methyl tertiary butyl ether (MTBE) and lubricating oils. Some of the chemicals transported must be carried in vessels with specially coated or stainless steel cargo tanks; many of them are very sensitive to contamination and require special cargo-handling equipment. 7 At March 1, 2004, the Company operated three vessels in the chemical trade:
CAPACITY TONNAGE OPA 90 NAME OF VESSEL IN BARRELS IN "DWT" RETIREMENT DATE - -------------- ---------- -------- --------------- BRENTON REEF 341,000 45,000 none SEABULK MAGNACHEM 297,000 39,300 2007 SEABULK AMERICA 297,000 46,300 2015
Delivered in 1999, the BRENTON REEF is a double-hull carrier in which the Company has a 100% equity interest. The Company operates the SEABULK MAGNACHEM under a bareboat charter expiring in February 2007 with a purchase option. The Company owns a 67% equity interest in the SEABULK AMERICA; the remaining 33% interest is owned by Stolt Tankers (U.S.A.), Inc. The SEABULK MAGNACHEM and SEABULK AMERICA have full double bottoms (as distinct from double- hulls). Double bottoms provide increased protection over single-hull vessels in the event of a grounding. Delivered in 1977, the SEABULK MAGNACHEM is a CATUG (or catamaran tug) integrated tug and barge, or ITB, which has a higher level of dependability, propulsion efficiency and performance than an ordinary tug and barge. The SEABULK America'S stainless steel tanks were constructed without internal structure, which greatly reduces cargo residue from transportation and results in less cargo degradation. Stainless steel tanks, unlike epoxy-coated tanks, also do not require periodic sandblasting and recoating, which the Company deems to be a competitive advantage. All three chemical carriers have from 13 to 24 cargo segregations which are configured, strengthened, and coated to handle various sized parcels of a wide variety of industrial chemical and petroleum products, giving them the ability to handle a broader range of chemicals than chemical-capable product carriers. Many of the chemicals we transport are hazardous substances. Current voyages are generally conducted from the Houston and Corpus Christi (Texas), and Lake Charles (Louisiana) areas to such ports as New York, Philadelphia, Baltimore, Wilmington (North Carolina), Charleston (South Carolina), Los Angeles, San Francisco (California), and Kalama (Washington). The chemical carriers are also suitable for transporting other cargoes, including grain. Pursuant to OPA 90, the SEABULK AMERICA and SEABULK MAGNACHEM cannot be used to transport petroleum and petroleum products in U.S. commerce after 2015 and 2007, respectively. THE BRENTON REEF has no retirement date under OPA 90. The two chemical carriers, SEABULK AMERICA and SEABULK MAGNACHEM, can also be used as petroleum tankers until 2015 and 2007, respectively. SEABULK AMERICA is among the last independently owned product tankers scheduled to be retired under OPA 90. For vessels not operating under time charters, the Company books cargoes either on a spot (movement-by-movement) or contract of affreightment basis. Approximately 60.0% of contracts for cargo are committed on a 12- to 30-month basis, with minimum and maximum cargo tonnage specified over the period at fixed or escalating rates per ton. (3) MARINE TOWING (SEABULK TOWING) Towing is the smallest of the Company's three businesses and represented approximately 11.6% of our total revenue in 2003. Our harbor tugs serve seven ports in Florida, Alabama, Texas and Louisiana, where they assist petroleum product carriers, barges, container ships and other cargo vessels in docking and undocking and in proceeding within the port areas and harbors. We 8 also operate four tugs with offshore towing capabilities that conduct a variety of offshore towing services in the Gulf of Mexico and the Atlantic Ocean. Demand for towing services depends on vessel traffic and oilfield activity, which is in turn generally dependent on local, national and international economic conditions, including the volume of world trade. Our tug fleet consists of 16 conventional tugs and 10 tractor tugs, including four Ship Docking Module tractor tugs, known as SDMs. SDMs are innovative ship docking vessels, designed and patented by us that are more maneuverable, efficient, and flexible and require fewer crew members than conventional harbor tugs. In August 2002, the Company bareboat-chartered the tug HOLLYWOOD for a term of one year to Signet for operations in the port of Brownsville, Texas. The name was subsequently changed to SIGNET ENTERPRISE. The charter was renewed in August 2003 for a term of one year. In January 2004, the tug EAGLE II was bareboated to Exxon/SeaRiver for one year with renewable options for service in San Francisco. HARBOR TUG OPERATIONS. In most U.S. ports, competition is unregulated. Rates are unregulated in all ports that we serve, including the franchised ports. Generally, harbor tugs can be moved from port to port. However, Port Everglades grants non-exclusive franchises to harbor tug operators. PORT EVERGLADES. Port Everglades is the second largest petroleum non-refining storage and distribution center in the United States, providing substantially all of the petroleum products for South Florida. Seabulk Towing's franchise requires it to maintain a minimum of three tractor tugs in the port. The franchise is not exclusive and expires in 2007. While the Company is regarded as a high-standards operator, there is no assurance the franchise will be renewed. As of March 1, 2004, the Company operated four tugs in Port Everglades. TAMPA. The Company expanded harbor towing services to Tampa through the October 1997 acquisition of an established operator in the port. Because the port is comprised of three "sub-ports" (including Port Manatee) and a distant sea buoy, a greater number of tugs is required to be a competitive operator in Tampa than in other ports of similar size. On March 1, 2004, we operated five tugs, including two tractor tugs, one SDM, and two conventional tugs in the port (including Port Manatee). PORT CANAVERAL. In Port Canaveral, the Company had been the sole franchise holder for harbor-docking services until May 2003 when the Canaveral Port Authority terminated its franchise system. We provide docking and undocking services for commercial cargo vessels serving central Florida and, on a very limited basis, for cruise ships, as well as for Navy vessels. We are currently the sole provider of tug services at the Port but expect another operator to enter the market in April 2004. The Company operates three tugs in Port Canaveral. MOBILE. At this port, the Company provides docking and undocking services primarily to commercial cargo vessels, including vessels transporting coal and other bulk exports. The Company operates three tugs at this port. There is a competing provider. PORT ARTHUR AND LAKE CHARLES. At these ports the Company operates seven tugs. Currently, five of these tugs serve Port Arthur, Texas and two serve Lake Charles, Louisiana. Each of these ports has a competing provider. OFFSHORE AND BAREBOAT TOWING OPERATIONS. The Company currently has one tug working in the offshore towing market conducting a variety of offshore towing services in the Gulf of Mexico and the Atlantic Ocean, and three tugs working on bareboat charters. 9 F. CUSTOMERS AND CHARTER TERMS The Company offers offshore energy support services primarily to oil companies and large drilling companies. Consistent with industry practice, our U.S. Gulf of Mexico operations are conducted primarily in the "term" market pursuant to short-term (less than six months) charters at varying day rates. Generally, such short-term charters can be terminated either by us or our customers upon notice of five days or less. Charters in our international markets have terms ranging from a few days to several years. The primary purchasers of petroleum product transportation services are utilities, oil companies, and large industrial consumers of fuel with waterfront facilities. The primary purchasers of chemical transportation services are chemical and oil companies. Both services are generally contracted for on the basis of short-term or long-term time charters, voyage charters, contracts of affreightment, or other transportation agreements tailored to the shipper's requirements. Citgo and Tesoro each accounted for 7% of our 2003 revenue and were our largest customers. The Company's towing services are offered to vessel owners and operators and their agents. Our rates for harbor towing services are set forth in published tariffs and may be modified at any time, subject to competitive factors. The Company also grants volume discounts to major users of harbor services. Offshore towing services are priced based upon the service required on an AD HOC basis. G. COMPETITION The Company operates in a highly competitive environment in all our operations. The principal competitive factors in each of the markets in which we operate are suitability, reliability and capability of equipment, safety record, personnel, price, service, and reputation. Competitive factors in the offshore energy support segment also include operating conditions and intended vessel use (both of which determine the suitability of vessel type), shallow water versus deepwater needs, the complexity of maintaining logistical support and the cost of transferring equipment from one market to another. Our vessels providing marine transportation services compete with other vessel operators and, in some areas and markets, with alternative modes of transportation, such as pipelines, rail tank cars, and tank trucks. Moreover, the users of such services are placing increased emphasis on safety, the environment and quality, partly due to heightened liability for the cargo owner in addition to the vessel owner/operator under OPA 90. With respect to towing services, we compete with other providers of tug services in all of the ports in which we operate. In March 2003 our franchise agreement with the Canaveral Port Authority was terminated. The Company expects to face tug competition in Port Canaveral in April 2004. Additional competitors may enter our markets in the future. While U.S.-flag, coastwise-operated vessels are protected under the JONES ACT and the Outer Continental Shelf Act, foreign-built, foreign-manned and foreign-owned vessels could be eligible to compete with our vessels operating in the domestic trade if the JONES ACT were repealed or waived. There are no current indications that this will occur, although there are continuing attempts by foreign operators to undermine the JONES ACT through exceptions and by interpretation. H. ENVIRONMENTAL AND OTHER REGULATIONS The Company's business and operations are subject to significant federal, state, local and international laws and regulations. The principal laws affecting us are described below. ENVIRONMENTAL. The Company's business and operations are subject to federal, state, local and international laws and regulations relating to 10 environmental protection and occupational safety and health, including those relating to the generation, storage, handling, emission, transportation and discharge of oil and hazardous and non-hazardous materials, the remediation of contamination and liability for damages to natural resources. The recent trend in environmental legislation and regulation is generally toward stricter standards, and this trend will likely continue. Governmental authorities have the power to enforce compliance with applicable environmental protection and operational safety and health laws and regulations, and violators are subject to penalties, fines, injunctions, and other sanctions. The Company believes that our operations currently are in substantial compliance with applicable environmental laws and regulations. The Company does not expect that it will be required in the near future to make capital expenditures that are material to the financial condition or operations by reason of environmental laws and regulations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, the Company cannot predict the ultimate cost of complying with these laws and regulations. OPA 90. OPA 90 established an extensive regulatory and liability regime for the protection of the environment from oil spills. OPA 90 affects owners and operators of facilities operating near navigable waters and owners and operators of vessels operating in U.S. waters, which include the navigable waters of the United States and the 200-mile exclusive economic zone of the United States. Although it applies in general to all vessels, for purposes of its liability limits and financial-responsibility and response-planning requirements, OPA 90 differentiates between tank vessels (which include our chemical and petroleum product vessels) and "other vessels" (which include our tugs and offshore energy support vessels). Under OPA 90, owners and operators of regulated facilities and owners, operators and certain charterers of vessels are "responsible parties" and are jointly, severally and strictly liable for removal costs and damages arising from oil spills relating to their facilities and vessels, unless the spill results solely from the act or omission of certain third parties under specified circumstances, an act of God or an act of war. Damages are defined broadly to include (i) natural resources damages and the costs of remediation thereof; (ii) damages for injury to, or economic losses resulting from the destruction of, real and personal property; (iii) the net loss of taxes, royalties, rents, fees and profits by the U.S. government, a state or political subdivision thereof; (iv) lost profits or impairment of earning capacity due to property or natural resources damage; (v) the net costs of providing increased or additional public services necessitated by a spill response, such as protection from fire, safety or other hazards; and (vi) the loss of subsistence use of natural resources. For facilities, the statutory liability of responsible parties is limited to $350.0 million. For tank vessels, the statutory liability of responsible parties is limited to the greater of $1,200 per gross ton or $10.0 million ($2.0 million for a vessel of 3,000 gross tons or less) per vessel; for any "other vessel," such liability is limited to the greater of $600 per gross ton or $500,000 per vessel. Such liability limits do not apply, however, to an incident caused by the responsible party's violation of federal safety, construction or operating regulations or by the responsible party's gross negligence or willful misconduct, or if the responsible party fails to report the incident or provide reasonable cooperation and assistance as required by a responsible official in connection with oil removal activities or fails to comply with certain governmental orders. Although we currently maintain maximum available pollution liability insurance, a catastrophic spill or a failure or refusal of the insurance carrier to provide coverage could result in material liability in excess of available insurance coverage, resulting in a material adverse effect on our business results of operations or financial condition. Under OPA 90, with certain limited exceptions, all newly built or converted oil tankers carrying crude oil and petroleum products in U.S. waters must be built with double-hulls, and existing single-hull, double-side or 11 double-bottom vessels must be phased out of service at some point, depending upon their size, age and place of discharge, through 2015 unless retrofitted with double-hulls. As a result of this phase-out requirement, as interpreted by the U.S. Coast Guard, our five single-hull chemical and petroleum product carriers will be required to cease transporting petroleum products by 2015, with the first vessel phased out in 2007 and the last vessel phased out in 2015. OPA 90 expanded pre-existing financial responsibility requirements and requires vessel owners and operators to establish and maintain with the U.S. Coast Guard evidence of insurance or qualification as a self-insurer or other evidence of financial responsibility sufficient to meet their potential liabilities under OPA 90. Coast Guard regulations require evidence of financial responsibility demonstrated by insurance, surety bond, self-insurance, or guaranty. The regulations also implement the financial responsibility requirements of the COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 ("CERCLA"), which imposes liability for discharges of hazardous substances such as chemicals, in an amount equal to $300 per gross ton, thus increasing the overall amount of financial responsibility from $1,200 to $1,500 per gross ton. We have obtained Certificates of Financial Responsibility pursuant to the Coast Guard regulations for our product and chemical carriers through self-insurance and commercial insurance. OPA 90 also amended the federal WATER POLLUTION CONTROL ACT to require the owner or operator of certain facilities or the owner or operator of a tank vessel to prepare facility or vessel response plans and to contract with oil spill removal organizations to remove to the maximum extent practicable a worst-case discharge. We have complied with these requirements. As is customary, our oil spill response contracts are executory in nature and are not activated unless required. Once activated, we expect our pollution liability insurance to cover the cost of spill removal subject to overall coverage limitations of $1.0 billion; however a failure or refusal of the insurance carrier to provide coverage in the event of a catastrophic spill could result in material liability in excess of available insurance coverage, resulting in a material adverse effect on our business, results of operations or financial condition. OPA 90 does not prevent individual states from imposing their own liability regimes with respect to oil pollution incidents occurring within their boundaries, and many states have enacted legislation providing for unlimited liability for oil spills. Some states have issued implementing regulations addressing oil spill liability, financial responsibility, and vessel and facility response planning requirements. We do not anticipate that such legislation or regulations will have any material impact on our operations. In addition to OPA 90, the following are examples of environmental and occupational health and safety laws that relate to our business and operations: CLEAN WATER ACT. The federal WATER POLLUTION CONTROL ACT, also referred to as the CLEAN WATER ACT imposes restrictions on the discharge of pollutants into navigable waters of the United States. The CLEAN WATER ACT provides for civil, criminal and administrative penalties for any unauthorized discharges and imposes substantial potential liability for the costs of removal, remediation, and damages. State laws for the control of water pollution also provide varying civil, criminal and administrative penalties and liabilities in the case of a discharge of petroleum or hazardous materials into state waters. In addition, the federal COASTAL ZONE MANAGEMENT ACT authorizes state development and implementation of programs to manage non-point source pollution to restore and protect coastal waters. The Company manages our exposure to losses from potential discharges of pollutants through the use of well-maintained, well-managed and equipped facilities and vessels and development of safety and environmental programs, including a maritime compliance program and our insurance program; and we believe we will be able to accommodate reasonably foreseeable environmental 12 regulatory changes. There can be no assurance, however, that any new regulations or requirements or any discharge of pollutants by the Company will not have a material effect on us. RCRA. The Company's operations may generate and result in the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the federal RESOURCE CONSERVATION AND RECOVERY ACT ("RCRA") and comparable state and local laws. CERCLA. The federal COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT ("CERCLA") and comparable state laws establish strict and, under certain circumstances, joint and several liabilities for specified parties in connection with liability for the investigation and remediation of releases of hazardous materials to the environment and damages to natural resources. The Company has agreed to remediate certain shoreside portions of our former Sun State Marine facility in Green Cove Springs, Florida in cooperation with the state of Florida Department of Environmental Protection and the current owner of the property. The Company has expended approximately $100,000 to date in remediation expenses and anticipates approximately another $100,000 to complete the project over the remainder of 2004. However, the Company and the Florida Department of Environmental Protection so far are in disagreement over testing underwater sediments adjacent to the facility and are in negotiation over the issue. Also, the Company has certain clean-up responsibilities regarding a replacement tenant at the facility. The Company is currently assessing the site to determine the scope of those responsibilities. CLEAN AIR ACT. The federal CLEAN AIR ACT requires the U.S. Environmental Protection Agency ("EPA") to promulgate, among other things, standards applicable to the emission of volatile organic compounds and other air pollutants. The Company's chemical and petroleum product carrier vessels are subject to such vapor control and recovery requirements when loading, unloading, ballasting, cleaning, and conducting other operations in certain ports and are equipped with vapor control systems that satisfy these requirements in all material respects. In addition, the EPA has issued regulations addressing air emission requirements applicable to marine engines. These standards will require modifications to new or replacement marine diesel engines in some cases. COASTWISE LAWS. A substantial portion of the Company's operations is conducted in the U.S. domestic trade, which is governed by the coastwise laws of the United States (commonly referred to as the JONES ACT). The coastwise laws reserve marine transportation (including harbor tug services) between points in the United States (including drilling rigs fixed to the ocean floor on the U.S. outer continental shelf, under the OUTER CONTINENTAL SHELF ACT) to vessels built in and documented under the laws of the United States (U.S.-flag) and owned and manned by U.S. citizens, with an exception to the ownership requirement with respect to foreign owned financial entities which own and lease U.S. vessels to U.S. citizen operators. Generally, a corporation is deemed a U.S. citizen so long as (i) it is organized under the laws of the United States or a state, (ii) each of its president or other chief executive officer and the chairman of its board of directors is a citizen, (iii) no more than a minority of the number of its directors necessary to constitute a quorum for the transaction of business are non-citizens, and (iv) 75.0% of the interest and voting power in the corporation is held by U.S. citizens. Under the citizenship provisions of the U.S. MERCHANT MARINE ACT OF 1920 ("JONES ACT") and the SHIPPING ACT OF 1916, the Company would lose the privilege of engaging in U.S. coastwise trade if more than 25% of the Company's outstanding stock was owned by non-U.S. citizens. The Company has a dual stock certificate system to prevent non-U.S. citizens from owning more than 25% of the Company's common stock. In addition, the Company's charter provides the Company with certain remedies with respect to any transfer or purported transfer of shares of the Company's common stock that would result in the ownership by non-U.S. citizens of more than 25% of its common stock. 13 The laws of the United States provide that once a vessel is registered under a foreign-flag it cannot thereafter engage in the U.S. coastwise trade. Therefore, the Company's non-U.S. flag vessels must continue to be operated abroad, and if the Company was not able to secure charters or contracts abroad for them, and work would otherwise have been available for them in the United States, its operations would be adversely affected. Of the total vessels owned or operated by the Company at March 1, 2004, 71 were registered under foreign-flags and 82 were registered under the U.S.-flag. The Company's offshore vessels are subject to international safety and classification standards. U.S.-flag tanker and offshore support vessels operating in the United States are required to undergo periodic inspections and to be recertified under drydock examination at least every five years. Vessels registered under flags other than the United States are subject to similar regulations as governed by the laws of the applicable jurisdictions. There have been repeated efforts aimed to repeal or significantly change the JONES ACT. Although we believe it is unlikely that the JONES ACT will be substantially modified or repealed, there can be no assurance that Congress will not substantially modify or repeal it or that Coast Guard interpretations of it may weaken it. Such changes could have a material adverse effect on our operations and financial condition. OCCUPATIONAL HEALTH REGULATIONS AND SAFETY ACT. The Company's shoreside facilities and, as of 2001, the Company's U.S.-based vessels, are subject to occupational safety and health regulations issued by the U.S. Occupational Safety and Health Administration (OSHA) and comparable state programs. Such regulations currently require the Company to maintain a workplace free of recognized hazards, observe safety and health regulations, maintain records and keep employees informed of safety and health practices and duties. The Company's vessel operations are also subject to occupational safety and health regulations issued by the U.S. Coast Guard and, to an extent, OSHA. Such regulations currently require the Company to perform monitoring, medical testing and record keeping with respect to mariners engaged in the handling of the various cargoes transported by our chemical and petroleum product vessels. VESSEL CONDITION. The Company's chemical and petroleum product carriers, offshore energy support vessels, and certain of the Company's tugs are subject to periodic inspection and survey by, and drydocking and maintenance requirements of, the Coast Guard and/or the American Bureau of Shipping and other marine classification societies. The Company believes it is currently in compliance in all material respects with environmental and other laws and regulations, including health and safety requirements, to which the Company's business and operations are subject. The Company is unaware of any pending or threatened material litigation or other material judicial, administrative or arbitration proceedings against us based on any alleged non-compliance with or liability under such laws or regulations, with the exception of the potential for a dispute, claim or litigation in connection with the Sun State remediation matter referred to above. The risks of substantial costs, liabilities, penalties and other sanctions for releases of oil or hazardous materials into the environment or non-compliance are, however, inherent in marine operations, and there can be no assurance that significant costs, liabilities, penalties or other sanctions will not be incurred by or imposed on us in the future. INTERNATIONAL LAWS AND REGULATIONS. The Company's vessels that operate internationally are subject to various international conventions, including certain safety, environmental and construction standards, as well as foreign local laws. Among the more significant of the conventions applicable to the fleet are: (i) the International Convention for the Prevention of Pollution from Ships, 1973, 1978 Protocol, (ii) the International Convention on the Safety of Life at Sea, 1978 Protocol, including the International Management Code for the Safe Operation of Ships and for Pollution Prevention, which went into effect for 14 tank vessels on July 1, 1998, and (iii) the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended in 1995. These conventions govern oil spills and other matters of environmental protection, worker health and safety, and the manning, construction and operation of vessels. Generally, surveys and inspections are performed by internationally recognized classification societies. The vessels that operate internationally are registered primarily in the Marshall Islands, Liberia and Panama. Although the Company believes it is in substantial compliance with all applicable requirements, the risks of incurring substantial compliance costs and liabilities and penalties for noncompliance are inherent in marine operations and there can be no assurance that significant costs, liabilities, penalties and other sanctions will not be incurred by us or imposed on us in the future. I. INSURANCE The Company's marine transportation operations are subject to the normal hazards associated with operating vessels carrying large volumes of cargo and rendering services in a marine environment. These hazards include the risk of loss of or damage to the Company's vessels, damage to third parties as a result of collision, loss, or contamination of cargo, personal injury of employees and third parties, and pollution and other environmental damages. The Company maintains insurance coverage against these hazards with certain deductibles for which we are responsible. Risk of loss of or damage to the Company's vessels is insured through hull and machinery insurance policies in amounts that approximate fair market value, also subject to certain deductibles. Vessel operating liabilities, such as collision, cargo, environmental, and personal injury, are insured primarily through our participation in a mutual insurance association, the West of England Association ("West of England"). In February 2004, the Company changed protection and indemnity (P&I) insurance to West of England. Hence, P&I claims incurred after February 2004 will be the responsibility of West of England. Although the premium for 2004 will be approximately $500,000 less than 2003, the per incident deductible for U.S. Gulf offshore claims increased from $200,000 to $375,000. Because the Company maintains mutual insurance, the Company is subject to additional premiums for prior years due to funding requirements and coverage shortfalls in the event claims exceed available funds, reserves and reinsurance, and to future premium increases based on prior post underwriting loss experience. In order to cover potential future additional insurance calls made by Steamship Mutual for 2003, 2002, and 2001, the Company is required to post a letter of credit in the amount of $3.1 million to support such potential additional calls as a condition to its departure from Steamship Mutual. The letter of credit will be returned if no additional insurance calls are made. Potential claims liabilities are recorded as insurance expense reserves when they become probable and can be reasonably estimated. The Company carries workers' compensation, maritime employer's liability, general liability, directors and officer liability, and other insurance customary in the industry. The Company also carries War Risk insurance for all of its vessels for both hull and machinery damage to the vessels and protection and indemnity liability. This insurance provides coverage for marine perils including war, terrorism, sabotage, riots, seizure and piracy. The terrorist attacks on the United States on September 11, 2001 and the continued threat of terrorist activity, together with significant investment losses due to the poor investment performance by most insurance companies, have created uncertainty in the insurance markets. It is also possible that acts of terrorism could be directed against U.S. companies such as ours. These uncertainties have contributed to significant increases in the premiums quoted for our insurance coverages, which in turn has also contributed to substantial increases in the Company's insurance deductibles and self-insured retention levels. 15 In December 2001, the Company was notified by Steamship Mutual, its P&I marine insurance club (the Club), of additional insurance calls in the amount of $4.1 million due to the Club's investment losses. The Company accrued the full $4.1 million in 2001. Actual payments of these additional calls were $2.1 million and $2.0 million in 2002 and 2003, respectively. The increase in P&I costs due to higher deductibles and higher self-insured retention levels caused an increase in P&I insurance expense in 2003 of approximately $2.0 million. Premiums by both marine and non-marine insurers have been adversely impacted by the erosion of reserves, underwriting losses and increased reinsurance costs. We maintain high levels of self-insurance for P&I and hull and machinery risks through the use of substantial deductibles and self-insured retentions, which may increase in the future. We carry coverage related to loss of earnings subject to deductibles ranging from 14 to 30 days for our tanker operations, but not for our offshore and tug operations. The Company's hull and machinery insurance was renewed in August 2003. J. SECURITY Heightened awareness of security needs brought about by the events of September 11, 2001 have caused the U.S. Coast Guard, the International Maritime Organization, and the states and local ports to adopt heightened security procedures relating to ports and vessels. The Company is updating its procedures in light of the new requirements. In 2002 Congress passed the MARITIME TRANSPORTATION SECURITY ACT (the Act) which, together with the International Maritime Organization's recent security proposals (collectively known as The International Ship and Port Security Code), requires specific security plans for our vessels and more rigorous crew identification requirements. The Company is implementing vessel security plans and procedures for each of its U.S.-flag vessels pursuant to rules implementing the Act which have been issued by the U.S. Coast Guard. The Company anticipates that the costs of security for our business will increase. K. RISKS OF OPERATING INTERNATIONALLY The Company's international offshore vessel support operations are subject to the usual risks inherent in doing business in countries other than the United States. Such risks include changing political conditions, local cabatoge and content laws, possible vessel seizure, company nationalization or other governmental actions, currency restrictions and revaluations, import/export restrictions, increases in duty taxes and royalties, war, and terrorist attacks, all of which are beyond the control of the Company. In Nigeria there has recently been legislation enacted which will provide for certain Nigerian ownership and crew requirements for offshore vessel support operators such as the Company. The Company has entered into a joint venture with Nigerian interests to operate Nigerian flag crewboats in Nigeria, partially in response to such proposals. Although it is impossible to predict the effect of any of these developments on the Company, the Company believes these risks to be within acceptable limits and, in view of the mobile nature of the Company's principal revenue producing assets, does not consider them at this time to constitute a factor materially adverse to the conduct of its international offshore vessel support operations as a whole. 16 L. EMPLOYEES As of March 1, 2004, we had 1,974 employees. Management considers relations with employees to be satisfactory. Renegotiations of labor contracts are on going. The Company has various collective bargaining arrangements in its towing and tanker segments with expiration dates ranging from May 31, 2004 to December 31, 2007. The Company has approximately 400 members of national maritime labor unions, with approximately 90 members of unions with collective bargaining arrangements expiring by December 31, 2004. In January 2003, an election was held among tug crew employees of Seabulk Towing, Inc. at its Mobile, Alabama facility, for the purpose of determining whether the crew would remain non-union, or would choose to be represented by the Marine Engineers Benevolent Association (MEBA) union or the American Maritime Officers union. The results of the election, as certified by the U.S. National Labor Relations Board (NLRB), were that no union collective bargaining representative was selected. No timely objections were filed to the election. Alleged unfair labor practice charges filed against the Company before the NLRB by MEBA arising out of the discharge of three employees and the conduct of the election campaign in Mobile were also settled by the Company agreeing to post several notices in its Mobile, Alabama offices. M. ADDITIONAL BUSINESS AND CORPORATE RISK FACTORS The Company operates in a business environment that has many risks. Listed below are some additional critical risk factors that affect the Company and particularly its offshore vessel support business and that should be considered when evaluating any forward-looking statement. The impact of any one risk factor or a combination of several risk factors could materially impact the Company's results of operations and financial condition and the accuracy of any forward-looking statement made in this Form 10-K. RISKS RELATING TO OUR BUSINESS DEMAND FOR MANY OF OUR SERVICES SUBSTANTIALLY DEPENDS ON THE LEVEL OF ACTIVITY IN THE OFFSHORE OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION INDUSTRY. The level of offshore oil and natural 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: o prevailing oil and natural gas prices and expectations about future prices and price volatility; o the cost of exploring for, producing and delivering oil and natural gas offshore; o worldwide demand for energy and other petroleum products as well as chemical products; o availability and rate of discovery of new oil and natural gas reserves in offshore areas; o local and international political and economic conditions and policies; o technological advances affecting energy production and consumption; o weather conditions; o environmental regulation; and o the ability of oil and natural gas companies to generate or otherwise obtain funds for capital. 17 We expect levels of oil and natural gas exploration, development and production activity to continue to be volatile and affect the demand for and rates of our offshore energy support services and marine transportation services. 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. Lower levels of expenditure and activity would result in a decline in the demand and lower rates for our offshore energy support services and marine transportation services. Moreover, approximately 25% of our offshore energy support services are currently conducted in the Gulf of Mexico and are therefore dependent on levels of activity in that region, which may differ from levels of activity in other regions of the world. EXCESS VESSEL SUPPLY COULD DEPRESS DAY RATES AND ADVERSELY AFFECT OUR OPERATING RESULTS. Increases in oil and natural gas prices and higher levels of expenditure by oil and natural gas companies for exploration, development and production may not result in increased demand for our offshore energy support services and marine transportation services. For example, our offshore energy support segment is affected by the supply of and demand for offshore energy support vessels. During periods when supply exceeds demand, there is significant downward pressure on the rates we can obtain for our vessels. Because vessel operating costs cannot be significantly reduced, any reduction in rates adversely affects our results of operations. Currently, demand for our offshore energy support vessels in the important Gulf of Mexico market is weak and offshore drilling activity has decreased in the Gulf of Mexico over the last two and one half years. A significant increase in the capacity of the offshore energy support industry through new construction could not only potentially lower day rates, which would adversely affect our revenues and profitability, but could also worsen the impact of any downturn in oil and natural gas prices on our results of operations and financial condition. Similarly, should our competitors in the domestic petroleum and chemical product marine transportation industry construct a significant number of new tankers or large capacity integrated or articulated tug and barges, demand for our marine transportation tanker assets could be negatively impacted. Over the last year there have been no newly built U.S.-flag JONES ACT product tankers and four tug and barge tank vessels have been announced or delivered in the domestic industry. THE CONSOLIDATION OR LOSS OF COMPANIES THAT CHARTER OUR OFFSHORE ENERGY SUPPORT AND MARINE TRANSPORTATION VESSELS COULD ADVERSELY AFFECT DEMAND FOR OUR VESSELS AND REDUCE OUR REVENUES. Oil and natural gas companies and drilling contractors have undergone substantial consolidation in the last few years and additional consolidation is likely. Consolidation results in fewer companies to charter or contract for our vessels. Also, merger activity among both major and independent oil and natural 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 a combined company may be dropped or delayed. Such activity may result in an exploration and development budget for a combined company that is lower than the total budget of both companies before consolidation, adversely affecting demand for our offshore energy support vessels and reducing our revenues. INTENSE COMPETITION IN OUR LINES OF BUSINESS 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 in the offshore energy support segment is intense. The most important factors determining whether a contract will be awarded include: 18 o suitability, reliability and capability of equipment; o safety record; o age of equipment; o personnel; o price; o service; and o reputation. Many of our major competitors are much larger companies with substantially greater financial resources and substantially larger operating staffs than we have. They may be better able to compete in making vessels available more quickly and efficiently or in constructing new vessels, meeting customers scheduling needs, and withstanding the effect of downturns in the market. As a result, we could lose customers and market share to these competitors. ACQUISITIONS OF VESSELS AND BUSINESSES INVOLVE RISKS THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. From time to time we consider possible acquisitions of vessels, vessel fleets and businesses that complement our existing operations. Consummation of such acquisitions is typically subject to the negotiation of definitive agreements. 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 or realize the anticipated benefits of the 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. WE CONDUCT INTERNATIONAL OPERATIONS, WHICH INVOLVE ADDITIONAL RISKS. We operate vessels worldwide. Operations outside the U.S. involve additional risks, including the possibility of: o restrictive actions by foreign governments, including vessel seizure; o foreign taxation and changes in foreign tax laws; o limitations on repatriation of earnings; o changes in currency exchange rates; o local sabotage and local ownership laws and requirements; o nationalization and expropriation; o loss of contract rights; and o political instability, war and civil disturbances or other risks that may limit or disrupt markets. Our ability to compete in the international offshore energy support market may be adversely affected by foreign government regulations that favor or 19 require the awarding of contracts to local persons, or that require foreign persons to employ citizens of, or purchase supplies from, a particular jurisdiction. Further, our foreign subsidiaries may face governmentally imposed restrictions on their ability to transfer funds to their parent company. REVENUE FROM OUR MARINE TRANSPORTATION SEGMENT AND TOWING SEGMENT COULD BE ADVERSELY AFFECTED BY A DECLINE IN DEMAND FOR DOMESTIC REFINED PETROLEUM PRODUCTS, CRUDE OIL OR CHEMICAL PRODUCTS, 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, crude oil or chemical products may adversely affect revenue from our marine transportation segment and towing segment and therefore our financial condition and results of operations. Weather conditions also affect demand for our marine transportation services and towing services. For example, a mild winter may reduce demand for heating oil in our areas of operation. Moreover, alternative methods of delivery of refined petroleum or chemical products or crude oil may develop as a result of: CONSTRUCTION OF ADDITIONAL REFINED PETROLEUM PRODUCT AND NATURAL GAS PIPELINES, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR TANKER REVENUES. Long-haul transportation of refined petroleum products, crude oil and natural gas is generally less costly by pipeline than by tanker. Existing pipeline systems are either insufficient to meet demand in, or do not reach all of, the markets served by our marine transportation vessels. While we believe that high capital costs, tariff regulation and environmental considerations discourage building in the near future of new pipelines or pipeline systems capable of carrying significant amounts of refined petroleum products, crude oil or natural gas, 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. OUR OFFSHORE ENERGY SUPPORT FLEET INCLUDES MANY OLDER VESSELS. The average age of our offshore energy support vessels, based on the later of the date of construction or rebuilding, is approximately 17 years. Approximately 47% of these vessels are more than 20 years old. We believe that after a vessel has been in service for approximately 30 years, repair, vessel certification and maintenance costs may not be economically justifiable. We may not be able to maintain our fleet by extending the economic life of existing vessels through major refurbishment or by acquiring new or used vessels. Some of our competitors have newer fleets and may be able to compete more effectively against us. WE ARE SUBJECT TO COMPLEX LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL LAWS AND REGULATIONS THAT CAN ADVERSELY AFFECT THE COST, MANNER OR FEASIBILITY OF DOING BUSINESS. Increasingly stringent federal, state, local and international laws and regulations governing worker safety and health 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 U.S. Coast Guard, Occupational Safety and Health Administration, the National Transportation Safety Board and the U.S. Customs Service and to regulation by port states and class society organizations such as the American Bureau of Shipping, as well as to international regulations from international treaties such as the Safety of Life at Sea Convention ("SOLASC") administered by port states and class societies. The U.S. Coast Guard, Occupational Safety and Health Administration, and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Customs Service is authorized to inspect vessels at will. Our business and operations are also subject to federal, state, local and international laws and regulations that control the discharge of oil and hazardous materials into the environment or otherwise relate to environmental 20 protection and occupational safety and health. Compliance with such laws and regulations may require installation of costly equipment or operational changes, and the phase-out of certain product tankers. 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 and, under certain circumstances, joint and several liability for remediation of spills and releases of oil and hazardous materials and damage to natural resources, 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 and regulations will not have a material adverse effect on our business, results of operations and financial condition. For more information, see "Environmental and Other Regulations." 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 constructed, 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 articles of incorporation and by-laws contain certain restrictions on the ownership of our capital stock by persons who are not U.S. citizens and establish 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 U.S. coastwise trade, and our business and operating results would be adversely affected. WE COULD LOSE JONES ACT PROTECTION, WHICH WOULD RESULT IN ADDITIONAL COMPETITION. A substantial portion of our operations is conducted in the U.S. coastwise trade. Under the JONES ACT, this trade is restricted to vessels built in the United States, owned and manned by U.S. citizens and registered under U.S. law. There have been attempts to repeal or undermine the JONES ACT, and these attempts are expected to continue in the future. Repeal of the JONES ACT could result in additional competition from vessels built in lower-cost foreign shipyards and owned and manned by foreign nationals with promotional foreign tax incentives and accepting lower wages and benefits than U.S. citizens, which could have a material adverse effect on our business, results of operations and our financial condition. WE WILL HAVE TO PHASE-OUT SOME OF OUR VESSELS FROM PETROLEUM PRODUCT TRANSPORTATION SERVICE IN U.S. WATERS. The Oil Pollution Act of 1990, commonly referred to as OPA 90, establishes a phase-out schedule, depending upon vessel size and age, for single-hull vessels carrying crude oil and petroleum products in U.S. waters. The phase-out dates for our single-hull tankers are as follows: SEABULK MAGNACHEM - 2007, SEABULK POWER - 2008, SEABULK TRADER - 2011, SEABULK CHALLENGE - - 2011 and SEABULK AMERICA - 2015. As a result of this requirement, these vessels will be prohibited from transporting crude oil and petroleum products in U.S. waters after their phase-out dates. They would also be prohibited from transporting petroleum products in most foreign and international markets under a more accelerated IMO international phase-out schedule, were we to attempt to enter those markets. OUR BUSINESS INVOLVES HAZARDOUS ACTIVITIES AND OTHER RISKS OF LOSS AGAINST WHICH WE MAY NOT BE ADEQUATELY INSURED. Our business is affected by a number of risks, including: o terrorism; 21 o the mechanical failure of our vessels; o collisions; o vessel loss or damage; o cargo loss or damage; o hostilities; and o labor strikes. In addition, the operation of any vessel is subject to the inherent possibility of a catastrophic marine disaster, including oil, fuel or chemical spills and other environmental mishaps, as well as other liabilities arising from owning and operating vessels. Any such event may result in the loss of revenues and increased costs and other liabilities. OPA 90 imposes significant liability upon vessel owners, operators and certain charterers for certain oil pollution accidents in the U.S. This has made liability insurance more expensive and has also prompted insurers to consider reducing available liability coverage. We may be unable to maintain or renew insurance coverage at levels and against risks we believe are customary in the industry at commercially reasonable rates, and existing or future coverage may not be adequate to cover claims as they arise. Because we maintain mutual insurance, we are subject to funding requirements and coverage shortfalls in the event claims exceed available funds and reinsurance, and to premium increases based on prior loss experience. Any shortfalls could have a material adverse impact on our financial condition. 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 on board our vessels. As a result of the volatility of the oil and natural 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. 22 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, directors and key management personnel. The loss of services of certain key members of our management could disrupt our operations and have a negative impact on our operating results. OUR BORROWING AGREEMENTS, INCLUDING OUR AMENDED CREDIT FACILITY AND BOND INDENTURE, CONTAIN COVENANTS THAT RESTRICT OUR ACTIVITIES. Our borrowing agreements, including our amended credit facility and bond indenture: o require us to meet certain financial tests, including the maintenance of minimum ratios of leverage, and debt service and indebtedness to net worth; o limit certain liens; o limit additional borrowing; o restrict us from making certain investments; o restrict certain payments, including dividends, on shares of any class of capital stock; and o limit our ability to do certain things, such as entering into certain types of business transactions, including mergers and acquisitions. These provisions could limit our future ability to continue to pursue actions or strategies that we believe would be beneficial to our company, our stockholders or the holders of the notes or may result in default of our borrowing agreements. OUR INSURANCE COSTS ARE RISING AND NO ASSURANCE CAN BE GIVEN THAT THEY WILL NOT CONTINUE TO RISE. Our P&I marine insurance clubs, Steamship Mutual and West of England, are mutual associations and rely on member premiums, investment reserves and income, and reinsurance to manage liability risks on behalf of their members. Recently investment losses, underwriting losses, and high costs of reinsurance have caused Steamship Mutual, and other international marine insurance clubs, to substantially raise the cost of premiums, resulting not only in higher premium costs but also much higher levels of deductibles and self-insurance retentions. Continued deterioration in this insurance market could lead to even higher levels of premiums, deductibles and self-insurance. OUR CONTROLLING SHAREHOLDERS EFFECTIVELY CONTROL THE OUTCOME OF SHAREHOLDER VOTING. A group of shareholders currently beneficially owns approximately 75% of our voting power. As a result, this group of shareholders has the power to effectively control the outcome of shareholder votes and, therefore, corporate actions requiring such votes. Further, the existence of the controlling group of shareholders may adversely affect the prevailing market price of our shares if they are viewed as discouraging takeover attempts in the future. CHANGES IN OPERATING AND FINANCING COSTS COULD HAVE AN ADVERSE IMPACT. The impact of changes in operating and financing costs, including foreign currency, interest rates, fuel, insurance and security costs could adversely affect results. N. WEBSITE ACCESS TO REPORTS Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements, Insider Transactions, Current Reports on Form 8-K and Registration Statements are available through the Investors page of our website at WWW.SEABULKINTERNATIONAL.COM, as soon as reports are electronically filed with the SEC. 23 ITEM 2. PROPERTIES. The Company's fleet ownership is described in Item 1. Business. Substantially all of the Company's vessels are mortgaged to secure the Company's Amended Credit Facility or U.S. Maritime Administration Title XI financing. The Company's principal offices are located in Fort Lauderdale, Florida, where the Company leases approximately 36,000 square feet of office and shop space under a lease expiring in 2009. The Company also leases office and other facilities in Lafayette, Louisiana; Amelia, Louisiana; Dubai, the United Arab Emirates; Nyon, Switzerland; Houston, Texas; Tampa, Florida; Port Harcourt, Nigeria; and Singapore. In addition, the Company leases sales offices and maintenance and other facilities in other locations where our vessels operate. The Company believes that its facilities are generally adequate for current and anticipated future use, although the Company may from time to time close or consolidate facilities or lease additional facilities as operations require. ITEM 3. LEGAL PROCEEDINGS. Under U.S. law, "United States persons" are prohibited from business activities and contracts in certain countries, including Sudan and Iran. The Company filed three reports with and submitted documents to the Office of Foreign Asset Control ("OFAC") of the U.S. Department of Treasury. One of the reports was also filed with the Bureau of Export Administration of the U.S. Department of Commerce. The reports and documents related to certain limited charters with third parties involving three of the Company's vessels which called in the Sudan for several months in 1999 and January 2000, and charters with third parties involving several of the Company's vessels which called in Iran in 1998. In March 2003, the Company received notification from OFAC that the case has been referred to its Civil Penalties Division. Should OFAC determine that these activities constituted violations of the laws or regulations, civil penalties, including fines, could be assessed against the Company. The Company cannot predict the extent of such penalties; however, management does not believe the outcome of these matters will have a material impact on its financial position or results of operations. The Company was sued by Maritime Transport Development Corporation (MTDC) in January 2002 in Florida state court in Broward County alleging broker commissions due since 1998 from charters on two of its vessels, the SEABULK MAGNACHEM and SEABULK CHALLENGER, under an alleged broker commission agreement. MTDC was controlled by the founders of our predecessor company. The claim allegedly continues to accrue. The amount alleged to be due is over $600,000. The Company believes that the claim is subject to offset claims and defenses by the Company. The Company is vigorously defending such charges, but the Company cannot predict the ultimate outcome. From time to time the Company is also party to personal injury and property damage claims litigation arising in the ordinary course of our business. Protection and indemnity marine liability insurance covers large claims in excess of the Company's significant deductibles and self-insured retentions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock of Seabulk International, Inc. trades on the NASDAQ National Market under the symbol SBLK. Between January 2, 2001 and March 20, 2001, the stock traded on the NASDAQ National Market under the symbol HVDM. In 2000, the Common Stock traded on the OTC Bulletin Board under the symbol HVDM. Prior to their expiration, the Class A Warrants traded on the OTC Bulletin Board under the symbol SBLKW. In 2000 and through March 20, 2001, they traded under the symbol HVDMW. The warrants expired on December 12, 2003 and entitled the holder, for each warrant held, to purchase one share of the Common Stock of the Company for $38.49. There is no established market for another series of warrants issued to noteholders (the Noteholder Warrants) to purchase 723,861 shares of common stock at an exercise price of $0.01 per share. These warrants expire on June 30, 2007. The Company has not paid and does not expect to pay any dividends on its Common Stock. The following tables set forth the high and low closing prices of the Company's Common Stock and Class A Warrants, as reported by the NASDAQ National Market and the OTC Bulletin Board. COMMON STOCK
HIGH LOW ---- --- 2004 First Quarter (through March 1, 2004) $ 11.99 $ 8.59 2003 First Quarter .................... 9.05 5.61 Second Quarter ................... 10.25 8.13 Third Quarter .................... 8.71 6.42 Fourth Quarter ................... 9.50 7.17 2002 First Quarter .................... 5.50 2.70 Second Quarter ................... 8.10 4.50 Third Quarter .................... 7.72 5.06 Fourth Quarter ................... 5.71 4.38
25 CLASS A WARRANTS
HIGH LOW ---- --- 2003 First Quarter .................. 0.12 0.03 Second Quarter ................. 0.10 0.02 Third Quarter .................. 0.10 0.02 Fourth Quarter ................. 0.14 0.02 2002 First Quarter .................. 0.38 0.38 Second Quarter ................. 0.38 0.38 Third Quarter .................. 0.38 0.25 Fourth Quarter ................. 0.28 0.02
As of March 10, 2004, there were 245 holders of record of the Company's Common Stock. The Company declared no dividends in 2003 and 2002. The Company's ability to pay dividends in the future is subject to certain limitations, contained in the Company's amended credit facility and the senior notes indenture. Information concerning the Company's plans, which may involve the issuance of equity required by Item 5, "Market for Registrant's Common Equity and Related Stockholder Matters," will be incorporated by reference to Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," of this Form 10-K and included in the Proxy Statement for the 2004 Annual Stockholders Meeting. Information regarding our equity compensation plans as of December 31, 2003 is disclosed in Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters." ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated financial data presented below should be read in conjunction with the consolidated financial statements and notes thereto and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Report. 26
PREDECESSOR SUCCESSOR COMPANY COMPANY (1) ------------------------------------------------------------ --------------- PERIOD FROM PERIOD FROM DECEMBER 16 JANUARY 1 TO TO YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 15, ------------------------------------------------ --------- --------------- 2003 2002 2001 2000 1999 1999(3) --------- --------- --------- --------- --------- ----------------- (in thousands) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue .................................. $ 316,558 $ 323,997 $ 346,730 $ 320,483 $ 13,479 $ 328,751 Operating expenses ....................... 179,676 182,558 199,327 205,226 8,047 212,753 Overhead expenses ........................ 38,043 38,657 37,002 39,630 1,643 47,814 Depreciation, amortization, drydocking and other .......................... 66,592 66,376 61,313 50,271 2,069 79,410 (Gain) loss on disposal of assets ........ (1,463) (1,364) 134 (3,863) -- 25,658 --------- --------- --------- --------- --------- --------- Income (loss) from operations ............ 33,710 37,770 48,954 29,219 1,720 (36,884) Interest expense, net(2) ................. 33,498 44,240 55,667 62,010 2,688 70,374 Other income (expense), net .............. (939) (27,758) (38) 8,711 (597) 260,172 Reorganization items(3) .................. -- -- -- -- -- (433,273) --------- --------- --------- --------- --------- --------- Loss before provision for income taxes ... (727) (34,228) (6,751) (24,080) (1,565) (280,359) Provision for (benefit from) income taxes 4,238 4,642 5,210 4,872 -- (32,004) --------- --------- --------- --------- --------- --------- Net loss ................................. $ (4,965) $ (38,870) $ (11,961) $ (28,952) $ (1,565) $(248,355) ========= ========= ========= ========= ========= ========= Diluted loss per common share: Net loss .............................. $ (0.21) $ (2.72) $ (1.16) $ (2.89) $ (0.16) $ (16.02) ========= ========= ========= ========= ========= ========= Weighted average number of shares and common equivalent shares outstanding - Basic and diluted.................... 23,176 14,277 10,277 10,034 10,000 15,503 ========= ========= ========= ========= ========= ========= CONSOLIDATED STATEMENT OF CASH FLOWS DATA: Net cash provided by (used in): Operating activities .................. $ 69,862 $ 61,053 $ 66,840 $ 26,276 $ 2,561 $ 14,927 Investing activities .................. (53,197) (14,519) (31,815) 2,228 (3,021) (14,862) Financing activities .................. (19,474) (20,977) (37,627) (33,317) (1,491) 10,826
SUCCESSOR COMPANY ----------------------------------------------------------- AS OF DECEMBER 31, ----------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- (in thousands) CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit) ...... $ 33,046 $ 26,261 ($ 7,313) $ 7,026 $ 33,498 Total assets ................... 694,440 695,818 744,765 775,476 830,740 Total long-term liabilities .... 445,071 443,095 519,552 544,870 582,364 Stockholders' equity ........... 172,355 176,800 124,687 136,514 165,326
- --------------------------- (1) The Company was reorganized under section 382 of the U.S. Bankruptcy Code (Chapter 11) on December 15, 1999. (2) Interest expense for the period from January 1, 1999 through December 15, 1999 excludes $8.8 million of contractual interest that was not accrued during the Company's Chapter 11 proceeding. (3) Reorganization items are comprised of items directly related to the Predecessor Company's Chapter 11 proceeding. 27 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This discussion and analysis of the Company's financial condition and historical results of operations should be read in conjunction with the Company's consolidated financial statements and the related notes thereto included elsewhere in this Report. OVERVIEW The Company has three lines of business: offshore energy support, marine transportation and marine towing. o Offshore energy operates 117 vessels and is one of the world's largest providers of support services to the offshore oil and gas exploration, development and production industry. o Marine transportation operates ten U.S.-flag tankers. The tankers, operating in the domestic trade, carry crude oil, petroleum products and chemicals. Five of the vessels have double-hulls and are the most modern in the U.S. fleet. o Marine towing operates 26 vessels and has one of the most modern fleets operating in the U.S. We provide towing and harbor assist services in seven ports. Since a limited number of customers account for a significant amount of the Company's worldwide revenue, our results are subject to volatility from changes in spending for energy distribution, exploration, development and production. A significant slowdown in capital spending in our markets can create uncertainty as to the level of demand for our equipment. As a result of the uncertainty, an accurate estimate of earnings and cash flow is difficult. The following themes and events are important to an understanding of our business: o Our results of operations since 2001 have been adversely affected by the continued slowdown in natural gas and crude oil activity in the Gulf of Mexico. International demand remains high; however, rates and utilization for our vessels have declined as a result of increased competition as vessels are shifted from weak markets increasing the supply in stronger markets; o The Company has initiated certain changes to improve profitability including: (1) selective new buildings for offshore vessels, (2) selective acquisitions and charters of existing vessels, (3) repositioning vessels, and (4) joint ventures to overcome local cabatoge laws. o We continue to reduce our exposure to low margin assets and sell vessels that are not an integral part of our core operations. We continue to reduce our operating expenses through restructuring of our personnel requirements in our offshore division in both domestic and international operations. o The Company incurs substantial capital requirements for debt service, vessel maintenance, vessel replacement and upgrades to the fleet to comply with increased regulatory requirements. o In August 2003, the Company issued $150 million 9.50% senior unsecured notes to increase the Company's liquidity and renegotiated its primary credit facility. The notes require the semiannual payment of interest only; principal is paid at maturity in 2013. The 28 Company entered into an interest rate swap for the notes to mitigate its exposure to interest rate risk. The Company effectively converted the fixed rate to a floating rate currently at 6.05%. The Company's credit facility was amended at the same time to an $80 million revolving facility. o The Company is restricted from distributing excess cash from the five double-hull tankers to fund the Company's general working capital requirements unless the double-hull tankers meet certain financial ratios. In 2003, the five double-hull tankers distributed $4.3 million to the Company for working capital purposes. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of the Company's financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, useful lives of vessels and equipment, deferred tax assets, and certain accrued liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: REVENUE RECOGNITION. Revenue is generally recorded when services are rendered. We have a signed charter agreement or other evidence of an arrangement, pricing is fixed or determinable and collection is reasonably assured. For the majority of the offshore energy support and marine towing segments, revenues are recorded on a daily basis as services are rendered. For the marine transportation segment, revenues are earned under time charters, bareboat charters or affreightment/voyage contracts. Revenue from time charters is earned and recognized on a daily basis. Certain time charters contain performance provisions, which provide for decreased fees based upon actual performance against established targets such as speed and fuel consumption. Revenue from bareboat charters is earned and recognized on a monthly basis. Bareboat charters provide for fixed fees for a period of time based upon the terms of the agreement. Revenue for affreightment/voyage contracts is recognized based upon the percentage of voyage completion. The percentage of voyage completion is based on the number of voyage days worked at the balance sheet date divided by the total number of days expected on the voyage. ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. ASSET IMPAIRMENT. We record impairment losses on long-lived assets used in operations when indications of impairment are present and the estimated undiscounted cash flows to be generated by those assets are less than the assets carrying amounts. If the carrying value is not recoverable, the carrying value of the assets is reduced to estimated fair value. USEFUL LIVES OF FIXED ASSETS. We determine the useful lives of the vessels and equipment based upon regulatory requirements such as OPA 90, market conditions and operational considerations. We continue to evaluate the reasonableness of the useful lives of the vessels and equipment. 29 MAJOR MAINTENANCE COSTS. Currently, the costs incurred to drydock our vessels are deferred and amortized on a straight-line basis over the period to the next drydocking, generally 30 to 36 months. In June 2001, the Accounting Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued an exposure draft of a proposed Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the Company would expense major maintenance costs as incurred and be prohibited from deferring of the entire cost of a planned major maintenance activity. Currently, the costs incurred to drydock the Company's vessels are deferred and amortized on a straight-line basis over the period to the next drydocking, generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to approve the SOP. The SOP is expected to be presented for FASB clearance in the second quarter of 2004 and would be applicable for fiscal years beginning after December 15, 2004. Management has determined that this SOP may have a material effect on the consolidated financial statements. At December 31, 2003, the net book value of the deferred drydocking costs was $35.2 million. VALUATION OF DEFERRED TAX ASSETS. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. After application of the valuation allowance, our net deferred tax assets and liabilities are zero at December 31, 2003 and 2002. OVERVIEW OF REVENUE We derive our revenue from three main lines of business - offshore energy support, marine transportation, and marine towing. Seabulk Offshore, our domestic and international offshore energy support business, accounted for approximately 50.8% and 52.9% of Company revenue in 2003 and 2002, respectively. Seabulk Tankers, our marine transportation business, consists of the Company's JONES ACT tanker business, in which it owns nine petroleum and chemical product carriers in the domestic coastwise trade and leases one chemical product carrier. Seabulk Tankers accounted for approximately 37.6% and 37.5% of Company revenue in 2003 and 2002, respectively. Seabulk Towing, our domestic harbor and offshore towing business, accounted for approximately 11.6% and 9.6% of Company revenue in 2003 and 2002, respectively. SEABULK OFFSHORE Revenue from our offshore energy support operations is primarily a function of the size of our fleet, vessel day rates or charter rates, and fleet utilization. Rates and utilization are primarily a function of offshore exploration, development, and production activities. In certain areas where we conduct offshore energy support operations (particularly the U.S. Gulf of Mexico), contracts for the utilization of offshore energy support vessels commonly include termination provisions with three- to five-day notice requirements and no termination penalty. As a result, companies engaged in offshore energy support operations (including us) are particularly sensitive to changes in market demand. As the Company's offshore energy support fleet gets older, the Company's strategy is to look for opportunities to upgrade its offshore fleet to higher-value, larger and newer vessels and to reduce the number of older and smaller vessels, mainly crewboats, in its fleet. The Company is planning a newbuild program for offshore fleet replacement and enhancement, and currently has commitments from various lenders. In anticipation of this program, the Company has already added three vessels to its West African fleet: the SEABULK AFRICA, SEABULK SOUTH ATLANTIC and SEABULK ASIA; two vessels to its Southeast Asia fleet: the SEABULK BADAMYAR and SEABULK NILAR; and an inaugural vessel to its Brazilian fleet, the SEABULK IPANEMA. The Company has also executed contracts for two offshore newbuilds for deployment in Brazil, and one long-term contract in Angola. 30 The Company sold 18 offshore energy support vessels and three tugs during 2003 for an aggregate total of $9.0 million and a gain of approximately $1.5 million. The Company sold 17 offshore energy support vessels during 2002 for an aggregate total of $6.8 million and a gain of approximately $55,000. The following table represents revenue for Seabulk Offshore by major operating area as of December 31 (in thousands): YEAR ENDED DECEMBER 31, ------------------------------------ 2003 2002 2001 -------- -------- -------- Domestic (1) . $ 41,770 $ 47,490 $ 83,686 West Africa .. 79,680 84,576 69,305 Middle East .. 24,650 23,683 22,450 Southeast Asia 14,616 15,730 15,737 -------- -------- -------- Total ........ $160,716 $171,479 $191,178 ======== ======== ======== - ---------- (1) Domestic consists of vessels operating in the United States, the Gulf of Mexico, South America, and the Caribbean. 31 The following tables set forth, by primary area of operation, average day rates achieved by the offshore energy fleet owned or operated by the Company and average utilization for the periods indicated. Average day rates are calculated by dividing total revenue by the number of days worked. Utilization percentages are based upon the number of working days over a 365/366-day year and the number of vessels in the fleet on the last day of the quarter.
Q1 2003 Q2 2003 Q3 2003 Q4 2003 ----------------------------- ---------------------------- --------------------------- -------------------------- AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other Supply Tugs Utility Supply Tugs Utility Supply Tugs Utility Supply Tugs Utility ----------------------------- ---------------------------- --------------------------- -------------------------- DOMESTIC(1) Vessels(2) 21 -- 25 2 21 -- 25 2 21 -- 24 2 21 -- 24 2 Bareboat-out -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Laid-Up -- -- -- 1 -- -- -- 1 -- -- -- 1 -- -- -- 1 Effective Utilization(3) 56% -- 61% -- 67% -- 69% 100% 73% -- 77% 98% 61% -- 73% 84% Day Rate $5,192 -- $2,330 -- $4,989 -- $2,422 $2,900 $4,970 -- $2,557 $2,737 $5,101 -- $2,463 $2,852 WEST AFRICA Vessels(2) 32 4 6 1 32 4 1 -- 33 4 1 -- 34 4 1 -- Laid-Up -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Effective Utilization(3) 80% 72% 97% -- 83% 76% 99% -- 78% 86% 100% -- 73% 82% 81% -- Day Rate $7,223 $6,131 $3,038 -- $7,199 $6,198 $3,125 -- $7,321 $6,265 $3,199 -- $7,591 $6,053 $3,224 -- MIDDLE EAST Vessels(2) 6 6 7 6 6 6 7 6 6 6 7 6 6 5 7 5 Laid-Up -- -- -- 1 -- -- -- 1 -- -- -- 1 -- -- -- -- Effective Utilization(3) 90% 56% 86% 52% 89% 48% 95% 50% 91% 63% 92% 71% 75% 94% 92% 58% Day Rate $3,283 $4,457 $1,682 $5,213 $3,393 $5,364 $1,677 $4,246 $3,476 $5,266 $1,742 $5,341 $3,711 $4,855 $1,760 $4,975 SOUTHEAST ASIA Vessels(2) 9 1 -- 1 8 -- -- 1 8 -- -- 1 8 -- -- 1 Laid-Up -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Effective Utilization(3) 59% 71% -- 100% 80% -- -- 73% 78% -- -- 100% 65% -- -- 100% Day Rate $5,936 $5,149 -- $9,881 5,321 -- -- $8,482 $5,310 -- -- $7,700 $5,558 -- -- $7,700
- --------------- (1) Domestic consists of vessels operating in the United States, the Gulf of Mexico, South America, and the Caribbean. (2) Held-for-sale and bareboat-out vessels are excluded from the vessel count. (3) Effective utilization excludes laid-up vessels. 32
Q1 2002 Q2 2002 Q3 2002 Q4 2002 ---------------------------- --------------------------- --------------------------- --------------------------- AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other Supply Tugs Utility Supply Tugs Utility Supply Tugs Utility Supply Tugs Utility ---------------------------- --------------------------- --------------------------- --------------------------- DOMESTIC(1) Vessels(2) 24 - 30 2 21 - 31 2 21 - 31 2 21 - 28 2 Bareboat-out - - - - - - - - - - - - - - - - Laid-Up - - - 1 - - - 1 - - - 1 - - - 1 Effective Utilization(3) 59% - 65% - 63% - 58% - 63% - 62% - 65% - 65% - Day Rate $6,687 - $2,666 - $6,005 - $2,469 - $5,581 - $2,530 - $5,252 - $2,315 - WEST AFRICA Vessels(2) 29 5 7 1 30 5 6 1 30 5 6 1 30 4 6 1 Laid-Up - 1 - - - 1 - - - 1 - - - - - - Effective Utilization(3) 84% 86% 89% 97% 85% 97% 84% - 80% 87% 76% - 79% 71% 68% - Day Rate $7,368 $6,613 $3,124 - $8,042 $6,522 $2,722 - $7,787 $6,234 $2,976 - $7,316 $5,891 $2,878 - MIDDLE EAST Vessels(2) 6 8 8 5 6 8 8 5 6 8 8 5 6 7 7 5 Laid-Up - 1 1 1 - 1 1 1 - 1 1 1 - - - 1 Effective Utilization(3) 83% 75% 81% 77% 79% 62% 85% 66% 92% 49% 88% 65% 86% 71% 95% 57% Day Rate $3,265 $4,571 $1,649 $4,502 $3,250 $5,048 $1,668 $4,475 $3,496 $4,556 $1,646 $4,181 $3,684 $3,991 $1,666 $4,197 SOUTHEAST ASIA Vessels(2) 8 - 5 2 8 - - 2 8 - - 2 8 - - 2 Laid-Up - - - - - - - - - - - - - - - - Effective Utilization(3) 59% - 53% 44% 68% - - - 66% - - - 61% - - - Day Rate $5,510 - $1,472 - $6,320 - - - $5,584 - - - $6,484 - - -
- ----------- (1) Domestic consists of vessels operating in the United States, the Gulf of Mexico, South America, and the Caribbean. (2) Held-for-sale and bareboat-out vessels are excluded from the vessel count. (3) Effective utilization excludes laid-up vessels. 33
Q1 2001 Q2 2001 Q3 2001 Q4 2001 ---------------------------- --------------------------- -------------------------- ---------------------------- AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other AHTS/ AHT/ Crew/ Other Supply Tugs Utility Supply Tugs Utility Supply Tugs Utility Supply Tugs Utility ---------------------------- --------------------------- -------------------------- ---------------------------- DOMESTIC(1) Vessels(2) 26 - 31 1 26 - 33 1 26 - 32 1 26 - 32 1 Bareboat-out - - 2 1 - - 2 1 - - - 1 - - - 1 Laid-Up 1 - - 1 1 - - 1 - - - 1 - - - 1 Effective Utilization(3) 75% - 87% - 90% - 87% - 83% - 83% - 63% - 72% - Day Rate $6,946 - $2,709 - $7,397 - $2,929 - $7,486 - $3,061 - $7,141 - $2,928 - WEST AFRICA Vessels(2) 27 3 6 1 27 4 5 1 27 4 6 1 27 4 6 1 Laid-Up - - - - - - - - - - - - - - - - Effective Utilization(3) 83% 46% 85% - 86% 41% 77% 84% 82% 63% 64% 84% 76% 86% 80% 96% Day Rate $6,325 $4,491 $2,754 - $6,988 $5,528 $2,774 $6,160 $7,644 $6,097 $2,715 $7,363 $7,829 $8,041 $3,358 $9,246 MIDDLE EAST Vessels(2) 5 8 11 7 5 8 11 7 5 8 9 6 6 8 8 5 Laid-Up - - - - - - - - - - - - - 1 1 1 Effective Utilization(3) 77% 24% 66% 56% 92% 50% 59% 69% 86% 48% 65% 43% 81% 60% 86% 64% Day Rate $3,003 $4,129 $1,421 $5,197 $2,855 $3,889 $1,434 $5,393 $2,954 $4,443 $1,611 $5,399 $3,121 $4,937 $1,671 $3,986 SOUTHEAST ASIA Vessels(2) 8 1 5 1 8 1 5 1 8 - 6 2 7 - 6 2 Laid-Up - - 1 - - - 1 - - - - - - - - - Effective Utilization(3) 87% 37% 89% 33% 83% 46% 73% 71% 79% - 69% 100% 69% - 51% 52% Day Rate $5,347 $3,929 $1,429 $6,614 $4,277 $4,255 $1,443 $6,630 $4,762 - $1,708 $8,298 $5,285 - $1,674 $7,302
- ---------------------- (1) Domestic consists of vessels operating in the United States, the Gulf of Mexico, South America, and the Caribbean. (2) Held-for-sale and bareboat-out vessels are excluded from the vessel count. (3) Effective utilization excludes laid-up vessels. 34 Domestic revenue for 2003 was adversely affected by the continued slowdown in natural gas and crude oil drilling activity in the U.S. Gulf of Mexico. Despite high natural gas and petroleum prices, exploration and production companies in the U.S. Gulf of Mexico have been unwilling to invest in new projects. Some exploration and drilling companies have reduced their expectations for energy prospects in the mature Gulf of Mexico market. In the meantime, the Company is exploring charter opportunities in Mexico, which remains an active market. During the year, the Company operated four vessels in Mexico. International offshore revenues for 2003 were adversely affected by the decrease in vessel count and utilization. In West Africa, the demand for vessels, and hence overall utilization, remained relatively strong as this is an oil-driven deepwater market with longer time horizons and increasing exploration and production budgets primarily from oil company majors. However, revenue decreased due to increased competition and as a result, vessel count and utilization declined slightly from 2002. The Company sold six vessels (five to a joint venture) in its West African fleet during 2003. The Company also redeployed one vessel and added three newbuild vessels to its West African operations during 2003. The recent unrest in Nigeria did not have a significant impact on the Company's operation. International vessel demand is primarily driven by crude oil exploration and production. During 2003, crude oil prices and demand remained relatively firm. The Company expects, based on oil company projections and independent analyses, international exploration and production spending to continue to increase in West Africa, which should maintain vessel demand in that area. However, as a result of increased competition from additional vessels from other weaker markets, rates and utilizations of our vessels have been negatively affected in West Africa. Revenue and utilization increased for the Company's Middle East operations versus the prior year. Revenue decreased slightly for the Company's Southeast Asia operations versus the prior year. SEABULK TANKERS Revenue from the Company's marine transportation services business is derived from the operations of 10 tankers carrying crude oil, petroleum products and chemical products in the U.S. JONES ACT trade. The Company's tanker fleet operates on either long-term time charters, bareboat charters, or pursuant to consecutive voyage charters or contracts of affreightment. The Company currently has six tankers operating under long-term charters, one under a consecutive voyage charter, and three under contracts of affreightment. The following table sets forth the number of vessels and revenue for the Company's petroleum and chemical product carriers:
YEAR ENDED DECEMBER 31, ------------------------------------ 2003 2002 2001 -------- -------- -------- Number of vessels owned at end of period 10 10 10 Revenue (in thousands)(a) .............. $119,002 $117,486 $112,694
- ------- (a) Excludes revenue from the Company's shipyard operations, which were discontinued in March 2002. Tanker revenue increased by 1.3% in 2003 as a result of improved rates. PETROLEUM TANKERS. Demand for the Company's crude oil and petroleum product transportation services is dependent on several factors, including production and refining levels in the United States, domestic consumer and commercial consumption of petroleum products and chemicals and competition from 35 foreign imports. The Company owned eight petroleum product tankers at December 31, 2003. Five of these are double-hull, state-of-the-art vessels, of which two have chemical-carrying capability. Since January 2002, a major oil company charterer had exclusive possession and control of one of the petroleum product tankers. The oil company charterer was responsible for all operating and drydocking expenses of the vessel until December 2003 when the Company converted the bareboat charter to a consecutive voyage charter under which the vessel began trading in foreign commerce in January 2004. During 2003, one tanker's time charter with a major oil company was renewed for two years. Two other time charters with another oil company were renewed for periods of one year and two-and-one-half years, respectively. Although the Company's JONES ACT fleet has benefited from a tightening domestic tanker market, increased competition from foreign imported products has had a moderating effect on JONES ACT tanker rates. None of the Company's single-hull vessels is scheduled for retirement under OPA 90 before 2007. CHEMICAL TANKERS. Demand for industrial chemical transportation services generally coincides with overall economic activity. The Company operated two chemical tankers and one of the five double-hull vessels in the chemical trade as of December 31, 2003. The two chemical tankers are double-bottom ships. The changing industrial needs in U.S. markets, as well as increased competition from foreign imports, have had a moderating effect on chemical tanker rates. SEABULK TOWING Revenue derived from the Company's tug operations is primarily a function of the number of tugs available to provide services, the rates charged for their services, the volume of vessel traffic requiring docking and other ship-assist services, and competition. Vessel traffic is a function of the general trade activity in the region served by the port. The following table summarizes certain operating information for the Company's tugs. YEAR ENDED DECEMBER 31, --------------------------------- 2003 2002 2001 ------- ------- ------- Number of tugs at end of period 26 31 31 Towing revenue (in thousands) $37,257 $31,475 $35,619 Towing revenue increased 18.4% to $37.3 million in 2003 from $31.5 million in 2002 due to increased vessel traffic in certain of the Company's ports, higher rates and improved utilization. OVERVIEW OF OPERATING EXPENSES AND CAPITAL EXPENDITURES The Company's operating expenses are primarily a function of fleet size and utilization. The most significant expense categories are crew payroll and benefits, maintenance and repairs, fuel, insurance and charter hire. During periods of decreased demand for vessels, the Company temporarily ceases using certain vessels, i.e., lays up vessels, to reduce expenses for marine operating supplies, crew payroll and maintenance. In addition to variable expenses associated with vessel operations, we incur fixed charges, which are capitalized and amortized for our vessels and 36 other assets. The Company provides for depreciation on a straight-line basis over the estimated useful lives of the related assets. OPA 90 mandates the useful life of the Company's product carriers, except for the five double-hull carriers. Under applicable regulations, the Company's chemical and product carriers, offshore service vessels, and its four largest tugs are required to be drydocked twice in each five-year period for inspection and routine maintenance and repairs. These vessels are also required to undergo special surveys every five years involving comprehensive inspection and corrective measures. The Company's harbor tugs generally are not required to be drydocked on a specific schedule. During the years ended December 31, 2003, 2002 and 2001, the Company drydocked 64, 54 and 66 vessels, respectively, at an aggregate cost (exclusive of lost revenue) of $31.5 million, $23.4 million and $29.4 million, respectively. The Company accounts for its drydocking costs under the deferral method, under which capitalized drydocking costs are expensed over the period preceding the next scheduled drydocking. See Note 2 to the Company's consolidated financial statements. The Company had capital expenditures, including drydocking costs, in the years ended December 31, 2003, 2002 and 2001 of $62.2 million, $27.2 million and $38.7 million, respectively. The cost of fuel is an item which has significant impact on the Company's operating results on contracts of affreightment. During 2003, consumables and fuel costs represented approximately 14.1% of operating costs. Insurance costs consist primarily of premiums and substantial deductibles, and self-retention layers for: o protection and indemnity insurance for our marine liability risks, which are insured by two mutual insurance associations of which we are members and through the commercial insurance markets; o hull and machinery insurance and other maritime-related insurance, which are provided through the commercial marine insurance markets; and o general liability and other traditional insurance, which is provided through the commercial insurance markets. Insurance costs, particularly costs of marine insurance, are directly related to overall insurance market conditions and industry and individual loss records, which vary from year to year. The increase in P&I costs due to higher deductibles and higher self-insured retention levels caused an increase in P&I insurance expense in 2003 of approximately $2.0 million. Premiums by both marine and non-marine insurers have been adversely impacted by the erosion of reserves, underwriting losses and increased reinsurance costs. No assurance can be given that affordable insurance will be available to the Company in the future. We maintain high levels of self-insurance for P&I and hull and machinery risks through the use of substantial deductibles and self-insured retentions which may increase in the future. We carry coverage related to loss of earnings on revenues subject to fourteen day deductibles for our tanker operations, but not for our offshore and tug operations. Insurance costs represented approximately 7.4% of operating costs in 2003. 37 RESULTS OF OPERATIONS The following table sets forth certain selected financial data and percentages of net revenue for the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 ----------------- ----------------- ----------------- (DOLLARS IN MILLIONS) Revenue .............................. $316.6 100% $324.0 100% $346.7 100% Operating expenses ................... 179.7 56% 182.5 56% 199.3 57% Overhead expenses .................... 38.0 12% 38.7 12% 37.0 11% Depreciation, amortization, drydocking and other ............................ 66.6 21% 66.4 20% 61.3 18% (Gain) loss on disposal of assets .... (1.4) 0% (1.4) 0% 0.1 0% ------ ---- ------ ---- ------ ---- Income from operations ............... $ 33.7 11% $ 37.8 12% $ 49.0 14% ====== ==== ====== ==== ====== ==== Interest expense, net ................ $ 33.5 11% $ 44.3 14% $ 55.8 16% ====== ==== ====== ==== ====== ==== Other income (expense), net(a) ....... $ (0.9) 0% $(27.8) (9%) $ 0.0 0% ====== ==== ====== ==== ====== ==== Loss before provision for income taxes ................................ $ (0.7) 0% $(34.3) (11%) $ (6.8) (2%) ====== ==== ====== ==== ====== ==== Net loss ............................. $ (5.0) (2%) $(38.9) (12%) $(12.0) (3.5%) ====== ==== ====== ==== ====== ====
- --------------- (a) Includes loss on early extinguishment of debt of $27.8 million in the third quarter of 2002, consisting of the write-off of the unamortized financing cost on the Senior Notes and bank debt of $9.7 million, unamortized original issue discount on the Senior Notes of $14.1 million and contractual redemption premiums on the Senior Notes of $4.0 million. 38 2003 COMPARED WITH 2002 REVENUE. Revenue decreased 2.3% to $316.6 million for 2003 from $324.0 million for 2002 due to decreased revenue from the Company's offshore energy support segment. Offshore energy support revenue decreased 6.3% to $160.7 million for 2003 from $171.5 million for the same period in 2002, primarily due to reduced revenue from the U.S. Gulf of Mexico and West Africa. Revenue from the U.S. Gulf of Mexico decreased during 2003 compared to the same period in 2002 primarily due to reduced exploration and production activity. The decrease in West Africa revenue was driven by lower rates and utilization and lower vessel count. As a result of increased competition from additional vessels from other weaker markets, rates and utilizations of our vessels were negatively affected in West Africa. Marine transportation revenue decreased 2.0% to $119.0 million for 2003 compared to $121.4 million for 2002. The decrease in revenue is primarily due to the sale of our inland barge and shipyard operations in 2002, as well as an increase in off-hire days in 2003 as a result of vessel drydockings and repairs. Towing revenue increased by 18.4% to $37.3 million for 2003 from $31.5 million for 2002. The increase in revenue was due to increased vessel traffic in certain of the Company's ports, higher rates and improved utilization of the Company's tug fleet. OPERATING EXPENSES. Operating expenses decreased 1.6% to $179.7 million from $182.6 million for the same period in 2002. Payroll decreased in the U.S. Gulf of Mexico market due to lower crewing costs and in the tanker segment due to payroll expense control. Repair and maintenance expenditures decreased due to unusually high repairs in the marine transportation segment in the prior year. Fuel and consumables decreased as a result of the sale of our inland barge and shipyard operations in 2002. This was partially offset by an increase in insurance costs. OVERHEAD EXPENSES. Overhead expenses remained substantially the same at $38.0 million in 2003 as compared to $38.7 million for the same period in 2002. DEPRECIATION, AMORTIZATION, DRYDOCKING AND OTHER. Depreciation, amortization, drydocking and other expenses remained substantially the same at $66.6 million for 2003 from $66.4 million for 2002. Other includes a write-down of assets held for sale of $1.2 million (see Note 2). This is offset by a decrease in drydocking amortization due to a reduction in drydockings in the offshore energy segment as the Company has been selling its older and smaller vessels. NET INTEREST EXPENSE. Net interest expense decreased 24.3% to $33.5 million for 2003 from $44.2 million for the same period in 2002. The decrease was primarily due to a lower debt balance and lower interest rates as a result of the recapitalization in September 2002. OTHER EXPENSE, NET. Other expense, net decreased to $0.9 million in 2003 compared to other expense of $27.8 million in 2002. This decrease is primarily due to the reduced losses on the early extinguishment of debt. The Company had a loss on early extinguishment of debt of $1.7 million in 2003 compared to a loss on early extinguishment of debt of $27.8 million in 2002. 39 2002 COMPARED WITH 2001 REVENUE. Revenue decreased 6.6% to $324.0 million for 2002 from $346.7 million for 2001 due to decreased revenue from the Company's offshore energy support segment. Offshore energy support revenue decreased 10.3% to $171.5 million for 2002 from $191.2 million in 2001, primarily due to reduced revenue from the U.S. Gulf of Mexico. This was offset in part by higher revenue from the West Africa operating region. Revenue from the U.S. Gulf of Mexico decreased during 2002 primarily due to reduced exploration and production activity in response to average natural gas prices, high inventories and reduced demand for energy. The increase in West Africa revenue was driven by higher day rates and an expanded vessel count as offshore exploration and production activity remained strong. The Company took advantage of the expanding West Africa market by (1) mobilizing three of its Gulf of Mexico supply boats and one Southeast Asia utility boat for redeployment to West Africa and (2) reactivating one anchor-handling tug from "held-for-sale" status to active status in West Africa during the first half of 2002. Marine transportation revenue remained substantially the same at $121.4 million for 2002 as compared to $122.1 million for 2001. Tanker revenue increased by 4.3% as a result of improved rates for the Company's three chemical carriers operating under contracts of affreightments, as well as better rates on long-term time charters. This was offset by a decrease in revenue for Sun State as a result of discontinuing operations in March 2002. Towing revenue decreased by 7.0% to $31.1 million for 2002 from $33.5 million for 2001. The decrease in revenue was due to reduced vessel traffic in certain of the Company's ports, reflecting the slowdown in international trade, as well as reduced demand for towing services in the offshore market. OPERATING EXPENSES. Operating expenses decreased 8.4% to $182.6 million from $199.3 million for 2001 primarily due to the change from voyage charters to time charters for two tankers, the bareboat charter of a third tanker, and the sale of Sun State's marine transportation assets in the first quarter. Since two tankers were changed from voyage charters to time charters in 2002, fuel and port charges significantly decreased as these expenses are the responsibility of the charterer under time charters. Under a bareboat contract, the charterer is responsible for crewing and operating the vessel. Operating expenses for 2001 were also adversely affected by a $4.1 million charge reflecting current and anticipated investment losses sustained by the Company's protection and indemnity marine insurance club. OVERHEAD EXPENSES. Overhead expenses increased 4.5% to $38.7 million in 2002 as compared to $37.0 million for the same period in 2001. The increase was primarily due to an increase in insurance expenses as a result of purchasing a $1.2 million D&O policy for the departing Board members due to the recapitalization in September 2002. Other overhead also increased due to higher bad debt reserve in our West African operations. As a percentage of revenue, overhead expenses increased to 11.9% for 2002 compared to 10.8% for the same period in 2001. DEPRECIATION, AMORTIZATION, DRYDOCKING AND OTHER. Depreciation, amortization, drydocking and other expenses increased 8.3% to $66.4 million for 2002 from $61.3 million for 2001, primarily due to higher planned drydocking expenditures for offshore energy support vessels and tankers during the second half of 2001 and in 2002. As a result, drydock amortization expense is also higher as drydock costs are amortized on a straight-line basis over the period to the next drydocking (generally 30 months). 40 NET INTEREST EXPENSE. Net interest expense decreased 20.5% to $44.2 million for 2002 from $55.7 million for the same period in 2001. The decrease was primarily due to the combination of lower interest rates on variable rate debt and lower outstanding debt balances under our term loans and revolving credit facility. Interest expense also decreased as a result of the recapitalization in September 2002. The interest rate on the New Credit Facility is substantially less than the rate on the Company's Senior Notes, which were redeemed on October 15, 2002. In November 2002, the interest rate under the New Credit Facility was increased by 100 basis points (1%) in accordance with the terms of the commitment letter with the lending banks to syndicate the New Credit Facility by November 13, 2002. OTHER EXPENSE, NET. Other expense, net increased to $27.8 million in 2002 compared to other expense of $0 in 2001. The increase in other expense is primarily due to a loss on early extinguishment of debt of $27.8 million in 2002. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2003, the Company had cash on hand of $34.4 million and working capital of approximately $33.0 million. The Company's main sources of liquidity are cash from operations, borrowings under our amended credit facility, and proceeds from the sale of vessels with marginal operating performance. In 2003, cash from operations totaled $69.9 million, which was $8.8 million greater than 2002. At December 31, 2003, availability under our $80.0 million amended senior credit facility was approximately $46.1 million. Additionally, the Company received $9.0 million from the sale of vessels during 2003. While the Company believes cash from operations will continue to be a meaningful source of liquidity, factors that can affect our operating earnings and liquidity are discussed further in this report under "Additional Business and Corporate Risk Factors" in Part 1, Item 1. The Company relies on external financing to fund a substantial portion of the purchase price of new vessels to its fleet. The Company currently has commitments from various lenders to fund at least 80% of the cost of vessels it has contracted to purchase. LONG-TERM DEBT. Long-term debt, including capital leases and current maturities, consisted of the following (in thousands):
OUTSTANDING OUTSTANDING BALANCE BALANCE INTEREST RATE AS OF AS OF AS OF FACILITY DECEMBER 31, 2003 DECEMBER 31, 2002 MATURITY MARCH 1, 2004 - --------------------------------- ------------------ ------------------ ---------------- --------------------- Senior Notes $ 151.5 $-- 2013 9.50%(a) Amended credit facility $ 30.0 $ 178.7 2008 4.62% Title XI financing bonds $ 216.1 $ 234.5 2005 to 2024 5.86% to 10.10% Other notes payable $ 23.1 $ 22.0 2003 to 2011 4.00% to 8.50% Capital leases $ 35.8 $ 31.8 2004 to 2013 5.57% to 8.25% ------ ------ Total $ 456.5 $ 467.0 ======= ======= (a) - The Company effectively converted the interest rate on its outstanding 9.50% Senior Notes to a floating rate based on LIBOR. The current effective floating interest rate is 6.05%.
In addition to the amended credit facility balance of $30.0 million, there are $3.9 million in outstanding letters of credit as of December 31, 2003. The Company is subject to semi-annual reductions on the amended credit facility commencing February 5, 2004 with the final payment due in August 2008. On August 5, 2003, the Company completed the offering of $150 million of Senior Notes (Notes) due 2013 through a private placement eligible for resale 41 under Rule 144A and Regulation S. The net proceeds of the offering were used to repay a portion of the Company's indebtedness under a $180 million credit facility. Interest on the Notes will be payable semi-annually in arrears, commencing on February 15, 2004. The interest rate on the Notes sold to private institutional investors is 9.50%. The Notes are senior unsecured obligations guaranteed by certain of the Company's subsidiaries. The Notes are subject to certain covenants, including, among other things, limiting the Company's ability to incur additional indebtedness or issue preferred stock, pay dividends to stockholders, and make investments or sell assets. On October 31, 2003, the Company filed a registration statement with the SEC to register substantially identical senior notes to be exchanged for the Notes pursuant to a registration rights agreement, so that the notes may be eligible for trading in the public markets. On November 13, 2003, the registration statement was declared effective and the Company completed the exchange offer on December 16, 2003. In connection with the Notes offering, the Company amended and restated its $180.0 million credit facility. The amended credit facility consists of an $80.0 million revolving credit facility and has a five-year maturity. The amended credit facility is subject to semi-annual reductions commencing February 5, 2004. The principal reductions on the amended credit facility are as follows: $8.0 million each in 2004 through 2007, and $48.0 million in 2008. Interest on the loans is payable monthly, with a variable interest rate. The rate is either a LIBOR or base rate plus a margin based upon certain financial ratios of the Company (4.67% at December 31, 2003). It is secured by first liens on certain of the Company's vessels (excluding vessels financed with Title XI financing and some of its other vessels), second liens on two vessels, and stock of certain subsidiaries and is guaranteed by certain subsidiaries. The amended credit facility is subject to various financial covenants, including minimum ratios of adjusted EBITDA to adjusted interest expense and a minimum ratio of adjusted funded debt to adjusted EBITDA, minimum adjusted tangible net worth, and minimum fair market value of the Company's vessels. In October 2003, the Company entered into a ten-year interest rate swap agreement with Fortis Bank and other members of its bank group. The Company entered into this transaction in order to mitigate its exposure to interest rate risk. Through this derivative instrument, which covers a notional amount of $150 million, the Company effectively converted the interest rate on its outstanding 9.50% senior notes due August 2013 to a floating rate based on LIBOR. The current effective floating interest rate is 6.05%. The swap agreement is secured by a second lien on the assets that secure the Company's amended credit facility. The Company entered into the swap transaction "at-market", and as a result there was no exchange of a premium at the initial date of the transaction. CAPITAL REQUIREMENTS. The Company's capital requirements arise primarily from its need to service debt, fund working capital, maintain and improve its vessels, and make vessel acquisitions. During 2003, the Company incurred $62.2 million in capital improvements for drydocking costs and newbuild vessels. Approximately $31.5 million was for drydockings and approximately $20.3 million was for the purchase of the SEABULK AFRICA and the SEABULK IPANEMA. Progress payments on the two Brazilian newbuild vessels in 2003 totaled approximately $7.6 million. 42 The Company's expected 2004 capital requirements for drydocking costs are $31.9 million and $34.2 million for newbuild vessels. In addition, the Company has agreed to purchase two double-hull product tankers for approximately $62.0 million and expects to fund the vessels by a combination of new borrowings and available cash. The Company expects that cash flow from operations will continue to be a significant source of funds for its working capital and capital requirements. The Company's amended credit agreement contains certain restrictive financial covenants that, among other things, requires minimum levels of EBITDA and tangible net worth. A covenant has been amended as of February 26, 2004 to allow the Company a greater degree of flexibility under the debt/EBITDA ratio. The Company is in compliance with the financial covenants of the Senior Notes at December 31, 2003. The Senior Notes require the Company to make payments of interest only. Based on current financial projections, the Company expects to be in compliance through the balance of 2004. Management continues implementation of the initiative to sell unprofitable vessels in an effort to improve profitability and liquidity. The possibility exists that unforeseen events or business or regulatory conditions, including deterioration in the markets, could prevent the Company from meeting targeted operating results. If unforeseen events or business or regulatory conditions prevent the Company from meeting targeted operating results, the Company will continue to pursue alternative plans including additional asset sales, additional reductions in operating expenses, and deferral of capital expenditures, which should enable the Company to satisfy essential capital requirements. While the Company believes it could successfully complete alternative plans, if necessary, there can be no assurance that such alternatives would be available or that the Company would be successful in its implementation. CASH FLOWS. Net cash provided by operating activities totaled $69.9 million for the year ended December 31, 2003 compared to $61.1 million for the same period in 2002. The increase in cash provided by operating activities in 2003 resulted from lower costs associated with the early retirement of debt in 2002. Net cash used in investing activities was $53.2 million for the year ended December 31, 2003 compared to $14.5 million for the same period in 2002. The increase in cash used in investing activities was due primarily to the purchase of vessels and equipment. In 2003, the Company used approximately $20.3 million for the purchase of the SEABULK AFRICA and the SEABULK IPANEMA and approximately $7.6 million in progress payments for the two Brazilian newbuild vessels. Net cash used in financing activities for the year ended December 31, 2003 was $19.5 million compared to $21.0 million for the same period in 2002. The decrease in cash used in financing activities in 2003 is mainly attributable to additional vessel financing, partially offset by the early payout of Title XI debt of $11.2 million (see Note 15) and payment of deferred financing costs for Senior Notes and amended credit facility. DEBT SERVICE AND OTHER CONTRACTUAL OBLIGATIONS. The Company's principal and interest obligations for 2003 were $22.5 and $31.8 million, respectively. In addition to the required debt service, the Company issued $150.0 million in Senior Notes to retire $80 million in term loans and $68.7 million of the revolver, refinanced three of its offshore vessels for $14.7 million, and paid off $11.2 million in Title XI debt related to three of its towing vessels. In 2004, principal and interest obligations are expected to be $14.4 and $36.0, respectively. 43 In 2003, the Company had obligations of $17.8 and $13.0 for debt and interest, respectively, exclusive of the Title XI debt on its five double-hull tankers. In 2004, principal and interest obligations are expected to be $9.4 and $21.5, respectively. The Company is required to make deposits to a Title XI reserve fund based on a percentage of net income attributable to the operations of the five double-hull tankers, as defined by the Title XI bond agreement. Cash held in a Title XI reserve fund is invested by the trustee of the fund, and any income earned thereon is either paid to the Company or retained in the reserve fund. Withdrawals from the Title XI reserve fund may be made for limited purposes, subject to prior approval from U.S. Maritime Administration ("MARAD"). In the second quarter of 2003, the first deposits to the reserve fund were made in the amount of $3.8 million. Additionally, according to the Title XI financial agreement, the Company is restricted from distributing excess cash from the operations of the five double-hull tankers until certain working capital levels have been reached and maintained. Accordingly, at December 31, 2003, the Company had approximately $27.0 million in cash and cash equivalents that are restricted for use for the operations of the five double-hull tankers and cannot be used to fund the Company's general working capital requirements. However, in 2003, the five double-hull tankers distributed approximately $4.3 million to the Company for general working capital purposes. The Company expects to receive $3.8 million during the first quarter of 2004. The following summarizes the Company's contractual obligations at December 31, 2003, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.
PAYMENTS DUE BY PERIOD ------------------------------------------------------------------------------ LESS THAN 1 1 - 3 3 - 5 OVER 5 CONTRACTUAL OBLIGATIONS TOTAL YEAR YEARS YEARS YEARS - ------------------------------------------- ------------ ---------------- ----------- ----------- ------------ (IN MILLIONS) Long-term debt $419.3 $10.9 $20.3 $51.3 $336.8 Capital lease obligations 48.7 6.0 10.9 11.3 20.5 Operating leases 15.1 3.4 6.3 3.3 2.1 Newbuild vessels 36.3 34.2 2.1 -- -- Tankers purchase commitment 62.0 62.0 -- -- -- ------------ ---------------- ----------- ----------- ------------ Total contractual cash obligations $581.4 $116.5 $39.6 $65.9 $359.4 ============ ================ =========== =========== ============
FUTURE CAPITAL REQUIREMENTS. Our near-term cash requirements are related primarily to funding operations. We cannot provide assurance that our actual cash requirements will not be greater than we currently expect. If the Company cannot generate sufficient cash flow from operations, we may obtain additional sources of funding through capital market transactions. The Company cannot provide assurance that these sources will be available. EFFECTS OF INFLATION The rate of inflation has not had a material impact on our operations. Moreover, if inflation remains at its recent levels, it is not expected to have a material impact on our operations for the foreseeable future. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Accounting Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued an exposure draft of a 44 proposed Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the Company would expense major maintenance costs as incurred and be prohibited from deferring of the entire cost of a planned major maintenance activity. Currently, the costs incurred to drydock the Company's vessels are deferred and amortized on a straight-line basis over the period to the next drydocking, generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to approve the SOP. The SOP is expected to be presented for FASB clearance in the second quarter of 2004 and would be applicable for fiscal years beginning after December 15, 2004. Management has determined that this SOP may have a material effect on the consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45 expands on the accounting guidance of Statements No. 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation No. 34, Capitalization of Interest Cost ("SFAS 34"), which is being superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a significant impact on the Company. In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE ("SFAS 148"). SFAS 148 amends SFAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure provisions of SFAS 123 to require expanded disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51 ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the variable interest entity. The primary beneficiary is defined as the party which, as a result of holding its variable interest, absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after March 15, 2004. The Company has determined that the adoption of FIN 46 will not have a significant impact on its financial position, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS ("SFAS 145"), which eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, and eliminates an inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. As a result of the January 1, 2003 adoption of the standard, the Company reclassified to continuing operations amounts previously reported as extinguishments of debt. 45 In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS 146"), which addresses the financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 is effective for fiscal years beginning after December 31, 2002. The adoption of the standard did not have a significant impact on the consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The JONES ACT restricts the U.S. coastwise trade to vessels owned, operated and crewed substantially by U.S. citizens. The JONES ACT continues to be in effect and supported by Congress and the Administration. However, it is possible that the Company's advantage as a U.S. citizen operator of JONES ACT vessels could be somewhat eroded over time as there continue to be periodic efforts and attempts by foreign interests to circumvent certain aspects of the JONES ACT. INTEREST RATE RISK The Company is exposed to market risk from changes in interest rates, which may adversely affect its results of operations and financial condition. On October 20, 2003, the Company entered into a ten-year interest rate swap agreement with Fortis Bank and other members of its bank group. The Company entered into this transaction in order to mitigate its exposure to interest rate risk. Through this derivative instrument, which covers a notional amount of $150 million, the Company effectively converted the interest rate on its outstanding 9.50% Senior Notes due August 2013 to a floating rate based on LIBOR. The current effective floating interest rate is 6.05%. The swap agreement is secured by a second lien on the assets that secure the Company's amended credit facility. In connection with the Senior Notes offering, the Company has amended and restated its existing credit facility (see Note 3). The amended credit facility consists of an $80 million revolving credit facility and has a five-year maturity. The interest rate is currently 4.62%. A hypothetical 2.0% increase in interest rates on $80 million of debt would cause the Company's interest expense to increase on average approximately $1.2 million per year over the term of the loans, with a corresponding decrease in income before taxes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's consolidated financial statements are listed in Item 15(a), included at the end of this Report on Form 10-K beginning on page F-1, and incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 46 ITEM 9A. CONTROLS AND PROCEDURES. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company maintains systems of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) designed to ensure that the Company is able to record, process, summarize and report, within the applicable time periods, the information required in the Company's annual and quarterly reports under the Securities Exchange Act of 1934. Management of the Company has evaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective to accomplish their purpose. No changes were made during the period covered by this report to the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities and Exchange Act of 1934) that have materially affected the Company's internal control over financial reporting or are reasonably likely to materially affect the Company's internal control over financial reporting. Attached as Exhibits 31.1 and 31.2 hereto are certifications by the Company's Chief Executive Officer and Chief Financial Officer, which are required by Section 302 of the Sarbanes-Oxley Act of 2002. The information set forth in this Item 9A should be read in conjunction with these Section 302 certifications. Additionally, our Chief Executive Officer and Chief Financial Officer have provided certain certifications to the Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which are filed as exhibits to this Report on Form 10-K. 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) DIRECTORS AND OFFICERS The following table provides information on the Company's current executive officers and directors, all of which were serving in the indicated capacities at December 31, 2003.
NAME AGE CURRENT POSITION ---- --- ---------------- Gerhard E. Kurz..................... 64 Chairman of the Board, President, Chief Executive Officer and Director Vincent deSostoa.................... 59 Senior Vice President and Chief Financial Officer Larry D. Francois................... 61 Senior Vice President and President--Seabulk Offshore Kenneth M. Rogers................... 48 Senior Vice President and President--Seabulk Towing Alan R. Twaits...................... 56 Senior Vice President, General Counsel and Secretary L. Stephen Willrich................. 51 Senior Vice President and President--Seabulk Tankers Michael J. Pellicci................. 40 Vice President--Finance and Corporate Controller Hubert E. Thyssen................... 56 Vice President--Seabulk Offshore Ari J. Benacerraf(1) (4) ........... 40 Director Peter H. Cressy(2) (3) (4).......... 62 Director David A. Durkin..................... 34 Director Kenneth V. Huseman.................. 52 Director Robert L. Keiser(1) (2)............. 61 Director Pierre F. Lapeyre, Jr.(1) (4)....... 41 Director David M. Leuschen(3)................ 53 Director Thomas P. Moore, Jr. (2) (4)........ 65 Director Steven A. Webster (3)............... 52 Director
- -------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. (3) Member of the Nominating and Corporate Governance Committee. (4) Member of the Finance Committee. MR. KURZ was elected Chief Executive Officer and a Director of the Company in April 2000, President in September 2000, and Chairman in September 2002. He formerly served as President of Mobil Shipping and Transportation Company (MOSAT), a Mobil Oil-affiliated company from which he retired in March 2000. Mr. Kurz joined Mobil in London in 1964 as a Chartering Assistant. In 1965 he was transferred to Mobil's Marine Division in New York. After a series of assignments, he was named Vice President of Planning, Middle East and Marine Transportation, and then President of MOSAT in 1989. Mr. Kurz is past Chairman of the Marine Preservation Association and the Oil Companies International Marine Forum. He serves on the Board of Directors of the American Bureau of Shipping and chairs its Audit Committee. He previously chaired its Finance and Nominating Committees. He also serves on the Boards of the Seamen's Church Institute, the Coast Guard Foundation, and the Newport News Mariners' Museum. He is a founding member and Chairman of the Massachusetts Maritime Academy's International Business Advisory Council and a member of the International Advisory Board to the Panama Canal Authority. Mr. Kurz is the recipient of numerous awards and honors, including the International Maritime Hall of Fame Award, the 1999 SEATRADE "Personality of the Year" award, the Seamen's Church 48 Institute Silver Bell Award, the Order of the U.S.S. ST. MARY'S Medal from the State University of New York Maritime College, the U.S. Coast Guard Award and Medal for Meritorious Public Service, and the Seafarers' House International Golden Compass Award. He holds an Honorary Doctorate Degree from the Massachusetts Maritime Academy. MR. DESOSTOA has been Senior Vice President and Chief Financial Officer since June 2002. He was previously President and Chief Financial Officer of Zeosoft Corporation, a provider of mobile service networks. Previously, he served as Senior Vice President and Chief Financial Officer of OMI Corporation, an international tanker operator with interests in real estate and energy. Mr. deSostoa was also Chief Financial Officer of the New York City Transit Authority and a partner with Peat Marwick, Mitchell & Co., a public accounting firm, which he joined in 1973. MR. FRANCOIS was appointed Senior Vice President in February 2003 and President, Seabulk Offshore in January 2003. He previously served as Area Manager of domestic offshore marine operations for Tidewater Inc. Previously, he was Division Manager for Zapata Gulf Marine Corporation in Mexico, International Marketing Manager in London for Western Oceanic, Inc., and Area Executive for Tidewater in Egypt. He was also Marketing & Sales Manager for Dillingham Maritime, a division of the Dillingham Corporation. A Vietnam war veteran, Mr. Francois served in the United States Air Force with the rank of Captain. MR. ROGERS has been Senior Vice President and President, Seabulk Towing since July 2002. He was previously Senior Vice President of Marketing for Seabulk Towing, which he joined in October 2001 Previously, he was Managing Director of Maritime Audit Services for Carnival Corporation and President of Southern Ship Management. Mr. Rogers was successively Port Captain, Ship Manager, Assistant Vice President of Operations and Vice President of Operations for OMI Corporation, which he joined in 1986. He began his career, upon graduation from the United States Merchant Marine Academy, with Texaco Inc. as a Deck Officer. MR. TWAITS has been Senior Vice President, General Counsel and Secretary since November 2000. He was previously Senior Vice President, General Counsel and Secretary of Premier Cruise Lines. Previously, he was in private practice and served as General Counsel and Secretary for Carnival Corporation as well as a Director and Vice President, General Counsel and Secretary of Carnival Air Lines. Mr. Twaits has also held senior counsel positions with Crowley Maritime Corporation, Trusthouse Forte, Inc., United States Lines, Inc., and a staff counsel position at Pan American World Airways. He is a member of the Florida Bar, the District of Columbia Bar, the American Bar Association and its International Law Section, and the American Corporate Counsel Association. MR. WILLRICH has been Senior Vice President since June 2000 and President of Seabulk Tankers since March 1998, when he was also elected a corporate Vice President. He was appointed Senior Vice President of Seabulk Tankers in August 1996. He joined us as Vice President of Chartering in January 1988. Previously, Mr. Willrich was employed by Diamond Shamrock Chemical Company from 1975 to 1988, where he rose to Division General Manager. Prior to his service with Diamond Shamrock, he worked for Gulf Oil Corporation as a Third Assistant Engineer on various company tankers. He has more than 27 years of experience in the management of JONES ACT product tankers. MR. PELLICCI has been Vice President--Finance and Corporate Controller since January 2001 and effective March 31, 2002, he has also served as Chief Accounting Officer. He previously served as Director of Corporate Finance and Corporate Controller of Caraustar Industries, Inc. in Atlanta, which he joined in 1989. Prior to that, he was a Senior Auditor with Arthur Andersen & Co. He is a Certified Public Accountant. 49 MR. THYSSEN has been Vice President since August 2002. He is also Senior Vice President of Marketing & Sales for Seabulk Offshore and Managing Director of Seabulk Offshore, S.A. He joined the Company in 1998 when it acquired Care Offshore, where he served as Managing Director and Director of Marketing. Prior to that, he was Manager for Saunier Maritime SARL in Marseilles, a shipbroker and agent, which he joined in 1972. He is a member of the Association Francaise du Petrole. MR. BENACERRAF, a director of the Company since September 2002, serves as a Managing Director of Credit Suisse First Boston LLC in the Merchant Banking Group, a position he has held since November 2001. Mr. Benacerraf joined Credit Suisse First Boston Corporation in November 2000 upon the merger with Donaldson, Lufkin & Jenrette, where he was a Principal in the Merchant Banking Group since 1995. Mr. Benacerraf serves on the board of directors of Frontier Drilling ASA, Amatek Holdings SA, UAE Holdings Corp., and American Ref-Fuel Company. Mr. Benacerraf holds an M.B.A. degree from the Johnson School of Management at Cornell University. DR. CRESSY, a director of the Company since March 2000, has been President and Chief Executive Officer of the Distilled Spirits Council of the United States, Inc. (DISCUS) since September 1999. Prior to joining DISCUS, he was Chancellor of the University of Massachusetts at Dartmouth for six years. From 1991 to 1993, he was President of the Massachusetts Maritime Academy. Dr. Cressy, who has a Ed.D. in education from the University of San Francisco and is a graduate of Yale University, is a retired U.S. Navy Rear Admiral. He joined the Navy in 1963. During his 28-year career, he held senior positions at the State Department, on Capitol Hill, at the Pentagon and held major command assignments. He concluded his naval career as Commander, Fleet Air Mediterranean and Commander, NATO Air Mediterranean during Operation Desert Storm. Dr. Cressy is a Director of the distilled spirits industry's educational foundation, The Century Council. MR. DURKIN, a director of the Company since September 2002, serves as a Director of Credit Suisse First Boston LLC in the Merchant Banking Group, a position he has held since January 2003. Mr. Durkin joined Credit Suisse First Boston Corporation in November 2000 upon the merger with Donaldson, Lufkin & Jenrette, where he was a Vice President in the Merchant Banking Group since 2000. He previously served as a Vice President in the Leveraged Finance Group of Donaldson, Lufkin & Jenrette and had other roles within investment banking since 1996. Mr. Durkin serves on the board of directors of AKI, Inc., Merrill Corporation, and Prometheus Laboratories, Inc. Mr. Durkin holds an M.B.A. degree from the Wharton School at the University of Pennsylvania. MR. HUSEMAN, a director of the Company since September 2002, serves as the President and Chief Executive Officer of BASiC Energy Services, a position he has held since April 1999. Prior to that, Mr. Huseman held several executive roles at Key Energy Services and its predecessors, including serving as Chief Operating Officer between 1996 and 1999. From 1978 through 1993, Mr. Huseman held several senior operational positions at Pool Energy Services. Mr. Huseman received a B.B.A. in Accounting from Texas Tech University. MR. KEISER has served as a director since March 2000. He is former Chairman of the Board of the Kerr-McGee Corporation, an international energy concern, from which he retired in 1999. He was previously Chairman and Chief Executive Officer of the Oryx Energy Company from 1995 to 1999, and Chief Operating Officer from 1991 to 1994. A graduate of the University of Missouri in Rolla, he joined the Sun Company, Inc. in 1965 and became Vice President of Planning and Development for Oryx when that company was spun off from Sun in 1988. Mr. Keiser is on the Board of Directors of Lone Star Technologies Inc. and a member of the Society of Petroleum Engineers. 50 MR. LAPEYRE, a director of the Company since September 2002, is a Founder and Managing Director of Riverstone Holdings LLC, responsible for sourcing and negotiating investments, as well as post-closing financial structuring and monitoring. In addition, he serves on the Fund's Managing Committee responsible for all portfolio activity. Prior to founding Riverstone in 2000, Mr. Lapeyre was a Managing Director at the investment banking firm of Goldman Sachs & Co., where he spent 14 years in the Global Energy and Power Group. Mr. Lapeyre currently serves on the Board of Legend Natural Gas, Magellan Midstream Partners L.P., CDM Resources, Frontier Holdings, Mariner Energy and InTank Services. Mr. Lapeyre received his B.S. degree in Finance/Economics from The University of Kentucky, and his M.B.A. from The University of North Carolina. MR. LEUSCHEN, a director of the Company since September 2002, is a Founder and Managing Director of Riverstone, responsible for sourcing and negotiating investments, as well as post-closing portfolio company monitoring. In addition, he serves on the Fund's Managing Committee responsible for all portfolio activity. Prior to founding Riverstone in 2000, Mr. Leuschen spent 22 years with the investment banking firm of Goldman Sachs & Co.. He joined the firm in 1977, founded the firm's Global Energy and Power Group in 1982, became a Partner in 1986, and remained a Partner with the firm until leaving to found Riverstone in 2000. Mr. Leuschen has served as a Director of Frontier Drilling ASA, Legend Natural Gas, InTank Services, and Mega Energy LLC, as well as a significant number of other industry-related business and nonprofit boards of directors. He is also owner and President of Switchback Ranch LLC, an integrated cattle ranching operation in the western U.S. Mr. Leuschen received his A.B. degree from Dartmouth College, and his M.B.A. from Dartmouth's Amos Tuck School of Business. MR. MOORE, a director of the Company since December 1999, is a Principal of State Street Global Advisors, a financial advisory firm, and a member of the State Street Global Advisors International Equity Team. From 1986 through 2001, he was a Senior Vice President of State Street Research & Management Company and was head of the State Street Research International Equity Team. From 1977 to 1986 he served in positions of increasing responsibility with Petrolane, Inc., including Administrative Vice President (1977-1981), President of Drilling Tools, Inc., an oilfield equipment rental subsidiary (1981-1984), and President of Brinkerhoff-Signal, Inc., an oil well contract drilling subsidiary (1984-1986). Mr. Moore is a Chartered Financial Analyst and a Director of First Community Bank in Woodstock, Vermont. Mr. Moore holds an M.B.A. degree from Harvard Business School. MR. WEBSTER, a director of the Company since September 2002, is Chairman of Global Energy Partners, a merchant banking affiliate of Credit Suisse First Boston Private Equity, Inc., that makes investments in energy companies and has served in that capacity since 2000. From 1998 to 1999, Mr. Webster served as Chief Executive Officer and President of R&B Falcon Corporation, and from 1988 to 1997, Mr. Webster served as Chairman and Chief Executive Officer of Falcon Drilling Corporation, both offshore drilling contractors. Mr. Webster serves on the board of directors of Brigham Exploration Company, Carrizo Oil & Gas, Inc., Grey Wolf, Inc., Camden Property Trust, CrownTrust, Crown Resources Corporation, and Geokinetics, Inc. Mr. Webster also serves on the boards of several privately held companies primarily in the energy industry. In addition, Mr. Webster serves as Chairman of Carrizo Oil & Gas, Crown Resources and Basic Energy Services, Inc., a privately held oil and gas service company. Mr. Webster is the founder and an original shareholder of Falcon Drilling Company, Inc., a predecessor to Transocean, Inc., and is a co-founder and original shareholder of Carrizo Oil & Gas, Inc. Mr. Webster holds a B.S.I.M. from Purdue University and an M.B.A. from Harvard Business School. Mr. Webster serves on the Dean's Advisory Board for Purdue University. 51 STOCKHOLDERS AGREEMENT The Stockholders Agreement among Nautilus Acquisition, L.P. (which we refer to as Nautilus in this report); C/R Marine Domestic Partnership, L.P., C/R Marine Non-U.S. Partnership, L.P., C/R Marine Coinvestment , L.P., and C/R Marine Coinvestment II, L.P. (which we refer to as the C/R Entities in this report), Mr. Kurz and the Company and amendments to the Company's Certificate of Incorporation included several provisions intended, for certain periods following the closing of the change of control investment transaction completed in September 2002, to ensure independent director oversight of affiliated party transactions and to provide certain protective rights to minority shareholders. Under the Stockholders Agreement, for so long as each of Nautilus beneficially owns 50% of the common stock that it beneficially owned in September 2002, Nautilus and the has the right to designate four nominees, for election as director. For so long as the C/R Entities collectively beneficially own 50% of the common stock that they beneficially owned in September 2002, the C/R Entities have the right to designate two nominees for election as director. The Stockholders Agreement also provides that the chief executive officer shall be nominated by the parties to the agreement together with three mutually acceptable independent directors. The parties to the Stockholders Agreement have agreed to cause the respective designees to be nominated and to vote in favor of the nominees. The Nautilus designees serving as directors are Messrs. Benacerraf, Durkin, Huseman and Webster. The C/R Entities designees serving as directors are Messrs. Lapeyre and Leuschen. Messrs. Cressy, Keiser and Moore were nominated and serve as mutually acceptable independent directors. CONTROLLED COMPANY STATUS New NASDAQ marketplace rules will require that the board of directors of NASDAQ listed companies consist of a majority of directors who are independent within the meaning of the rules. These rules also impose additional independence requirements on members of certain committees of the board. The Company has determined that, except with respect to the required independence of members of the Audit Committee, it is exempt from the application of these rules as a "controlled company," as defined in the rules. The Company believes it qualifies as a controlled company under NASDAQ rules because more than 50% of the voting power of its capital stock is held by a single person, Nautilus. COMMITTEES OF THE BOARD The Board of Directors supervises the management of the Company as provided by Delaware law. The Board of Directors has four committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, and the Finance Committee. Audit Committee. The Audit Committee hires the Company's independent public accountants; oversees the Company's financial reporting process and reports the results of its activities to the Board; reviews the work of, and approves audit services performed by, the independent public accountants; oversees the work of the Company's internal audit department; makes recommendations to the Board; and administers the Company's policy with respect to transactions with affiliated persons and with respect to grievances relating to accounting and controls. Its current members are Messrs. Moore (Chairman), Cressy and Keiser. Each member is independent as defined by the Rules of the Securities and Exchange Commission and NASDAQ Stock Market. The Board of Directors has determined that Mr. Moore is a "qualified financial expert" as defined by the Rules of the Securities and Exchange Commission and NASDAQ. The Company's Code of Business Conduct includes a hotline number for accounting and controls grievances. The Chairman of the Audit Committee can be contacted directly about such grievances through procedures in the Code of Business Conduct. 52 Compensation Committee. The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of all executive officers of the Company and general policy matters relating to compensation and benefits of employees of the Company. The Compensation Committee supervises the administration of the Company's Management Annual Incentive Compensation Plan by reviewing and recommending for approval by the Board bonuses consistent with the Plan. The Compensation Committee has oversight responsibility for the Amended and Restated Equity Ownership Plan and reviews and approves grants under the Plan for review and ratification by the Board. Together with the CEO, the Compensation Committee is also responsible for executive succession planning. Its current members are Messrs. Keiser (Chairman), Benacerraf and Lapeyre. Finance Committee. The Finance Committee was formed in August 2003. The Finance Committee reviews and advises the Board and the Company's management on the Company's financial policies, plans and programs, its capital structure, tax policies, as well as the Company's credit facilities, credit ratings, insurance programs, investment management of the Company's benefit plans and related matters. Its current members are Messrs. Moore (Chairman), Benacerraf, Cressy and Lapeyre. Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews and advises the Board and the Company's management on the Company's external affairs programs, such as legal and regulatory compliance, communications and crisis planning programs, as well as the Company's strategic initiatives. It also monitors the Company's investor relations initiatives, corporate governance procedures, and internal, non-accounting grievance procedures. Its Chairman can be contacted directly through procedures in the Code of Business Conduct for ethics and conflicts of interest grievances. The Committee reviews director qualifications and performance and recommends candidates for appointment and election to the Board of Directors, subject to the terms of the Stockholders Agreement among the Company and the Investors dated as of September 13, 2002. The Committee monitors compliance with SEC and NASDAQ governance policies. Its current members are Messrs. Cressy (Chairman), Leuschen and Webster. CODE OF BUSINESS CONDUCT The Board of Directors has adopted a Code of Business Conduct applicable to all directors, officers and employees of the Company, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct is intended, among other things, to promote ethical conduct and deter wrongdoing as set forth in Item 406(b) of Regulation S-K of the rules of the Securities and Exchange Commission. The Code of Business Conduct is posted on the Company's website at www.seabulkinternational.com (click on "Investors" and look under "Corporate Governance"). If the Company makes any amendments to the Code of Business Conduct that relate to the standards enumerated in Item 406(b) of Regulation S-K of the rules of the Securities and Exchange Commission, other than technical, administrative, or other nonsubstantive amendments, or grants any waivers from such provisions of the Code to the Company's principal executive officer, principal financial officer and principal accounting officer, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our website. 53 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires directors and executive officers and persons who beneficially own more than 10% of the Company's common stock to file reports of ownership and subsequent changes with the Securities and Exchange Commission. Based only on a review of copies of such reports and written representations delivered to the Company by such persons, the Company believes that there were no violations of Section 16(a) by such persons during 2003. 54 ITEM 11. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table sets forth, with respect to the Chief Executive Officer and each of the four other most highly compensated individuals serving as executive officers whose annual remuneration exceeded $100,000 (the "Named Executives"), the compensation earned for services rendered during the years 2001 through 2003.
ANNUAL COMPENSATION LONG-TERM COMPENSATION ---------------------------------------------------- ------------------------------ RESTRICTED OTHER ANNUAL STOCK ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) COMPENSATION(5) - --------------------------- -------- ---------- ----------- --------------- --------- --------------- Gerhard E. Kurz ........... 2003 $500,000 $100,000 $ 1,167 $746,750(3) $ 13,920(6) President and ......... 2002 $394,327 $500,000 $ 1,114 $ -- $ 12,920 Chief Executive Officer 2001 $350,000 $315,000 $ 1,000 $296,250(4) $ 12,420 Hubert E. Thyssen ......... 2003 $285,000 $ 46,000 $ 332 $ 96,900(3) $ 16,714 Vice President - ...... 2002 $256,045 $ 60,000 $ 420 $ -- $ 17,127 Offshore Division ..... 2001 $256,045 $ 40,000 $ 420 $ -- $ 16,547 Vincent J. deSostoa ....... 2003 $215,000 $ 46,000 $ 167 $ 96,900(3) $ 12,896(6) Senior Vice President, 2002 $116,458 $ 41,000 $ 12,000 $ -- $ -- Chief Financial Officer 2001 $ -- $ -- $ -- $ -- $ -- and Treasurer Larry D. Francois ......... 2003 $197,051 $ 25,000 $ 7,827 $ 85,900(3) $ 7,640 Senior Vice President - 2002 $ -- $ -- $ -- $ -- $ -- Offshore Division ..... 2001 $ -- $ -- $ -- $ -- $ -- Alan R. Twaits ............ 2003 $181,000 $ 36,000 $ 432 $ 92,900(3) $ 15,781(6) Senior Vice President, 2002 $180,250 $ 44,000 $ 1,190 $ -- $ 11,768 General Counsel and ... 2001 $170,333 $ 30,000 $ 175 $ -- $ 6,705 Secretary
- -------- (1) For 2003, reflects club dues in the amount of $1,167 for Mr. Kurz, $332 for Mr. Thyssen, $7,827 relocation expenses for Mr. Francois and professional dues of $167 for Mr. deSostoa and $432 for Mr. Twaits. For 2002, reflects dues in the amount of $1,114 for Mr. Kurz and $420 for Mr. Thyssen, $12,000 relocation expenses for Mr. deSostoa, and professional dues of $1,190 for Mr. Twaits. For 2001, reflects club dues in the amount of $1,000 for Mr. Kurz and $420 for Mr. Thyssen and professional association dues of $175 for Mr. Twaits. (2) The number and value of the aggregate restricted stock holdings of the Named Executives as of December 31, 2003 was 218,100 shares and $1,422,741, respectively. Of the aggregate, 28,100 shares of restricted stock will become non-forfeitable within three years from grant date, with those shares becoming non-forfeitable ratably in thirds on March 2, 2005, March 2, 2006, and March 7, 2007. Dividends will not be paid on the restricted shares. (3) For 2003, in addition to cash bonuses, bonuses in the form of restricted stock were granted to the Named Executives as set forth below. For Mr. Kurz, 75,000 shares of restricted stock become non-forfeitable on February 25, 2008; and 20,000 bonus shares become non-forfeitable ratably on March 2, 2005, 2006, and 2007. For each of Messrs. Thyssen and deSostoa, 10,000 shares of restricted stock become non-forfeitable on February 25, 2008; and 2,400 bonus shares become non-forfeitable ratably on March 2, 2005, 2006, and 2007, respectively. For Mr. Francois, 10,000 shares become non-forfeitable on February 25, 2008; and 1,300 bonus shares become non-forfeitable ratably on March 2, 2005, 2006, and 2007. For Mr. Twaits, 10,000 shares become non-forfeitable on February 25, 2008; and 2,000 bonus shares become non-forfeitable ratably on March 2, 2005, 2006, and 2007. (4) For 2001, reflects 75,000 shares of restricted stock in exchange for 75,000 unexercised stock options awarded pursuant to the Company's Amended and Restated Equity Ownership Plan. 55 (5) For 2003, reflects 401(k) contributions of $12,000 each for Messrs. Kurz and Twaits, $10,750 for Mr. deSostoa, $7,000 for Mr. Francois, retirement plan contributions of $16,714 for Mr. Thyssen and life insurance premiums of $1,920 for Mr. Kurz, $896 for Mr. deSostoa, $640 for Mr. Francois and $768 for Mr. Twaits and $640 for Mr. Francois. For 2002, reflects 401(k) contributions of $11,000 each for Messrs. Kurz and Twaits, retirement plan contribution of $17,127 for Mr. Thyssen and life insurance premium payments of $1,920 for Mr. Kurz and $768 for Mr. Twaits. For 2001, reflects 401(k) contributions of $10,500 for Mr. Kurz and $4,515 for Mr. Twaits, retirement plan contribution of $16,547 for Mr. Thyssen and life insurance premium payments of $1,920 for Mr. Kurz, and $640 for Mr. Twaits, and COBRA payments of $1,550 for Mr. Twaits. (6) Includes employer contributions to the deferred compensation plan of $1,250 for Mr. deSostoa, and $3,013 for Mr. Twaits. STOCK OPTIONS The following table contains information concerning stock options granted to each of the Named Executives in 2003.
INDIVIDUAL GRANTS ------------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES TOTAL SHARES PERCENT SHARES OF STOCK APPRECIATION FOR UNDERLYING UNDERLYING OPTION TERM(1) OPTIONS OPTIONS GRANTED PER SHARE EXPIRATION ----------------------------- NAME GRANTED TO EMPLOYEES EXERCISE PRICE DATE 5% 10% ---- ------------ ---------------- -------------- --------- ----------- ------------- Gerhard E. Kurz ...... 100,000 19.4% $ 8.00 02/25/13 $ 503,116 $1,274,994 Hubert E. Thyssen .... 55,000 10.7% $ 8.00 02/25/13 $ 276,714 $ 701,247 Vincent J. deSostoa .. 70,000 13.6% $ 8.00 02/25/13 $ 352,181 $ 892,496 Larry D. Francois .... 60,000 11.6% $ 8.00 02/25/13 $ 301,869 $ 764,996 Alan R. Twaits ....... 60,000 11.6% $ 8.00 02/25/13 $ 301,869 $ 764,996
- ----------- (1) The dollar amounts are the result of calculations at specified rates of appreciation and are not intended to forecast possible future appreciation. The following table contains information concerning year-end value of unexercised options for each of the Named Executives. No options were exercised in 2003 by any of the Named Executives.
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT DECEMBER 31, 2003 OPTIONS AT DECEMBER 31, 2003 -------------------------------- -------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- --------------- Gerhard E. Kurz.............. 225,000 100,000 $ 429,750 $ 16,000 Hubert E. Thyssen............ 27,001 60,999 $ 45,739 $ 25,191 Vincent J. deSostoa.......... -- 70,000 $ -- $ 11,200 Larry D. Francois............ -- 60,000 $ -- $ 9,600 Alan R. Twaits............... 14,667 67,333 $ 36,413 $ 27,807
On March 2, 2004, the Compensation Committee and the Board of Directors granted stock options for 45,000 shares at market value of $10.00 per share that vest ratably over three years and restricted stock, as a portion of their bonus for 2003, for 31,400 shares that become non-forfeitable ratably over three years 56 to eight senior executives of the Company under the Company's Amended and Restated Equity Ownership Plan. In addition, stock options for 102,000 shares were granted at market value of $10.00 that vest ratably over three years to 13 other management employees. EMPLOYMENT AGREEMENTS The Company has an employment agreement, as amended, with Mr. Kurz to serve as President and Chief Executive Officer. The agreement, which expires September 13, 2007, provides for an annual base salary of $500,000, subject to annual review by the Board of Directors for possible upward adjustment based on Company policy and contributions made by Mr. Kurz. Mr. Kurz is eligible for a bonus targeted to 100% of his base salary, based upon the Company's achievement of performance targets agreed upon annually. As part of the employment agreement, he was granted options to purchase 75,000 shares of the Company's Common Stock upon effectiveness of the agreement, and options to purchase an additional 225,000 shares, 112,500 of which vested on January 1, 2001, and 112,500 of which vested on December 31, 2002, which grants were approved by the Company's stockholders under the Company's Amended and Restated Equity Ownership Plan in June 2000. On December 3, 2001 the options for 75,000 shares were cancelled and in exchange Mr. Kurz was granted 75,000 shares of restricted stock pursuant to the Amended and Restated Equity Ownership Plan. The forfeiture restrictions lapsed as to 25,000 shares of restricted stock on December 4, 2001, and lapsed as to 50,000 shares on December 3, 2003. If Mr. Kurz's employment is terminated by the Company "without cause" or for "good reason" (each as defined in the agreement), he is entitled to an amount equal to the sum of two times his annual base salary and two times his annual maximum bonus for the year in which termination occurs. In April 2003 the Company entered into Severance Agreements with four senior executives - Vincent deSostoa, Senior Vice President and Chief Financial Officer, Larry Francois, Senior Vice President and President of Seabulk Offshore, Hubert Thyssen, Vice President and Senior Vice President - International of Seabulk Offshore, and Alan R. Twaits, Senior Vice President, General Counsel and Secretary - which would provide for severance payments in the amount of one year's salary and one year's bonus in the event of future involuntary terminations without cause, including terminations after a change in control. The Agreements have an initial term of two years, with renewals for additional two year terms unless terminated by the Company. The Severance Agreements do not require shareholders' approval. DIRECTOR COMPENSATION Directors not employed by the Company are paid an annual retainer of $24,000; plus $1,500 per Board meeting and $1,000 per Committee meeting ($750 and $500, respectively, if telephonic) attended. They are reimbursed by the Company for reasonable out-of-pocket expenses incurred for attendance at such meetings in accordance with Company policy. All Committee chairmen not employed by the Company are also paid an annual retainer of $5,000. Under the Stock Option Plan for Directors, each director not employed by the Company is granted annual stock options exercisable for 4,000 shares. The Chairman of the Board of Directors, if not an employee of the Company, is entitled to receive annual stock options for 8,000 shares. In 2003 each of the outside independent directors, Messrs. Cressy, Keiser and Moore, was granted options to purchase 4,000 shares, and each of the six directors appointed as part of the investment transaction in September 2002 was granted 10,000 shares for their initial year of service. In his initial year, a director is granted options to purchase 10,000 shares on the date of the Annual Meeting. Thereafter each director not employed by the Company is eligible for grants of options to purchase 4,000 shares on every Annual Meeting date. 57 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of March 10, 2004 by (i) each person who is known by the Company to be the beneficial owner of more than five percent of the Company's outstanding Common Stock, (ii) each director of the Company and each nominee, (iii) each Named Executive, and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
SHARES PERCENT NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY BENEFICIAL OWNER(1) OWNED(2)(3) OWNED(2) ---------------- --------------- --------------- Nautilus Acquisition, L.P(4) ........... 11,820,195 50.2% 50.2% c/o DLJ Merchant Banking Partners 11 Madison Avenue New York, New York 10010 C/R Marine Non-U.S. Partnership, L.P.(5) 3,757,500 16.0% c/o Riverstone Holdings LLC 712 Fifth Avenue, 19th Floor New York, New York 10019 C/R Marine Domestic Partnership, L.P.(5) 1,219,016 5.2% c/o Riverstone Holdings LLC 712 Fifth Avenue, 19th Floor New York, New York 10019 C/R Marine Coinvestment, L.P.(5) ....... 512,999 2.2% c/o Riverstone Holdings LLC 712 Fifth Avenue, 19th Floor New York, New York 10019 Gerhard E. Kurz ........................ 425,000 1.8% C/R Marine Coinvestment II, L.P.(5) .... 368,316 1.6% c/o Riverstone Holdings LLC 712 Fifth Avenue, 19th Floor New York, New York 10019 Hubert E. Thyssen ...................... 55,484 * Alan R. Twaits ......................... 45,000 * Robert L. Keiser ....................... 27,000 * Thomas P. Moore, Jr .................... 26,000 * Peter H. Cressy ........................ 22,000 * Vincent J. deSostoa .................... 29,900 * Larry D. Francois ...................... 26,300 *
58
SHARES PERCENT NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY BENEFICIAL OWNER(1) OWNED(2)(3) OWNED(2) - ---------------- --------------- ------------------ Ari J. Benacerraf(6)................... 10,000 * c/o DLJ Merchant Banking Partners 11 Madison Avenue New York, New York 10010 David A. Durkin(7)..................... 10,000 * c/o DLJ Merchant Banking Partners 11 Madison Avenue New York, New York 10010 Kenneth V. Huseman..................... 10,000 * Pierre F. Lapeyre, Jr.................. 10,000 * David M. Leuschen...................... 10,000 * Steven A. Webster(8)................... 10,000 * All executive officers and directors as a group (14 persons)................ 716,684 3.0%
- ----------- * Less than one percent (1) Unless otherwise indicated, the address of each of the persons whose name appears in the table above is: c/o Seabulk International, Inc., 2200 Eller Drive, P.O. Box 13038, Fort Lauderdale, Florida 33316. (2) Includes shares issuable upon the exercise of options that have vested and are exercisable within 60 days of the date of the filing of this Form 10-K. The shares underlying such options are deemed to be outstanding for the purpose of computing the percentage of outstanding stock owned by such persons individually and by each group of which they are a member, but are not deemed to be outstanding for the purpose of computing the percentage of any other person. (3) Includes shares of restricted stock issued but which only become non-forfeitable in the future. (4) Includes 11,737,830 shares of our common stock owned by Nautilus Acquisition, L.P. (which we are referring to as Nautilus). Also includes 82,365 shares of our common stock issuable upon exercise of our Common Stock Purchase Warrants held by Nautilus, which warrants have an exercise price of $0.01 per share. Nautilus Intermediary, L.P., Nautilus' sole general partner (which we refer to as Nautilus Intermediary in this proxy statement), Nautilus AIV, L.P., Nautilus Intermediary's sole general partner (which we refer to as Nautilus AIV in this proxy statement) and Nautilus GP, LLC, Nautilus AIV's managing general partner (which we refer to as Nautilus GP in this proxy statement), may be deemed to have beneficial ownership with respect to our securities held by Nautilus. We are referring to Nautilus, Nautilus Intermediary, Nautilus AIV and Nautilus GP collectively as the Nautilus Entities in this proxy statement. The partnership agreements of each of Nautilus, Nautilus Intermediary and Nautilus AIV grant, directly or indirectly, the exclusive management and decision making authority (including voting and dispositive power) with respect to our securities held by Nautilus to Nautilus GP. The members of Nautilus GP are W.M. Craig, Jonathan Dean, Kenneth V. Huseman and Credit Suisse First Boston Private Equity, Inc. (which we are referring to as CSFBPE in this proxy statement). DLJ Merchant Banking Partners III, L.P. (which we are referring to as Partners III in this proxy statement) is a limited partner of Nautilus Intermediary. Certain investment partnerships affiliated with Partners III (which, collectively with Partners III, we are referring to as the CSFBPE Funds in this proxy statement) are the limited partners of Nautilus. DLJ Merchant Banking III, L.P. is also a general partner of Nautilus AIV, however, it does not have any decision making authority (including voting and dispositive power) with respect to the investment in us. Credit Suisse First Boston, a Swiss bank (which we are referring to as the Bank in this proxy statement) owns a majority of the voting stock of Credit Suisse First Boston, Inc., which in turn owns all of the voting stock of Credit Suisse First Boston (USA), Inc. (which we are referring to as CSFB-USA in this proxy statement). CSFBPE is a subsidiary of CSFB-USA and the CSFBPE Funds are merchant banking funds managed by subsidiaries of CSFB-USA. While the Bank and its subsidiaries, to the extent that they constitute part of the investment banking business (which we are collectively referring to as the CSFB Entities in this proxy statement) of Credit Suisse First Boston business unit, disclaim beneficial ownership of our securities held by Nautilus, as a result of the relationship of the CSFB Entities to, and the pecuniary interest of the CSFB Entities in, Partners III, Nautilus AIV and CSFBPE as described above, the CSFB Entities may be deemed to beneficially own our securities held by Nautilus. The ultimate parent company of the Bank is Credit Suisse Group (which we are referring to as CSG in this proxy statement). CSG disclaims beneficial ownership of the securities owned by its direct and indirect subsidiaries, including Nautilus. Due to their interest in Nautilus GP, Messrs. Craig, Dean and Huseman may be deemed to beneficially own the shares of our common stock held by Nautilus. Messrs. Craig, Dean and Huseman disclaim any such beneficial ownership. The Nautilus Entities and the CSFB Entities may be considered a group together with the Carlyle/Riverstone Investment Partnerships ((as defined in Note (5) below)) and therefore be deemed to beneficially own the shares beneficially owned by the Carlyle/Riverstone Investment Partnerships, but no such entity affirms the existence of any such group. Each of the Nautilus Entities and the CSFB Entities disclaim any such beneficial ownership. (5) The share numbers in the above table represent the shares of common stock owned by C/R Marine Domestic Partnership, L.P., C/R Marine Non-U.S. Partnership, L.P., C/R Marine Coinvestment L.P., and C/R Marine Coinvestment II, L.P. (collectively referred to as the "Carlyle/Riverstone Investment Partnerships"). Includes 5,816,649 shares of our common stock owned by the Carlyle/Riverstone Investment Partnership and 41,182 shares of our common stock issuable upon exercise of our common stock purchase warrants held by the Carlyle/Riverstone Investment Partnerships, which warrants have an exercise price of $0.01 per share. C/R Marine GP Corp. exercises investment discretion and control over the all shares held by the Carlyle/Riverstone Investment Partnerships directly through its capacity as the sole general partner of the Carlyle/Riverstone Investment Partnerships. William E. Conway, Jr., Daniel A. D'Aniello, David M. 59 Rubenstein, Pierre F. Lapeyre, Jr., David M. Leuschen and Jim H. Derryberry, as the officers and directors of C/R Marine GP Corp., may be deemed to share beneficial ownership of the shares shown as beneficially owned by the Carlyle/Riverstone Investment Partnerships. Such persons disclaim such beneficial ownership. Each of the Carlyle/Riverstone Investment Partnerships may be deemed to beneficially own the shares by the other the Carlyle/Riverstone Investment Partnerships. Such partnerships disclaim such beneficial ownership. Such entities may be considered a group together with Nautilus and therefore be deemed to beneficially own the shares owned by Nautilus. Such entities disclaim any such beneficial ownership. (6) Mr. Benacerraf disclaims any beneficial ownership of the shares referred to in footnote 4 above. (7) Mr. Durkin disclaims any beneficial ownership of the shares referred to in footnote 4 above. (8) Mr. Webster disclaims any beneficial ownership of the shares referred to in footnote 4 above. EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2003 about the shares of the Company's common stock issuable under the equity compensation plans maintained for employees and directors.
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE NUMBER OF SECURITIES ISSUED UPON EXERCISE OF EXERCISE PRICE OF REMAINING AVAILABLE PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS FOR FUTURE ISSUANCE - ---------------------------------- -------------------------------- ------------------------ ----------------------- Equity compensation 1,203,000 $ 7.35 1,203,164 plans approved by security holders Equity compensation plans not approved by security holders........................... -- -- -- -------------------------------- ------------------------ ----------------------- TOTAL.................. 1,203,000 $ 7.35 1,203,164
60 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On August 5, 2003, the Company completed the offering of $150 million of Senior Notes ("Notes") due 2013 through a private placement eligible for resale under Rule 144A and Regulation S. Credit Suisse First Boston LLC (CSFB) acted as our financial advisor, an initial purchaser of the Notes and joint-lead manager and sole lead book-running manager of the offering. CSFB received customary fees in the amount of $2.0 million for these services. CSFB is an affiliate of Credit Suisse First Boston (USA), Inc. One of Credit Suisse First Boston (USA), Inc.'s wholly owned subsidiaries, CSFB Private Equity, Inc., has a partnership interest in Nautilus GP, LLC, a general partnership which owns approximately 50% of the Company. As part of the equity investment transaction completed in September 2002, the Company, the investors, Nautilus Acquisition, L.P. (which we refer to as Nautilus in this report); C/R Marine Domestic Partnership, L.P., C/R Marine Non-U.S. Partnership, L.P., C/R Marine Coinvestment , L.P., and C/R Marine Coinvestment II, L.P. (which we refer to as the C/R Entities in this report) and Gerhard Kurz entered into a Stockholders Agreement dated as of September 13, 2002 which included provisions relating to the right of the investors to designate the majority of the directors on the Board of Directors, independent director oversight of affiliated party transactions, certain protective rights to minority shareholders, and related amendments to the Company's Certificate of Incorporation and By-laws. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Ernst & Young, LLP ("E&Y") is the independent accounting firm that audits the financial statements of the Company and its subsidiaries and is the principal accountant for the audit of the Company. Aggregate fees for professional services rendered for the Company by E&Y in 2003 and 2002 were: 2003 2002 ---------- ---------- Audit Fees ....... $1,082,173 $ 837,363 Audit-Related Fees 58,121 85,439 Tax Fees ......... 28,296 84,106 ---------- ---------- TOTAL ....... $1,168,590 $1,006,908 ========== ========== Audit fees relate to the audit services and quarterly reviews, as well as the preparation of comfort letters, consents and review of documents filed with the SEC. Audit-related fees relate primarily to the audits of the Company's benefit plans and accounting research and consultation. Tax fees relate to tax planning and consulting services and preparation and review of our tax returns. The Audit Committee pre-approves all audit, audit-related, and non-audit services provided by the Company's independent auditor prior to the engagement of the independent auditor with respect to such services. In addition to separately approved services, the Audit Committee's pre-approval policy provides for pre-approval of specifically described audit, audit-related, and non-audit services on an annual basis. The policy authorizes the Committee to delegate to one or more of its members pre-approval authority with respect to permitted services. None of the services described above were approved by the Audit Committee under the de minimis exception provided by Rule 2-01(c)(7)(i)(C) under Regulation S-X. 61 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) FINANCIAL STATEMENTS AND SCHEDULES. See Index to Consolidated Financial Statements and Schedules which appears on page F-1 herein. (b) REPORTS ON FORM 8-K. The following reports on Form 8-K were filed during the quarter ended December 31, 2003: 1. The Company furnished a Current Report on Form 8-K dated November 14, 2003. Items 12 and 7 were reported and no financial statements were filed. 2. The Company furnished a Current Report on Form 8-K dated November 20, 2003. Items 12, 7, and 9 were reported and no financial statements were filed. (c) LISTS OF EXHIBITS. The following is a list of exhibits furnished. Copies of exhibits will be furnished upon request of any stockholder at a charge of $0.25 per page plus postage. The Company hereby files as part of this Form 10-K the exhibits required by Item 15(c) listed below. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the Commission, 450 Fifth Street N.W., Room 1024, Washington, D.C. 29549 and at the Commission's regional office at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street N.W., Washington, D.C. 29549, at prescribed rates. 62
INCORPORATED BY REFERENCE TO FORM EXHIBIT REGISTRATION OR NO. DESCRIPTION OR FILE NO. REPORT FILE DATE - ---------- -------------------------------------------------- ------------ -------- ------------- 2.1 Debtor's First Amended Joint Plan of 000-28732 13D/A Dec. 1999 Reorganization, dated November 1, 1999, and related Disclosure Statement filed with the U.S. Bankruptcy Court for the District of Delaware 3.1(a) Certificate of Incorporation 10-K April 2000 3.1(b) Certificate of Merger 10-K April 2000 3.1(c) Certificate of Merger changing the name of the Company 10-K March 2002 3.1(d) Certificate of Amendment 8-K Sept. 2002 3.2 Amended and Restated By-Laws of the Company 8-K Sept. 2002 4.1 Form of Common Stock Certificate reflecting new 000-28732 10-K March 2002 name of the Company 4.2 Form of Class A Warrant Certificate of the 333-30390 S-3 Feb. 2000 Company 4.2(a) Form of Class A Warrant Certificate reflecting 000-28732 10-K March 2002 new name of the Company 4.3 Warrant Agreement, dated December 15, 1999, 333-30390 S-3/A May 2000 between Hvide Marine Incorporated and State Street Bank and Trust Company as Warrant Agent 4.4 Class A Warrant Agreement, dated as of December 333-30390 S-3 Feb. 2000 15, 1999, by and between Hvide Marine Incorporated and State Street Bank and Trust Company 4.5 Amended and Restated Equity Ownership Plan 000-28732 14A April 2003 4.6 Stock Option Plan for Directors 000-28732 14A April 2003 4.7 Indenture, dated as of August 5, 2003, among 333-110138 S-4 Oct. 2003 Seabulk International, Inc., the Guarantors named therein, and Wachovia Bank, National Association, as Trustee (including forms of notes) 4.8 Registration Rights Agreement dated as of August 333-110138 S-4 Oct. 2003 5, 2003 between Seabulk International, Inc. and Credit Suisse First Boston LLC, Banc of America Securities LLC, RBC Dominion Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated 4.9 Supplemental Indenture, dated as of October 3, 333-110138 S-4 Oct. 2003 2003, among Seabulk International, Inc., the Guarantors named therein, and Wachovia Bank, National Association, as Trustee 10.1 Common Stock Registration Rights Agreement, 000-28732 8-K Dec. 1999 dated December 15, 1999, among Hvide Marine Incorporated, Bankers Trust Corporation and Great American Life Insurance Company, Great American Insurance Company, New Energy Corp., American Empire Surplus Lines Insurance Company, Worldwide Insurance Company and American National Fire Insurance Company as Purchasers 10.2** Employment Agreement dated as of April 18, 2000 000-28732 10-K March 2001 between the Company and Gerhard E. Kurz 10.3** Amendment to Employment Agreement dated July 16, 000-28732 10-K March 2002 2001 between the Company and Gerhard E. Kurz
63
INCORPORATED BY REFERENCE TO FORM EXHIBIT REGISTRATION OR NO. DESCRIPTION OR FILE NO. REPORT FILE DATE - ---------- -------------------------------------------------- ------------ -------- ------------- 10.4 Stock Purchase Agreement by and among Seabulk 000-28732 8-K June 2002 International, Inc. and the Investors listed on Schedule 1 thereto, dated as of June 13, 2002 10.5 Stockholders' Agreement, dated as of September 000-28732 8-K Sept. 2002 13, 2002, among Seabulk International, Inc., Nautilus Acquisition, L.P., C/R Marine Domestic Partnership, L.P., C/R Marine Non-U.S. Partnership, L.P., C/R Marine Coinvestment, L.P., C/R Marine Coinvestment II, L.P. and Gerhard Kurz 10.6** Amendment to Employment Agreement, dated as of 000-28732 8-K Sept. 2002 September 13, 2002, between the Company and Gerhard E. Kurz 10.7** Severance Agreement and Release between the 000-28732 10-Q May 2003 Company and Andrew W. Brauninger 10.8** Seabulk International, Inc. Executive Deferred 000-28732 10-Q May 2003 Compensation Plan 10.9** Summary Provisions of the Seabulk International, 000-28732 10-Q May 2003 Inc. Management Annual Incentive Compensation Plan 10.10 Amended and Restated Credit Agreement, dated as 333-110138 S-4 Oct. 2003 of August 5, 2003, among Seabulk International, Inc., each Subsidiary Guarantor, Fortis Capital Corp., NIB Capital Bank N.V. and each other financial institution which may become a party to the Agreement as a Lender, Fortis Capital Corp., as administrative agent on behalf of the Lenders, and as book runner and as an arranger, and NIB Capital Bank N.V., as an arranger 10.11* Supplemental Indenture, dated as of March 22, 2004, among Seabulk International, Inc., the Guarantors named therein, and Wachovia Bank, National Association, as Trustee 10.12* Loan Agreement among Seabulk Global Transport, Inc. and Seabulk Overseas Transport, Inc., as Joint and Several Borrowers, the Guarantors named therein, the Banks and Financial Institutions listed therein, Nordea Bank Finland PLC, New York Branch, as Arranger and Agent, Nordea Bank Finland PLC, New York Branch, as Security Trustee, and Nordea Bank Finland PLC, New York Branch, as Swap Provider 21* List of Subsidiaries 23.1* Consent of Ernst & Young LLP 31.1* Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
64
INCORPORATED BY REFERENCE TO FORM EXHIBIT REGISTRATION OR NO. DESCRIPTION OR FILE NO. REPORT FILE DATE - ---------- -------------------------------------------------- ------------ -------- ------------- 31.2* Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 32.1* Certification of Principal Executive Officer pursuant to 18 U.S.C.ss.1350, ad adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(b) of the Securities Exchange Act of 1934 (furnished herewith) 32.2* Certification of Principal Financial Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 13a-14(b) of the Securities Exchange Act of 1934 (furnished herewith) 99.1 Order dated December 9, 1999 of the United States Bankruptcy Court for the District of Delaware the First Amended Joint Plan of Reorganization IN IN RE: HVIDE MARINE INCORPORATED, et al., Case No. 99-3024 (PJW), including the Supplement to such Plan [incorporated by reference to Exhibit 99.1 of the Company's Form 8-K filed with the Commission on December 27, 1999 (Commission File No. 000-28732)] 000-28732 8-K Dec. 1999
- -------------------------- * Filed herewith. ** Indicates a management contract or compensation arrangement. 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SEABULK INTERNATIONAL, INC. By: /s/ GERHARD E. KURZ --------------------------------------------- Gerhard E. Kurz Chairman, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GERHARD E. KURZ Chairman, President, March 30, 2004 - ------------------------------ and Chief Executive Officer Gerhard E. Kurz (Principal Executive Officer) /s/ VINCENT J. DESOSTA Senior Vice President and March 30, 2004 - ------------------------------ Chief Financial Officer Vincent J. deSostoa (Principal Financial Officer) /s/ MICHAEL J. PELLICCI Vice President - Finance and March 30, 2004 - ------------------------------ Corporate Controller Michael J. Pellicci (Principal Accounting Officer) /s/ ARI J. BENACERRAF Director March 30, 2004 - ------------------------------ Ari J. Benacerraf /s/ PETER H. CRESSY Director March 30, 2004 - ------------------------------ Peter H. Cressy /s/ DAVID A. DURKIN Director March 30, 2004 - ------------------------------ David A. Durkin /s/ KENNETH V. HUSEMAN Director March 30, 2004 - ------------------------------ Kenneth V. Huseman /s/ ROBERT L. KEISER Director March 30, 2004 - ------------------------------ Robert L. Keiser /s/ PIERRE F. LAPEYRE, JR. Director March 30, 2004 - ------------------------------ Pierre F. Lapeyre, Jr. /s/ DAVID M. LEUSCHEN Director March 30, 2004 - ------------------------------ David M. Leuschen /s/ THOMAS P. MOORE, JR. Director March 30, 2004 - ------------------------------ Thomas P. Moore, Jr. /s/ STEVEN A. WEBSTER Director March 30, 2004 - ------------------------------ Steven A. Webster
66 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Report of Independent Certified Public Accountants..............................................................F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2003 and 2002....................................................F-3 Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001.....................F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001.....................F-5 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2003, 2002, and 2001............................................................................................F-7 Notes to Consolidated Financial Statements......................................................................F-9
All schedules have been omitted because the information is not applicable or is not material or because the information required is included in the consolidated financial statements or the notes thereto. F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Seabulk International, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Seabulk International, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. 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 Seabulk International, Inc. and Subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Fort Lauderdale, Florida February 27, 2004, except for the last paragraph of Note 17, as to which the date is March 8, 2004 F-2 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE DATA)
DECEMBER 31, ------------------------- 2003 2002 --------- --------- ASSETS Current assets: Cash and cash equivalents ................................................... $ 34,379 $ 37,188 Restricted cash ............................................................. 3,676 1,337 Trade accounts receivable net of allowance for doubtful accounts of $4,321 in 2003 and $5,243 in 2002, respectively ........................... 49,599 45,987 Other receivables ........................................................... 10,730 6,208 Marine operating supplies ................................................... 8,155 8,139 Prepaid expenses and other .................................................. 3,045 2,702 --------- --------- Total current assets ...................................................... 109,584 101,561 Vessels and equipment, net ..................................................... 527,026 545,169 Deferred costs, net ............................................................ 48,486 38,228 Other .......................................................................... 9,344 10,860 --------- --------- Total assets .............................................................. $ 694,440 $ 695,818 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................................ $ 18,805 $ 11,343 Current maturities of long-term debt ........................................ 11,037 24,315 Current obligations under capital leases .................................... 3,521 3,005 Accrued interest ............................................................ 5,812 1,733 Accrued liabilities and other ............................................... 37,363 34,904 --------- --------- Total current liabilities ................................................. 76,538 75,300 Long-term debt ................................................................. 258,217 410,858 Senior notes ................................................................... 151,472 -- Obligations under capital leases ............................................... 32,246 28,748 Other liabilities .............................................................. 3,136 3,489 --------- --------- Total liabilities ......................................................... 521,609 518,395 Commitments and contingencies Minority interest .............................................................. 476 623 Stockholders' equity: Preferred stock, no par value--authorized 5,000; issued and outstanding, none -- -- Common stock--$.01 par value, authorized 40,000 shares; 23,347 and 23,124 shares issued and outstanding in 2003 and 2002, respectively .................................................... 233 231 Additional paid-in capital .................................................. 259,134 258,016 Unearned compensation ....................................................... (699) (99) Accumulated deficit ......................................................... (86,313) (81,348) --------- --------- Total stockholders' equity .............................................. 172,355 176,800 --------- --------- Total liabilities and stockholders' equity .......................... $ 694,440 $ 695,818 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ----------------------------------------- 2003 2002 2001 --------- --------- --------- Revenue ........................................... $ 316,558 $ 323,997 $ 346,730 Operating expenses: Crew payroll and benefits ....................... 86,409 88,473 96,431 Charter hire .................................... 9,575 7,607 6,326 Repairs and maintenance ......................... 27,282 30,345 25,810 Insurance ....................................... 13,285 11,385 15,809 Fuel and consumables ............................ 25,405 28,365 34,955 Port charges and other .......................... 17,720 16,383 19,996 --------- --------- --------- Total operating expenses ...................... 179,676 182,558 199,327 Overhead expenses: Salaries and benefits .......................... 21,753 22,237 21,531 Office ......................................... 5,046 5,123 5,993 Professional fees .............................. 3,669 3,392 3,429 Other .......................................... 7,575 7,905 6,049 --------- --------- --------- Total overhead expenses ..................... 38,043 38,657 37,002 Depreciation, amortization and drydocking ......... 65,373 66,376 59,913 Write-down of assets held for sale ................ 1,219 -- 1,400 (Gain) loss on disposal of assets ................. (1,463) (1,364) 134 --------- --------- --------- Income from operations .......................... 33,710 37,770 48,954 Other (expense) income: Interest expense ................................ (33,853) (44,715) (55,907) Interest income ................................. 355 475 240 Minority interest in losses of subsidiaries ..... 147 219 35 Loss on early extinguishment of debt ............ (1,567) (27,823) -- Other, net ...................................... 481 (154) (73) --------- --------- --------- Total other expense, net ..................... (34,437) (71,998) (55,705) --------- --------- --------- Loss before provision for income taxes ............ (727) (34,228) (6,751) Provision for income taxes ........................ 4,238 4,642 5,210 --------- --------- --------- NET LOSS ........................................ $ (4,965) $ (38,870) $ (11,961) ========= ========= ========= Net loss per common share: Net loss per common share - basic and diluted ... $ (0.21) $ (2.72) $ (1.16) ========= ========= ========= Weighted average common shares outstanding - basic and diluted ................................. 23,176 14,277 10,277 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------------- 2003 2002 2001 -------- -------- -------- OPERATING ACTIVITIES: Net loss ............................................................ $ (4,965) $(38,870) $(11,961) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of vessels and equipment ......... 42,330 43,711 45,212 Amortization of drydocking costs ............................... 23,043 22,665 14,701 Amortization of discount on long-term debt and financing costs . 1,531 4,249 5,324 Provision for (recovery of) bad debts .......................... (79) (93) 228 (Gain) loss on disposal of assets .............................. (1,463) (1,364) 134 Loss on early extinguishment of debt ........................... 1,567 27,823 -- Minority interest in losses of subsidiaries .................... (147) (219) (35) Write-down of assets held for sale ............................. 1,219 -- 1,400 Senior and notes payable issued for payment of interest and fees -- 626 1,752 Other non-cash items ........................................... 238 650 459 Changes in operating assets and liabilities: Trade accounts and other receivables ........................... (8,404) 12,043 5,214 Other current and long-term assets ............................. 1,099 (4,129) (5,485) Accounts payable and other liabilities ......................... 13,893 (6,039) 9,897 -------- -------- -------- Net cash provided by operating activities .................... 69,862 61,053 66,840 INVESTING ACTIVITIES: Expenditures for drydocking ......................................... (31,539) (23,441) (29,449) Proceeds from disposals of assets ................................... 9,425 12,675 6,575 Purchases of vessels and equipment .................................. (30,683) (3,753) (9,282) Investment in joint venture ......................................... (400) -- -- Acquisition of minority interest .................................... -- -- (524) Redemption of restricted investments ................................ -- -- 2,542 Purchase of restricted investments .................................. -- -- (1,677) -------- -------- -------- Net cash used in investing activities ........................ (53,197) (14,519) (31,815)
F-5 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------------- 2003 2002 2001 --------- --------- --------- FINANCING ACTIVITIES: Net payments of revolving credit facility ................................ -- (9,000) (5,250) Payments of prior credit facility ....................................... (148,179) (125) -- Proceeds from prior credit facility ...................................... -- 178,800 -- Payments of long-term debt ............................................... (7,408) (165,817) (19,504) Proceeds from long-term debt ............................................. 8,622 -- -- Payments of prior Senior Notes ........................................... -- (101,499) -- Proceeds from 9.50% Senior Notes ......................................... 150,000 -- -- Proceeds of Private Placement, net of issuance costs ..................... -- 90,901 -- Payments of Title XI bonds ............................................... (7,378) (7,166) (8,312) Retirement of Title XI bonds ............................................. (11,181) -- -- Net proceeds of sale leaseback ........................................... 13,274 -- -- Increase in restricted cash .............................................. (2,339) -- (1,006) Payments of other deferred financing costs ............................... (226) -- -- Payments of obligations under capital leases ............................. (9,422) (2,986) (3,558) Payment of deferred financing costs for prior credit facility ............ (88) (4,128) -- Payment of deferred financing costs for Senior Notes and amended credit facility ................................................................. (5,458) -- -- Proceeds from exercise of warrants ....................................... 2 1 3 Proceeds from exercise of stock options .................................. 307 42 -- --------- --------- --------- Net cash used in financing activities ............................ (19,474) (20,977) (37,627) --------- --------- --------- Change in cash and cash equivalents ...................................... (2,809) 25,557 (2,602) Cash and cash equivalents at beginning of period ......................... $ 37,188 $ 11,631 $ 14,233 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 34,379 $ 37,188 $ 11,631 ========= ========= ========= Supplemental schedule of noncash investing and financing activities: Obligation for fair market value of interest rate swap ................... $ 1,472 $ -- $ -- ========= ========= ========= Vessels exchanged for drydock expenditures ............................... $ -- $ 900 $ -- ========= ========= ========= Senior and notes payable issued for payment of accrued interest and fees . $ -- $ 626 $ 1,752 ========= ========= ========= Notes payable issued for the acquisition of minority interest ............ $ -- $ -- $ 10,500 ========= ========= ========= Issuance of restricted common stock ...................................... $ 838 $ -- $ 297 ========= ========= ========= Supplemental disclosures: Interest paid ............................................................ $ 27,780 $ 40,085 $ 47,279 ========= ========= ========= Income taxes paid ........................................................ $ 4,169 $ 4,537 $ 3,304 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL ------------------------ PAID-IN SHARES AMOUNT CAPITAL --------- --------- ------------ BALANCE AT DECEMBER 31, 2000 .................. 10,117 $ 101 $ 166,963 Comprehensive loss: Net loss ................................... -- -- -- Translation adjustment ..................... -- -- -- Total comprehensive loss .............. -- -- -- Common stock issued upon exercise of warrants . 314 3 -- Restricted common stock issued to officer ..... 75 1 296 --------- --------- --------- BALANCE AT DECEMBER 31, 2001 .................. 10,506 $ 105 $ 167,259 ========= ========= ========= Comprehensive loss: Net loss ................................... -- -- -- Translation adjustment ..................... -- -- -- Total comprehensive loss .............. -- -- -- Common stock issued upon Private Placement, net of issuance costs of $9,160 ................ 12,500 125 90,715 Common stock issued upon exercise of warrants . 112 1 -- Common stock issued upon exercise of options .. 6 -- 42 Amortization of unearned compensation ......... -- -- -- --------- --------- --------- BALANCE AT DECEMBER 31, 2002 .................. 23,124 $ 231 $ 258,016 ========= ========= ========= Comprehensive loss: Net loss ................................... -- -- -- Translation adjustment ..................... -- -- -- Total comprehensive loss .............. -- -- -- Issuance costs related to Private Placement ... -- -- (27) Common stock issued upon exercise of warrants . 51 -- 2 Common stock issued upon exercise of options .. 57 1 306 Restricted common stock issued to officers .... 115 1 837 Amortization of unearned compensation ......... -- -- -- --------- --------- --------- BALANCE AT DECEMBER 31, 2003 .................. 23,347 $ 233 $ 259,134 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-7 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED RETAINED OTHER EARNINGS COMPREHENSIVE UNEARNED (ACCUMULATED LOSS COMPENSATION DEFICIT) TOTAL ------------- ------------- --------------- --------- BALANCE AT DECEMBER 31, 2000 .................. $ (33) $ -- $ (30,517) $ 136,514 Comprehensive loss: Net loss ................................... -- -- (11,961) (11,961) Translation adjustment ..................... 32 -- -- 32 --------- Total comprehensive loss .............. -- -- -- (11,929) Common stock issued upon exercise of warrants . -- -- -- 3 Restricted common stock issued to officer ..... -- (198) -- 99 --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2001 .................. $ (1) $ (198) $ (42,478) $ 124,687 ========= ========= ========= ========= Comprehensive loss: Net loss ................................... -- -- (38,870) (38,870) Translation adjustment ..................... 1 -- -- 1 --------- Total comprehensive loss .............. -- -- -- (38,869) Common Stock issued upon Private Placement, net of issuance costs of $9,160 .............. -- -- -- 90,840 Common stock issued upon exercise of warrants . -- -- -- 1 Common stock issued upon exercise of options .. -- -- -- 42 Amortization of unearned compensation ......... -- 99 -- 99 --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2002 .................. $ -- $ (99) $ (81,348) $ 176,800 ========= ========= ========= ========= Comprehensive loss: Net loss ................................... -- -- (4,965) (4,965) Translation adjustment .................... -- -- -- -- --------- Total comprehensive loss .............. -- -- -- (4,965) Issuance costs related to Private Placement ... -- -- -- (27) Common stock issued upon exercise of warrants . -- -- -- 2 Common stock issued upon exercise of options .. -- -- -- 307 Restricted common stock issued to officers .... -- (838) -- -- Amortization of unearned compensation ......... -- 238 -- 238 --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2003 .................. $ -- $ (699) $ (86,313) $ 172,355 ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-8 SEABULK INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Seabulk International, Inc. and subsidiaries (collectively, the "Company") provides marine support, transportation and towing services, serving primarily the energy and chemical industries. The Company operates offshore energy support vessels, principally in the U.S. Gulf of Mexico, the Arabian Gulf, offshore West Africa, and Southeast Asia. The Company's fleet of tankers transports petroleum products and specialty chemicals primarily in the U.S. domestic trade. The Company also provides commercial tug services in several ports in the southeastern U.S. The Company derives substantial revenue from international operations, primarily under U.S. dollar-denominated contracts with major international oil companies. Risks associated with operating in international markets include vessel seizure, foreign exchange restrictions, foreign taxation, political instability, nationalization, civil disturbances, and other risks that may limit or disrupt markets. The accompanying consolidated financial statements include the accounts of Seabulk International, Inc. and its subsidiaries, both majority and wholly-owned. All intercompany transactions and balances have been eliminated in the consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE. Revenue is generally recorded when services are rendered, the Company has a signed charter agreement or other evidence of an arrangement, pricing is fixed or determinable and collection is reasonably assured. For the majority of the offshore energy and towing segments, revenues are recorded on a daily basis as services are rendered. For the marine transportation segment, revenue is earned under time charters or affreightment/voyage contracts. Revenue from time charters is earned and recognized on a daily basis. Certain time charters contain performance provisions, which provide for decreased fees based upon actual performance against established targets such as speed and fuel consumption. Recorded revenue is based on actual performance. Affreightment/voyage contracts are contracts for cargoes that are committed on a 12 to 30 month basis, with minimum and maximum cargo tonnages specified over the period at fixed or escalating rates per ton. Revenue and voyage expenses for these affreightment contracts are recognized based upon the percentage of voyage completion. The percentage of voyage completion is based on the number of voyage days worked at the balance sheet date divided by the total number of days expected on the voyage. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of money market instruments and overnight investments. The credit risk associated with cash and cash equivalents is considered low due to the high credit quality of the financial institutions. RESTRICTED CASH. At December 31, 2003 and 2002, restricted cash consisted of fixed deposits required in our foreign locations that allow our banks to issue short-term tender bonds, and a certificate of deposit required in the financing of a Brazilian vessel, which was purchased in June 2003. The bonds are issued during the process of securing contracts and have expiration dates ranging from three months to one year. Upon expiration of the bonds and the certificate of deposit, the funds are returned to the Company. F-9 ACCOUNTS RECEIVABLE. Substantially all of the Company's accounts receivable are due from entities that operate in the oilfield industry. The Company performs ongoing credit evaluations of its trade customers and generally does not require collateral. Expected credit losses are provided for in the consolidated financial statements and have been within management's expectations. Two customers each accounted for 7% of the Company's total revenue for the years ended December 31, 2003 and 2002. During the years ended December 31, 2003, 2002 and 2001, the Company wrote off accounts receivable of approximately $2.4 million, $0.6 million and $0.7 million, respectively. INSURANCE CLAIMS RECEIVABLE. Insurance claim receivables represent costs incurred in connection with insurable incidents for which the Company expects it is probable of being reimbursed by the insurance carrier(s), subject to applicable deductibles. Deductible amounts related to covered incidents are generally expensed in the period of occurrence of the incident. Expenses incurred for insurable incidents in excess of deductibles are recorded as receivables pending the completion of all repair work and administrative claims process. The credit risk associated with insurance claims receivables is considered low due to the high credit quality and funded status of the insurance clubs in which the Company participates. Insurance claims receivables approximated $4.0 million and $4.1 million at December 31, 2003 and 2002, respectively, and is included in Other Receivables. MARINE OPERATING SUPPLIES. Such amounts consist of fuel and supplies that are recorded at cost less a reserve for obsolescence and are charged to operating expenses as consumed. IMPAIRMENT OF LONG-LIVED ASSETS. The Company accounts for the impairment of long-lived assets under the provisions of Statement of Financial Accounting Standards SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144"), which requires impairment losses to be recorded on long-lived assets used in operations when indications of impairment are present and the estimated undiscounted cash flows to be generated by those assets are less than the assets' carrying value. It also establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. If the carrying value of the assets will not be recoverable, as determined by the estimated undiscounted cash flows, the carrying value of the assets is reduced to fair value. Generally, fair value will be determined using valuation techniques such as expected discounted cash flows or appraisals, as appropriate. An impairment loss of $1.2 million was recognized in 2003, related to assets held for sale. ASSETS HELD FOR SALE. It is Company policy to make available for sale vessels and equipment considered by management as excess and no longer necessary for the operations of the Company. In accordance with SFAS 144, these assets are valued at the lower of carrying value or fair value less costs to sell. Also, depreciation expense for these assets is discontinued at the time of the reclassification. Total assets held for sale (primarily assets in the offshore energy segment) were approximately $0.4 million and $2.2 million at December 31, 2003 and 2002, respectively, and are included in other assets in the accompanying consolidated balance sheets. VESSELS AND EQUIPMENT. Vessels and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. At the time property is disposed of, the assets and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recorded in operating income. Major renewals and betterments that extend the life of the vessels and equipment are capitalized. Maintenance and repairs are expensed as incurred except for drydocking expenditures. F-10 Vessels under capital leases are amortized over the lesser of the lease term or their estimated useful lives. Included in vessels and equipment at December 31, 2003 and 2002 are vessels under capital leases of approximately $55.4 million and $36.0 million, net of accumulated amortization of approximately $6.4 million and $3.7 million, respectively. Listed below are the estimated useful lives of vessels and equipment at December 31, 2003: USEFUL LIVES ------------- (in years)(1) Supply boats 6-25 Crewboats 6-25 Anchor handling tug/supply vessels 4-25 Other 5-20 Tankers(1) 7-30 Tugboats 7-40 Furniture and equipment 3-8 - ------------------- (1) Range in years is determined by the Oil Pollution Act of 1990 and other factors. DEFERRED COSTS. Deferred costs primarily represent drydocking and financing costs. Substantially all of the Company's vessels must be periodically drydocked and pass certain inspections to maintain their operating classification, as mandated by certain maritime regulations. Costs incurred to drydock the vessels are deferred and amortized over the period to the next drydocking, generally 30 to 36 months. Drydocking costs are comprised of painting the vessel hull and sides, recoating cargo and fuel tanks, and performing other engine and equipment maintenance activities to bring the vessels into compliance with classification standards. Deferred financing costs are amortized over the term of the related borrowings using the effective interest method. At December 31, 2003 and 2002, deferred costs included unamortized drydocking costs of approximately $35.2 million and $27.2 million, respectively, and net deferred financing costs of $13.2 million and $11.0 million, respectively. ACCRUED LIABILITIES. Accrued liabilities included in current liabilities at December 31, consist of the following (in thousands): 2003 2002 ------- ------- Voyage operating expenses ........ $ 7,756 $10,320 Foreign taxes .................... 8,541 7,689 Payroll and benefits ............. 6,803 6,848 Deferred voyage revenue .......... 1,990 933 Professional services ............ 552 473 Litigation, claims and settlements 608 106 Insurance ........................ 6,101 4,703 Other ............................ 5,012 3,832 ------- ------- Total .......................... $37,363 $34,904 ======= ======= STOCK-BASED COMPENSATION. As permitted by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), the Company has elected to follow Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations in accounting for its employee stock-based transactions and has complied with the disclosure requirements of SFAS 123. Under APB 25, compensation expense is calculated at F-11 the time of option grant based upon the difference between the exercise prices of the option and the fair market value of the Company's common stock at the date of grant recognized over the vesting period. On December 31, 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE ("SFAS 148"). SFAS 148 amends SFAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure provisions of SFAS 123 to require expanded disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. Had compensation expense for the stock option grants been determined based on the fair value at the grant date for awards consistent with the methods of SFAS 123, the Company's net loss would have increased to the pro forma amounts presented below for 2003, 2002 and 2001:
YEAR ENDED DECEMBER 31, -------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Net loss: As reported ................................. $ (4,965) $ (38,870) $ (11,961) Pro forma ................................... (6,071) (40,017) (13,115) Net loss per common share--assuming dilution: As reported ................................. $ (0.21) $ (2.72) $ (1.16) Pro forma ................................... (0.26) (2.80) (1.28)
INCOME TAXES. The Company files a consolidated tax return with substantially all corporate subsidiaries. In addition, subsidiaries doing business in foreign countries, file separate income tax returns in foreign jurisdictions, where applicable. Each partnership files a separate tax return. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. 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. NET LOSS PER SHARE. Net loss per common share is computed in accordance with SFAS No. 128, EARNINGS PER SHARE ("SFAS 128"), which requires the reporting of both net loss per common share and diluted net loss per common share. The calculation of net loss per common share is based on the weighted average number of common shares outstanding and therefore excludes any dilutive effect of stock options and warrants while diluted net loss per common share includes the dilutive effect of stock options and warrants, unless the effects are anti-dilutive. FOREIGN CURRENCY TRANSLATION. In accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION ("SFAS 52"), assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rate of exchange at the balance sheet date, while revenue and expenses are translated at the weighted average rates prevailing during the respective years. Components of stockholders' equity are translated at historical rates. Translation adjustments are deferred in accumulated other comprehensive loss, which is a separate component of stockholders' equity. The Company's foreign subsidiaries use the U.S. dollar as their functional currency and substantially all external transactions are denominated in U.S. dollars. Gains and losses resulting from changes in exchange rates from year to year are insignificant for all years presented and are included in the accompanying consolidated statements of operations. F-12 ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods. Significant estimates have been made by management, including the allowance for doubtful accounts, useful lives and valuation of vessels and equipment, realizability of deferred tax assets and certain accrued liabilities. Actual results will differ from those estimates. COMPREHENSIVE LOSS. SFAS No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"), establishes standards for reporting and the display of comprehensive loss, which is defined as the change in equity arising from non-owner sources. Comprehensive loss consists of net loss and foreign currency translation adjustments. Comprehensive loss is reflected in the consolidated statement of changes in stockholders' equity. RECLASSIFICATIONS. Certain previously reported amounts have been reclassified to conform to the 2003 presentation. FINANCIAL INSTRUMENTS. The Company follows the provisions of Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, ("SFAS 133") which establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires that derivative instruments be recognized as either assets or liabilities on the balance sheet and measure those instruments at fair value. Further information on derivative financial instruments is provided in Note 14. RECENT PRONOUNCEMENTS. In June 2001, the Accounting Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued an exposure draft of a proposed Statement of Position ("SOP") entitled ACCOUNTING FOR CERTAIN COSTS AND ACTIVITIES RELATED TO PROPERTY, PLANT AND EQUIPMENT. Under the proposed SOP, the Company would expense major maintenance costs as incurred and be prohibited from deferring of the entire cost of a planned major maintenance activity. Currently, the costs incurred to drydock the Company's vessels are deferred and amortized on a straight-line basis over the period to the next drydocking, generally 30 to 36 months. At its September 9, 2003 meeting, AcSEC voted to approve the SOP. The SOP is expected to be presented for FASB clearance in the second quarter of 2004 and would be applicable for fiscal years beginning after December 15, 2004. Management has determined that this SOP may have a material effect on the consolidated financial statements. In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS ("SFAS 145"), which eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, and eliminates an inconsistency between the accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. As a result of the January 1, 2003 adoption date of the standard, the Company reclassified to continuing operations amounts previously reported as extinguishments of debt. In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS 146"), which addresses the financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 is effective for fiscal years beginning after December 31, 2002. The adoption of the standard did not have a significant impact on the consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. FIN 45 expands on the accounting guidance of Statements No. 5, 57, and 107 and incorporates without change the provisions of FASB Interpretation No. 34, Capitalization of Interest Cost ("SFAS 34"), which is being superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor's fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a significant impact on the Company. In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE ("SFAS 148"). SFAS 148 amends SFAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure provisions of SFAS 123 to require expanded disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51 ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the variable interest entity. The primary beneficiary is defined as the party which, as a result of holding its variable interest, absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after March 15, 2004. The Company has determined that the adoption of FIN 46 will not have a significant impact on its financial position, results of operations or cash flows. F-13 3. LONG-TERM DEBT Long-term debt at December 31, consists of the following (in thousands):
2003 2002 --------- --------- Senior Notes, including related interest rate swap $ 151,472 $ -- Amended credit facility .......................... 30,000 178,675 Title XI debt .................................... 216,117 234,450 Notes payable .................................... 23,137 22,048 --------- --------- 420,726 435,173 Less: current maturities ........................ (11,037) (24,315) --------- --------- Long-term debt, including senior notes ........ $ 409,689 $ 410,858 ========= =========
On August 5, 2003, the Company completed the offering of $150 million of Senior Notes ("Notes") due 2013 through a private placement eligible for resale under Rule 144A and Regulation S. The net proceeds of the offering were used to repay a portion of the Company's indebtedness under a $180 million credit facility. Interest on the Notes will be payable semi-annually in arrears, commencing on February 15, 2004. The interest rate on the Notes sold to private institutional investors is 9.50%. The Notes are senior unsecured obligations guaranteed by certain of the Company's U.S. subsidiaries. The Notes are subject to certain covenants, including, among other things, limiting the Parent's and certain U.S. subsidiaries' ability to incur additional indebtedness or issue preferred stock, pay dividends to stockholders, and make investments or sell assets. On October 31, 2003, the Company filed a registration statement with the SEC to register substantially identical senior notes to be exchanged for the Notes pursuant to a registration rights agreement, so that the notes may be eligible for trading in the public markets. On November 13, 2003, the registration statement was declared effective and the Company completed the exchange offer on December 16, 2003. In October 2003, the Company entered into an interest rate swap agreement related to the Notes (see Note 14). As of December 31, 2003, the market value of the interest rate swap was $1.5 million. In connection with the Notes offering, the Company amended and restated its $180 million credit facility. The amended credit facility consists of an $80 million revolving credit facility and has a five-year maturity. The amended credit facility is subject to semi-annual reductions commencing February 5, 2004. The principal reductions on the amended credit facility are as follows: $8 million each February in 2004 through 2007, and $48 million in 2008. Interest on the loans is payable monthly, with a variable interest rate. The rate is either a LIBOR or base rate plus a margin based upon certain financial ratios of the Company (4.67% at December 31, 2003). It is secured by first liens on certain of the Company's vessels (excluding vessels financed with Title XI financing and some of its other vessels), second liens on two vessels, and stock of certain subsidiaries and is guaranteed by certain subsidiaries (see Note 19). The amended credit facility is subject to various financial covenants, including minimum ratios of adjusted EBITDA to adjusted interest expense and a minimum ratio of adjusted funded debt to adjusted EBITDA, minimum adjusted tangible net worth, and minimum fair market value of the Company's vessels. EARLY EXTINGUISHMENT OF DEBT In connection with amending and restating its former $180 million credit facility, the Company wrote off approximately 45% of the unamortized financing costs of the prior credit facility. The total amount written off was approximately $1.1 million. In connection with the Senior Notes offering, the F-14 Company paid $11.2 million to retire the debt of certain vessels financed with Title XI financing. As a result of this early retirement, the Company wrote off $400,000 of unamortized financing costs and paid an early retirement premium of $226,000. The Company recorded a gain on extinguishment of debt of $125,000 related to the refinancing of two offshore vessels in December 2003. TITLE XI FINANCING BONDS The Company's five double-hull product and chemical tankers are financed through Title XI Government Guaranteed Ship Financing Bonds. There are a total of seven bonds with interest rates ranging from 6.50% to 7.54% that require principal amortization through June 2024. The aggregate outstanding principal balance of the bonds was $211.0 million and $215.7 million at December 31, 2003 and 2002, respectively. Principal payments during 2003 and 2002 were $4.7 million and $4.4 million, respectively, and interest payments were $14.8 million and $15.1 million, respectively. Covenants under the Title XI Bond agreements contain financial tests which, if not met, among other things (1) restrict the withdrawal of capital; (2) restrict certain payments, including dividends, increases in employee compensation and payments of other indebtedness; (3) limit the incurrence of additional indebtedness; and (4) prohibit the Company from making certain investments or acquiring additional fixed assets. Vessels with a net book value of $217.5 million as of December 31, 2003, and all contract rights thereof, have been secured as collateral in consideration of the United States Government guarantee of the Title XI Bonds. The Company is required to make deposits to a Title XI reserve fund based on a percentage of net income attributable to the operations of the five double-hull tankers, as defined by the Title XI Bond agreement. Cash held in a Title XI reserve fund is invested by the trustee of the fund, and any income earned thereon is either paid to the Company or retained in the reserve fund. Withdrawals from the Title XI reserve fund may be made for limited purposes, subject to prior approval from MARAD. In the second quarter of 2003, the first deposits to the reserve fund were made in the amount of $3.8 million. Additionally, according to the Title XI financial agreement, the Company is restricted from distributing excess cash from the five double-hull tankers until certain working capital levels have been reached and maintained. Accordingly, at December 31, 2003, the Company has approximately $27.0 million in cash and cash equivalents that are restricted for use for the operations of the five double-hull tankers and cannot be used to fund the Company's general working capital requirements. However, in 2003, the five double-hull tankers distributed approximately $4.3 million to the Company for general working capital purposes. The Company expects to receive $3.8 million during the first quarter of 2004. As of December 31, 2003 and 2002, other Title XI debt of approximately $5.1 million and $18.8 million, respectively, was collateralized by first preferred mortgages on certain vessels and bears interest at rates ranging from 5.9% to 10.1%. The debt is due in semi-annual principal and interest payments through December 2006. Under the terms of the other Title XI debt, the Company is required to maintain a minimum level of working capital, as defined, and comply with certain other financial covenants. During 2003 and 2002, $13.7 million and $2.8 million, respectively, in principal and $1.4 million and $1.7 million, respectively, in interest were paid on this debt. NOTES PAYABLE The Company has one promissory note relating to the purchase of equity interests in the double-hull product tankers. The note bears interest at 8.5%. Quarterly principal and interest payments are due through January 2006 on the note. The promissory note is collateralized by securities of certain subsidiaries. The outstanding balance of the promissory note was $4.7 million and $6.8 million as of December 31, 2003 and 2002, respectively. F-15 The Company has various promissory notes relating to the acquisitions of various vessels. The promissory notes are collateralized by mortgages on certain vessels and bear interest at rates ranging from 4.0% to 8.1%. The debt is due in monthly installments of principal and interest through December 2018. The outstanding balance of the notes was $18.4 million and $11.9 million as of December 31, 2003 and 2002, respectively. The Company has letters of credit outstanding in the amount of approximately $3.9 million, and $1.3 million as of December 2003 and 2002, respectively, which expire on various dates through December 2025. The aggregate annual future payments due on the long-term debt are as follows (in thousands):
YEARS ENDING DECEMBER 31: ------------------------- 2004 ......................................................... $ 10,911 2005 ......................................................... 10,949 2006 ......................................................... 9,309 2007 ......................................................... 7,948 2008 ......................................................... 43,364 Thereafter ................................................... 336,773 -------- $419,254 ========
4. CAPITAL LEASES The Company operates certain vessels and other equipment under leases that are classified as capital leases. The future minimum lease payments under capital leases, including obligations under sale-leaseback transactions, together with the present value of the net minimum lease payments are as follows (in thousands):
YEARS ENDING DECEMBER 31: ------------------------- 2004 ...................................................... $ 5,966 2005 ...................................................... 5,948 2006 ...................................................... 4,991 2007 ...................................................... 4,991 2008 ...................................................... 6,286 Thereafter ................................................ 20,528 -------- Total minimum lease payments .............................. 48,710 Less: amount representing interest ........................ (12,943) -------- Present value of minimum lease payments (including current portion of $3,521) ............................. $ 35,767 ========
F-16 5. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company leases its office facilities and certain vessels under operating lease agreements, which expire at various dates through 2013. Rent expense was approximately $3.8 million, $4.5 million and $4.9 million for the years ended December 31, 2003, 2002 and 2001, respectively. The aggregate annual future payments due under non-cancelable operating leases with remaining terms in excess of one year are as follows (in thousands):
YEARS ENDING DECEMBER 31: ------------------------- 2004 ...................................................... $ 3,408 2005 ...................................................... 3,177 2006 ...................................................... 3,159 2007 ...................................................... 1,811 2008 ...................................................... 1,453 Thereafter ................................................ 2,114 ------- $15,122 =======
BAREBOAT CHARTER AND SUBLEASE In November 2003, the Company terminated its bareboat charter agreement on the Seabulk Energy, one of its U.S.-flag double-hull tankers. The Company subleases certain office space in Tampa, Florida. The sublease in Tampa is expected to terminate in December 2006. There are no renewal or escalation clauses relating to the sublease. The future minimum receipts under the sublease are as follows (in thousands):
YEARS ENDING DECEMBER 31: ------------------------- 2004 ...................................................... $106 2005 ...................................................... 98 2006 ...................................................... 98 ---- $302 ====
F-17 CONTINGENCIES Under United States law, "United States persons" are prohibited from business activities and contracts in certain countries, including Sudan and Iran. The Company has filed three reports with and submitted documents to the Office of Foreign Asset Control ("OFAC") of the U.S. Department of Treasury. One of the reports was also filed with the Bureau of Export Administration of the U.S. Department of Commerce. The reports and documents related to certain limited charters with third parties involving three of the Company's vessels which called in the Sudan for several months in 1999 and January 2000, and charters with third parties involving several of the Company's vessels which called in Iran in 1998. In March 2003, the Company received notification from OFAC that the case has been referred to its Civil Penalties Division. Should OFAC determine that these activities constituted violations of the laws or regulations, civil penalties, including fines, could be assessed against the Company and/or certain individuals who knowingly participated in such activities. The Company cannot predict the extent of such penalties; however, management does not believe the outcome of these matters will have a material impact on its financial position or results of operations. The Company was sued by Maritime Transport Development Corporation in January 2002 in Florida state court in Broward County alleging broker commissions due since 1998 from charters on two of its vessels, the SEABULK MAGNACHEM and SEABULK CHALLENGER, under an alleged broker commission agreement. The claim allegedly continues to accrue. The amount alleged to be due is over $600,000, but is subject to offset claims and defenses by the Company. The Company is vigorously defending such charges, but the Company cannot predict the ultimate outcome. Under the Company's mutual protection and indemnity ("P&I") marine insurance policies, the Company could be liable for additional premiums to cover investment losses and reserve shortfalls experienced by its marine insurance club (Steamship). The maximum potential amount of additional premiums that can be assessed by Steamship is substantial. However, additional premiums can only be assessed for open policy years. Steamship closes a policy year three years after the policy year has ended. Completed policy years 2001, 2002 and 2003 are still open, but there have been no additional premiums assessed for these policy years. The Company will record a liability for any such additional premiums if and when they are assessed and the amount can be reasonably estimated. As of February 20, 2004, the Company switched its P&I club, from Steamship to the West of England Association ("West of England"). In order to cover potential future additional insurance calls made by Steamship Mutual for 2003, 2002, and 2001, the Company is required to post a letter of credit in the amount of $3.1 million to support such potential additional calls as a condition to its departure from Steamship Mutual. The letter of credit will be returned if no additional insurance calls are made. Potential claims liabilities are recorded as insurance expense reserves when they become probable and can be reasonably estimated. From time to time the Company is also party to personal injury and property damage claims litigation arising in the ordinary course of our business. Protection and indemnity marine liability insurance covers large claims in excess of the substantial deductibles and self-insured retentions. At December 31, 2003, approximately 19% of the Company's employees were members of national maritime labor unions or are subject to collective bargaining agreements. Management considers relations with employees to be satisfactory; however, the deterioration of these relations could have an adverse effect on the Company's operating results. F-18 6. VESSELS AND EQUIPMENT Vessels and equipment are summarized below (in thousands):
DECEMBER 31, ------------------------- 2003 2002 --------- --------- Vessels and improvements ...................... $ 697,358 $ 678,617 Furniture and equipment ....................... 9,848 9,842 --------- --------- 707,206 688,459 Less: accumulated depreciation and amortization (180,180) (143,290) --------- --------- Vessels and equipment, net ................. $ 527,026 $ 545,169 ========= =========
The Company sold 18 offshore energy support vessels and three tugs during 2003 for total of $9.0 million and a gain of approximately $1.5 million. In 2002, the Company sold 17 vessels for a total of $6.8 million and a gain of approximately $55,000. During 2003, the Company incurred interest cost of $33.9 million, of which approximately $90,000 was capitalized and $33.8 million was charged to expense. VESSEL ACQUISITIONS In January 2003, the Company took delivery of the SEABULK AFRICA, a newbuild, state-of-the art, 236-foot, 5,500 horsepower, UT-755L platform supply vessel. The vessel has joined the Company's West African fleet. The SEABULK AFRICA and related improvements were acquired for cash of approximately $17.8 million and financed in April 2003 by means of a sale leaseback arrangement with TransAmerica Capital for a lease term of 10 years, under which the Company will have an option to acquire the vessel after 8 years at a fixed price. The lease has been accounted for as a capital lease. The Company also took delivery of two newbuild vessels as bareboat charterer in February and March 2003. The SEABULK BADAMYAR is a 3800 horsepower anchor handling tug/supply vessel and SEABULK NILAR is a 3800 horsepower platform supply vessel. The Company is bareboat chartering the vessels from the shipbuilder, the Labroy Group in Indonesia, for deployment under time charters with a major international oil company in the Southeast Asia market. The term of each bareboat charter is three years with an option to purchase the vessel at fair market value at the end of the term. The leases are accounted for as operating leases. In April 2003, the Company terminated a capital lease with TA Marine Inc. for the SEABULK ARIZONA and acquired the vessel for $6.9 million. The SEABULK ARIZONA is a 1998 built, 205-foot, 4,200 horsepower supply vessel. Financing was in the form of a 5-year, $6.5 million term loan provided by Orix Financial Services, Inc. with an interest rate of 5.81%. In June 2003, the Company purchased a Brazilian flag line handling vessel for operations in Brazil for $2.5 million. The Company also executed a vessel construction agreement in April 2003, through its newly formed Brazilian subsidiary, with a Brazilian shipyard for the construction of a modern platform supply vessel for a purchase price of $16.7 million for offshore energy support operations in Brazil. This vessel is expected to be completed in the fourth quarter of 2004. As of December 31, 2003, the Company had spent approximately $4.3 million on the construction of the vessel. In August 2003, the Company entered into a second construction agreement, with the same yard, Promar, for a second identical vessel, to be delivered in the first quarter of 2005, for $16.5 F-19 million. As of December 31, 2003, the Company had spent approximately $3.3 million on the construction of the vessel. In anticipation of such operations, the Company has established a Brazilian subsidiary called Seabulk Offshore do Brazil S.A. In August 2003, the Company entered into a five year bareboat charter with purchase option for a newly built anchor handler, the SEABULK SOUTH ATLANTIC, and took delivery of the vessel on September 2, 2003. In September 2003, the Company entered into a five year bareboat charter with purchase option for a newly built platform supply vessel, the SEABULK ASIA, and took delivery of the vessel on October 1, 2003. The Company also purchased a small tender. All three vessels have been deployed in West Africa. 7. JOINT VENTURE AGREEMENTS In March 2003, the Company formed a joint venture company in Nigeria, named Modant Seabulk Nigeria Limited, with CTC International, Inc., a company owned by Nigerian interests. The Company has a 40% interest in Modant Seabulk Nigeria Limited. The Company also sold five of its crewboats operating in Nigeria to joint venture companies related to CTC International in April 2003 for $2 million. As a part of the proceeds of sale, the Company invested $400,000 and acquired a 20% interest in these joint venture vessel-owning companies. Modant Seabulk Nigeria Limited operates the crewboats. In July 2003, the five crewboats were reflagged into the Nigerian registry. Seabulk Offshore provides certain management services for the joint venture. The Company has not guaranteed any debt of the joint venture, nor is the Company required to provide additional funding. In September 2003, the Company entered into a joint venture agreement and formed a joint venture company called Angobulk SARL with Angola Drilling Company. The Company intends to bareboat charter offshore vessels to the joint venture company and provide certain ship management services for the joint venture company for offshore operations in Angola. 8. STOCK OPTION PLANS In December 1999, the Company adopted the Hvide Marine Incorporated Stock Option Plan (the "1999 Plan"), a stock option plan which provided certain key employees of the Company the right to acquire shares of common stock. Pursuant to the 1999 Plan, 500,000 shares of the Company's common stock were reserved for issuance to the participants in the form of nonqualified stock options. The options expire no later than 10 years from the date of the grant. On June 15, 2000, the Company adopted the Amended and Restated Equity Ownership Plan (the "Plan"). The Plan amends and restates in its entirety the 1999 Plan. Pursuant to the Plan, 800,000 shares of the Company's stock were reserved for issuance to participants in the form of nonqualified or incentive stock options, restricted stock grants and other stock related instruments, subject to adjustment to reflect stock dividends, recapitalizations, reorganizations and other changes in the capital structure. In December 2001, the Compensation Committee agreed to amend the Plan by authorizing and reserving for issuance an additional 500,000 shares to be eligible for grants under the Plan, bringing the total under the Plan to 1,300,000 shares. In February 2003, the Compensation Committee increased the number of shares eligible for grants to 2,300,000 shares. The Committee's action was approved by the shareholders at the Company's Annual Meeting of Shareholders held on May 16, 2003. The vesting period and certain other terms of stock options granted under the Plan are determined by the Compensation Committee. The Plan requires that the option price may not be less than 100% of the fair market value on the date of grant. The options expire no later than 10 years from the date of grant. There were 530,000 options granted under the Plan in 2003, and no options were granted in 2002. In addition, there were 75,000 shares of restricted stock granted in 2001 under the Plan, and 115,000 shares of restricted stock granted in 2003. The F-20 Company amortizes the value of the restricted stock over the vesting period. The Company recognized stock compensation expense of approximately $238,000 and $99,000 in 2003 and 2002, respectively, related to restricted stock. On June 15, 2000, the Company also adopted the Stock Option Plan for Directors (the "Directors Plan"). Pursuant to the Directors Plan, as of December 31, 2003, an aggregate of 360,000 shares of common stock are authorized and reserved for issuance, subject to adjustments to reflect stock dividends, reorganizations, and other changes in the capital structure of the Company. Under the Stock Option Plan for Directors, each director not employed by the Company is granted annual stock options exercisable for 4,000 shares. The Chairman of the Board of Directors, if not an employee of the Company, is entitled to receive annual stock options for 8,000 shares. In 2002 each of the continuing outside directors was granted options to purchase 4,000 shares, and each of the four previous directors who resigned upon the Company's equity transaction in September 2002 were also granted options to purchase 4,000 shares, with the exception of the former chairman, who was granted 8,000 shares. In his initial year, a director is granted options to purchase 10,000 shares. The six new directors were eligible for initial grants of options to purchase 10,000 shares on the Annual Meeting date in 2003 and the continuing directors, with the exception of Mr. Kurz, were eligible for grants of options to purchase 4,000 shares. Under the Directors Plan, the option price for each option granted is required to be 100% of the fair market value of common stock on the day after the date of grant. Options granted under the Directors Plan totaled 72,000 and 32,000 during 2003 and 2002, respectively. The following table of data is presented in connection with the stock option plans:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- 2003 2002 2001 -------------------- ----------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- --------- ------- ---------- ------- ---------- Options outstanding at beginning of period . 774,502 $ 6.84 822,000 $ 6.91 604,000 827 Granted ..................................... 602,000 7.85 32,000 6.19 315,000 5.61 Exercised ................................... (57,169) 5.37 (6,667) 6.31 -- -- Cancelled ................................... (116,333) 7.49 (72,831) 7.48 (97,000) 10.8 ---------- ---------- ---------- Options outstanding at end of period ........ 1,203,000 $ 7.35 774,502 $ 6.84 822,000 $ 6.91 ========== ======= ========== ======= ========== ======= Options exercisable at end of period ........ 571,513 $ 7.00 562,856 $ 7.30 333,837 $ 8.38 Options available for future grants at end of period ................................. 1,203,164 -- 618,831 -- 153,000 --
F-21 Summarized information about stock options outstanding as of December 31, 2003 is as follows:
WEIGHTED WEIGHTED NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE OPTIONS LIFE EXERCISE OPTIONS EXERCISE EXERCISE PRICE RANGE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE - -------------------- --------------- -------------- ---------------- --------------- ------------- Under $6.25 119,000 8.03 $ 4.48 86,174 $ 4.68 $6.25 to $6.31 334,000 6.48 $ 6.26 334,000 $ 6.26 $6.32 to $7.30 191,000 8.92 $ 7.27 28,000 $ 7.30 $7.31 to $7.50 68,000 7.24 $ 7.75 49,339 $ 7.75 Over $7.75 491,000 8.25 $ 13.77 74,000 $ 12.47
The weighted average fair value of options granted under the Company's stock option plans during 2003, 2002 and 2001 was $5.58, $4.91, and $5.54, respectively. The Company uses the Black-Scholes option valuation model to determine the fair value of options granted under the Company's stock option plans. Had compensation expense for the stock option grants been determined based on the fair value at the grant date for awards consistent with the methods of SFAS 123, the Company's net loss would have increased to the pro forma amounts presented below for 2003, 2002 and 2001 (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, --------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Net loss: As reported ................................. $ (4,965) $ (38,870) $ (11,961) Pro forma ................................... (6,071) (40,017) (13,115) Net loss per common share--assuming dilution: As reported ................................. $ (0.21) $ (2.72) $ (1.16) Pro forma ................................... (0.26) (2.80) (1.28)
The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions applied to grants in 2003, 2002 and 2001:
2003 20020 2001 -------- -------- -------- Dividend yield .................... 0.0% 0.0% 0.0% Expected volatility factor ........ 0.58 0.72 3.21 Approximate risk-free interest rate 4.27% 4.25% 5.0% Expected life (in years) .......... 10 10 10
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models, in management's opinion, do not necessarily provide a reliable single measure of the fair value of the Company's stock options. F-22 9. EMPLOYEE BENEFIT AND STOCK PLANS The Company sponsors a retirement plan and trust (the "Plan") established pursuant to Section 401(k) of the Internal Revenue Code, which covers substantially all administrative and non-union employees. Subject to certain dollar limitations, employees may contribute a percentage of their salaries to this Plan, and the Company will match a portion of the employees' contributions. Profit sharing contributions by the Company to the Plan are discretionary. Additionally, the Company contributed to various union-sponsored, collectively bargained pension plans for certain crew members in the marine transportation and towing segments. The plans are not administered by the Company, and contributions are determined in accordance with provisions of negotiated labor contracts. The expense resulting from Company contributions to the Plan and various union-sponsored plans amounted to approximately $3.7 million, $3.5 million and $2.9 million for the years ended December 31, 2003, 2002 and 2001, respectively. In February 2003, the Company established an Executive Deferred Compensation Plan for highly compensated employees. Under the Plan, such an employee may elect to defer up to 50% of his salary and 100% of bonuses and grants of restricted Company stock for periods of at least five years or until retirement. Income tax on deferred amounts is payable when distributed to the employee after such deferral periods. The Company is permitted to make contributions to the Plan. Salary, bonus and restricted stock deferred under the Plan are funded by the Company into a trust for the benefit of the eligible employees, which together with an outside consultant/administrator, administers the Plan. The Deferred Compensation Plan does not require shareholder approval. 10. INCOME TAXES The United States and foreign components of loss before provision for income taxes are as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------ 2003 2002 2001 ------- -------- ------- United States ............................. $(3,959) $(35,578) $(3,849) Foreign ................................... 3,232 1,350 (2,902) ------- -------- ------- Total ................................. $ (727) $(34,228) $(6,751) ======= ======== =======
The components of the provision for income tax expense (benefit) are as follows (in thousands):
YEAR ENDED DECEMBER 31, -------------------------------- 2003 2002 2001 ------ ------- ------ Current: Federal ................................... $ -- $(1,520) $ -- Foreign ................................... 4,238 6,162 5,210 ------ ------- ------ Total current ........................... 4,238 4,642 5,210 ------ ------- ------ Deferred ..................................... -- -- -- ------ ------- ------ Total income tax expense ................. $4,238 $ 4,642 $5,210 ====== ======= ======
F-23 A reconciliation of U.S. Federal income tax attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense (benefit) is:
YEAR ENDED DECEMBER 31, ------------------------- 2003 2002 2001 --- --- --- Income tax (benefit) computed at the federal statutory rate .................................... (35)% (35)% (35)% State income taxes, net of Federal benefit ................ (1) (1) (1) Change in valuation allowance ............................. 35 31 35 Permanent, non deductible items ........................... 1 1 1 --- --- --- 0% (4)% 0% === === ===
The provision for foreign income tax expense has been levied on the gross receipts and is as follows (in thousands):
2003 2002 2001 ---- ---- ---- Foreign taxes..................................... $4,238 $6,162 $5,210
The tax effect of temporary differences that give rise to deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, ------------------------- 2003 2002 --------- --------- Deferred income tax assets: Allowances for doubtful accounts ....... $ 919 $ 1,606 Goodwill ............................... 13,321 14,785 Accrued compensation ................... 698 627 Foreign tax credit carryforwards ....... 21,967 17,809 Accrued supplemental insurance premiums 71 1,534 Net operating loss carryforwards ....... 147,300 123,114 Other .................................. 1,662 1,783 --------- --------- Total deferred income tax assets .... 185,938 161,258 Less: valuation allowance .......... (78,311) (75,177) --------- --------- Net deferred income tax assets ...... 107,627 86,081 Deferred income tax liabilities: Property differences ................... 94,060 75,192 Deferred drydocking costs .............. 12,364 9,489 Other .................................. 1,203 1,400 --------- --------- Total deferred income tax liabilities 107,627 86,081 --------- --------- Net deferred income tax assets ...... $ -- $ -- ========= =========
SFAS No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS 109") requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management determined that a valuation allowance of approximately $78.3 million and $75.2 million was necessary at December 31, 2003, and 2002, respectively, to reduce the deferred tax assets to the amount that will more likely than not be realized. After application of the valuation allowance, the Company's net deferred tax assets and liabilities are zero at December 31, 2003 and 2002, respectively. The net change in the total valuation allowance was an increase of approximately $3.1 million and $9.9 million in 2003 and 2002. F-24 Subsequently, recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2003, will be allocated as follows (in thousands): Income tax benefit that would be reported in the consolidated statement of operations........... $ 35,059 Additional paid-in capital...................................................................... 43,252 ---------- Total...................................................................................... $ 78,311 ==========
In the event that the Company recognizes, in subsequent years, the tax benefit of any deferred tax asset that existed under the reorganization which became effective on December 15, 1999, such benefit will be reported as a direct addition to contributed capital. In 2002, the Company recognized a deferred tax asset of $1.5 million for a 2001 federal net operating loss carryback. On March 9, 2002, the Job Creation and Worker Assistance Act of 2002 was signed into law, which allows a 2001 federal net operating loss to be carried back five years instead of two years. This new law converted the 2001 federal net operating loss carryforward into a federal net operating loss that will be fully absorbed within the five-year carryback period. The Company received a refund related to the net operating loss carryback in 2004. The stock issuance in September 2002 resulted in an "ownership change" as broadly defined in Section 382 of the Internal Revenue Code. As the result of the ownership change, utilization of net operating loss carryforwards under federal income tax laws and certain other beneficial tax attributes will be subject to an annual limitation. The limitation of net operating losses that can be utilized annually will equal the product of applicable interest rate mandated under federal income tax laws and the value at the time of the ownership change. At December 31, 2003, the Company had a net operating loss carryforward of approximately $411.9 million, which is available to offset future federal taxable income through 2023. The Company also has foreign tax credit carryforwards, expiring in years 2003 through 2007, of approximately $22 million, which are available to reduce future federal income tax liabilities. The annual limitation under Section 382 would limit utilization of the Company's pre-September 2002 net operating losses to a maximum of approximately $4.2 million annually through 2023. A substantial portion of net operating loss carryforwards and tax credits may not be utilized due to this annual limitation. The Company has a tax basis in its assets in excess of its basis for financial reporting purposes that will generate tax deductions in future periods. As a result of a "change in ownership" in December 1999, under the Internal Revenue Code Section 382, the Company's ability to utilize depreciation, amortization and other tax attributes will be limited to approximately $9.5 million per year through 2004. This limitation is applied to all net built-in losses, which existed on the "change of ownership" date (December 15, 1999), including all items giving rise to a deferred tax asset. F-25 11. STOCKHOLDERS' EQUITY In December 1999, all classes of the Predecessor Company's equity securities were canceled. Pursuant to a previous, pre-1999 Equity Ownership Plan, prior to December 1999, shares of the Predecessor Company's Class B common stock were converted to Class A common stock. Holders of Predecessor Company Class A common stock and holders of certain rights to obtain common stock under the Predecessor Company's compensation plans were issued 125,000 Class A warrants to purchase common stock of the Company on a pro rata basis. The warrants, which expired on December 12, 2003, had a four-year term and an exercise price of $38.49 per share. Pursuant to the articles of incorporation of the Company, as amended in 2002, there are 40 million shares of common stock authorized for issuance. In December 1999, holders of the Predecessor Company's Preferred Securities received 200,000 shares of Company common stock and 125,000 Class A warrants. During the year ended December 31, 2003, 56 Class A warrants were exercised. There were no Class A warrant exercises during 2002. In December 1999, as part of the Company's reorganization under Chapter 11 bankruptcy, the holders of the Predecessor Company's Senior Notes received 9.8 million shares of Company common stock. The holders of Senior Notes received 536,193 common stock purchase warrants (the "Noteholder Warrants"). The warrants have a seven and one-half year term and an exercise price of $0.01 per warrant. Also in connection with the former Senior Notes, the Company issued an additional 187,668 Noteholder Warrants to an investment advisor. The warrants have a seven and one-half year term and an exercise price of $0.01 per warrant. During the years ended December 31, 2003 and 2002, approximately 51,000 and 112,000 Noteholder Warrants were exercised, respectively. The amount of outstanding Noteholder Warrants amounted to approximately 159,000 at December 31, 2003. The weighted average contractual life is 3.5 years at December 31, 2003. All of the Company's outstanding warrants contain customary anti-dilution provisions for issuances of common stock, splits, combinations and certain other events, as defined. In addition, the outstanding warrants have certain registration rights, as defined. The Company is authorized to issue 5 million shares of preferred stock, no par value per share. The Company has no present plans to issue such shares. At December 31, 2003 approximately 1,203,000 shares of Common Stock were reserved for issuance under the Company's Amended and Restated Equity Ownership Plan and the Stock Option Plan for Directors. On September 13, 2002, the Company completed the private placement of 12.5 million shares of newly issued Seabulk Common Stock at a cash price of $8.00 per share (the "Private Placement") to a group of investors including an entity associated with DLJ Merchant Banking Partners III, L.P., an affiliate of CSFB Private Equity, and entities associated with Carlyle/Riverstone Global Energy and Power Fund I, L.P., an affiliate of The Carlyle Group of Washington, D.C. The stock issuance was previously approved by the Company's Shareholders at a Special Meeting held on September 5, 2002. The new investors also purchased, for $8.00 per share, 5.1 million of the Company's Common Stock and Common Stock purchase warrants beneficially owned by accounts managed by Loomis, Sayles & Co., L.P., an SEC-registered investment F-26 advisor. Taken together, the two transactions gave the new investors approximately 76% of the Company's outstanding common stock. Pursuant to the agreement with the investors, the Company's Board of Directors has been restructured to permit the new investors to hold a majority of seats on the Board and to give minority shareholders certain minority rights. 12. NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, -------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Numerator: Numerator for basic and diluted loss per share--net loss available to common shareholders ...................................... ($ 4,965) ($ 38,870) ($ 11,961) ========== ========== ========== Denominator: Denominator for basic and diluted loss per share--weighted average shares ...................................................... 23,176 14,277 10,277 ========== ========== ========== Net loss per common share - basic ................................. ($ 0.21) ($ 2.72) ($ 1.16) ========== ========== ========== Net loss per common share - diluted ............................... ($ 0.21) ($ 2.72) ($ 1.16) ========== ========== ==========
The weighted average diluted common shares outstanding for fiscal 2003, 2002 and 2001 excludes 1,203,000, 774,502 and 822,000 stock options, respectively. Additionally, 409,000, 460,000 and 572,000 warrants in 2003, 2002 and 2001, respectively, are excluded from the weighted average diluted common shares outstanding. These common stock equivalents are anti-dilutive because the Company incurred net losses for 2003, 2002 and 2001. 13. SEGMENT AND GEOGRAPHIC DATA The Company organizes its business principally into three segments. The accounting policies of the reportable segments are the same as those described in Note 2. The Company does not have significant intersegment transactions. These segments and their respective operations are as follows: OFFSHORE ENERGY SUPPORT (Seabulk Offshore) - Offshore energy support includes vessels operating in U.S. and foreign locations used primarily to transport materials, supplies, equipment and personnel to drilling rigs and to support the construction, positioning and ongoing operations of oil and gas production platforms. MARINE TRANSPORTATION SERVICES (Seabulk Tankers) - Marine transportation services includes oceangoing vessels used to transport chemicals, crude and petroleum products, primarily from chemical manufacturing plants, refineries and storage facilities along the U.S. Gulf of Mexico coast to industrial users and distribution facilities in and around the Gulf of Mexico, Atlantic and Pacific coast ports. Certain of the vessels also transport crude oil within Alaska and among Alaska, Pacific coast and Hawaiian ports. F-27 TOWING (Seabulk Towing) - Harbor and offshore towing services are provided by tugs to vessels utilizing the ports in which the tugs operate, and to vessels at sea to the extent required by offshore commercial contract opportunities and by environmental regulations, casualties or other emergencies. The Company evaluates performance by operating segment. Also, within the offshore energy support segment, the Company performs additional performance evaluation of vessels marketed in U.S. and foreign locations. Resources are allocated based on segment profit or loss from operations, before interest and taxes. Revenue by segment and geographic area consists only of services provided to external customers, as reported in the Statements of Operations. Income from operations by geographic area represents net revenue less applicable costs and expenses related to that revenue. Unallocated expenses are primarily comprised of general and administrative expenses of a corporate nature. Identifiable assets represent those assets used in the operations of each segment or geographic area, and unallocated assets include corporate assets. F-28 The following schedule presents segment information about the Company's operations (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------------------- 2003 2002 2001 --------- --------- --------- REVENUE Offshore energy support ................ $ 160,716 $ 171,479 $ 191,178 Marine transportation services ......... 119,002 121,371 122,059 Towing ................................. 37,257 31,475 35,619 Eliminations (1) ...................... (417) (328) (2,126) --------- --------- --------- TOTAL ............................... $ 316,558 $ 323,997 $ 346,730 ========= ========= ========= OPERATING EXPENSES Offshore energy support ................ $ 100,001 $ 99,572 $ 98,555 Marine transportation services ......... 59,371 64,151 78,675 Towing ................................. 20,721 18,909 20,130 General corporate ...................... -- 254 4,093 Eliminations (1) ....................... (417) (328) (2,126) --------- --------- --------- TOTAL ............................... $ 179,676 $ 182,558 $ 199,327 ========= ========= ========= DEPRECIATION, AMORTIZATION, DRYDOCKING AND WRITE-DOWN OF ASSETS HELD FOR SALE Offshore energy support ................ $ 41,701 $ 43,305 $ 37,550 Marine transportation services ......... 19,455 18,159 19,311 Towing ................................. 3,793 3,222 2,910 General corporate ...................... 1,643 1,690 1,542 --------- --------- --------- TOTAL ............................... $ 66,592 $ 66,376 $ 61,313 ========= ========= ========= INCOME FROM OPERATIONS Offshore energy support ................ $ 990 $ 10,209 $ 38,662 Marine transportation services ......... 36,267 35,669 21,122 Towing ................................. 7,678 4,847 6,354 General corporate ...................... (11,225) (12,955) (17,184) --------- --------- --------- TOTAL ............................... $ 33,710 $ 37,770 $ 48,954 ========= ========= ========= NET LOSS Offshore energy support ................ $ (16,097) $ (16,912) $ 5,566 Marine transportation services ......... 19,354 17,346 (278) Towing ................................. 4,511 (151) 396 General corporate ...................... (12,733)(2) (39,153)(2) (17,645) --------- --------- --------- TOTAL ............................... $ (4,965) $ (38,870) $ (11,961) ========= ========= =========
- --------- (1) Elimination of intersegment towing revenue and intersegment marine transportation operating expenses of $0.4 million, $0.3 million and $2.1 million for the years ended December 31, 2003, 2002 and 2001, respectively. (2) Includes loss on early extinguishment of debt of $1.7 million in the third quarter of 2003 and $27.8 million in the third quarter of 2002, respectively (see Note 15). F-29 CONSOLIDATED BALANCE SHEET INFORMATION AS OF DECEMBER 31, ---------------------------------------- 2003 2002 --------- --------- IDENTIFIABLE ASSETS Offshore energy support ........ $ 288,760 $ 286,634 Marine transportation services . 327,911 323,611 Towing ......................... 60,594 62,590 Unallocated .................... 17,175 22,983 --------- --------- TOTAL ....................... $ 694,440 $ 695,818 ========= ========= VESSELS AND EQUIPMENT Offshore energy support ........ $ 287,972 $ 277,208 Marine transportation services . 341,572 341,069 Towing ......................... 60,924 61,241 --------- --------- Total ....................... 690,468 679,518 Construction in progress ....... 7,856 99 General corporate .............. 8,882 8,842 --------- --------- Gross vessels and equipment .... 707,206 688,459 Less accumulated depreciation (180,180) (143,290) --------- --------- TOTAL ..................... $ 527,026 $ 545,169 ========= ========= YEAR ENDED DECEMBER 31, ------------------------ 2003 2002 --------- --------- CAPITAL EXPENDITURES AND DRYDOCKING Offshore energy support ........... $ 47,720 $ 19,532 Marine transportation services .... 11,283 6,313 Towing ............................ 3,179 1,315 Unallocated ....................... 40 34 --------- --------- TOTAL ........................... $ 62,222 $ 27,194 ========= ========= The Company is engaged in providing marine support and transportation services in the United States and foreign locations. The Company's foreign operations are conducted on a worldwide basis, primarily in West Africa, the Arabian Gulf, Southeast Asia and Mexico, with assets that are highly mobile. These operations are subject to risks inherent in operating in such locations. The vessels generating revenue from offshore and marine transportation services move regularly and routinely from one country to another, sometimes in different continents depending on the charter party. Because of this asset mobility, revenue and long-lived assets attributable to the Company's foreign operations in any one country are not material, as defined in SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). There were no individual customers from which the Company derived more than 10% of its total revenue for the years ended December 31, 2003, 2002, and 2001. F-30 The following table presents selected financial information pertaining to the Company's geographic operations for 2003, 2002 and 2001 (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------------ 2003 2002 2001 -------- -------- -------- REVENUE Domestic ............................. $197,612 $200,008 $239,238 Foreign West Africa ........................ 79,680 84,576 69,305 Middle East ........................ 24,650 23,683 22,450 Southeast Asia ..................... 14,616 15,730 15,737 -------- -------- -------- CONSOLIDATED REVENUE ................... $316,558 $323,997 $346,730 ======== ======== ========
CONSOLIDATED BALANCE SHEET INFORMATION AS OF DECEMBER 31, --------------------------------------- 2003 2002 --------- --------- IDENTIFIABLE ASSETS Domestic .................................. $ 516,773 $ 519,989 Foreign West Africa ............................. 123,918 107,884 Middle East ............................. 28,164 33,535 Southeast Asia .......................... 8,410 11,427 Other ..................................... 17,175 22,983 --------- --------- TOTAL ................................. $ 694,440 $ 695,818 ========= ========= VESSELS AND EQUIPMENT Domestic .................................. $ 544,370 $ 542,003 Foreign West Africa ............................. 120,049 94,645 Middle East ............................. 16,637 23,227 Southeast Asia .......................... 17,268 19,742 --------- --------- 698,324 679,617 General corporate ......................... 8,882 8,842 --------- --------- 707,206 688,459 Less: accumulated depreciation ............ (180,180) (143,290) --------- --------- TOTAL .................................. $ 527,026 $ 545,169 ========= =========
F-31 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments included in the following categories: CASH, CASH EQUIVALENTS, RESTRICTED CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. The carrying amounts reported in the balance sheet approximate fair value due to the short-term nature of such instruments. AMENDED CREDIT FACILITY AND TITLE XI. The amended credit facility and Title XI obligations provide for interest and principal payments at various rates and dates as discussed in Note 3. The Company estimates the fair value of such obligations using a discounted cash flow analysis at estimated market rates. INTEREST RATE SWAP. In October 2003, the Company entered into a ten-year interest rate swap agreement with Fortis Bank and other members of its bank group. The Company entered into this transaction in order to take advantage of a lower available interest rate. Through this derivative instrument, which covers a notional amount of $150 million, the Company effectively converted the interest rate on its outstanding 9.50% Senior Notes due August 2013 to a floating rate based on LIBOR. The current effective floating interest rate is 6.05%. The swap agreement is secured by a second lien on the assets that secure the Company's amended and restated credit facility. The Company entered into the swap transaction "at-market", and as a result there was no exchange of a premium at the initial date of the transaction. The following table presents the carrying value and fair value of the financial instruments at December 31 (in millions):
DECEMBER 31, ----------------------------------------------------------------------------------- 2003 2002 ------------------------------------------ --------------------------------------- Issue Carrying Value Fair Value Carrying Value Fair Value - --------------------------------- ---------------------- ------------------ -------------------- ------------------ Amended credit facility $ 30.0 $ 30.0 $178.7 $178.7 Title XI .............. $216.1 $227.2 $234.5 $257.5 Interest rate swap .... $ 1.5 $ 1.5 $ -- $ --
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS. The carrying amounts reported in the balance sheet approximate fair value determined using a discounted cash flow analysis at estimated market rates. 15. EARLY EXTINGUISHMENT OF DEBT In connection with amending its $180 million credit facility, the Company wrote off approximately 45% of the unamortized financing costs of the prior credit facility. The total amount written off was approximately $1.1 million. In connection with the Senior Notes offering, the Company paid $11.2 million to retire the debt of certain vessels financed with Title XI financing. As a result of this early retirement, the Company wrote off $400,000 of unamortized financing costs, and paid an early retirement premium of $226,000. The Company recorded a gain on extinguishment of debt of $125,000 related to the refinancing of two offshore vessels in December 2003. F-32 16. LIQUIDITY At December 31, 2003, the Company had cash on hand of $34.4 million and working capital of approximately $33.0 million. The Company's main sources of liquidity are from operations, borrowings under our amended credit facility, and proceeds from the sale of vessels with marginal operating performance. In 2003, cash from operations totaled $69.9 million, which was $8.8 million greater than 2002. At December 31, 2003, availability under our $80.0 million amended senior credit facility was approximately $46.1 million. Additionally, the Company received $9.0 million from the sale of vessels during 2003. While the Company believes cash from operations will continue to be a meaningful source of liquidity, factors that can affect our operating earnings and liquidity are discussed further in this report under "Additional Business and Corporate Risk Factors" in Part 1, Item 1. The Company relies on external financing to fund a substantial portion of the purchase price of new vessels to its fleet. The Company currently has commitments from various lenders to fund at least 80% of the cost of vessels it has contracted to purchase. The Company's capital requirements arise primarily from its need to service debt, fund working capital, and maintain and improve its vessels. During 2003, the Company incurred $62.2 million in capital improvements for drydocking costs and fleet improvements. Approximately $31.5 million was for drydockings and approximately $20.3 million was for the purchase of the SEABULK AFRICA and the SEABULK IPANEMA, as well as progress payments on the two Brazilian newbuilds. For 2003, the Company incurred approximately $7.6 million for the two Brazilian newbuilds. The Company's expected 2004 capital requirements for drydocking costs are $31.9 million and $34.2 million for newbuild vessels. In addition, the Company has agreed to purchase two double-hull product tankers for approximately $62.0 million and expects to fund 80% of the purchase price through a loan agreement with a separate bank syndicate led by Nordea Bank. The Company expects that cash flow from operations will continue to be a significant source of funds for its working capital and capital requirements The Company's amended credit agreement contains certain restrictive financial covenants that, among other things, requires minimum levels of EBITDA and tangible net worth. The Company is in compliance with such covenants at December 31, 2003. A covenant has been amended as of February 26, 2004 to allow the Company a greater degree of flexibility under the debt/EBITDA ratio. Based on the amended covenant, the Company believes it will be in compliance. Management continues implementation of the initiative to sell unprofitable vessels in an effort to improve profitability and liquidity. The possibility exists that unforeseen events or business conditions, including deterioration in the markets, could prevent the Company from meeting targeted operating results. If unforeseen events or business regulatory conditions prevent the Company from meeting operating results, it will continue to pursue alternative plans including additional asset sales, and deferral of capital expenditures, which should enable the Company to satisfy essential capital requirements. While the Company believes it could successfully complete alternative plans, if necessary, there can be no assurance that such alternatives would be available or that the Company would be successful in its implementation. F-33 17. SUBSEQUENT EVENTS In January 2004, the Company began to operate the SEABULK ENERGY, one of its U.S.-flag double-hull tankers under a consecutive voyage charter in U.S. foreign commerce. The vessel is expected to charter on forty-two day voyages, approximately 8.5 voyages per year. The charter is to run beginning January 2004 for a term of four years, replacing the previous bareboat charter of the vessel that was terminated in December 2003. In January 2004, the Company agreed to purchase two four-year-old foreign-flag double-hull product tankers from principals of World-Wide Shipping of Singapore, for a total purchase price of $62 million. The purchase price will be financed by a combination of bank borrowings and available cash. The tankers are modern double-hull vessels suitable for worldwide trading. The Company will take delivery of these first foreign-flag product tankers during the first and second quarters of 2004. The vessels will be time-chartered to a major oil company or placed in an international tanker pool. In January 2004, the Company entered into a contract with Labroy Marine Ltd. of Singapore, for the construction of a terminal support tug for delivery in March 2005, for the Singapore dollar equivalent of U.S. $10.8 million. The Company has also entered into a currency hedge agreement to fix the price at U.S. $10.8 million. The tug will be employed on a long-term contract in Angola. In February 2004, the Company sold the SEABULK GREBE, an offshore energy support vessel operating in foreign commerce in the West Africa region. The proceeds from the sale of the vessel were $600,000. The gain on the sale of the vessel was approximately $19,000. In March 2004, the Company received $4.5 million in proceeds from the settlement of litigation against two of its suppliers and $400,000 from a previous joint venture partner. F-34 18. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following information is presented as supplementary financial information for 2003 and 2002 (in thousands, except per share information):
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 2003 QUARTER QUARTER QUARTER QUARTER ---------------------------- --------------- --------------- --------------- ----------- Revenue ............................. $ 77,229 $ 79,924 $ 79,670 $ 79,735 Income from operations(a) ........... 10,830 12,378 9,477 1,025 Net income (loss) ................... 1,586 2,660 (1,876) (7,335) Net loss per common share - basic and Diluted(b): Net (income) loss ................ $ 0.07 $ 0.11 $ (0.08) $ (0.32)
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 2002 QUARTER QUARTER QUARTER QUARTER ---------------------------- --------------- --------------- --------------- ----------- Revenue ............................. $ 83,199 $ 81,639 $ 80,369 $ 78,790 Income from operations(a) ........... 11,840 10,022 10,312 5,596 Net loss(c) ......................... (2,286) (4,367) (30,580) (1,637) Net loss per common share - basic and diluted(b): Net loss ......................... $ (0.22) $ (0.41) $ (2.37) $ (0.07)
- -------- (a) Previously reported amounts have been revised to present gains/(losses) on disposal of assets in income from operations. Gain on disposal of assets was $0.8 million and $0.4 million for the first and second quarters of 2003, respectively. Gain/(loss) on disposal of assets was ($0.1) million, $1.5 million, $0.3 million and ($0.3) million for the first, second, third and fourth quarters of 2002, respectively. (b) The sum of the four quarters' (loss) earnings per share will not necessarily equal the annual earnings per share, as the computations for each quarter are independent of the annual computation. (c) Includes loss on early extinguishment of debt of $27.8 million in the third quarter of 2002. F-35 19. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION The restricted subsidiaries presented below represent the Company's subsidiaries that are subject to the terms and conditions outlined in the indenture governing the Senior Notes. Only certain of the restricted subsidiaries representing the domestic restricted subsidiaries, will guarantee the notes, jointly and severally, on a senior unsecured basis. The non-guarantor unrestricted subsidiaries presented below represent the subsidiaries that own the five double-hull tankers which are financed by the Title XI debt with recourse to these tankers and the subsidiaries that own them. These subsidiaries are designated as unrestricted subsidiaries under the indenture governing the Senior Notes and will not guarantee the notes. F-36 Supplemental financial information for the Company and its guarantor restricted subsidiaries, non-guarantor restricted subsidiaries and non-guarantor unrestricted subsidiaries for the notes is presented below.
CONDENSED CONSOLIDATING BALANCE SHEET (IN THOUSANDS) AS OF DECEMBER 31, 2003 ---------------------------------------------------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED NON- NON- GUARANTOR GUARANTOR GUARANTOR GUARANTOR RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents ........ $ 217 $ 452 $ 1,030 $ 5,700 $ 26,980 $ -- $ 34,379 Restricted cash .................. 2,198 -- -- 1,478 -- -- 3,676 Trade accounts receivable, net ... (296) 13,686 822 34,161 1,226 -- 49,599 Insurance claims receivable & other ......................... 3,739 3,338 16 2,799 838 -- 10,730 Marine operating supplies ........ 121 1,575 482 3,504 2,473 -- 8,155 Due (to) from affiliates ......... -- 73,837 -- 120,556 3,377 (197,770) -- Prepaid expenses and other ....... 960 365 19 1,505 196 -- 3,045 -------- -------- ------- -------- -------- --------- -------- Total current assets .......... 6,939 93,253 2,369 169,703 35,090 (197,770) 109,584 Vessels and equipment, net ......... 34,998 138,211 29,893 106,401 217,523 -- 527,026 Deferred costs, net ................ 13,869 9,347 1,022 14,202 10,046 -- 48,486 Investments in affiliates .......... 506,250 2,214 -- -- -- (508,464) -- Due from affiliates ................ 30,069 -- -- -- -- (30,069) -- Other .............................. 1,709 2,234 -- 1,562 3,839 -- 9,344 -------- -------- ------- -------- -------- --------- -------- Total assets ................. $593,834 $245,259 $33,284 $291,868 $266,498 $(736,303) $694,440 ======== ======== ======= ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ................. $ 5,256 $ 2,658 $ -- $ 9,504 $ 1,387 $ -- $ 18,805 Current maturities of long-term debt ....................... 4,250 1,650 -- 139 4,998 -- 11,037 Current obligations under capital leases ..................... 1,039 2,482 -- -- -- -- 3,521 Accrued interest ................. 5,079 100 -- -- 633 -- 5,812 Due (to) from affiliates ......... 194,184 -- 63 -- -- (194,247) -- Accrued liabilities and other .... 11,395 3,010 415 20,293 2,250 -- 37,363 -------- -------- ------- -------- -------- --------- -------- Total current liabilities .... 221,203 9,900 478 29,936 9,268 (194,247) 76,538 Long-term debt ..................... 187,047 14,665 -- 1,958 206,019 -- 409,689 Obligations under capital leases ... 11,569 20,677 -- -- -- -- 32,246 Due to affiliates .................. -- -- 30,069 -- -- (30,069) -- Other liabilities .................. 1,660 273 -- 1,157 46 -- 3,136 -------- -------- ------- -------- -------- --------- -------- Total liabilities ............ 421,479 45,515 30,547 33,051 215,333 (224,316) 521,609 -------- -------- ------- -------- -------- --------- -------- Commitments and contingencies Minority interest .................. -- -- -- -- -- 476 476 Total stockholders' equity (deficit) ...................... 172,355 199,744 2,737 258,817 51,165 (512,463) 172,355 -------- -------- ------- -------- -------- --------- -------- Total liabilities and stockholders' equity (deficit) ................. $593,834 $245,259 $33,284 $291,868 $266,498 $(736,303) $694,440 ======== ======== ======= ======== ======== ========= ========
F-37
CONDENSED CONSOLIDATING BALANCE SHEET (IN THOUSANDS) AS OF DECEMBER 31, 2002 ---------------------------------------------------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED NON- NON- GUARANTOR GUARANTOR GUARANTOR GUARANTOR RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ ------------ ------------- ASSETS Current assets: Cash and temporary investments . $ 12,316 $ 413 $ 13 $ 4,802 $ 19,644 $ -- $ 37,188 Trade accounts receivable ..... 580 15,051 723 28,239 1,394 -- 45,987 Insurance claims receivable & other ..................... 797 3,415 2 1,613 381 -- 6,208 Restricted cash .............. -- -- -- 1,337 -- -- 1,337 Marine operating supplies .... 121 1,673 586 3,504 2,255 -- 8,139 Due from affiliates .......... -- 84,051 -- 134,054 -- (218,105) -- Prepaid & other .............. 652 803 28 1,033 186 -- 2,702 -------- -------- ------- -------- -------- --------- -------- Total current assets ...... 14,466 105,406 1,352 174,582 23,860 (218,105) 101,561 Vessels and equipment, net ....... 39,944 153,705 32,052 93,259 226,209 -- 545,169 Deferred costs, net .............. 8,243 7,528 1,840 13,715 6,902 -- 38,228 Investments in affiliates ........ 513,909 2,518 -- -- -- (516,427) -- Due from affiliates .............. 31,478 -- -- -- -- (31,478) -- Other assets ..................... 1,931 3,165 -- 5,345 419 -- 10,860 -------- -------- ------- -------- -------- --------- -------- Total assets ............... $609,971 $272,322 $35,244 $286,901 $257,390 $(766,010) $695,818 ======== ======== ======= ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............... $ 3,094 $ 2,397 $ -- $ 5,783 $ 69 $ -- $ 11,343 Current maturities of debt ..... 17,586 2,055 -- -- 4,674 -- 24,315 Current lease obligations ...... -- 3,005 -- -- -- -- 3,005 Accrued interest payable ....... 671 393 -- -- 669 -- 1,733 Due to affiliates .............. 221,424 -- 60 -- 206 (221,690) -- Other current liabilities ...... 10,013 3,306 518 20,243 824 -- 34,904 -------- -------- ------- -------- -------- --------- -------- Total current liabilities .. 252,788 11,156 578 26,026 6,442 (221,690) 75,300 Long-term Liabilities: Long-term maturities of debt ..... 178,500 21,337 -- -- 211,021 -- 410,858 Capital lease obligations ........ -- 28,748 -- -- -- -- 28,748 Senior Notes ..................... -- -- -- -- -- -- -- Due to affiliates ................ -- -- 31,478 -- -- (31,478) -- Other long-term liabilities ...... 1,883 616 -- 944 46 -- 3,489 -------- -------- ------- -------- -------- --------- -------- Total long-term liabilities 180,383 50,701 31,478 944 211,067 (31,478) 443,095 -------- -------- ------- -------- -------- --------- -------- Total liabilities ................ 433,171 61,857 32,056 26,970 217,509 (253,168) 518,395 -------- -------- ------- -------- -------- --------- -------- Minority partners equity ......... -- -- -- -- -- 623 623 Total stockholders' equity ....... 176,800 210,465 3,188 259,931 39,881 (513,465) 176,800 -------- -------- ------- -------- -------- --------- -------- Total liabilities and stockholders' equity .... $609,971 $272,322 $35,244 $286,901 $257,390 $(766,010) $695,818 ======== ======== ======= ======== ======== ========= ========
F-38
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2003 ---------------------------------------------------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED NON- NON- GUARANTOR GUARANTOR GUARANTOR GUARANTOR RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ ------------ ------------- Revenue ..................... $ 44,264 $ 78,637 $ 13,662 $ 119,466 $ 60,946 $ (417) $ 316,558 Operating expenses .......... 25,453 54,459 8,616 66,264 25,301 (417) 179,676 Overhead expenses ........... 10,912 10,206 894 14,349 1,682 -- 38,043 Depreciation, amortization and drydocking ........... 8,250 15,710 2,988 28,629 9,796 -- 65,373 Write-down of assets held for sale ................. -- 1,219 -- -- -- -- 1,219 (Gain) loss on disposal of assets, net .............. -- (1,136) -- (327) -- -- (1,463) -------- -------- -------- --------- -------- -------- --------- Income (loss) from operations (351) (1,821) 1,164 10,551 24,167 -- 33,710 Other (expense) income, net . (1,268) (8,588) (1,616) (7,428) (15,684) 147 (34,437) -------- -------- -------- --------- -------- -------- --------- Income (loss) before income taxes .................... (1,619) (10,409) (452) 3,123 8,483 147 (727) Provision for income taxes .. -- -- -- 4,238 -- -- 4,238 -------- -------- -------- --------- -------- -------- --------- Net income (loss) ........... $ (1,619) $(10,409) $ (452) $ (1,115) $ 8,483 $ 147 $ (4,965) ======== ======== ======== ========= ======== ======== =========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2002 ---------------------------------------------------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED NON- NON- GUARANTOR GUARANTOR GUARANTOR GUARANTOR RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ ------------ ------------- Revenue ...................... $ 43,604 $ 82,881 $ 12,352 $ 123,989 $ 61,284 $(113) $ 323,997 Operating expenses ........... 26,398 54,329 7,783 67,546 26,615 (113) 182,558 Overhead expenses ............ 12,257 10,333 885 13,534 1,648 -- 38,657 Depreciation, amortization and drydocking ............... 7,952 17,453 2,313 29,127 9,531 -- 66,376 (Gain) loss on disposal of assets, net ............... -- (1,901) -- 537 -- -- (1,364) -------- -------- -------- --------- -------- ----- --------- Income (loss) from operations (3,003) 2,667 1,371 13,245 23,490 -- 37,770 Other expense, net ........... (30,576) (11,474) (2,043) (11,895) (16,010) -- (71,998) -------- -------- -------- --------- -------- ----- --------- Income (loss) before provision for income taxes ........... (33,579) (8,807) (672) 1,350 7,480 -- (34,228) Provision (benefit) for income taxes ..................... (1,520) -- -- 6,162 -- -- 4,642 -------- -------- -------- --------- -------- ----- --------- Net income (loss) ............ $(32,059) $ (8,807) $ (672) $ (4,812) $ 7,480 $ -- $ (38,870) ======== ======== ======== ========= ======== ===== =========
F-39
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2001 ---------------------------------------------------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED NON- NON- GUARANTOR GUARANTOR GUARANTOR GUARANTOR RESTRICTED RESTRICTED RESTRICTED UNRESTRICTED CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ ------------ ------------- Revenue ...................... $ 33,190 $ 140,930 $ 9,826 $ 107,492 $ 59,922 $(4,630) $ 346,730 Operating expenses ........... 29,117 76,416 4,674 58,182 35,293 (4,355) 199,327 Overhead expenses ............ 12,486 11,521 919 11,526 825 (275) 37,002 Depreciation, amortization and drydocking ................ 6,889 19,138 2,292 22,621 8,973 -- 59,913 (Gain) loss on disposal of assets, net ............... -- (249) -- 383 -- -- 134 Write-down of assets for held- for-sale .................. -- 1,400 -- -- -- -- 1,400 -------- --------- ------- --------- -------- ------- --------- Income (loss) from operations (15,302) 32,704 1,941 14,780 14,831 -- 48,954 Other expense, net ........... (4,527) (14,979) (2,004) (17,811) (16,384) -- (55,705) -------- --------- ------- --------- -------- ------- --------- Income (loss) before provision for income taxes .......... (19,829) 17,725 (63) (3,031) (1,553) -- (6,751) Provision for income taxes ..................... -- -- -- 5,210 -- -- 5,210 -------- --------- ------- --------- -------- ------- --------- Net income (loss) ............ $(19,829) $ 17,725 $ (63) $ (8,241) $ (1,553) $ -- $ (11,961) ======== ========= ======= ========= ======== ======= =========
F-40
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2003 ---------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED GUARANTOR GUARANTOR RESTRICTED RESTRICTED PARENT SUBSIDIARIES SUBSIDIARIES --------- -------------- ---------------- OPERATING ACTIVITIES: Net cash provided by (used in) operating activities .............................. $ (3,799) $ 21,572 $ 1,028 INVESTING ACTIVITIES: Expenditures for drydocking ................. (6,159) (8,722) -- Proceeds from disposals of assets ........... -- 4,380 -- Purchases of vessels and equipment .......... (1,388) (1,314) (11) Investment in Joint Venture ................. -- -- -- --------- -------- ------- Net cash used in investing activities ....... (7,547) (5,656) (11) FINANCING ACTIVITIES: Payments of prior credit facility .......... (148,179) -- -- Proceeds of 9.50% Senior Notes ............. 150,000 -- -- Proceeds from long-term debt ............... -- 6,525 -- Payments of long-term debt ................. (5,436) (1,972) -- Payment of other deferred financing costs .. -- (106) -- Payments of Title XI bonds ................. (2,150) (549) -- Retirement of Title XI bonds ............... -- (11,181) -- Payment of deferred financing costs under prior credit facility ............. (88) -- -- Payments of deferred financing costs under 9.50% Senior Notes and amended credit facility ................................ (5,458) -- -- Net proceeds from sale leaseback ........... 13,274 -- -- Payments of obligations under capital leases (828) (8,594) -- Increase in restricted cash ................ (2,197) Proceeds from exercise of stock options .... 307 -- -- Proceeds from exercise of warrants ......... 2 -- -- --------- -------- ------- Net cash provided by (used in) financing activities ............................... (753) (15,877) -- --------- -------- ------- Increase (decrease) in cash and cash equivalents .............................. (12,099) 39 1,017 Cash and cash equivalents at beginning of period ................................... 12,316 413 13 --------- -------- ------- Cash and cash equivalents at end of period ................................... $ 217 $ 452 $ 1,030 ========= ======== =======
F-41
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2003 ----------------------------------------------------------- NON- NON- GUARANTOR GUARANTOR RESTRICTED UNRESTRICTED CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------ ------------ ------------- ------------ OPERATING ACTIVITIES: Net cash provided by (used in) operating activities ............................... $ 34,247 $ 16,814 $ -- $ 69,862 INVESTING ACTIVITIES: Expenditures for drydocking ................. (12,031) (4,627) -- (31,539) Proceeds from disposals of assets ........... 5,045 -- -- 9,425 Purchases of vessels and equipment .......... (27,798) (172) -- (30,683) Investment in Joint Venture ................. (400) -- -- (400) -------- -------- ---------- --------- Net cash used in investing activities ............................... (35,184) (4,799) -- (53,197) FINANCING ACTIVITIES: Payments of prior credit facility ........... -- -- -- (148,179) Proceeds of 9.50% Senior Notes .............. -- -- -- 150,000 Proceeds from long-term debt ................ 2,097 -- -- 8,622 Payments of long-term debt .................. -- -- -- (7,408) Payment of other deferred financing costs ... (120) -- -- (226) Payments of Title XI bonds .................. -- (4,679) -- (7,378) Retirement of Title XI bonds ................ -- -- -- (11,181) Payment of deferred financing costs under prior credit facility ................. -- -- -- (88) Payments of deferred financing costs under 9.50% Senior Notes and amended credit facility ................................ -- -- -- (5,458) Net proceeds from sale leaseback ............ -- -- -- 13,274 Payments of obligations under capital leases -- -- -- (9,422) Increase in restricted cash ................. (142) -- -- (2,339) Proceeds from exercise of stock options ..... -- -- -- 307 Proceeds from exercise of warrants .......... -- -- -- 2 -------- -------- ---------- --------- Net cash provided by (used in) financing activities ............................. 1,835 (4,679) -- (19,474) -------- -------- ---------- --------- Increase (decrease) in cash and cash equivalents ............................. 898 7,336 -- (2,809) Cash and cash equivalents at beginning of period .................................. 4,802 19,644 -- 37,188 -------- -------- ---------- --------- Cash and cash equivalents at end of period .. $ 5,700 $ 26,980 $ -- $ 34,379 ======== ======== ========== =========
F-42
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2002 ----------------------------------------------------- WHOLLY NON-WHOLLY OWNED OWNED GUARANTOR GUARANTOR RESTRICTED RESTRICTED PARENT SUBSIDIARIES SUBSIDIARIES --------- ---------------- ------------------- OPERATING ACTIVITIES: Net cash provided by operating activities .............................. $ 27,448 $ 3,070 $ 2,247 INVESTING ACTIVITIES: Expenditures for drydocking ................ (3,637) (5,214) (1,999) Proceeds from disposals of assets .......... 252 10,049 -- Purchases of vessels and equipment ......... (315) (2,837) (249) --------- -------- ------- Net cash provided by (used in) investing activities .............................. (3,700) 1,998 (2,248) FINANCING ACTIVITIES: Net repayment of revolving credit facility . (9,000) -- -- Proceeds of prior credit facility .......... 178,800 -- -- Payments of prior credit facility .......... (125) -- Payments of long-term debt ................. (164,524) (1,293) -- Payment of prior Senior Notes .............. (101,499) -- -- Proceeds of Private Placement, net of issuance costs ......................... 90,901 -- -- Payments of Title XI bonds ................. (2,150) (646) -- Payments of obligations under capital Leases ................................. -- (2,986) -- Payment of deferred financing costs for prior credit facility ................... (4,128) -- -- Proceeds from exercise of warrants ......... 1 -- -- Proceeds from exercise of stock options .... 42 -- -- --------- -------- ------- Net cash used in financing activities ...... (11,682) (4,925) -- --------- -------- ------- Increase (decrease) in cash and cash equivalents ............................. 12,066 143 (1) Cash and cash equivalents at beginning of period .................................. 250 270 14 --------- -------- ------- Cash and cash equivalents at end of period .................................. $ 12,316 $ 413 $ 13 ========= ======== =======
F-43
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2002 ----------------------------------------------------------------------- NON- NON-GUARANTOR GUARANTOR RESTRICTED UNRESTRICTED CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL ------------- -------------- ------------- ------------- OPERATING ACTIVITIES: Net cash provided by operating activities ........................... $ 11,396 $ 16,892 $ -- $ 61,053 INVESTING ACTIVITIES: Expenditures for drydocking .............. (12,504) (87) -- (23,441) Proceeds from disposals of assets ........ 2,374 -- -- 12,675 Purchases of vessels and equipment ....... (352) -- -- (3,753) -------- -------- ------------- --------- Net cash provided by (used in) investing activities ............................ (10,482) (87) -- (14,519) FINANCING ACTIVITIES: Net repayment of revolving credit facility -- -- -- (9,000) Proceeds for prior credit facility ....... -- -- -- 178,800 Payments of prior credit facility ........ -- -- -- (125) Payments of long-term debt ............... -- -- -- (165,817) Payment of prior Senior Notes ............ -- -- -- (101,499) Proceeds of Private Placement, net of issuance costs ....................... -- -- -- 90,901 Payments of Title XI bonds ............... -- (4,370) -- (7,166) Payments of obligations under capital leases ............................... -- -- -- (2,986) Payment of deferred financing costs for prior credit facility ................. -- -- -- (4,128) Proceeds from exercise of warrants ....... -- -- -- 1 Proceeds from exercise of stock options .. -- -- -- 42 -------- -------- ------------- --------- Net cash used in financing activities .... -- (4,370) -- (20,977) -------- -------- ------------- --------- Increase (decrease) in cash and cash equivalents ........................... 914 12,435 -- 25,557 Cash and cash equivalents at beginning of period ................................ 3,888 7,209 -- 11,631 -------- -------- ------------- --------- Cash and cash equivalents at end of period ................................ $ 4,802 $ 19,644 $ -- $ 37,188 ======== ======== ============= =========
F-44
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------ WHOLLY NON-WHOLLY OWNED OWNED GUARANTOR GUARANTOR RESTRICTED RESTRICTED PARENT SUBSIDIARIES SUBSIDIARIES -------- -------------- -------------- OPERATING ACTIVITIES: Net cash provided by operating activities .............................. $ 21,759 $ 19,822 $ -- INVESTING ACTIVITIES: Expenditures for drydocking ................ (4,299) (8,638) -- Proceeds from disposals of assets .......... -- 1,738 -- Purchases of vessels and equipment ......... (278) (4,942) -- Redemption of restricted investments ....... -- -- -- Purchase of restricted investments ......... -- -- -- Purchase of minority interests ............. 8,354 -- -- -------- -------- -------- Net cash provided by (used in) investing activities .............................. 3,777 (11,842) -- FINANCING ACTIVITIES: Net repayment of revolving credit facility . (5,250) -- -- Proceeds of long-term borrowings ........... (18,189) (1,315) -- Repayment of Title XI bonds ................ (3,583) (646) Increase in restricted cash ................ 331 -- -- Proceeds from exercise of warrants ......... 3 -- -- Payments of obligations under capital leases .................................. -- (3,558) -- -------- -------- -------- Net cash used in financing activities ...... (26,688) (5,519) -- -------- -------- -------- Increase (decrease) in cash and cash equivalents ............................. (1,152) 2,461 -- Cash and cash equivalents at beginning of period .................................. 1,402 (2,191) 14 -------- -------- -------- Cash and cash equivalents at end of period .................................. $ 250 $ 270 $ 14 ======== ======== ========
F-45
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (IN THOUSANDS) YEAR ENDED DECEMBER 31, 2001 --------------------------------------------------------------- NON- NON-GUARANTOR GUARANTOR RESTRICTED UNRESTRICTED CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL -------------- ------------ ------------ ------------- OPERATING ACTIVITIES: Net cash provided by operating activities ............................... $ 12,356 $ 4,961 $ 7,942 $ 66,840 INVESTING ACTIVITIES: Expenditures for drydocking ................ (15,171) (1,341) -- (29,449) Proceeds from disposals of assets .......... 4,837 -- -- 6,575 Purchases of vessels and equipment ......... (3,198) (864) -- (9,282) Redemption of restricted investments ....... -- 2,542 -- 2,542 Purchase of restricted investments ......... -- (1,677) -- (1,677) Purchase of minority interests ............. -- (936) (7,942) (524) -------- ------- ------- -------- Net cash provided by (used in) investing activities ............................... (13,532) (2,276) (7,942) (31,815) FINANCING ACTIVITIES: Net repayment of revolving credit facility . -- -- -- (5,250) Proceeds of long-term borrowings ........... -- -- -- (19,504) Repayment of Title XI bonds ................ -- (4,083) -- (8,312) Increase in restricted cash ................ (1,337) -- -- (1,006) Proceeds from exercise of warrants ......... -- -- -- 3 Payments of obligations under capital leases ................................... -- -- -- (3,558) -------- ------- ------- -------- Net cash used in financing activities ...... (1,337) (4,083) -- (37,627) -------- ------- ------- -------- Increase (decrease) in cash and cash equivalents .............................. (2,513) (1,398) -- (2,602) Cash and cash equivalents at beginning of period ................................... 6,401 8,607 -- 14,233 -------- ------- ------- -------- Cash and cash equivalents at end of period ................................... $ 3,888 $ 7,209 $ -- $ 11,631 ======== ======= ======= ========
F-46 EX-10.11 3 g88084exv10w11.txt SUPPLEMENTAL INDENTURE Exhibit 10.11 ------------------------------------------- SEABULK INTERNATIONAL, INC. and the Guarantors named herein ------------------------------------------- 9 1/2% SENIOR NOTES DUE 2013 ------------------------------------------- ------------------------- SECOND SUPPLEMENTAL INDENTURE AND AMENDMENT -- SUBSIDIARY GUARANTEE DATED AS OF MARCH 22, 2004 ------------------------------------------- WACHOVIA BANK, NATIONAL ASSOCIATION Trustee ------------------------------------------- This SECOND SUPPLEMENTAL INDENTURE, dated as of March 22, 2004, is among Seabulk International, Inc., a Delaware corporation (the "Company"), each of the parties identified under the caption "Guarantors" on the signature page hereto (the "Guarantors") and Wachovia Bank, National Association, as Trustee. RECITALS WHEREAS, the Company, the initial Guarantors and the Trustee entered into an Indenture, dated as of August 5, 2003 (the "Indenture"), pursuant to which the Company has issued $150,000,000 in principal amount of 9 1/2% Senior Notes due 2013 (the "Notes"); and WHEREAS, Section 9.01(g) of the Indenture provides that the Company, the Guarantors and the Trustee may amend or supplement the Indenture in order to comply with Section 4.13 or Article 10 thereof, without the consent of the Holders of the Notes; WHEREAS, Seabulk Chemical Carriers, Inc., a Guarantor, has changed its name to Seabulk Energy Carriers, Inc.; WHEREAS, Seabulk Energy Carriers, Inc. has created the following subsidiaries that are Restricted U.S. Subsidiaries (as defined in the Indenture): Seabulk Energy Transport, Inc., a Florida corporation, Seabulk Ocean Transport, Inc., a Florida corporation, and Seabulk Petroleum Transport, Inc., a Florida corporation, and pursuant to Section 4.13(a) of the Indenture, each of Seabulk Energy Transport, Inc., Seabulk Ocean Transport, Inc. and Seabulk Petroleum Transport, Inc. is executing this Second Supplemental Indenture to provide for its Subsidiary Guarantee (as defined in the Indenture); WHEREAS, the Company has created a subsidiary, Seabulk Global Carriers, Inc., a Liberian corporation, and Seabulk Global Carriers, Inc. has created the following subsidiaries: Seabulk Global Transport, Inc., a Liberian corporation, and Seabulk Overseas Transport, Inc., a Liberian corporation, and pursuant to Section 9.01(g) of the Indenture, each of Seabulk Global Carriers, Inc., Seabulk Global Transport, Inc. and Seabulk Overseas Transport, Inc. is executing this Second Supplemental Indenture to provide for its Subsidiary Guarantee; and WHEREAS, all acts and things prescribed by the Indenture, by law and by the Certificate of Incorporation and the Bylaws (or comparable constituent documents) of the Company, of the Guarantors and of the Trustee necessary to make this Second Supplemental Indenture a valid instrument legally binding on the Company, the Guarantors and the Trustee, in accordance with its terms, have been duly done and performed; NOW, THEREFORE, to comply with the provisions of the Indenture and in consideration of the above premises, the Company, the Guarantors and the Trustee covenant and agree for the equal and proportionate benefit of the respective Holders of the Notes as follows: ARTICLE I Section 1.01. This Second Supplemental Indenture is supplemental to the Indenture and does and shall be deemed to form a part of, and shall be construed in connection with and as part of, the Indenture for any and all purposes. Section 1.02. This Second Supplemental Indenture shall become effective immediately upon its execution and delivery by each of the Company, the Guarantors and the Trustee. ARTICLE II From this date, in accordance with Section 4.13 and by executing this Second Supplemental Indenture, the Guarantors whose signatures appear below are subject to the provisions of the Indenture to the extent provided for in Article 10 thereunder. ARTICLE III Section 3.01. Except as specifically modified herein, the Indenture and the Notes are in all respects ratified and confirmed (mutatis mutandis) and shall remain in full force and effect in accordance with their terms with all capitalized terms used herein without definition having the same respective meanings ascribed to them as in the Indenture. Section 3.02. Except as otherwise expressly provided herein, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Second Supplemental Indenture. This Second Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. Section 3.03. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 3.04. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of such executed copies together shall represent the same agreement. [NEXT PAGE IS SIGNATURE PAGE] 2 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the date first written above. SEABULK INTERNATIONAL, INC. By: /s/ Vincent J. deSostoa ------------------------------------------- Name: Vincent J. deSostoa Title: Senior Vice President and Chief Financial Officer GUARANTORS LONE STAR MARINE SERVICES, INC. SEABULK ARIZONA USA, INC. SEABULK ENERGY CARRIERS, INC. SEABULK ENERGY TRANSPORT, INC. SEABULK GLOBAL CARRIERS, INC. SEABULK GLOBAL TRANSPORT, INC. SEABULK MARINE INTERNATIONAL, INC. SEABULK MARINE SERVICES, INC. SEABULK OCEAN SYSTEMS CORPORATION SEABULK OCEAN SYSTEMS HOLDINGS CORPORATION SEABULK OCEAN TRANSPORT, INC. SEABULK OFFSHORE ABU DHABI, INC. SEABULK OFFSHORE DUBAI, INC. SEABULK OFFSHORE INTERNATIONAL, INC. SEABULK OFFSHORE OPERATORS, INC. SEABULK OPERATORS, INC. SEABULK OVERSEAS TRANSPORT, INC. SEABULK PETROLEUM TRANSPORT, INC. SEABULK TANKERS, INC. SEABULK TOWING, INC. SEABULK TOWING SERVICES, INC. SEABULK TRANSMARINE II, INC. SEABULK TRANSPORT, INC. By: /s/ Vincent J. deSostoa ------------------------------------------- Name: Vincent J. deSostoa Title: Senior Vice President 3 SEABULK TANKERS, LTD. By: SEABULK TRANSPORT, INC., General Partner By: /s/ Vincent J. deSostoa ------------------------------------------- Name: Vincent J. deSostoa Title: Senior Vice President SEABULK AMERICA PARTNERSHP, LTD. SEABULK OFFSHORE, LTD. SEABULK TRANSMARINE PARTNERSHIP, LTD. By: SEABULK TANKERS, LTD., General Partner By: SEABULK TRANSPORT, INC., General Partner By: /s/ Vincent J. deSostoa ------------------------------------------- Name: Vincent J. deSostoa Title: Senior Vice President WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ John Speichert ------------------------------------------- Name: John Speichert Title: Vice President 4 EX-10.12 4 g88084exv10w12.txt LOAN AGREEMENT Exhibit 10.12 LOAN AGREEMENT among SEABULK GLOBAL TRANSPORT, INC. AND SEABULK OVERSEAS TRANSPORT, INC., as Joint and Several Borrowers, THE GUARANTORS NAMED HEREIN, as Joint and Several Guarantors, THE BANKS AND FINANCIAL INSTITUTIONS LISTED IN SCHEDULE 1, as Lenders, NORDEA BANK FINLAND PLC, NEW YORK BRANCH, as Arranger and Agent, NORDEA BANK FINLAND PLC, NEW YORK BRANCH, as Security Trustee, and NORDEA BANK FINLAND PLC, NEW YORK BRANCH, as Swap Provider Dated: as of March 18, 2004 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1 SECTION 1.01. Certain Defined Terms 1 SECTION 1.02. Interpretation 16 SECTION 1.03. Computation of Time Periods 16 SECTION 1.04. Accounting Terms 16 ARTICLE II THE ADVANCES 16 SECTION 2.01. The Advances 16 SECTION 2.02. Borrowing Procedures 16 SECTION 2.03. Failure of Lender to Make Advance 17 SECTION 2.04. Repayment 17 SECTION 2.05. Prepayment 18 SECTION 2.06. Interest On the Advances 19 SECTION 2.07. Payments and Computations 19 SECTION 2.08. Taxes 20 SECTION 2.09. Increased Cost and Reduced Return 21 SECTION 2.10. Illegality 21 SECTION 2.11. Designated Transactions 22 ARTICLE III CONDITIONS PRECEDENT 22 SECTION 3.01. Conditions Precedent to the First Borrowing 22 SECTION 3.02. Conditions Precedent to the Second Borrowing 25 SECTION 3.03. Conditions Precedent to Each Borrowing 27 SECTION 3.04. Determinations Under Section 3.01, 3.02 and 3.03 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES 28 SECTION 4.01. Representations and Warranties 28 ARTICLE V AFFIRMATIVE COVENANTS 34 SECTION 5.01. Affirmative Covenants 34 ARTICLE VI NEGATIVE COVENANTS 41 SECTION 6.01. Negative Covenants 41 ARTICLE VII AGREEMENT TO GUARANTEE 44 SECTION 7.01. Guarantee 44 SECTION 7.02. Indemnity 45 SECTION 7.03. Guaranty Absolute 45 SECTION 7.04. Waivers and Acknowledgments 47 SECTION 7.05. Subrogation 48 SECTION 7.06. No Competition 49 SECTION 7.07. Taxes 49 SECTION 7.08. Permitted Actions 49 SECTION 7.09. Financial Condition of the Borrowers 50 SECTION 7.10. Continuing Guaranty 51 SECTION 7.11. Rights Cumulative; No Waiver 51 ARTICLE VIII EVENTS OF DEFAULT 51 SECTION 8.01. Events of Default 51 SECTION 8.02. Application of Moneys 53 SECTION 8.03. Position of Swap Provider 54 ARTICLE IX THE AGENT AND THE SECURITY TRUSTEE 54 SECTION 9.01. Appointment and Granting 54 SECTION 9.02. Reliance 56 SECTION 9.03. Knowledge 56 SECTION 9.04. Security Trustee and Agent as Lenders 56 SECTION 9.05. Indemnification of Security Trustee and Agent 56 SECTION 9.06. Reliance On Security Trustee or Agent 57 SECTION 9.07. Actions by Security Trustee and Agent 57 SECTION 9.08. Resignation 57 SECTION 9.09. Release of Collateral 58 ARTICLE X MISCELLANEOUS 58 SECTION 10.01. Judgment Currency 58 SECTION 10.02. Books of Lenders and the Agent Conclusive 58 SECTION 10.03. Costs and Expenses; Indemnity 59 SECTION 10.04. Notices 60 SECTION 10.05. Successors and Assigns 60 SECTION 10.06. Financing Statements 62 SECTION 10.07. Modification of Agreement 62 SECTION 10.08. Governing Law 62 SECTION 10.09. Waiver of Jury Trial 62 SECTION 10.10. Waiver of Immunities 62 SECTION 10.11. Consent to Jurisdiction 62 SECTION 10.12. Right of Set-off 63 SECTION 10.13. No Waiver; Remedies 63 SECTION 10.14. Severability 64 SECTION 10.15. Execution in Counterparts; Integration 64 SECTION 10.16. Joint and Several 64 SECTION 10.17. Headings 64 SCHEDULE 1 Lenders and Commitments SCHEDULE 2 Repayment Schedule SCHEDULE 3 Acceptable Brokers SCHEDULE 4.01(f) List of Material Litigation SCHEDULE 4.01(g) ERISA SCHEDULE 4.01(h) Environmental Matters SCHEDULE 4.01(i)(1) Material Compliance with Maritime Laws SCHEDULE 4.01(i)(2) ISM Code Documentation SCHEDULE 4.01(k)(1) List of Subsidiaries SCHEDULE 4.01(k)(2) List of Material Assets SCHEDULE 4.01(m) List of Material Financings EXHIBIT A Form of Assignment and Acceptance EXHIBIT B Form of Assignment of Earnings EXHIBIT C Form of Assignment of Insurances EXHIBIT D Form of Designation Notice EXHIBIT E Form of Mortgage EXHIBIT F Form of Note EXHIBIT G Form of Notice of Drawdown LOAN AGREEMENT dated as of March 18, 2004 (this "Agreement") among (i) SEABULK GLOBAL TRANSPORT, INC. and SEABULK OVERSEAS TRANSPORT, INC., each a Liberian corporation, as joint and several borrowers (each, a "Borrower" and collectively, the "Borrowers"), (ii) each of the Guarantors named herein, (iii) each of the banks and financial institutions listed on Schedule 1 hereto (each a "Lender", and collectively, the "Lenders"), (iv) NORDEA BANK FINLAND PLC, New York Branch, as arranger and as agent for the Lenders (in such capacity, the "Agent"), (v) NORDEA BANK FINLAND PLC, New York Branch, as Security Trustee (in such capacity, the "Security Trustee"), and (vi) NORDEA BANK FINLAND PLC, New York Branch, as swap provider (in such capacity, the "Swap Provider"). WITNESSETH: WHEREAS, the Borrowers have requested that the Lenders make available to the Borrowers a credit facility in the aggregate principal amount of US$49,600,000 in two separate loans, each in the principal amount of US$24,800,000, to finance the acquisition of the Mortgaged Vessels (as hereinafter defined), and the Lenders have agreed to make available the credit facility and to lend such amounts in the form of the Advances on the terms and conditions set forth herein. WHEREAS, the Guarantors have agreed to guarantee the performance by the Borrowers of the Borrowers' obligations hereunder and under the other Loan Documents (as hereafter defined) to which either of the Borrowers is a party. WHEREAS, the Borrowers and Seabulk International (as hereafter defined) desire to enter into swap agreements with the Swap Provider to, among other things, hedge the Borrowers' exposure to interest rate fluctuations under this Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ACCEPTABLE BROKER" means any of the sale and purchase ship brokerage companies identified in Schedule 3 hereto, and any other independent sale and purchase ship brokerage company which the Lenders may in their sole reasonable discretion approve from time to time for purposes of this Agreement. "ADJUSTED EBITDA" means, with respect to Seabulk International for any period, an amount equal to EBITDA for each of Seabulk International's most recently ended four fiscal quarters, as reported in the financial statements most recently delivered to the Agent, MINUS that portion of EBITDA attributable to the Lightship Tanker Entities PLUS an amount equal to the dividends received during such period from the Lightship Tanker Entities. "ADJUSTED FUNDED DEBT" means with respect to Seabulk International for any period, the average of Seabulk International's Consolidated Funded Debt less any Debt relating to the Lightship Tanker Entities for each of Seabulk International's most recently ended four fiscal quarters, as reported in the financial statements most recently delivered to the Agent. "ADJUSTED FUNDED DEBT RATIO" means as of any date of determination the ratio of the Adjusted Funded Debt to the Adjusted EBITDA. "ADJUSTED INTEREST EXPENSE" means, with respect to Seabulk International for any period, the Consolidated Interest Expense less any Consolidated Interest Expense relating to the Lightship Tanker Entities for each of Seabulk International's most recently ended four fiscal quarters, as reported in the financial statements most recently delivered to the Agent. "ADJUSTED TANGIBLE NET WORTH" means with respect to Seabulk International, as of any date of determination, the Consolidated Tangible Net Worth of Seabulk International less any Consolidated Tangible Net Worth relating to the Lightship Tanker Entities. "ADVANCES" means the amount advanced to the Borrowers by each of the Lenders with respect to either Tranche of either Term Loan as part of a Borrowing. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 25% or more of the voting stock of such Person or to direct or cause direction of the management and policies of such Person, whether through the ownership of voting stock, by contract or otherwise. "AGENT'S ACCOUNT" means Account Number 52150000032201001 maintained at the Agent's New York Branch, ABA Number: 026010786, SWIFT: NDEAUS3NXXX, Attention: Credit Administration, Re: Seabulk. "APPLICABLE MARGIN" means, with respect to each Advance relating to the relevant Mortgaged Vessel, 1.75% per annum with respect to Tranche A and 4.00% per annum with respect to Tranche B. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Agent, in substantially the form of Exhibit A hereto. "ASSIGNMENT OF EARNINGS" means the first priority assignment by each Borrower in favor of the Security Trustee, for the benefit of the Lenders and the Swap Provider, of the earnings of such Borrower's Mortgaged Vessel, in substantially the form of Exhibit B hereto (as the same may be amended, supplemented or modified from time to time). "ASSIGNMENT OF INSURANCES" means the first priority assignment by each Borrower in favor of the Security Trustee, for the benefit of the Lenders and the Swap Provider, of the insurances in respect of such Borrower's Mortgaged Vessel, in substantially the form of Exhibit C hereto (as the same may be amended, supplemented or modified from time to time). 2 "ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "BANKING DAY" means a day on which dealings are carried out in the London Interbank Market and which is also a day on which commercial banks are not authorized or required to close in New York, New York. "BOND" means the 9-1/2% Senior Notes due 2013 issued by Seabulk International pursuant to the terms and conditions of the Indenture. "BORROWING" means the making of the Advances by each of the Lenders in respect of a particular Mortgaged Vessel on the same date under Section 2.01 hereof. "CAPITAL LEASE OBLIGATION" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "CHANGE OF CONTROL" means with respect to (a) a Borrower, Seabulk Global Carriers or Seabulk Tankers, the occurrence of any act, event or circumstance which results in Seabulk International owning, beneficially and of record, directly or indirectly, less than all of the issued and outstanding capital stock of such Person and (b) Seabulk International, the persons owning all of the issued and outstanding capital stock of Seabulk International as of the date of this Agreement shall cease to own beneficially and of record 51% of the issued and outstanding stock of Seabulk International or the board of directors of Seabulk International ceases to consist of a majority of the existing directors as of the date of this Agreement or directors elected or nominated by such existing directors or by contract or other agreement any third party shall have the ability to influence the actions of the board of directors. "CLASSIFICATION SOCIETY" means in respect of each of the Mortgaged Vessels, the American Bureau of Shipping or such other classification society as is selected by the Borrower owning such Mortgaged Vessel with the prior consent of the Agent acting on the instructions of and upon the acceptance by the Majority Lenders. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "COLLATERAL" means all property (including, without limitation, any proceeds thereof) referred to in the Security Documents that is or is intended to be subject to any Lien in favor of the Security Trustee, for the benefit of the Lenders and the Swap Provider, securing the obligations of the Borrowers under this Agreement or any other Loan Documents and the right of the Swap Provider to receive amounts under the Master Agreement. 3 "COMMITMENT" with respect to any Lender at any time, has the meaning specified in Section 2.01 or, if such Lender has entered into one or more Assignments and Acceptances, means the amount set forth for such Lender in the Register maintained by the Agent pursuant to Section 9.05(b) as such Lender's "Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.04 and "Commitments" mean the aggregate of the Commitments of all the Lenders. "COMMITMENT TERMINATION DATE" means April 30, 2004 or such earlier day as the Commitments shall have been canceled pursuant to the provisions of this Agreement. "COMPLIANCE CERTIFICATE" shall have the meaning assigned such term in Section 5.01(g)(vi) "CONFIRMATION" has the meaning ascribed thereto in the Master Agreement. "CONSOLIDATED FUNDED DEBT" means, with respect to any Person as of any date of determination, the sum, without duplication, of (a) the total amount of Debt of such Person and its Subsidiaries, plus (ii) the total amount of Debt of any other Person to the extent such Debt has been guaranteed by such person or one or more of its Subsidiaries, plus (iii) the aggregate value of all Disqualified Shares of such Person, in each case, determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of: (a) the total interest expense of Seabulk International and its Subsidiaries plus, to the extent not otherwise included in such interest expense (without duplication), and to the extent incurred by Seabulk International or any of its Subsidiaries (i) interest expense attributable to Capital Lease Obligations, the interest expense attributable to leases constituting part of a sale and leaseback transaction and the interest portion of rent expense associated with Attributable Debt in respect of the relevant lease giving rise thereto, determined as if such lease were a capitalized lease in accordance with GAAP and the interest component of any deferred payment obligations, (ii) amortization of debt but not debt issuance costs; (iii) non-cash interest expense, (iv) amortization of commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (v) interest accruing on any Debt of any other Person to the extent such Debt is guaranteed by or secured by the assets of Seabulk International or any of its Subsidiaries and (vi) net costs associated with Hedging Obligations (excluding amortization of fees paid at the time of entering into such Hedging Obligations; PLUS (b) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred shares of a Person or any of its Subsidiaries payable to a Person other than Seabulk International or its Subsidiaries; PLUS (c) cash contributions to any employee stock ownership plan or other trust for the benefit of employees to the extent such contributions are used by such plan or trust to pay interest or fees to any Person other than Seabulk International or its Subsidiaries in connection with and Debt incurred by such plan or trust to purchase share capital of Seabulk International. "CONSOLIDATED NET INCOME" means, for any period for any Person, the net income (loss) of such Person and its consolidated Subsidiaries determined in accordance with GAAP; PROVIDED, HOWEVER, that there shall not be included in determining such Consolidated Net Income: (a) any net income (or loss) of any subsidiary if at the date of determination the making of distributions or the payment of dividends by such Subsidiary are not permitted without prior 4 governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or other organizational document or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders except (i) Seabulk International's equity in the net income of any such Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Subsidiary during such period to Seabulk International or a Subsidiary as a dividend or other distribution (subject, in the case of a dividend to a Subsidiary, to the limitation contained in this clause), and (ii) Seabulk International's equity in a net loss of any such Subsidiary for such period shall be included in determining such Consolidated Net Income; (b) any gain or loss, together with any related provision for taxes on such gain or loss, realized upon (i) the sale or other disposition of assets of Seabulk International, its consolidated Subsidiaries or any other Person (including pursuant to any sale and leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business, (ii) the sale or other disposition of any securities of any Person not sold or otherwise disposed of in the ordinary course of business or (iii) the extinguishment of any Debt of any Person; or (c) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. "CONSOLIDATED TANGIBLE NET WORTH" of any Person, as of any date of determination, means the consolidated shareholders' equity of such Person as determined in accordance with GAAP less (to the extent included) amounts attributable to Disqualified Shares of such Person. "CREDIT PARTY" means any of, and "Credit Parties" means all of, the Borrowers and the Guarantors. "CUSTOMARY PERMITTED LIENS" means (a) Liens for taxes, assessments or charges of any government authority or claims not yet due or which are being contested in good faith by appropriate proceedings and with respect of which adequate reserves or other appropriate provisions are being maintained in accordance with the provisions of GAAP; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts which are not past due for more than 30 days or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP or which in the aggregate do not detract from the value of the property or assets or materially impair the use thereof in the operation of the business of either of the Borrowers; (c) licenses, leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Borrowers; (d) easements, rights-of-way, restrictions (including zoning restrictions), encroachments, protrusions and other similar charges or encumbrances, 5 and minor title deficiencies, in each case whether now or hereafter in existence, not securing obligations for the payment of borrowed money and not materially interfering with the conduct of the business of the Borrowers; (e) rights of tenants, subtenants, franchises or parties in possession (other than a debtor in possession, trustee in bankruptcy or receiver of a Borrower), or options or rights of first refusal, whether pursuant to leases, subleases, franchise agreements, other occupancy agreements or otherwise, if such rights were vested on the date hereof or created thereafter in the ordinary course of business in transactions permitted under this Agreement; (f) any interest or title of a lessor, sub-lessor, licensee or licensor under any lease or license agreement permitted by this Agreement; (g) Liens in favor of a banking institution arising as a matter of law encumbering deposits (including the right of set-off) held by such banking institutions incurred in the ordinary course of business and which are within the general parameters customary in the banking industry; (h) Liens in favor of customs and revenue authorities arising as a matter of law to secure the payment of customs duties in connection with the importation of goods; (i) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the purchase or sale of goods, entered into by a Borrower in the ordinary course of business in accordance with the past practices of such Borrower; (j) deposits made to secure statutory obligations in the form of excise taxes; (k) Liens incurred or deposits or pledges made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, old age or other similar obligations, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); and (l) Liens resulting from operation of law with respect to any judgments or orders not constituting a Default. "DEBT" means, as to any Person (a) indebtedness for borrowed money, (b) obligations evidenced by bonds, debentures, notes or other similar instrument, (c) obligations to pay the deferred purchase price of property or services, (d) obligations classified as "capital leases" in accordance with GAAP, (e) any obligation of such Person with respect to Hedging Obligations and (f) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in 6 respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (e) above. "DEFAULT" means a condition or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "DEFAULT INTEREST RATE" shall mean the Interest Rate plus 2% per annum. "DELIVERY DATE" means the date on which a Mortgaged Vessel is tendered by the seller thereof to the applicable Borrower, and such Borrower accepts delivery thereof, in accordance with the terms of the relevant memorandum of agreement relating to such Mortgaged Vessel. "DESIGNATED TRANSACTION" means a Transaction which fulfills the following requirements: (a) it is entered into by Party B and the Swap Provider pursuant to the Master Agreement for purposes of one or more Hedging Obligations; (b) the notional principal amount of such Transaction, together with all other continuing Designated Transactions, does not and in the future (taking into account the scheduled amortization thereof) will not exceed the aggregate amount of the Loan scheduled to be outstanding from time to time; and (c) it is designated by the Swap Provider, by delivery by the Swap Provider to the Agent of a notice of designation in the form set out in Exhibit D, as a Designated Transaction for the purposes of the Loan Documents. "DISQUALIFIED SHARES" means any share capital that by its terms or upon the happening of any event matures or is mandatorily redeemable. "DRAWDOWN DATE" means each requested date for the making of each Borrowing, which shall not be later than the Commitment Termination Date. "EARNINGS ACCOUNT" means each account opened by and in the name each of the Borrowers with NORDEA BANK NORGE ASA, Grand Cayman Branch, in which the earnings of each Mortgaged Vessel shall be collected. "EBITDA" means, with respect to Seabulk International and its Subsidiaries for any period, the Consolidated Net Income of such Person for such period plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all federal, state and local and all foreign income tax expense; (b) Consolidated Interest Expense; (c) depreciation expense and amortization expense; 7 (d) the sum of any non-cash costs, charges or expenses attributable to the accrual of or reserve for cash charges in any future period for pension liabilities of Seabulk International and its Subsidiaries; (e) an amount equal to any non-cash loss or gain realized in connection with an asset sale or any unrealized gains or losses in respect of any Hedging Obligations; (f) an amount equal to the fees, expenses and other costs incurred by the Credit Parties in connection with the transactions contemplated by this Agreement; and (g) to the extent that Seabulk International's accounting policy with respect to the capitalization of dry-docking costs is changed, an amount equal to any expensed dry-docking cost. Notwithstanding the foregoing, amounts relating to a Subsidiary of Seabulk International shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income (or loss) of such Subsidiary was included in calculating Consolidated Net Income. "EVENT OF LOSS" means any actual, constructive, compromised or arranged total loss of, or the requisition of title to, a Mortgaged Vessel. "ENVIRONMENTAL ACTION" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of non-compliance or violation, investigation, proceeding, consent order or consent agreement based upon or arising out of any Environmental Law or any Environmental Permit, including without limitation (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law and (b) any claim by any third party seeking damages, contribution, or injunctive relief arising from alleged injury or threat of injury to health, safety or the environment. "ENVIRONMENTAL INCIDENT" means (i) any release of Environmentally Sensitive Material from a Mortgaged Vessel; or (ii) any incident in which Environmentally Sensitive Material is released from a vessel other than a Mortgaged Vessel and which involves collision between a Mortgaged Vessel and such other vessel or some other incident of navigation or operation, in either case, where a Mortgaged Vessel or the relevant Borrower is actually or allegedly at fault or otherwise liable (in whole or in part); or (iii) any incident in which Environmentally Sensitive Material is released from a vessel other than a Mortgaged Vessel and where such Mortgaged Vessel is actually or potentially liable to be arrested as a result and/or where the relevant Borrower is actually or allegedly at fault or otherwise liable; "ENVIRONMENTAL LAW" means any federal, state, local, foreign or international law, rule, regulation, order, writ, judgment, injunction, decree, treaty, determination or award relating to the environment, health or safety. "ENVIRONMENTAL PERMIT" means any permit, approval, identification number, license or other authorization required under any Environmental Law. 8 "ENVIRONMENTALLY SENSITIVE MATERIAL" means oil, oil products, any other substance which is polluting, toxic or hazardous or any substance the release of which into the environment is regulated, prohibited or penalized by or pursuant to any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA AFFILIATE" of any Person means any other Person that for purposes of Title IV of ERISA is a member of such Person's controlled group, or under common control with such Person, within the meaning of Section 414 of the Code. "ERISA EVENT" with respect to any Person means (a) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the provision by the administrator of any Plan of such Person or any of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation of operations at a facility of such Person or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person or any of its ERISA Affiliates to make a payment to a Plan described in Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of such Person or any of its ERISA Affiliates requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the institution by the PBGC of proceedings to terminate a Plan of such Person or any of its ERISA Affiliates pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that would constitute grounds for the termination of, or the appointment of a trustee to administer, such Plan; provided, however; that an event described in clause (a), (c) or (d) of this definition, or in clause (b) of this definition solely with respect to a standard termination under Section 4041(b) of ERISA, shall be an ERISA Event only if such event is reasonably likely to result in a material liability of such Person or any of its ERISA Affiliates. "FAIR MARKET VALUE" means, in relation to a Mortgaged Vessel, the fair market value of such Mortgaged Vessel determined by means of a valuation made (at the expense of the Borrowers) at any relevant time by an Acceptable Broker as may from time to time be selected by the Borrowers; such valuation shall be made on an "as is where is" basis with or without physical inspection of such Mortgaged Vessel, on the basis of a sale for prompt delivery for cash at arms' length on normal commercial terms as between a willing seller and a willing buyer, free of any existing charter or other contracts of employment, and shall be conclusive evidence of the fair market value of such Mortgaged Vessel at the date of such valuation. "FINAL PAYMENT DATE" means (a) in respect of Tranche A Advances, March 31, 2011; and (b) in respect of Tranche B Advances, March 31, 2007. "FOREIGN PENSION PLAN" shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by a Credit Party Borrower or any one or more of its Subsidiaries primarily for 9 the benefit of employees of such Credit Party or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, except as disclosed in the financial statements of the Credit Parties. "GUARANTEED OBLIGATIONS" shall have the meaning assigned such term in Section 7.01(a). "GUARANTORS" means Seabulk International, Seabulk Global Carriers and Seabulk Tankers. "HAZARDOUS MATERIALS" means (a) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and radon gas, (b) any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," contaminants" or "pollutants," or words of similar import, under any Environmental Law and (c) any other substance exposure to which is regulated under any Environmental Law. "HEDGING OBLIGATIONS" means, with respect to any Person, the net amount of the obligations of such Person under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, foreign currency exchange agreements, commodity price protection agreements and other agreements or arrangements designed to protect such Person against fluctuations in interest rates, foreign currency exchange rates and commodity prices. "INDENTURE" means the Indenture dated as of August 5, 2003 among Seabulk International, the guarantors named therein and Wachovia Bank, National Association, as Trustee. "INTEREST PAYMENT DATE" means, in the case of each Advance, the day on which interest in respect of such Advance is due in accordance with Section 2.06(a) of this Agreement. "INTEREST PERIOD" means, for each Advance, (a) in the case of the first such period, the period commencing on the date such Borrowing is made and ending on the last day of the period selected by the Borrowers pursuant to the provisions below and (b) thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the periods elected by the Borrowers pursuant to the provisions below. The duration of each such Interest Period shall be one, two or three months as the Borrowers may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select or request; PROVIDED, that: (i) the Borrowers may not select any Interest Period which ends after any Payment Date unless, after giving effect to such selection, the aggregate principal amount of Advances having Interest Periods that end on or prior to such Payment Date shall be at least equal to the aggregate principal amount of such Advances due and payable on or prior to such Payment Date; 10 (ii) the first Interest Payment Date applicable to the Borrowing made in respect of the delivery of the second Mortgaged Vessel shall coincide with the Interest Payment Date then applicable to the outstanding Advances; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Banking Day, the last day of such Interest Period shall be extended to occur on the next succeeding Banking Day, PROVIDED THAT, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the immediately preceding Banking Day; (iv) whenever the first day of any Interest Period occurs on a day in a calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Banking Day of such succeeding calendar month. "INTEREST RATE" means LIBOR plus the Applicable Margin. "INVESTMENT" means any direct or indirect advance, loan or other extension of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of capital stock (or other equity interest), Indebtedness or other similar instruments. "ISM CODE" means the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.714(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and any amendments or extensions thereto and the rules, regulations and requirements thereunder. "ISM CODE DOCUMENTATION" in relation to a Vessel includes: (a) the document of compliance (DOC) and safety management certificate (SMC) issued pursuant to the ISM Code in relation to a Vessel within the periods specified by the ISM Code; and (b) all other documents and data which are relevant to the ISM Safety Management Systems and its implementation and verification which the Agent may reasonably require; and (c) any other documents which are relevant to establish and maintain a Vessel or the relevant Borrower's compliance with the ISM Code which the Agent may reasonably require. "ISM SAFETY MANAGEMENT SYSTEMS" means the Safety Management System referred to in Clause 1.4 (or any other relevant provision) of the ISM Code. 11 "LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Lending Office" opposite its name on Schedule 1 hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. "LIBOR" means, with respect to any Interest Period, the rate per annum calculated by the Agent at approximately 11:00 a.m., London time, on the date which is two Banking Days prior to the beginning of such Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in Dollars (as set forth by any service selected by the Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period. "LIEN" means any mortgage, pledge, charge or other encumbrance of any kind. "LIGHTSHIP TANKER ENTITIES" means Lightship Tanker Holdings, L.L.C., Lightship Partners, L.P., Lightship Tankers I, L.L.C., Lightship Tankers II, L.L.C., Lightship Tankers III, L.L.C., Lightship Tankers IV, L.L.C., Lightship Tankers V, L.L.C., Delaware Tanker Holdings I, Inc., Delaware Tanker Holdings II, Inc., Delaware Tanker Holdings III, Inc., Delaware Tanker Holdings IV, Inc. and Delaware Tanker Holdings V, Inc. "LOAN" means, at any time, the aggregate principal amount of the Term Loans advanced by the Lenders pursuant to Section 2.01. "LOAN DOCUMENTS" means this Agreement, the Note, the Guaranty, the Master Agreement and the Security Documents. "MAJORITY LENDERS" means Lenders holding more than 50% of the aggregate unpaid principal amount of the Loan. "MANAGEMENT AGREEMENT" means a management agreement with the Manager based on or substantially in the form of the BIMCO Standard Ship Management Agreement "Shipman 98", or such other management agreement in form and substance reasonably satisfactory to the Agent providing for the commercial and technical management of the Mortgaged Vessels. "MANAGER" means World-Wide Shipping Managers Pte. Ltd., a company incorporated and existing under the laws of Singapore, or such other manager as is selected by the Borrowers with the prior consent of the Agent acting on the instructions of and upon the acceptance by the Majority Lenders. "MASTER AGREEMENT" means the Master Agreement (on the 1992 ISDA Master Agreement form) entered into among Party B and the Swap Provider, and each Confirmation and Schedule related thereto, pursuant to which Party B enters into certain Transactions (as such term is defined in the Master Agreement) pursuant to separate Confirmations providing for, among other things, the payment of certain amounts by the Borrowers to the Swap Provider to hedge the Borrowers' exposure to interest rate fluctuations under this Agreement. "MATERIAL ADVERSE EFFECT" means, (i) with respect to a Person, any material adverse effect on the business, assets, liabilities, condition (financial or otherwise), operations, performance, 12 properties or prospects of such Persons taken as a whole on, where appropriate, a consolidated basis in accordance with GAAP, (ii) with respect to any Loan Document, any adverse effect (a) whether material or not, on the binding nature, validity or enforceability thereof, (b) on any Person's ability to perform its obligations under such Loan Document or (c) on the rights and remedies of the Security Trustee or any Lender thereunder and (iii) with respect to any Collateral, a material adverse effect on its value as Collateral or its usefulness in the business of any Person pledging such Collateral or on the validity, perfection, priority or enforceability of the Security Trustee's Lien thereon. "MORTGAGED VESSELS" means each of the Liberian registered vessels SEABULK RELIANT, Official Number 12274, and SEABULK TRUST, Official Number 12273, subject to a Mortgage. "MORTGAGE" means a First Preferred Liberian Ship Mortgage made by a Borrower in favor of the Security Trustee, for the benefit of the Lenders and the Swap Provider, in respect of such Borrower's Mortgaged Vessel, in substantially the form of Exhibit E (as the as the same may be amended, supplemented or modified from time to time). "MULTIPLE EMPLOYER PLAN" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA, and (a) that is maintained for employees of such Person or any of its ERISA Affiliates and at least one Person other than such Person and its ERISA Affiliates or (b) that was so maintained and in respect of which such Person or any of its ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NOTE" means the joint and several promissory note of the Borrowers payable to the order of the Agent, for the benefit of the Lenders, in substantially the form of Exhibit F hereto, evidencing the aggregate indebtedness of the Borrowers to the Lenders resulting from the total Advances made or to be made by the Lenders in respect of the Mortgaged Vessels. "NOTICE OF BORROWING" has the meaning ascribed thereto in Section 2.02(a) hereof. "OBLIGATIONS" means all the payment and performance obligations of the respective obligor under this Agreement, the Security Documents and the Master Agreement. "OFFICER'S CERTIFICATE" means a certificate of the Secretary or other authorized officer of the Borrower. "PARTY B" means, collectively, the Borrowers and Seabulk International. "PAYMENT DATE" means with respect to each Mortgaged Vessel, June 30, 2004 and each date every three (3) months thereafter until the Final Payment Date. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor agency or entity performing substantially the same functions. 13 "PERSON" means an individual, partnership, corporation (including a business trust), firm, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency or instrumentality thereof. "PERMITTED ENCUMBRANCES" means: (a) liens or rights in rem for current crew's wages, for general average or salvage (including contract salvage) or for wages of stevedores employed by the charterer, the operator, agent or master of a Mortgaged Vessel which in each case (i) are unclaimed or (ii) shall not have been due and payable for ten (10) days after termination of a voyage; (b) liens or rights in rem for repairs or incident to current operations of a Mortgaged Vessel (other than those referred to in clause (a) above) or with respect to any change, alteration or addition made to such Mortgaged Vessel, but only to the extent in each case that such liens are based on claims not yet delinquent and do not involve any risk of a sale, forfeiture, hindrance to operation or loss of such Mortgaged Vessel; (c) liens or rights in rem for sums due to the Manager under the Management Agreement, but only to the extent in each case that such liens are based on claims not yet delinquent and do not involve any risk of a sale, forfeiture, hindrance to operation or loss of such Mortgaged Vessel; (d) liens for amounts being contested by the applicable Borrower in good faith by appropriate procedures, diligently prosecuted or appealed which do not involve any risk of a sale, forfeiture, hindrance to operation or loss of a Mortgaged Vessel; (e) liens covered by valid policies of insurance held with respect to a Mortgaged Vessel and meeting the requirements of the related Mortgage; (f) the lien of the Mortgages and the other Security Documents; and (g) any other liens expressly permitted by any of the Loan Documents. "PLAN" means a Single Employer Plan or a Multiple Employer Plan. "RATABLE PORTION" means, as to any Lender, with respect to either the Tranche A or Tranche B portion of any Borrowing or the Loan, the percentage obtained by dividing such Lender's Commitment in relation to such Tranche by the aggregate amount of all the Lenders' Commitments in relation to such Tranche. "REPAYMENT SCHEDULE" means the schedule, attached hereto as Schedule 2, setting out the amount and due date of each installment payable pursuant to Section 2.04. "REPORTABLE EVENT" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection ..22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "RESTRICTED PAYMENT" shall have the meaning assigned such term in Section 6.01(h). "SEABULK GLOBAL CARRIERS" means Seabulk Global Carriers, Inc., a Liberian corporation. "SEABULK INTERNATIONAL" means Seabulk International, Inc., a Delaware corporation. "SEABULK TANKERS" means Seabulk Tankers, Inc., a Delaware corporation. "SECURITY DOCUMENTS" means (a) this Agreement (where the context so admits), (b) each Mortgage, (c) each Assignment of Earnings, (d) each Assignment of Insurances and (e) any other document that provides for the guarantee of the obligations of the Borrowers under the Loan 14 Documents or that creates, or purports to create, a Lien in favor of, or for the benefit of, the Agent or the Lenders or the Swap Provider for purposes of securing the Obligations. "SINGLE EMPLOYER PLAN" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA, and (a) that is maintained for employees of such Person or any of its ERISA Affiliates and no Person other than such Person and its ERISA Affiliates or (b) in respect of which such Person or any of its ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SUBSIDIARY" of any Person means any corporation, partnership, joint venture, trust or estate of which (or in which) more than 50% of (a) the voting stock of such corporation, (b) the interest in the capital or profits of such partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "TAXES" shall have the meaning set forth in Section 2.08 hereof. "TERM LOAN" means each term loan advanced by the Lenders to the Borrowers pursuant to Section 2.01. "TRANCHE A" means the first tranche of each Term Loan in the aggregate principal amount of US$21,700,000 to be advanced by the Lenders to the Borrowers in a single Borrowing for the acquisition of each Mortgaged Vessel on the Delivery Date of such Mortgaged Vessel. "TRANCHE B" means the second tranche of each Term Loan in the aggregate principal amount of US$3,100,000 to be advanced by the Lenders to the Borrowers in a single Borrowing for the acquisition of each Mortgaged Vessel on the Delivery Date of such Mortgaged Vessel. "TRANCHES" mean together Tranche A and Tranche B of each Term Loan and in the singular means either of them, as applicable. "UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any, by which the value of the accumulated plan benefits under the Plan determined on a plan termination basis in accordance with actuarial assumptions at such time consistent with those prescribed by the 15 PBGC for purposes of Section 4044 of ERISA, exceeds the fair market value of all plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions). SECTION 1.02. INTERPRETATION. When used in this Agreement, (a) the words "herein," "hereof," and "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any provision of this Agreement, and the words "Article," "Section," "Annex," "Schedule," and "Exhibit" shall refer to Articles and Sections of, and Annexes, Schedules and Exhibits to, this Agreement unless otherwise specified and (b) whenever the context so requires, (i) the neuter gender includes the masculine or feminine, the masculine gender includes the feminine, and (ii) the singular number includes the plural, and vice versa. SECTION 1.03. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.04. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. ARTICLE II THE ADVANCES SECTION 2.01. THE ADVANCES. The Lenders severally agree, on the terms and conditions hereinafter set forth, to make available to the Borrowers, and the Borrowers agree to borrow from each Lender (i) in respect of Tranche A, in one Advance in respect of each Mortgaged Vessel on any Banking Day during the period from the date hereof until the Commitment Termination Date an aggregate principal amount not to exceed the amount set forth opposite such Lender's name on Schedule 1 hereof in relation to Tranche A, and (ii) in respect of Tranche B, in one Advance in respect of each Mortgaged Vessel on any Banking Day during the period from the date hereof until the Commitment Termination Date an aggregate principal amount not to exceed the amount set forth opposite such Lender's name on Schedule 2 hereof in relation to Tranche B (such Lender's "Commitment"). Each of the respective Lenders' Advances made on the same date shall together comprise the relevant Borrowing. The Borrowings shall be in an aggregate amount not to exceed $24,800,000 per Mortgaged Vessel (consisting of $21,700,000 of Tranche A and $3,100,000 of Tranche B) and Advances shall be made on each Drawdown Date by the Lenders according to their Ratable Portion in respect of each Tranche. SECTION 2.02. BORROWING PROCEDURES. (a) The Advances for each Borrowing shall be made on notice given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the relevant Drawdown Date, by the Borrowers to the Agent (the "Notice of Borrowing"), which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Such Notice of Borrowing shall be by telecopier, telex or cable, and, with respect to a Notice of Borrowing by telex or cable, confirmed immediately thereafter in writing, in substantially the form of Exhibit H hereto, specifying therein the requested (i) Drawdown Date, which shall be a Banking Day, (ii) aggregate principal amount of the Borrowing and (iii) the duration of the initial Interest Period applicable to such Advances. The Interest Period for such Borrowing made on 16 the relevant Drawdown Date shall commence on the relevant Drawdown Date. The Agent shall promptly notify the Borrowers and each Lender of the applicable Interest Rate. Each Lender shall, before 3:00 P.M. (New York City time) on the relevant Drawdown Date, make available for the account of its Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's Ratable Portion of each Tranche of the Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrowers. (b) The Notice of Borrowing shall be irrevocable and binding on the Borrowers. The Borrowers shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the Drawdown Date specified in the Notice of Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of the Borrowing when the Borrowing, as a result of such failure, is not made on such date. (c) Unless the Agent shall have received notice from a Lender prior to the relevant Drawdown Date that such Lender will not make available to the Agent such Lender's Ratable Portion of each Tranche of the Borrowing, the Agent may assume, or at its option request confirmation from such Lender, that such Lender has made its Ratable Portion available to the Agent on such date in accordance with subsection (a) of this Section 2.02 and the Agent shall, in reliance upon such assumption or confirmation (as the case may be), make available to the Borrowers on such date a corresponding amount. If and to the extent that such Lender shall not have so made such Ratable Portion available to the Agent, such Lender shall pay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is paid to the Agent, at the cost (expressed as a rate per annum) to the Agent of funding such Lender's Ratable Portion. If such Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Ratable Portion of each Tranche of the Borrowing for purposes of this Agreement. (d) The Notice of Borrowing shall be deemed to constitute a representation and warranty that all of the representations and warranties contained in Section 4.01 hereof are true and correct at the date of such Notice of Borrowing and that, to the knowledge of the Borrowers, no Default or Event of Default has occurred and is continuing. SECTION 2.03. FAILURE OF LENDER TO MAKE ADVANCE. The failure of any Lender to make available its Ratable Portion of each Tranche of the Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the relevant Drawdown Date. SECTION 2.04. REPAYMENT. The Borrowers shall repay to the Agent for the ratable account of the Lenders the outstanding principal amount of Tranche A of each of the Term Loans in 28 consecutive quarterly installments. The first 27 repayment installments of US$417,308 in respect of Tranche A of each Term Loan shall be due on each Payment Date, and the final repayment installments of US$10,432,692 in respect of Tranche A of each Term Loan shall be due on the Final Payment Date. The Borrowers shall repay to the Agent for the ratable account of the Lenders the outstanding principal amount of Tranche B of each of the Term Loans in 12 consecutive quarterly installments. The first 11 repayment installments of US$258,333 in 17 respect of Tranche B of each Term Loan shall be due on each Payment Date, and the final repayment installments of US$258,333 in respect of Tranche B of each Term Loan shall be due on the Final Payment Date. SECTION 2.05. PREPAYMENT. (a) OPTIONAL. The Borrowers may, upon at least 10 Banking Days' notice to the Agent, stating the proposed date and aggregate principal amount of the prepayment, prepay the outstanding principal amount of the Term Loans in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount so prepaid; PROVIDED, HOWEVER, that (i) each partial prepayment shall be in an aggregate principal amount of not less than $500,000 (or, if the aggregate outstanding principal amount of the Loan is less, such aggregate principal amount), and (ii) in the event that any such prepayment is not made on the last day of an Interest Period, the Borrowers shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 9.03(c). Each such prepayment of the Term Loans shall be applied to the remaining installments under Tranche A and Tranche B of each Term Loan, pro rata in accordance with the unpaid principal amounts thereof. Amounts prepaid under this subsection (a) may not be re-borrowed. (b) MANDATORY. (i) SALE OR TOTAL LOSS OF MORTGAGED VESSELS. In the event that any Borrower sells the Mortgaged Vessel owned by it pursuant to the provisions of Section 6.01(d) or such Vessel suffers an Event of Loss, the Borrowers shall be required to prepay an aggregate amount equal to or greater than, in the case of a sale, the remaining balance of principal and accrued interest of the Term Loan relating to such Mortgaged Vessel, or equal, in the case of an Event of Loss, to the proceeds of the insurance required by the relevant Mortgage on such Mortgaged Vessel. Any such prepayment shall be payable (1) in the case of a sale of the Mortgaged Vessel, concurrently with closing of such sale, and (2) in the case of an Event of Loss, on the earlier of (x) the Security Trustee's receipt of insurance proceeds or other compensation attributable thereto and (y) the date that is one hundred twenty (120) days after such Event of Loss. Simultaneously with the acknowledged receipt of the proceeds, the Security Trustee will release the Mortgage and other Liens in respect of such Mortgaged Vessel. (ii) APPLICATION OF SALE OR TOTAL LOSS PROCEEDS. Proceeds of sale or insurance received by the Agent shall be applied: first, in payment of break funding costs pursuant to Section 10.03(c) plus any amounts then due and owing under this Agreement; second, to prepayment of the Tranche A Advances of the Term Loan relating to such Mortgaged Vessel, together with accrued interest to the date of such prepayment on the principal amount prepaid; third to prepayment of the Tranche B Advances of the Term Loan relating to such Mortgaged Vessel, together with accrued interest to the date of such prepayment on the principal amount prepaid; and fourth in payment of amounts owing under the Master Agreement. Any remaining proceeds thereof shall be released to the Borrowers or on their order. Amounts prepaid under this subsection (b) may not be re-borrowed. (c) UNWINDING OF DESIGNATED TRANSACTIONS. On or prior to any prepayment of the Advances under this Section 2.05 or any other provision of this Agreement, the Borrowers shall wholly or partially reverse, offset, unwind or otherwise terminate one or more of the continuing Designated Transactions so that the aggregate notional principal amount of the continuing 18 Designated Transactions thereafter remaining does not and will not in the future (taking into account the scheduled amortization thereof) exceed the aggregate amount of the Loan scheduled to be outstanding from time to time. (d) ADDITIONAL AMOUNTS PAYABLE ON PREPAYMENT. Any prepayment permitted or required hereunder shall be accompanied by payment of (1) accrued interest on the principal amount so prepaid to the date of that prepayment plus (2) if such prepayment is applied to the payment of an Advance on a day other than a Payment Date in respect of such Advance, such additional amounts as each Lender and the Swap Provider shall in its sole reasonable discretion deem necessary to compensate it for (A) the costs incurred by such Lender and the Swap Provider in connection with such prepayment and (B) any actual loss or net cost incurred by such Lender and all amounts due to the Swap Provider due to the occurrence of such prepayment. SECTION 2.06. INTEREST ON THE ADVANCES. (a) INTEREST. Subject to Section 2.06(b), the Borrowers shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the relevant Drawdown Date until such principal amount shall be paid in full, at a rate per annum equal at all times during each Interest Period for such Advance to the Interest Rate for such Interest Period, payable in arrears on the last day of such Interest Period. (b) DEFAULT INTEREST. If the Borrowers shall default in the due and punctual payment of any part of the principal of or interest on the Note, or any other amount due from the Borrowers under this Agreement or any other Loan Document, the Borrowers shall pay on demand interest thereon, to the extent permitted by law, on a daily basis for the period from and including the date of such default up to the date of actual payment (whether before or after judgment) at a rate per annum equal to the Default Interest Rate. SECTION 2.07. PAYMENTS AND COMPUTATIONS. (a) TIME. PLACE AND MANNER. The obligations of the Borrowers under the Note and all other amounts payable under this Agreement by the Borrowers to the Lenders and the Agent shall be paid in lawful money of the United States and in funds which are immediately available to the Lenders and the Agent by 10:00 A.M. New York time on the date payment is due (or in the case of amounts expressed to be payable on demand within three days of such demand being made in writing) to the Agent's Account or at such other place as the Agent may from time to time designate, without set-off, counterclaim or defense. Provided that such funds are received by the Agent at or before the time designated above, the Agent will on the date received cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable under Section 2.07(e), 2.10 or 2.11) to the Lenders for the account of their respective Lending Offices, in each case to be applied in accordance with the terms of this Agreement. Partial payments of overdue amounts in respect of fees, expense, interest and/or principal shall (unless specifically provided for elsewhere herein or in any other Loan Document) be applied to the payment of such overdue fees, expenses, interest and/or principal, as the case may be, in such order as the Agent may determine unless otherwise directed by the Lenders. (b) COMPUTATION OF INTEREST AND FEES. All computations of interest and of fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. 19 (c) NON-BANKING DAY PAYMENTS. If payment to be made by the Borrowers hereunder or under the Note shall become due on a day other than a Banking Day, that payment shall be made on the next following Banking Day (unless that next following Banking Day falls within the next calendar month, in which event that date shall be the immediately preceding Banking Day) and such extension or reduction of time shall be included in computing any interest or fees in respect of such payment. (d) DISTRIBUTION OF PAYMENTS TO THE LENDERS. Unless the Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Lenders hereunder or under the Note that the Borrowers will not make such payment in full, the Agent may assume that the Borrowers have made such payment in full on such date and, in reliance upon such assumption, the Agent may cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the federal funds rate as determined by the Agent. (e) FUNDING LOSSES. The Borrowers agree to indemnify each Lender against any loss or net cost (as determined by such Lender) resulting from (i) any relending, depositing or sale by such Lender of funds which may have been acquired by it to fund its participation in an Advance and which the Borrowers shall fail to borrow under Section 2.01 after giving the Notice of Borrowing as provided in Section 2.02, or (ii) any borrowing or other acquisition by such Lender of funds which may be required by it to cover its position by reason of failure of the Borrowers to pay when due any principal of or interest on the Note or any other amount payable by the Borrowers hereunder or under any of the other Loan Documents. SECTION 2.08. TAXES. Any and all payments by the Borrowers hereunder or under the Note or under any of the other Loan Documents shall be made, in accordance with Section 2.07, without deduction by reason of any present or future income, stamp, sales, use, value added, goods and services or other taxes or levies, imposts, deductions, charges, compulsory loans, fees, duties or withholdings whatsoever imposed, assessed, levied or collected by or within any state or nation or any political subdivision or taxing authority thereof or therein on or in respect of (i) this Agreement, the Note, any of the other Loan Documents, or any of the Collateral (including, without limitation, the Mortgaged Vessels), (ii) the acquisition, ownership or transfer of any thereof, (iii) the registration, notarization or other formalization of any thereof and (iv) any payments of principal, interest, charges, fees or other amounts made on, under or in respect of the Note, this Agreement, any Loan Document or any such Collateral, excluding (x) with respect to a Lender, taxes on or measured by the overall net income of such Lender imposed by any state or nation or any political subdivision or taxing authority thereof or therein as a result of such Lender doing business in such jurisdiction (other than any such state, nation, political subdivision or taxing authority imposing such taxes solely as a result of the transactions contemplated by this Agreement, any Loan Document or as a result of the location or operation of the Mortgaged Vessels or any other Collateral in such jurisdiction if such Lender would not be subject to taxation in such jurisdiction but for the transactions contemplated by this Agreement or any other Loan Document) or (y) such taxes as are levied on a Lender as a result of business transactions of such Lender unrelated to this Agreement, any Loan Document or the Mortgaged Vessels, together with interest and penalties with respect thereto, if any, (such taxes, levies, 20 imposts, deductions, charges, compulsory loans, fees, duties and withholdings, together with interest and penalties, if any, being herein collectively defined as "Taxes"). If a Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note or the Collateral, (i) the sum payable shall be increased as may be necessary so that after making all required deductions of Taxes (including deductions of Taxes applicable to additional sums payable under this Section 2.08) each Lender receives an amount equal to the sum it would have received had no such deduction of Taxes been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount required to be deducted to the relevant tax authority or other authority in accordance with and in the time allowed by applicable law. Within 30 days after the date of payment of Taxes, such Borrower shall furnish to the Agent an original receipt showing payment of such Taxes or such other appropriate evidence of payment thereof as is acceptable to Agent. All Taxes shall be paid by a Borrower, for its own account, to the appropriate authority before the date on which penalties attach thereto unless contested in good faith by appropriate proceedings. The Borrowers will jointly and severally indemnify each Lender against, and reimburse each Lender on written demand for, any Taxes. The agreements in this Section 2.08 shall survive the termination of this Agreement and the payment of the Note and all other amounts payable hereunder. SECTION 2.09. INCREASED COST AND REDUCED RETURN. The Borrowers agree to jointly and severally indemnify and hold each Lender harmless against the net cost to such Lender (as determined by such Lender in its sole discretion absent manifest error) of (a) any material and adverse change in the basis of taxation by any government of payments of principal of or interest on its Advances and (b) any reserve requirements, taxes or other charges or any other requirements imposed or implemented by any government or governmental regulatory agency after the date of this Agreement on its participation in the Loan or any Advance thereof or any deposits or other funds acquired by such Lender to make its participation in the Loan of any Advance thereof, which requirements, taxes or charges have the effect of increasing the cost to such Lender of making or maintaining its participation in the Loan or any Advance thereof; PROVIDED, HOWEVER, that, if by the provisions of any applicable law, the payment or reimbursement of any such net cost cannot be legally made, then the Borrowers shall be entitled at any time thereafter, on giving not less than fifteen (15) days prior notice in writing to the Agent, to prepay the whole (but not a part) of the aggregate outstanding principal amount of such Lender's participation in the Loan, without penalty or premium, such prepayment to be accompanied by payment of accrued interest to the date of such prepayment and of all other amounts owing to such Lender pursuant to this Agreement, any of the other Loan Documents or any of the Collateral as well as such amounts as such Lender shall in its sole discretion absent manifest error deem necessary to compensate it for any loss or net cost incurred by it due to the occurrence of any such prepayment, whereupon such Lender's obligations to continue to make its participation in the Advances available shall forthwith terminate. SECTION 2.10. ILLEGALITY. In the event that by reason of any change in applicable laws or regulations or regulatory requirements, or in the interpretation thereof, by any governmental or regulatory authority charged with the administration thereof, it becomes unlawful for a Lender to maintain or give effect to its obligations as contemplated by this Agreement, such Lender will notify the Borrowers and the Agent to that effect and thereupon such Lender and the Borrowers shall negotiate in good faith to agree on terms for such Lender to continue its participation in the Loan on a basis which is not unlawful. In the event no agreement shall be reached between the Borrowers and such Lender within a period which in the absolute discretion of such Lender is 21 reasonable, such Lender (i) will use its reasonable efforts to find a substitute Lender and (ii) shall be entitled to give notice to the Borrowers and the Agent that such Lender's obligation to make and/or maintain its participation in the Advances shall be forthwith terminated and thereupon the amount of its participation in the Loan, or any relevant part thereof outstanding, shall become due and payable in full on the first Payment Date to occur following the receipt by the Borrowers of such notice, together with accrued interest thereon and other sums payable hereunder, and such amounts as such Lender shall specify to be necessary to compensate it for any loss and expenses incurred by it on such Payment Date as a result of such prepayment, unless earlier prepayment is required by any law, regulation and/or regulatory requirement. SECTION 2.11. DESIGNATED TRANSACTIONS. The Swap Provider undertakes to enter into Designated Transactions in the aggregate notional principal amount up to or equal to the aggregate principal amount of Tranche A and Tranche B of each Term Loan on such terms as the Swap Provider and Party B shall agree. ARTICLE III CONDITIONS PRECEDENT SECTION 3.01. CONDITIONS PRECEDENT TO THE FIRST BORROWING. The obligation of each Lender to make its Advance on the first Drawdown Date is subject to the following conditions precedent having been satisfied (or waived in writing by the Lenders) on or prior to the first Drawdown Date: (a) the Lenders shall have been given such access to the management, records, books of account, contracts and properties of the Credit Parties as they shall have reasonably requested; (b) the Borrowers shall have paid, or caused to be paid, all accrued fees then due and payable pursuant hereto; (c) the Borrowers shall have opened each of the Earnings Accounts; and (d) the Agent shall have received on or before the first Drawdown Date (except as provided in Section 3.01(d)(xvii)) each of the following, each (where applicable) dated as of the first Drawdown Date (unless otherwise specified), in form and substance satisfactory to the Agent (unless otherwise specified) and (except for the Note) in sufficient copies for each Lender: (i) the Note to the order of the Agent, duly executed by the Borrowers; (ii) copies of the resolutions of the board of directors of each of the Credit Parties, certified (as of a date reasonably near the first Drawdown Date) by the Secretary or Assistant Secretary of such Credit Party as being a true and correct copy thereof, approving this Agreement and each other Loan Document to which such Credit Party is or is to be a party, and of all documents evidencing shareholder approval and any other necessary corporate action and governmental approvals for such Credit Party with respect to this Agreement, the Note and each other Loan Document to which such Credit Party is or is to be a party; 22 (iii) a certificate of the Secretary or an Assistant Secretary of each of the Credit Parties certifying the names and true signatures of the respective officers of such Credit Party authorized to sign this Agreement and each other Loan Document to which such Credit Party is or is to be a party and the other documents to be delivered hereunder and thereunder; (iv) copies of the articles of incorporation, bylaws and other constitutive documents of each of the Credit Parties and each amendment thereto, certified (as of a date reasonably near the first Drawdown Date) by the Secretary or Assistant Secretary of such Credit Party as being a true and correct copy thereof; (v) copies of certificates dated as of a date reasonably near the first Drawdown Date, certifying that each of the Credit Parties is duly incorporated and in goodstanding under the laws of such Credit Party's jurisdiction of incorporation; (vi) a certificate of each of the Credit Parties, signed on behalf of each Credit Party by its Secretary or any Assistant Secretary, dated as of the first Drawdown Date (the statements made in such certificate shall be true on and as of the first Drawdown Date), certifying as to (A) the absence of any amendments to the constitutive documents of such Credit Party since the date of the certificate referred to in subclause (iv) above, (B) the absence of any proceeding for the dissolution or liquidation of such Credit Party, (C) the veracity in all material respects of the representations and warranties contained in this Agreement as though made on and as of the first Drawdown Date and (D) the absence of any event occurring and continuing, or resulting from the making of the Loan that constitutes a Default; (vii) a certificate of each of the Credit Parties, signed on behalf of each Credit Party by its Secretary or any Assistant Secretary, to the effect that no information provided by such Credit Party to the Agent or any Lender contained or contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (viii) evidence that the relevant Mortgaged Vessel has been sold by its seller to and purchased and accepted by the relevant Borrower, and duly documented in the name of such Borrower under the laws and flag of the Republic of Liberia; (ix) each of the following Security Documents, which shall be in full force and effect, with no default thereunder and with no accrued right of termination under any thereof: (A) the Mortgage pertaining to the relevant Mortgaged Vessel, duly executed by the relevant Borrower and duly recorded in 23 accordance with the laws of the Republic of Liberia (and all fees and expenses in connection with the recordation of the Mortgage shall have been duly paid); (B) the Assignment of Earnings pertaining to the relevant Mortgaged Vessel, duly executed by the relevant Borrower; and (C) the Assignment of Insurances pertaining to the relevant Mortgaged Vessel, duly executed by the relevant Borrower, together with a duly signed Notice of Assignment in the form attached thereto; (x) either (A) duly executed UCC-l financing statements and such other documents as the Agent may request, the filing or recordation of which the Lenders, the Agent or its counsel may deem necessary or desirable to create or perfect the Liens created by the Security Documents in the Collateral under applicable law, or (B) evidence of the filing or recordation of the same in such offices as the Agent shall have specified; (xi) evidence of the completion of all other recordings and filings of or with respect to the Security Documents that the Lenders or the Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby; (xii) evidence that each and every approval, waiver or consent of any governmental authority or regulatory body which in the discretion of the Agent may be necessary or appropriate in connection with the execution, delivery and performance of the Loan Documents being executed in connection with the first Borrowing and the transactions contemplated thereby has been obtained, is in full force and effect and is valid and sufficient for its purposes; (xiii) a certificate in respect of the relevant Mortgaged Vessel dated within ten (10) days of the date of the making of the Advances duly issued by the Classification Society to the effect that the Mortgaged Vessel is in class and is free of all recommendations and notations affecting class; (xiv) a Certificate of Ownership and Encumbrance with respect to the relevant Mortgaged Vessel issued by the Office of the Deputy Commissioner of Maritime Affairs of the Republic of Liberia in New York, New York (the "Deputy Commissioner's Office"), confirming that (1) such Mortgaged Vessel is duly registered under the laws and flag of the Republic of Liberia in the name of the relevant Borrower and (2) there are on record no mortgages, liens or other encumbrances on such Mortgaged Vessel other than the Mortgage; (xv) evidence of insurance effected with respect to the relevant Mortgaged Vessel naming the Security Trustee as insured and loss payee with such responsible and reputable insurance companies or associations, and in 24 such amounts and covering such risks (including, without limitation, Marine and War, Hull and Machinery, Protection and Indemnity, Mortgagee's Interest Insurance, including Additional Perils-Pollution) as is required pursuant to the terms of the applicable Mortgage, and a BankAssure report in form and substance satisfactory to the Agent regarding the adequacy of such insurance coverage; (xvi) a valuation of the Fair Market Value of the relevant Mortgaged Vessel, dated not more than 10 days prior to the first Drawdown Date and showing such Fair Market Value to be not less than 115% of the amount of the Loan that will be outstanding on the first Drawdown Date; (xvii) copies of all ISM Code Documentation required to be maintained in respect of the relevant Mortgaged Vessel (which documents may be provided within 3 Banking Days after the first Drawdown Date if such documents are not available on or prior to the first Drawdown Date); (xviii) a favorable opinion of Watson, Farley & Williams, special Liberian and New York counsel for the Lenders, in form, scope and substance satisfactory to the Lenders; and (xix) a favorable opinion of counsel for the Credit Parties as to matters of New York law, Delaware Law and United States federal law, in form, scope and substance satisfactory to the Lenders. SECTION 3.02. CONDITIONS PRECEDENT TO THE SECOND BORROWING. The obligation of each Lender to make its Advance on the second Drawdown Date is subject to the following conditions precedent having been satisfied (or waived in writing by the Lenders) on or prior to the second Drawdown Date: (a) the Borrowers shall have paid, or caused to be paid, all fees due and payable on or before the second Drawdown Date; and (b) the Agent shall have received on or before the second Drawdown Date (except as provided in Section 3.01(b)(xi)) each of the following, each dated as of the second Drawdown Date (unless otherwise specified) in form and substance satisfactory to the Agent (unless otherwise specified) and in sufficient copies for each Lender: (i) a certificate of each of the Credit Parties, signed on behalf of each Credit Party by its Secretary or any Assistant Secretary, dated as of the second Drawdown Date (the statements made in such certificate shall be true on and as of the second Drawdown Date), certifying as to (A) the absence of any amendments to the constitutive documents of such Credit Party since the date of the certificate referred to in Section 3.01(d)(vi) above, (B) the absence of any proceeding for the dissolution or liquidation of such Credit Party, (C) the veracity in all material respects of the representations and warranties contained in this Agreement as though made on and as of the second Drawdown Date and (D) the absence of any event occurring and 25 continuing, or resulting from the making of the Loan that constitutes a Default; (ii) evidence that the relevant Mortgaged Vessel has been sold to and accepted by the relevant Borrower, and duly documented in the name of such Borrower under the laws and flag of the Republic of Liberia; (iii) each of the following Security Documents, which shall be in full force and effect, with no default thereunder and with no accrued right of termination under any thereof: (A) the Mortgage pertaining to the relevant Mortgaged Vessel, duly executed by the relevant Borrower and duly recorded in accordance with the laws of the Republic of Liberia (and all fees and expenses in connection with the recordation of the Mortgage shall have been duly paid); (B) the Assignment of Earnings pertaining to the relevant Mortgaged Vessel, duly executed by the relevant Borrower; and (C) the Assignment of Insurances pertaining to the relevant Mortgaged Vessel, duly executed by the relevant Borrower, together with a duly signed Notice of Assignment in the form attached thereto; (iv) either (A) duly executed UCC-l financing statements and such other documents as the Agent may request, the filing or recordation of which the Lenders, the Agent or its counsel may deem necessary or desirable to create or perfect the Liens created by the Security Documents in the Collateral under applicable law, or (B) evidence of the filing or recordation of the same in such offices as the Agent shall have specified; (v) evidence of the completion of all other recordings and filings of or with respect to the Security Documents that the Lenders or the Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby; (vi) evidence that each and every approval, waiver or consent of any governmental authority or regulatory body which in the discretion of the Agent may be necessary or appropriate in connection with the execution, delivery and performance of the Loan Documents being executed in connection with the second Borrowing and the transactions contemplated thereby has been obtained, is in full force and effect and is valid and sufficient for its purposes; (vii) a certificate in respect of the relevant Mortgaged Vessel dated within ten (10) days of the date of the making of the Advances duly issued by the Classification Society to the effect that the Mortgaged Vessel is in class and is free of all recommendations and notations affecting class; 26 (viii) a Certificate of Ownership and Encumbrance with respect to the relevant Mortgaged Vessel issued by the Deputy Commissioner's Office, confirming that (1) such Mortgaged Vessel is duly registered under the laws and flag of the Republic of Liberia in the name of the relevant Borrower and (2) there are on record no mortgages, liens or other encumbrances on such Mortgaged Vessel other than the Mortgage; (ix) evidence of insurance effected with respect to the relevant Mortgaged Vessel naming the Security Trustee as insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks (including, without limitation, Marine and War, Hull and Machinery, Protection and Indemnity, Mortgagee's Interest Insurance, including Additional Perils-Pollution) as is required pursuant to the terms of the applicable Mortgage, and a BankAssure report in form and substance satisfactory to the Agent regarding the adequacy of such insurance coverage; (x) a valuation of the Fair Market Value of the relevant Mortgaged Vessel, dated not more than 10 days prior to the second Drawdown Date and showing the aggregate Fair Market Value of the Mortgaged Vessels to be not less than 115% of the amount of the Loan that will be outstanding on the second Drawdown Date; (xi) copies of all ISM Code Documentation required to be maintained in respect of the relevant Mortgaged Vessel (which documents may be provided within 3 Banking Days after the second Drawdown Date if such documents are not available on or prior to the second Drawdown Date); (xii) a favorable opinion of Watson, Farley & Williams, special New York counsel for the Lenders, in form, scope and substance satisfactory to the Lenders; and (xiii) a favorable opinion of counsel for the Credit Parties as to matters of New York law, Delaware law and United States federal law, in form, scope and substance satisfactory to the Lenders. SECTION 3.03. CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of the Lenders to make available their Ratable Portion of each Tranche of each Borrowing is further subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 and such other documents, opinions and instruments relating to the transactions contemplated hereby as any Lender or the Agent may reasonably request; (b) immediately after the making of such Borrowing, the aggregate outstanding principal amount of the Advances will not exceed the Commitments; 27 (c) immediately before and after giving effect to the making of such Borrowing, no Default shall have occurred and be continuing; (d) the representations and warranties of the Credit Parties contained in this Agreement shall be true on and as of the date of the making of such Borrowing, unless such representation or warranty shall expressly relate to a different date; (e) except as permitted in this Agreement, there has not been any material change of circumstances in respect of any of the Credit Parties or its shareholders; (f) any inspection reports of the Vessels requested by the Agent as permitted hereunder shall be satisfactory to the Agent and the Agent shall be satisfied that upon a review of the class records by the Agent or a surveyor appointed by the Agent that the Mortgaged Vessels are being properly maintained within the requirements of the relevant Classification Society; (g) each of the Credit Parties shall have complied with all laws, rules, regulations, contracts or other requirements which may be applicable to it, the absence of which would have a Material Adverse Effect on (1) any of the Borrowers or the Guarantors, (2) the Loan Documents or (3) the Collateral; and (h) the Borrowers shall have paid, or caused to be paid, all costs (including legal fees), incurred by the Lenders, the Agent, the Security Trustee and the Swap Provider in connection with the preparation, execution and performance of this Agreement and the other Loan Documents. Unless waived by the Agent or the Lenders, the making of such Borrowing hereunder shall be deemed to be a representation and warranty by the Credit Parties to the Lenders on the date of such borrowing as to the facts specified in clauses (b), (c) and (d) of this Section 3.03. SECTION 3.04. DETERMINATIONS UNDER SECTION 3.01, 3.02 AND 3.03. For purposes of determining compliance with the conditions specified in Section 3.01, 3.02 and 3.03, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the relevant Drawdown Date specifying its objection thereto and such Lender shall not have made available to the Agent such Lender's Ratable Portion in respect of each Tranche. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES. Except as otherwise indicated, each of the Credit Parties represents and warrants as of the date hereof and as of each the Drawdown Date as follows: (a) CORPORATE EXISTENCE AND POWER. Each of the Credit Parties (i) is a company duly organized, validly existing and in good standing under the laws of such Credit Party's jurisdiction 28 of incorporation, (ii) is duly qualified and in good standing as a foreign company or corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed, except where the failure to so qualify or be licensed would not result in a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) AUTHORIZATION; NO VIOLATION. The execution, delivery and performance by each Credit Party of each of the Loan Documents to which it is or is to be a party, and the consummation of other transactions contemplated thereby, are within such Credit Party's corporate or company powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Credit Party's articles of incorporation or bylaws, (ii) violate, to the best knowledge of the such Credit Party, any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any loan agreement, contract, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting such Credit Party or any of its properties other than the loan agreements and other documents entered into pursuant to Borrowings under this Agreement, or (iv) except for the Liens created by the Security Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of such Credit Party. To the best knowledge of the Credit Parties, none of the Credit Parties is not in violation, of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument. (c) GOVERNMENTAL CONSENTS. No authorization, approval, consent or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other consent or approval of any other Person is required for (i) the due execution, delivery and performance by any of the Credit Parties of this Agreement or any other Loan Document to which it is or is to be a party or for the consummation of the transactions contemplated thereby, (ii) the grant by any of the Credit Parties of the Liens granted by them pursuant to the Security Documents, (iii) except as contemplated in Section 4.01(s), the perfection or maintenance of the Liens created by the Security Documents (including the first priority nature thereof), or (iv) the exercise by the Security Trustee or any Lender of their rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Security Documents, except for the authorizations, approvals, consents, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect. (d) BINDING EFFECT. This Agreement has been, and the Note and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each of the Credit Parties as applicable thereto. This Agreement is, and the Note and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligations of the Credit Parties thereto, enforceable against such Credit Parties in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditor's rights generally and to general principles of equity. The Borrowers are entering into this Agreement and borrowing hereunder for their own account. (e) FINANCIAL INFORMATION. The balance sheets, as at the date of this Agreement, of each of the Credit Parties are complete and correct, and fairly present the financial condition of each 29 such Credit Party. The Credit Parties have no contingent obligation, liability for taxes or unusual forward or long-term commitment except as specifically set forth in the balance sheets. Since the date of this Agreement no dividend or other distribution has been declared or paid or made to any shareholder of any of the Credit Parties except as permitted in Section 6.01(h) or (i). (f) NO LITIGATION. Except as disclosed in Schedule 4.01(f), there is no pending or, to the best knowledge of the Borrowers threatened, action, proceeding, governmental investigation or arbitration affecting any of the Borrowers before any court, governmental agency or arbitrator, in which there is a reasonable possibility of an adverse decision which could result in a Material Adverse Effect or which in any manner draws into question the legality, validity, binding effect or enforceability of the Loan Documents or the consummation of the transactions contemplated hereby or thereby. (g) COMPLIANCE WITH ERISA. (i) Schedule 4.01(g) sets forth each Plan maintained by the Credit Parties; each Plan, other than any Multiple Employer Plan, (and each related trust, insurance contract or fund) is in substantial compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan, other than any Multiple Employer Plan, (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; to the best knowledge of the Credit Parties or ERISA Affiliates no Plan which is a Multiple Employer Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability in an amount material to a Credit Party's operation; no Plan (other than a Multiple Employer Plan) which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan have been or will be timely made (except as disclosed on Schedule 4.01(g)); neither the Credit Parties nor any of their Subsidiaries nor ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any such liability under any of the foregoing sections with respect to any Plan; no condition exists which presents a material risk to the Credit Parties, any of their Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted by the PBGC to terminate or appoint a trustee to administer any Plan (in the case of a Multiple Employer Plan, to the best knowledge of the Credit Parties or ERISA Affiliates) which is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, or, to the best knowledge of the Credit Parties, expected or threatened which could reasonably be expected to have a Material Adverse Effect; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the Credit Parties, any of their Subsidiaries and ERISA Affiliates would have no liabilities to any Plans which are Multiple Employer Plans in the event of a complete withdrawal therefrom in an amount which could reasonably be expected to have a Material Adverse Effect; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees 30 of the Credit Parties, their Subsidiaries or any ERISA Affiliate has at all times been operated in material compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of the Credit Parties or any of their Subsidiaries or any ERISA Affiliate exists nor has any event occurred which could reasonably be expected to give rise to any such lien on account of any Plan; and the Credit Parties and their Subsidiaries do not maintain or contribute to any employee welfare plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan the obligations with respect to which could reasonably be expected to have a Material Adverse Effect. (ii) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. All contributions required to be made with respect to a Foreign Pension Plan have been or will be timely made. None of the Credit Parties nor any of their Subsidiaries has incurred any obligation in connection with the termination of or withdrawal from any Foreign Pension Plan that could reasonably be expected to have a Material Adverse Effect. None of the Credit Parties nor any of its Subsidiaries maintains or contributes to any Foreign Pension Plan the obligations with respect to which could in the aggregate reasonably be expected to have a Material Adverse Effect. (h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as disclosed in Schedule 4.01(h), the operations and properties of each of the Credit Parties comply with all Environmental Laws, all necessary Environmental Permits have been obtained and are in effect for the operations and properties of the Credit Parties and the Credit Parties are in compliance with all such Environmental Permits. Except as disclosed in Schedule 4.01(h), no circumstances exist that are reasonably likely to (i) form the basis of an Environmental Action against any of the Credit Parties or any of their respective properties or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law that would, in the case of either (i) or (ii) above, be reasonably likely to result in a Material Adverse Effect, and no Environmental Incident has occurred that would be reasonably likely to result in a Material Adverse Effect. (i) COMPLIANCE WITH STATUTES, ETC. Each of the Credit Parties is in compliance in all material respects with all other applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliance as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, and except as set forth on Schedule 4.01(i)(1), each Mortgaged Vessel is, or will be upon acquisition, operated in material compliance with all applicable maritime laws, rules and regulations. Schedule 4.01(i)(2) correctly lists all ISM Code Documentation required to be maintained in respect of each of the Mortgaged Vessels. (j) MARGIN STOCK. The Credit Parties do not own and do not have any intention of acquiring any "margin stock" as defined in Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. None of the Credit Parties is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock and no proceeds of the Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of 31 purchasing or carrying any margin stock. The Credit Parties, nor any agent acting on their behalf, have not taken or will not take any action which might cause the transactions contemplated herein or in any other Loan Document to violate Regulation G, T, U or X or any other regulation of the Board of Governors of the Federal Reserve System, as now in effect or as the same may hereafter be in effect. (k) SUBSIDIARIES AND MATERIAL ASSETS. None of the Borrowers has any direct or indirect Subsidiaries. Schedule 4.01(k)(1) correctly lists all direct and indirect Subsidiaries of Seabulk International and the percentage of capital stock of each such Subsidiary owned, directly or indirectly, by Seabulk International. Schedule 4.01(k)(2) lists all of the material assets owned or leased by each Credit Party. (l) NOT "INVESTMENT COMPANY", "HOLDING COMPANY" OR "PUBLIC UTILITY". None of the Credit Parties is (i) subject to the Investment Company Act of 1940, as amended, or (ii) a "holding company" or a "subsidiary company" of a "holding company" or an affiliate of a "holding company" or of a "subsidiary company" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company of 1935, as amended, or (iii) a "public utility" within the meaning of the Federal Power Act of 1920, as amended. Neither the making of any Advances nor the application of the proceeds or repayment thereof by the Borrowers, nor the consummation of the other transactions contemplated hereby, will constitute a violation by the Borrowers of any provision of such acts or any rule, regulation or order of the U.S. Securities and Exchange Commission thereunder. (m) OTHER OBLIGATIONS. None of the Borrowers is a party to any other loan or security agreement except as disclosed previously to the Lenders, and has not filed or permitted to be filed any financing statement, mortgage, pledge or charge with respect to any assets owned by it and, as of the date hereof, there is no security interest, lien, charge or encumbrance of any kind on any of its properties or assets except in favor of the Security Trustee. Schedule 4.01(m) correctly lists the principal amount and maturity date of all material financings and lease agreements of each of the Credit Parties as well as the name of the lender(s) or lessor, the borrower(s) or lessee and all guarantors. (n) TAXES. Each of the Credit Parties has filed, has caused to be filed or has been included in all tax returns (federal, state, local and foreign) required to be filed by it, and has paid all taxes shown thereon to be due, together with applicable interest and penalties. (o) PLACE OF BUSINESS. The location of each of the Borrowers for purposes of Article 9 of the Uniform Commercial Code is Florida. (p) USE OF PROCEEDS. The Borrowers are using the proceeds of the Advances solely for the purpose of financing up to 80% of the aggregate purchase price of the Mortgaged Vessels. (q) ASSET CONTROL. Neither of the Borrowers is a "national" of any "designated foreign country", within the meaning of the Foreign Asset Control Regulations or the Cuban Asset Control Regulations of the U.S. Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, or any regulations or rulings issued thereunder. Neither the making of the Advances nor the use of the proceeds thereof nor the performance by the Borrowers of this Agreement 32 violates any statute, regulation or executive order restricting loans to, investments in, or the export of assets to, foreign countries or entities doing business there. (r) SOLVENCY. Each of the Credit Parties is Solvent. (s) LIENS. The provisions of each of the Security Documents create in favor of the Security Trustee a valid, binding and enforceable security interest and Lien in all right, title and interest in the Collateral therein described, and shall, upon execution by the parties thereto, constitute a fully perfected first priority security interest in favor of the Security Trustee in all right, title and interest in such Collateral, subject to the following (which the Borrowers will do or cause to be done on or as of the relevant Drawdown Date): (1) the recordation of each of the Mortgages in accordance with the laws of the Republic of Liberia, (2) the filing proper financing statements in such jurisdiction as shall be necessary or advisable in respect of each Assignment of Earnings, and (3) to notice being given to underwriters and protection and indemnity clubs, and their consent being obtained where policy provisions or club rules so require in respect of each Assignment of Insurances. Upon execution and delivery by the relevant Borrower and recording in accordance with the laws of the Republic of Liberia, each Mortgage will be a "preferred mortgage" within the meaning of the United States Ship Mortgage Act, 1920, as amended, recodified at 46 U.S.C. ss.31301 ET. SEQ. (the "Ship Mortgage Act") and will qualify for the benefits accorded a "preferred mortgage" under the Ship Mortgage Act, and no other filing or recording or refiling or rerecording or any other act is necessary or advisable to create or perfect such security interest under the Mortgage or in the mortgaged property therein described. No consent, approval or authorization of any Person is necessary or desirable for the realization of the benefits afforded by the Security Documents or for enforcement of the rights and remedies therein contained by the Security Trustee. (t) OWNERSHIP OF BORROWERS, SEABULK GLOBAL CARRIERS AND SEABULK TANKERS. The outstanding capital stock of each of the Borrowers and all other ownership interests and rights to acquire ownership interests in the Borrowers is owned of record by Seabulk Global Carriers and the outstanding capital stock of each of Seabulk Global Carriers and Seabulk Tankers and all other ownership interests and rights to acquire ownership interests in each of Seabulk Global Carriers and Seabulk Tankers is owned of record by Seabulk International. (u) NO MONEY LAUNDERING. In performing and discharging its obligations and liabilities under or as contemplated by this Agreement and the Security Documents to which it is a party, each Borrower is acting for its own account and such performance and discharge will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities). (v) TRUE AND COMPLETE. No representation, warranty or statement made, or certificate, document or financial statement provided, by the Credit Parties, in or pursuant to this Agreement or any other Loan Document, or in any other document furnished in connection therewith, is untrue or incomplete in any material respect or contains any misrepresentation of a material fact or omits to state any material fact necessary to make any such statement herein or therein not misleading. 33 (w) NO IMMUNITY. None of the Credit Parties, nor any of their respective properties, have any right of immunity on the grounds of sovereignty or otherwise from the jurisdiction of any court or from setoff or any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) under the laws of any jurisdiction. The execution and delivery of the Loan Documents by the Credit Parties and the performance by them of their respective obligations thereunder constitute commercial transactions. (x) SURVIVAL OF REPRESENTATIONS. All representations and warranties made by the Credit Parties herein or made in any certificate delivered pursuant hereto shall survive the making of each Advance and the execution and delivery to the Agent of the Note. ARTICLE V AFFIRMATIVE COVENANTS SECTION 5.01. AFFIRMATIVE COVENANTS. Except as otherwise indicated, each of the Credit Parties covenants and agrees that, so long as this Agreement shall remain in effect or any of the Obligations shall be outstanding, it shall, unless the Credit Parties shall have received the prior written consent of the Majority Lenders: (a) EXISTENCE. Do or cause to be done all things necessary to preserve and keep in full force and effect its existence (except as permitted by Section 6.16), rights and franchises and comply with all laws applicable to it and at all times be qualified to do business in the jurisdictions where failure to qualify could reasonably be expected to result in a Material Adverse Effect. (b) PAYMENT OF DEBTS. Pay its debts, liabilities and obligations when due, except (i) any such debts, liabilities and obligations that are being contested in good faith by appropriate proceedings, (ii) any single debt, liability or obligation, which does not, in the case of Seabulk International, exceed US$2,500,000 or, in the case of any other Credit Party, exceed US$500,000, and (iii) any debts, liabilities and obligations, which in the aggregate do not exceed US$5,000,000. (c) ACCOUNTS AND RECORDS. Keep and maintain full and accurate accounts and records in accordance with GAAP consistently applied. (d) PAYMENT OF TAXES AND CLAIMS. Prepare and timely file all tax returns required to be filed by it and pay and discharge all Taxes imposed upon it or in respect of any of its property and assets before the same shall become in default, as well as all lawful claims (including, without limitation, claims for labor, materials and supplies) which, if unpaid, might become a lien or charge upon the Collateral or any part thereof, except (i) in each case, for any such Taxes as are being contested in good faith by appropriate proceedings or (ii) with respect to foreign Taxes, the failure of which to pay or discharge could not reasonably be expected to result in a Material Adverse Effect. (e) FINANCING STATEMENTS. In the case of the Collateral, execute, financing statements or other documents deemed necessary or desirable by the Agent to perfect, maintain or preserve 34 any security interest granted pursuant to the Security Documents and pay the filing costs pursuant to law. Without limiting the generality of the foregoing, the Security Trustee will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be reasonably necessary or desirable, or that the Agent may reasonably request, to protect and preserve the Liens granted or purported to be granted hereby and by the other Security Documents. Each of the Lenders hereby authorizes the Security Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Lender, where permitted by law. (f) COMPLIANCE WITH LAW. Comply in all material respects with all applicable federal, state, local and foreign laws, ordinances, rules, orders and regulations now in force or hereafter enacted, including, without limitation, all laws and regulations relating to environmental laws and employee benefit plans, failure to company with which could reasonably be expected to result in a Material Adverse Effect. (g) FINANCIAL STATEMENTS. Furnish to the Agent the following financial statements: (i) as soon as available but not later than ninety (90) days after the end of each fiscal year of (1) Seabulk International, complete copies of the consolidated financial reports of Seabulk International and its Subsidiaries, all in reasonable detail, which shall include at least the consolidated balance sheet of Seabulk International and its Subsidiaries as of the end of such year and the related consolidated statements of income and sources and uses of funds for such year, which shall be audited reports prepared by independent certified public accountants of international standing; (2) each of the Borrowers, complete copies of financial reports of each Borrower, all in reasonable detail, which shall include at least the balance sheet of such Borrower as of the end of such year and the related statements of income and sources and uses of funds for such year, which shall be unaudited, but certified to be true and complete by the chief financial officer of such Borrower; and (3) each of the Lightship Tanker Entities, complete copies of financial reports of each of the Lightship Tanker Entities, all in reasonable detail, which shall include at least the balance sheet of each of the Lightship Tanker Entities as of the end of such year and the related statements of income and sources and uses of funds for such year, which shall be unaudited, but certified to be true and complete by the chief financial officer of Seabulk International; (ii) as soon as available but not later than ninety (90) days after the end of each fiscal year of Seabulk International, complete copies of the consolidated financial reports of Seabulk International and its Subsidiaries (excluding the Lightship Entities), all in reasonable detail, which shall include at least the consolidated balance sheet of Seabulk International and its Subsidiaries (excluding the Lightship Entities), as of the end of such year and related consolidated statements of income and sources and uses of funds for such year, which shall be unaudited, but certified to be true and complete by the chief financial officer of Seabulk International; 35 (iii) as soon as available but not less than forty-five (45) days after the end of each of the first three quarters of each fiscal year of (1) Seabulk International, a quarterly interim consolidated balance sheet of Seabulk International and its Subsidiaries and the related consolidated profit and loss statements and sources and uses of funds, all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of Seabulk International; (2) each of the Borrowers, a quarterly interim balance sheet of such Borrower and the related profit and loss statements and sources and uses of funds, all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of such Borrower; and (3) each of the Lightship Tanker Entities, a quarterly interim balance sheet of each of the Lightship Tanker Entities and the related profit and loss statements and sources and uses of funds, all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of Seabulk International; (iv) within ten (10) days of the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which Seabulk International shall have filed with the U.S. Securities and Exchange Commission or any similar governmental authority; (v) promptly upon the mailing thereof to the shareholders of Seabulk International, copies of all financial statements, reports, proxy statements, notices and other communications transmitted to all of Seabulk International's shareholders; (vi) at such time as the financial statements described in Sections 5.01(g)(i), (ii) and (iii) are delivered, a certificate of Seabulk International's chief financial officer (a "Compliance Certificate") certifying (A) compliance by each of the Credit Parties with each of the covenants contained in this Agreement and, with respect to the covenants in Sections 5.01(n), (o), (p) and (q) hereof, showing the calculations thereof in reasonable detail, (B) that the financial statements delivered in accordance with Sections 5.01(g)(i), (ii) and (iii) are complete and correct in all material respects and present fairly the financial condition and results of operations of Seabulk International and its Subsidiaries, or each Borrower or each Lightship Tanker Entity, as the case may be, as of the dates and for the periods indicated, in accordance with GAAP consistently applied (subject as to interim statements to normal year-end adjustments), and (C) that no Default or Event of Default has occurred or is continuing; and (vii) any other information regarding the Credit Parties that is material to the making and performance of the Loan as the Agent may reasonably request. Upon receipt the Agent shall promptly deliver the above referenced financial statements to the Lenders. (h) ACCESS TO BOOKS AND RECORDS; INSPECTION OF MORTGAGED VESSELS. Permit the Agent and each Lender, and their respective duly authorized agents and officers, during normal business hours and upon reasonable notice to (i) examine the books and records of each of the 36 Credit Parties and to make copies and extracts therefore, (ii) discuss the affairs, finances and accounts of each of the Credit Parties, and be advised as to the same by, the officers of each of the Credit Parties, and (iii) inspect the Mortgaged Vessels, as shall be relevant to the performance or observance of the terms, covenants or conditions of this Agreement, the other Loan Documents or the financial condition of the Credit Parties or as the Agent considers necessary or appropriate in order to keep informed as to the then existing state of the Collateral. (i) NOTIFICATIONS. Give prompt written notice to the Agent of (i) any Default of which any of the Credit Parties has actual knowledge or an Event of Default specifying the same and the steps being taken to remedy the same, (ii) any litigation or governmental proceeding pending or, to the best knowledge of any of the Credit Parties, threatened against any of the Credit Parties which could reasonably be expected to result in a Material Adverse Effect, (iii) the withdrawal of any Mortgaged Vessel's rating by its Classification Society or the issuance by such Classification Society of any material recommendation or notation affecting class and (iv) any other event or condition which could reasonably be expected to result in a Material Adverse Effect. (j) PERFORMANCE OF OBLIGATIONS. Not take, or fail to take, any action, or fail to use commercially reasonable efforts to prevent any action to be taken by others, (i) which would release any Person from any of such Person's covenants or obligations under any agreement or instrument included in the Security Documents, or (ii) which would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such agreement or instrument in a manner adverse to the Agent or the Lenders. (k) ENVIRONMENTAL MATTERS. Promptly, and in any event within five (5) Business Days after an officer of any of the Credit Parties obtains actual knowledge thereof, give written notice to the Agent of one or more of the following environmental matters, unless, in each case, such environmental matters could not, individually or when aggregated with all other such environmental matters, be reasonably expected to result in a Material Adverse Effect: (i) any pending or threatened in writing Environmental Action against any of the Credit Parties or any properties owned or operated by any of them; (ii) any condition or occurrence on or arising from any property owned or operated by any of the Credit Parties that (A) results in noncompliance by such Credit Party with any applicable Environmental Law or (B) could reasonably be expected to form the basis of any Environmental Action against any of the Credit Parties or any of their respective properties; (iii) any condition or occurrence on any property owned or operated by any of the Credit Parties that could reasonably be expected to cause such property to be subject to any restrictions on the ownership, occupancy, use or transferability by any of the Credit Parties of such property under any Environmental Law; and (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any real property owned or operated by any of the Credit Parties as required by any Environmental Law or any governmental or other administrative agency; PROVIDED THAT in any event the 37 Credit Parties shall deliver to the Agent all material notices received after the date hereof by them from any governmental authority under, or pursuant to, any Environmental Law. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the Borrowers or such Guarantor's response thereto. In addition, upon the request of the Agent, each of the Credit Parties will provide the Agent with copies of all material communications with any governmental authority relating to any Environmental Law, all material communications with any Person (other than their attorneys) relating to any Environmental Action of which notice is required to be given pursuant to this Section 5.01(l), and such detailed reports of any such Environmental Action as may reasonably be requested by the Agent. (l) LOAN DOCUMENT OBLIGATIONS. Pay the Note according to the reading, tenor and effect thereof, and do and perform every act and discharge all of the obligations provided to be performed by the Credit Parties under the Loan Documents, including this Agreement, at the time or times and in the manner specified. (m) ERISA. Promptly upon learning of the occurrence or the expected occurrence of (i) any material liability of any Credit Party or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any Multiple Employer Plan, (ii) a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which any Credit Party or any ERISA Affiliate is plan administrator (as defined in ERISA) other than to the extent such failure could not reasonably be expected to result in a Material Adverse Effect, (iii) a plant closing or mass layoff (as defined in the Worker Adjustment and Retraining Notification Act) of either of the Borrowers, any of the Guarantors or any ERISA Affiliate; (iv) any of the Borrowers, the Guarantors or any ERISA Affiliate becoming liable for material increases in retiree medical, life insurance or other death benefits (contingent or otherwise) (other than as a result of a continuation of medical coverage required under Section 4980B of the Code or the insurance coverage continuation provisions of applicable state law); or (v) a failure to satisfy the conditions represented or warranted to in this Agreement other than to the extent such failure could not reasonably be expected to result in a Material Adverse Effect, furnish or cause to be furnished to the Agent written notice thereof. (n) MINIMUM ADJUSTED EBITDA TO ADJUSTED INTEREST EXPENSE. With respect to Seabulk International, maintain a ratio determined as of the last day of each of Seabulk International's fiscal quarters commencing March 31, 2004 of Adjusted EBITDA to Adjusted Interest Expense as follows: (i) thereafter, until the fiscal quarter ending December 31, 2004, not less than 2.75 to 1.00; (ii) thereafter, until the fiscal quarter ending December 31, 2005, not less than 3.00 to 1.00; and (iii) thereafter, not less than 3.25 to 1.00. 38 (o) MINIMUM ADJUSTED TANGIBLE NET WORTH. With respect to Seabulk International, maintain an Adjusted Tangible Net Worth of not less than One Hundred Million Dollars ($100,000,000) PLUS fifty percent (50%) of Seabulk International's cumulative positive annual net income (on a consolidated basis), PLUS seventy-five percent (75%) of the net proceeds received by Seabulk International (or any of its Subsidiaries) from the issuance of equity issued after the date of this Agreement. (p) MAXIMUM ADJUSTED FUNDED DEBT RATIO. With respect to Seabulk International, maintain an Adjusted Funded Debt Ratio determined as of the last day of each of Seabulk International's fiscal quarters commencing March 31, 2004 as follows: (i) through the fiscal quarters ending June 30, 2004 and September 30, 2004, not more than 4.80 to 1.00; (ii) thereafter, through the fiscal quarter ending December 31, 2004, not more than 4.65 to 1.00; and (iii) thereafter, not more than 3.50 to 1.00. (q) MINIMUM FAIR MARKET VALUE OF THE MORTGAGED VESSELS. Maintain, until March __, 2006, a ratio of the aggregate Fair Market Value of the Mortgaged Vessels to the aggregate outstanding principal amount of the Loan at all times equal to or greater than 1.15 to 1.00 and at all times thereafter a ratio equal to or greater than 1.25 to 1.00. (r) OWNERSHIP OF BORROWERS, SEABULK GLOBAL CARRIERS AND SEABULK TANKERS. With respect to Seabulk International, own, directly or indirectly, all of the equity interests of each of Seabulk Global Carriers and Seabulk Tankers. With respect to Seabulk Global Carriers, own, directly or indirectly, all of the equity interests of each of the Borrowers. (s) VESSEL OPERATIONS AND MANAGEMENT. (i) Procure that each of the Mortgaged Vessels shall at all times be (A) managed by the Manager or such other manager acceptable to the Majority Lenders in accordance with vessel management agreements acceptable to the Majority Lenders, (B) flagged under the law of the Republic of Liberia and (C) classed in the highest classification and rating for vessels of the same age and type without any outstanding conditions or recommendations affecting class (other than those for which the time prescribed for curing the condition or recommendation has not passed) with the Classification Society; PROVIDED, HOWEVER, if a Mortgaged Vessel is reflagged under the laws of a jurisdiction other than the Republic of Liberia that has been approved by the Majority Lenders, it shall be a condition to such reflagging that the relevant Borrower deliver to the Agent (A) evidence (including an opinion of counsel) that such Mortgaged Vessel has been registered in the name of such Borrower under the laws of such jurisdiction; (B) evidence (including an opinion of counsel) that the related Mortgage has been properly recorded under the laws of such jurisdiction and constitutes a first priority mortgage; (C) evidence that all necessary governmental or regulatory approvals, licenses and authorities which are necessary to the operation of such Mortgaged Vessel have been obtained; (D) evidence that insurances in compliance with the requirements of the Mortgage have been obtained; and (E) such other items as the Agent may reasonably require. 39 (ii) Comply in all material respects or to procure that the operator of each of the Mortgaged Vessels will comply in all material respects within the requisite applicable time limits for vessels of the same type, size, age and flag of the Mortgaged Vessels with the ISM Code or any replacement of the ISM Code and in particular, without prejudice to the generality of the foregoing, as and when required to do so by the ISM Code and at all times thereafter, (A) to hold or to procure that the operator of each of the Mortgaged Vessels holds, a valid DOC and SMC, (B) to provide the Agent with copies of any such DOC and SMC promptly following the issuance thereof and after every renewal and (C) to keep or to procure that there is kept, on board each of the Mortgaged Vessels a copy of any such DOC and the original of any such SMC. (t) APPRAISALS. At such time as the financial statements described in Sections 5.01(g)(i) and (ii) are delivered, at the Borrowers' expense, furnish the Agent with appraisals from an Acceptable Broker for each of the Mortgaged Vessels; PROVIDED, HOWEVER, that nothing herein shall prohibit the Agent from obtaining, at its own expense and at any time such appraisals from an Acceptable Broker for each of the Mortgaged Vessels as the Agent may deem appropriate. (u) REIMBURSEMENT FOR EXPENSES. Reimburse the Agent and/or the Security Trustee promptly, with interest at the interest rate applicable to the Note, for any and all expenditures which the Agent and/or the Security Trustee may from time to time make in providing protection in respect of insurance, discharge or purchase of liens, taxes, dues, assessments, governmental charges, fines and penalties lawfully imposed, repairs, attorneys' fees, necessary translation fees for documents made in a language other than English and other matters, in each case in respect of which the Borrowers have defaulted in their obligation hereunder with respect to such matters to provide. Such obligation of the Borrowers to reimburse the Agent shall be an additional indebtedness due from the Borrowers, secured by the Collateral and the Security Documents, and shall be payable by the Borrowers on demand. Neither the Agent nor the Security Trustee, though privileged to do so, shall be under any obligation to the Borrowers to make any such expenditures, nor shall the making thereof relieve the Borrowers of any default in that respect. (v) FURTHER ASSURANCES. From time to time, at the Borrowers' expense, duly execute and deliver to the Agent, such further documents and assurances as the Lenders may request to effectuate the purposes of this Agreement, the Note and the Security Documents. (w) CHANGE OF ADDRESS. Notify promptly the Agent and the Lenders of any change in the location of its principal place of business. (x) CONSENTS, LICENSES, APPROVALS. Obtain and maintain all such governmental licenses, authorizations, consents, permits and approvals as may be required for each of the Credit Parties to perform their obligations under this Agreement and all other Loan Documents to which each is a party, and deliver promptly to the Agent and the Lenders copies of all consents, licenses and approvals of governmental authorities that may be required for the making or performance of this Agreement or any instrument contemplated hereby. (y) USE OF PROCEEDS. Use the proceeds of the Advances solely for the purpose of financing up to 80% of the aggregate acquisition cost of the Mortgaged Vessels. 40 (z) TRANSACTIONS WITH AFFILIATES. Conduct all transactions otherwise permitted under this Agreement to be conducted with Affiliates (if any) on terms that are fair and reasonable and no less favorable to the Borrowers than would be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate. ARTICLE VI NEGATIVE COVENANTS SECTION 6.01. NEGATIVE COVENANTS. Except as otherwise indicated, each of the Credit Parties covenants and agrees that, so long as this Agreement shall remain in effect or any of the Obligations shall be outstanding, it shall not, without the prior written consent of the Agent: (a) LIENS. Create, assume, permit or suffer to exist any mortgage, pledge, encumbrance, security interest or other Lien securing an obligation on all or any part of (i) the capital stock of the Borrowers, or (ii) the Collateral, except Permitted Encumbrances with respect to the Mortgaged Vessels and Customary Permitted Liens with respect to the Collateral other than the Mortgaged Vessels. (b) ASSET SALES. With respect to the Borrowers, sell, lease, transfer, assign or otherwise dispose of any Mortgaged Vessel unless after giving effect to such sale, lease, transfer, assignment or disposition, the Borrowers are in compliance with Section 5.01(q) hereof. (c) OBLIGATIONS OF OTHERS. With respect to the Borrowers, except as created or permitted by this Agreement or the Security Documents, assume, guarantee, endorse or become liable on the obligation of any person, firm or corporation except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. (d) ASSIGNMENT OF INSURANCES. With respect to the Borrowers, grant an assignment or permit or suffer to exist any mortgage, pledge, encumbrance, security interest or other Lien on the insurances relating to a Mortgaged Vessel other than the applicable Assignment of Insurances. (e) SALE OF NOTES OR ACCOUNTS RECEIVABLE. Sell, lease, transfer, assign or otherwise dispose of any notes, accounts receivable or other obligations owed to by any Person, except (i) for the purpose of collection in the ordinary course of its business and (ii) to the extent that, both before and after giving effect to any such sale, lease, transfer, assignment or disposition (taking into account any prepayment to be made to the Lenders under this Agreement from the net proceeds of any such sale, lease, transfer, assignment or disposition), no Default or Event of Default would exist hereunder. (f) CHANGE OF CONTROL. Permit (without the prior written consent of the Lenders, such consent not to be unreasonably withheld) a Change of Control to occur. (g) SALE AND LEASEBACK. Enter into any arrangements, directly or indirectly, with any Person whereby it shall sell or transfer any property, whether real or personal, and used and useful in its business, whether now owned or hereafter acquired, if it, at the time of such sale or 41 disposition, intends to lease or otherwise acquire the right to use or possess (except by purchase) such property or like property for a substantially similar purpose. (h) RESTRICTED PAYMENTS. With respect to Seabulk International, declare or pay any dividend or make any distribution on its capital stock or purchase, redeem, acquire or otherwise retire any capital stock for value (in each case, a "Restricted Payment"); PROVIDED, HOWEVER, that Seabulk International may make a Restricted Payment so long as, at the time of, and after giving effect to, the proposed Restricted Payment: (i) no Default or Event of Default shall have occurred and be continuing and (ii) the aggregate amount expended for all Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the board of directors of Seabulk International) would not exceed fifty percent (50%) of the aggregate amount of the consolidated net income of Seabulk International and its consolidated Subsidiaries excluding the Lightship Tanker Entities for the fiscal year ended immediately prior to the fiscal year in which such proposed Restricted Payment is to be made determined in accordance with GAAP. Notwithstanding the preceding sentence, (1) Seabulk International may make Restricted Payments with the proceeds of substantially concurrent capital contributions made by its stock holders so long as no Default or Event of Default shall have occurred and be continuing prior to or after giving effect thereto, (2) Seabulk International may declare and pay dividends with respect to its equity interests payable solely in additional shares of its common stock, (3) Subsidiaries of Seabulk International may declare and pay dividends ratably with respect to their equity interests, and (4) Seabulk International may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management, directors or employees of Seabulk International and its Subsidiaries. (i) RESTRICTION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Create or otherwise cause or suffer to exist or become effective any encumbrance or restriction (other than pursuant to this Agreement) on the ability of any Subsidiary of any of the Credit Parties to (i) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits or pay any Debts owed to a Credit Party, (ii) make advances or loans to a Credit Party or (iii) transfer any of its properties or assets to a Credit Party, except for such encumbrances or restrictions existing under or by reason of applicable law. (j) FINANCING STATEMENTS. File or permit to be filed any financing statement under the Uniform Commercial Code of any state of the United States in respect of any property except in favor of the Security Trustee. (k) INVESTMENTS. Make any Investment unless, with respect to Seabulk International, at the time of, and after giving effect to, the making of any proposed Investment, no Default or Event of Default has occurred and is continuing or would occur as a consequence of the making of such Investment. Notwithstanding the foregoing sentence, Seabulk International and the other Guarantors may make the following Investments at any time: (i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof, and (ii) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of 42 America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000. (l) ACCOUNTING CHANGES. Make or permit any change in accounting policies affecting (i) the presentation of financial statements or (ii) reporting practices, except in either case as required or permitted by GAAP. (m) AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. With respect to the Borrowers, amend its organizational documents. (n) CHANGE OF FLAG. With respect to the Borrowers, transfer or change the flag or port of documentation of any Mortgaged Vessel. (o) INDEBTEDNESS. With respect to the Borrowers and Seabulk Global Carriers, create, incur, assume or suffer to exist any Debt except (i) Debt to the Lenders, (ii) Debt not in excess of an amount satisfactory to the Lenders which shall be subordinate and subject in right of payment to the prior payment in full of the Obligations, as evidenced by a subordination agreement or provisions satisfactory in form and substance to the Lenders, (iii) current Debt which shall not be outstanding longer than ninety (90) days incurred in the normal course of its business, (iv) Debt in respect of the Bond and the obligations contained in the Indenture but only insofar as each of the Borrowers and Seabulk Global Carriers are "Guarantors" for purposes of the Indenture, and (v) Debt secured by Liens permitted by subsection (i) above. (p) CHANGE IN BUSINESS. Engage (directly or indirectly) in any business other than the business of Seabulk International and its Subsidiaries as of the Effective Date and other businesses reasonably related thereto. (q) TRANSACTIONS WITH AFFILIATES. Enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate, other than on terms and conditions substantially as favorable to such Person as would be obtainable by such Person at the time in a comparable arm's-length transaction with a Person other than an Affiliate. Notwithstanding the foregoing, the restrictions set forth in this Section 6.01(q) shall not apply to (i) the payment of reasonable and customary fees to directors of the Borrowers or the Guarantors who are not employees of the Borrowers or the Guarantors, (ii) any other transaction with any employee, officer or director of the Borrowers or any of the Guarantors pursuant to employee benefit plans and compensation arrangements in amounts customary for corporations similarly situated to the Borrowers or any of the Guarantors and entered into the ordinary course of business and approved by the board of directors or any committee thereof of the Borrowers or the Guarantors, as the case may be, (iii) transactions between or among the Borrowers and the Guarantors and not involving any other Affiliate, and (iv) any Restricted Payment permitted by Section 6.01(h). (r) CHANGES IN OFFICES OR NAMES. Change the location of the chief executive office of any Credit Party or the office of the chief place of business any such parties unless the Agent shall have received thirty (30) days prior written notice of such change. (s) CHANGES IN FISCAL YEAR. Change its fiscal year. 43 (t) CONSOLIDATION, MERGER AND SALE OF ASSETS. Consolidate with, or merge with or into, any other Person or convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing at any future time) all or substantially all of its property or assets, unless each of the following conditions is satisfied: (i) The entity formed by such consolidation or into which such Credit Party is merged or the Person which acquires by conveyance or transfer substantially all of the assets of such Credit Party as an entirety shall expressly assume all of the obligations of such Credit Party under this Agreement and the other Loan Documents pursuant to a written supplement to this Agreement and such other Loan Documents; (ii) Immediately prior to and after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing and the Agent shall have received a certificate from an executive officer of such Credit Party to such effect; (iii) The Agent shall have received an opinion of counsel regarding the merged or consolidated entity, the legality, validity and enforceability of this Agreement and the other Loan Documents, the title to the related Mortgaged Vessels and the priority of the Mortgages, as applicable; and (iv) Upon any consolidation or merger, or any conveyance or transfer of substantially all of the assets of such Credit Party as an entirety in accordance with this Section 6.01(t), the successor entity formed by such consolidation or into which such Credit Party is merged, or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, such Credit Party under this Agreement and the other Loan Documents with the same effect as if such successor entity had been named as a Credit Party herein. No such conveyance or transfer of substantially all of the assets of such Credit Party as an entirety shall have the effect of releasing such Credit Party or any successor entity which shall theretofore have become such in the manner prescribed in this Section 6.01(t) from its liability hereunder. ARTICLE VII AGREEMENT TO GUARANTEE SECTION 7.01. GUARANTEE. (a) The Guarantors, jointly and severally, hereby unconditionally guarantee, absolutely and irrevocably on a full recourse basis, as a guarantor and not merely as a surety, the full and punctual payment, performance and observance when due, whether at stated maturity, by acceleration or otherwise, and at all times thereafter, of all amounts due and to become due from, and all actions or undertakings to be performed by, the Borrowers under or pursuant to the Loan Agreement and the other Loan Documents to which the Borrowers are or will become a party (collectively, the "Guaranteed Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Agent, any of the Lenders or the Security Trustee in enforcing any rights under this guarantee. This guarantee will be senior indebtedness of each of the Guarantors, ranking PARI PASSU in right of payment with all existing and future unsubordinated indebtedness and senior in right of payment to all existing and future subordinated indebtedness of each of the Guarantors. Without limiting the generality of the foregoing, the Guarantors' liability shall extend to all amounts 44 which constitute part of the Guaranteed Obligations and would be owed by the Borrowers under any of the Loan Documents even if such Loan Documents are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. (b) The Guarantors also, jointly and severally, agree to pay from time to time on demand all amounts which the Borrowers are at any time liable to pay under the Loan Agreement and the other Loan Documents to which the Borrowers are a party and which have become due and payable but have not been paid at the time such demand is made. (c) This Guaranty is a guaranty of performance and of payment when due and not of collection. SECTION 7.02. INDEMNITY. As a separate, additional, continuing and primary obligation, the Guarantors hereby, jointly and severally, unconditionally and irrevocably undertake to the Agent, the Lenders and the Security Trustee, by way of indemnity, that, should any amount in respect of the Guaranteed Obligations not be recoverable from the Guarantors, or should the Guarantors, for any reason (including by reason of any incapacity of any of the Guarantors or by reason of any provision of the Loan Agreement, or any other Loan Document to which the Borrowers are a party, being or becoming void, unenforceable or otherwise invalid under any applicable law), be unable to perform any of their obligations in respect of any of the Guaranteed Obligations, then, notwithstanding that such reason may have been known to the Agent, the Lenders or the Security Trustee, the Guarantors shall, upon first written demand by the Agent, the Lenders or the Security Trustee, indemnify the Agent, the Lenders and/or Security Trustee against all losses, claims, costs, charges and expenses to which the Agent, the Lenders or the Security Trustee may be subject or which the Agent, the Lenders or the Security Trustee may incur as a consequence of such non-recovery or inability to perform. SECTION 7.03. GUARANTY ABSOLUTE. Each of the Guarantors guarantees that the Guaranteed Obligations will be paid strictly in accordance with their respective terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent, the Lenders or the Security Trustee with respect thereto. The liability of the Guarantors under this Guaranty for the Guaranteed Obligations shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Loan Agreement or any of the other Loan Documents or any other agreement or instrument relating thereto; (b) any failure to make any demand on the Borrowers or any other Person for payment of all or any part of the Guaranteed Obligations or any rescission of any such demand; (c) any failure to make or give any other notice, demand, diligence, presentment, protest or other action of any kind upon or against the Borrowers or any other Person; (d) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Loan Documents or any other agreement or instrument delivered pursuant or 45 relating thereto, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrowers or otherwise; (e) any taking, exchange, release or non-perfection of any Collateral, or any taking, release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Guaranteed Obligations; (f) any manner of application of Collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any Collateral for all or any of the Guaranteed Obligations or any other assets of the Borrowers; (g) any change, restructuring or termination of the corporate structure or existence of the Borrowers; (h) any compromise, settlement, release, renewal, extension, indulgence, change in or waiver or modification of any of the Guaranteed Obligations, or any failure, omission or delay of Security Trustee, the Lenders or the Agent to enforce, assert or exercise any right, power or remedy conferred on it in this Agreement or the other Loan Documents, or the release or discharge of either of the Borrowers from the performance or observance of any of the Guaranteed Obligations by operation of law; (i) any setoff, counterclaim, abatement, recoupment, defense or other right whatsoever that the Guarantors or the Borrowers may have against any other person, whether or not related to the transactions contemplated by the Loan Agreement or the other Loan Documents, including, without limitation, those which have been waived by the Guarantors pursuant to Section 7.04 hereof; (j) any waiver of any right, power or remedy, or of any default, with respect to the Guaranteed Obligations or any part thereof or the Loan Agreement or any other Loan Document or any other agreement relating to the Guaranteed Obligations or any part thereof; (k) any transfer, assignment or mortgaging or the purported transfer, assignment or mortgaging by the Borrowers or the Guarantors of its interest, or any part thereof, in and to the Loan Documents; (l) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets and liabilities of, or the voluntary or involuntary receivership, insolvency, bankruptcy, assignment for benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar proceeding affecting, the Borrowers or the Guarantors or the disaffirmance of the Loan Documents in any such proceeding; (m) any limitation imposed by law on the liability or obligations of the Borrowers or the Guarantors under the Loan Documents or any term thereof or any lack of power or authority of any Person to enter into any Loan Document; (n) any failure by the Borrowers to comply with any requirement of any law, regulation or order; 46 (o) any damage to, or loss, destruction, requisition, seizure, forfeiture or marshal's or other sale of any Mortgaged Vessel or any exercise of rights by Security Trustee, in its capacity as mortgagee, with respect to any of the Mortgaged Vessels under the Mortgages or as assignee under any of the other Security Documents; (p) any libel, attachment, levy, detention, sequestration or taking into custody of any of the Mortgaged Vessels, or any interruption or prevention of or restriction on or interference with the use of possession of any of the Mortgaged Vessels; (q) any title defect or encumbrance or any dispossession from any of the Mortgaged Vessels by title paramount or otherwise; (r) any act, omission, misrepresentation or breach on the part of the Borrowers or the Guarantors or any other Person under any of the Loan Documents or under any applicable law; (s) any defect in the seaworthiness, condition, design, operation or fitness for use of any of the Mortgaged Vessels or the ineligibility of any of the Mortgaged Vessels for any particular trade; or (t) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrowers or the Guarantors. This guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of a Borrower or otherwise, all as though such payment had not been made. The obligations of the Guarantors are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this guarantee, irrespective of whether any action is brought against the Borrowers or whether either of the Borrowers is joined in any such action or actions. SECTION 7.04. WAIVERS AND ACKNOWLEDGMENTS. Each of the Guarantor hereby waives: (a) promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this guarantee; (b) any requirement that the Agent, the Lenders or the Security Trustee protect, secure, perfect or insure any security interest or Lien on any property subject thereto or exhaust any right or take any action against the Borrowers or any other Person or entity or any Collateral; (c) any right to revoke this guarantee and each of the Guarantors acknowledges that this guarantee is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future; (d) notice of the existence, creation, payment, non-payment, performance or non-performance of all or any of the Guaranteed Obligations; 47 (e) all diligence in collection or protection of or realization upon the Guaranteed Obligations or any thereof, any obligation hereunder or any security for or guarantee of any of the foregoing, including, without limitation, (i) any right to require the Agent, the Lenders of the Security Trustee to proceed against the Borrowers or any other Person or to proceed against or exhaust any security held by the Agent, the Lenders or the Security Trustee at any time or to pursue any other remedy in the Agent's, the Lenders' or the Security Trustee's power or under any other agreement before proceeding against the Guarantors hereunder and (ii) any right or claim or right to cause a marshalling of the assets of the Guarantors; (f) an assertion or claim that the automatic stay provided by 11 U.S.C. ss.362 (arising upon the voluntary or involuntary bankruptcy proceeding of either of the Borrowers) or any other stay provided under any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of the Agent, the Lenders or the Security Trustee to enforce any of its rights, whether now or thereafter required, which the Agent, the Lenders or the Security Trustee may have against the Guarantors or any Collateral for the Guaranteed Obligations; (g) any modification of the Loan Documents or any obligation of the Borrowers relating thereto by operation of law or by action of any court, whether pursuant to any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereinafter in effect, or otherwise; (h) any defense, available to the Guarantors, now or at any time hereafter, including, without limitation, any defense that may arise by reason of (i) the incapacity, lack of authority, death or disability of any other Person, or (ii) the inaccuracy of the representations and warranties made by the Guarantors herein or by the Borrowers in any of the Loan Documents, or (iii) the Agent's, the Lenders' or the Security Trustee's failure to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person, or (iv) the Agent's, the Lenders' or the Security Trustee's failure to record or to file any financing statement (or the Agent's, the Lenders' or the Security Trustee's improper recording or filing thereof) or to otherwise perfect, protect, secure, or insure any lien or security interest given as security for the Guaranteed Obligations; and (i) all other principles or provisions of law, if any, that conflict with the terms of this guarantee, including, without limitation, the effect of any other circumstances that may or might constitute a legal or equitable discharge of a guarantor or surety. The Guarantors acknowledge that they will receive direct and indirect benefits from the financing arrangements contemplated by this Agreement and that the waiver set forth in this subsection is knowingly made in contemplation of such benefits. SECTION 7.05. SUBROGATION. Each of the Guarantors hereby irrevocably waives any claim or other rights that it may now or hereafter acquire against the Borrowers that arise from the existence, payment, performance or enforcement of the Guaranteed Obligations under this guarantee or the Loan Documents, including without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Agent, the Lenders or the Security Trustee against the Borrowers or the 48 Mortgaged Vessels, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Borrowers, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right. If any amount shall be paid to the Guarantors in violation of the preceding sentence at any time prior to the payment in full of the Guaranteed Obligations and all other amounts payable under this guarantee, such amount shall be held in trust for the benefit of the Lenders and shall forthwith be paid to the Agent to be credited and applied to the Guaranteed Obligations and all other amounts payable under this guarantee, whether matured or unmatured, in accordance with the terms of the Loan Agreement, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this guarantee thereafter arising. SECTION 7.06. NO COMPETITION. In the event of the liquidation or winding up of either of the Borrowers at any time after any monies shall have become payable or shall have been paid under this guarantee, until all the Guaranteed Obligations shall have been indefeasibly paid in full, the Guarantors shall not prove in competition with the Agent, the Lenders or the Security Trustee in respect of any monies owing to the Guarantors by such Borrower on any account whatsoever, but shall give the Agent, the Lenders or the Security Trustee the benefit of any such proof and of all monies to be received in respect thereof. If, notwithstanding the foregoing, the Guarantors shall receive any amount in respect of any such monies as aforesaid before the Guaranteed Obligations have been indefeasibly paid in full, the Guarantors shall hold the same in trust for Lenders, notify the Agent of the receipt thereof and promptly pay the amount thereof to the Agent. SECTION 7.07. TAXES. (a) The Guarantors shall pay or cause to be paid all Taxes, other than taxes, if any, payable on the overall net income of the Lenders, on or in connection with the payment of any and all amounts due under this guarantee that are now or in the future levied or imposed by any governmental or taxing authority or any jurisdiction through or out of which a payment is made. (b) All payments, fees and other amounts due under this guarantee shall be made without deduction for or on account of any Taxes. (c) If the Guarantors are prevented by operation of law or otherwise from making or causing to be made those payments without deduction, the amounts due under this guarantee shall be increased to such amount as may be necessary so that the Lenders receives the full amount it would have received (taking into account any Taxes payable on amounts payable by the Guarantors under this subsection) had those payments been made without that deduction. (d) If Section 7.07(c) applies and the Agent so requests, the Guarantors shall deliver to the Agent official tax receipts evidencing payment (or certified copies of them) within thirty (30) days of the date of that request. SECTION 7.08. PERMITTED ACTIONS. The Agent, the Lenders and the Security Trustee may from time to time, in their sole discretion and without notice to or consent of the Guarantors, take any or all of the following actions: 49 (a) retain or obtain a security interest in any assets of the Borrowers, the Guarantors or any third party to secure any of the Guaranteed Obligations; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the Guarantors, with respect to any of the Guaranteed Obligations; (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Guaranteed Obligations; (d) waive, ignore or forbear from taking action or otherwise exercising any of its rights or remedies with respect to any default under the Loan Documents; (e) release, waive or compromise any obligation of the Guarantors hereunder or any obligation of any nature of any other obligor primarily or secondarily obligated with respect to any of the Guaranteed Obligations; (f) release its Lien on or in, or surrender, release or permit any substitution or exchange for, all or any part of the Mortgaged Vessels or any other Collateral now or hereafter securing any of the Guaranteed Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, waive compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (g) demand payment or performance of any of the Guaranteed Obligations from the Guarantors at any time from time to time, whether or not the Agent, the Lenders or the Security Trustee shall have exercised any of its rights or remedies with respect to any property securing any of the Guaranteed Obligations or any obligation hereunder, or proceeded against any other obligor (including the Borrowers) primarily or secondarily liable for payment or performance of any of the Guaranteed Obligations. SECTION 7.09. FINANCIAL CONDITION OF THE BORROWERS. Each of the Guarantors represents and warrants that it is fully aware of the financial condition of the Borrowers, and each of the Guarantors delivers this Guaranty based solely upon its own independent investigation of the Borrowers' financial condition and in no part upon any representation or statement of the Agent, the Lenders or the Security Trustee with respect thereto. Each of the Guarantor further represents and warrants that it is in a position to and hereby does assume full responsibility for obtaining such additional information concerning the Borrowers' financial conditions as such Guarantor may deem material to its obligations hereunder, and such Guarantor is not relying upon, nor expecting the Agent, the Lenders or the Security Trustee to furnish it any information in the Agent's, the Lenders' or the Security Trustee's possession concerning the Borrowers' financial condition or concerning any circumstances bearing on the existence or creation, or the risk of non-payment or non-performance of the Guaranteed Obligations. The Guarantors hereby waive any duty on the part of the Agent, the Lenders or the Security Trustee to disclose to the Guarantors any facts it may now or hereafter know about the Borrowers, regardless of whether the Agent, the Lenders or the Security Trustee has reason to believe that any such facts materially increase the risk beyond that which the Guarantors intend to assume, or has reason to believe that such facts are unknown to the Guarantors. The Guarantors hereby knowingly accept the full range of risk encompassed within a contract of 50 "Continuing Guaranty" which includes, without limitation, the possibility that the Borrowers will contract for additional indebtedness for which the Guarantors may be liable hereunder after the Borrowers' financial condition or ability to pay its lawful debts when they fall due has deteriorated. SECTION 7.10. CONTINUING GUARANTY. It is declared and agreed that this guarantee as continuing security for the Guaranteed Obligations, and that it shall not be satisfied by an intermediate payment or satisfaction of any part of the Guaranteed Obligations and that it shall be in addition to and shall not in any way be prejudiced or affected by any Collateral or other security now or hereafter held by the Agent, the Lenders or the Security Trustee for all or any part of the Guaranteed Obligations. This guarantee may be enforced either before, after or concurrently with the enforcement of any other collateral security for the Guaranteed Obligations or any of them and shall not be affected by any release of, or delay in enforcing or failure to enforce, any such other collateral security. SECTION 7.11. RIGHTS CUMULATIVE; NO WAIVER. Each and every right, power and remedy herein given to the Agent, the Lenders and the Security Trustee shall be cumulative and shall be in addition to every other right, power and remedy of the Agent, the Lenders and the Security Trustee now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy, whether herein given or otherwise existing, may be exercised from time to time, in whole or in part, and as often and in such order as may be deemed expedient by the Agent, the Lenders or the Security Trustee, and the exercise or the commencement of the exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Agent, the Lenders or the Security Trustee in the exercise of any right or power in the pursuance of any remedy arising from any breach or default by the Guarantors shall impair any such right, power or remedy or be construed to be a waiver of any such right, power or remedy or to be an acquiescence therein; nor shall the acceptance by the Agent, the Lenders or the Security Trustee of any security or of any payment of or on account of any of the amounts due from the Guarantors to the Lenders and maturing after any breach or default or of any payment on account of any past breach or default be construed to be a waiver of any right with respect to any future breach or default or of any past breach or default not completely cured thereby. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.01. EVENTS OF DEFAULT. If any of the following events of default (herein called "EVENTS OF DEFAULT") shall have occurred and be continuing: (a) the Borrowers shall fail to pay any principal of or interest on any Advance on the date when the same becomes due and payable; or (b) the Borrowers shall fail to pay any fees or any other amount payable to the Lenders or the Agent under the Loan Documents within five Banking Days after the same becomes due and payable; or 51 (c) any representation or warranty made by the Borrowers under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made or deemed made or confirmed; or (d) except as otherwise stipulated in this Section 8.01, any Credit Party shall fail to perform or observe, in any material respect, any term, covenant or agreement contained in this Agreement on its part to be performed and such failure to perform or observe shall continue for 30 days after written notice; or (e) any Credit Party shall fail to perform or observe, in any material respect, any term, covenant or agreement contained in Sections 5.01(n), 5.01(o), 5.01(p), 5.01(q) or Article VI of this Agreement to be performed; or (f) any Credit Party shall fail to perform or observe, in any material respect, any term, covenant or agreement contained in any Loan Document other than this Agreement on its part to be performed, and the period of grace therefor, if any, shall have expired; or (g) any material provision of the Loan Documents shall cease to be in full force and effect in accordance with its terms; or (h) an Event of Loss shall have occurred and the underwriters shall have disclaimed coverage in respect of such Event of Loss or shall have failed to pay the proceeds of insurance within 120 days after the Event of Loss; or (i) it becomes impossible or unlawful for any of the Credit Parties to fulfill any of the covenants and obligations required to be fulfilled in any Loan Document or any of the instruments granting or creating rights in any of the Collateral or for the Security Trustee or the Lenders or the Swap Provider to exercise any of the rights or remedies vested in them under any Loan Document; or (j) a Change of Control shall occur; (k) any of the Credit Parties (i) fails to make any payment of any principal of or interest on any Debt which is outstanding when and as due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), or (ii) defaults in the performance of any other obligation under any agreement or instrument relating to any of its Debt or any other event occurs if the effect of such default or other event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, such Debt to become due or to be prepaid in full (other than by a regularly scheduled required prepayment), whether by redemption, purchase or otherwise, before its stated maturity; (l) any of the Credit Parties shall be unable to pay its debts as they fall due or admit in writing that it is insolvent or bankrupt or make an assignment for the benefit of creditors, or seek to take advantage of any bankruptcy law or other law or procedure for the relief of debtors or consent to the appointment of a trustee or receiver, or a trustee or a receiver shall be appointed for such Credit Party or for any of its property without its consent, or bankruptcy, reorganization, 52 arrangement or insolvency proceedings shall be instituted by or against such Credit Party and remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (m) any license, permit, consent or approval of any governmental or quasi-governmental authority now or hereafter necessary or required in connection with the performance by either of the Borrowers of its obligations set forth in this Agreement, the Note or the Security Documents or in connection with the operation of the relevant Mortgaged Vessel, shall be modified, revoked, withdrawn or shall fail to remain in full force and effect and such modification, revocation, withdrawal or failure to remain in full force and effect shall continue for thirty (30) days; or (n) an "Event of Default" as defined in the Master Agreement shall have occurred and be continuing; or (o) any Security Document after delivery thereof shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien on the Collateral purported to be covered thereby except if such cessation is caused by an act or omission of the Security Trustee or the Lenders; or (p) any of the obligations, representations, warranties or covenants of the Guarantors under Article VII hereof shall have been breached or Article VII shall cease to remain in full force and effect, except as a result of any act or omission of the Agent, the Security Trustee or the Lenders, then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Lenders, by notice to the Borrowers, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Lenders, by notice to the Borrowers, declare all the Advances then outstanding, all interest thereon and all other amounts payable under this Agreement, the Note and the Master Agreement to be forthwith due and payable, whereupon the Advances then outstanding, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; PROVIDED, HOWEVER, that in the case of an Event of Default referred to in clause (l) of this Section 8.01, (1) the obligation of each Lender to make Advances shall automatically be terminated and (2) the Advances then outstanding, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. SECTION 8.02. APPLICATION OF MONEYS. (a) All moneys received by the Agent, the Lenders or the Swap Provider under or pursuant to this Agreement or any of the other Loan Documents after the happening of any Event of Default (unless cured to the satisfaction of the Lenders) shall be applied by the Agent in the following manner: (1) first, in or towards the payment or reimbursement of the costs and expenses of the Agent, the Security Trustee and the Lenders in respect of the ascertainment and enforcement of their rights under this Agreement and the other Security Documents and any other amounts owing to the Agent, the Security Trustee or 53 the Lenders under any of the Security Documents including those under Section 9.03 of this Agreement and reasonable fees and out-of-pocket expenses of counsel for the Agent, the Security Trustee and the Lenders with respect to advising them of their rights and responsibilities, or the preservation of their rights or interests under the Loan; (2) second, in or towards the payment of all accrued interest and break funding with respect to the Advances; (3) third, in or towards payment of all remaining principal with respect to the Advances; (4) fourth, to the Swap Provider in payment of any amounts then due under the Master Agreement; and (5) fifth, to the Borrowers or as directed by a court of competent jurisdiction. SECTION 8.03. POSITION OF SWAP PROVIDER. The Agent shall not be obliged, in connection with any action taken or proposed to be taken under or pursuant to the foregoing provisions of Section 8.01, to have any regard to the requirements of the Swap Provider except to the extent that the Swap Provider may also be a Lender. The rights of the Swap Provider to payment under the Master Agreement shall be subordinated to the prior payment to the Lenders under this Agreement and the Note in accordance with the provisions of Section 8.02 hereof. ARTICLE IX THE AGENT AND THE SECURITY TRUSTEE SECTION 9.01. APPOINTMENT AND GRANTING. (a) THE AGENT. Each Lender irrevocably appoints and authorizes each of the Agent to act as its agent hereunder and under any of the other Loan Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of any of the other Loan Documents, together with such other powers as are reasonably incidental thereto. (b) THE SECURITY TRUSTEE. (i) AUTHORIZATION OF SECURITY TRUSTEE. Each of the Lenders, the Agent and the Swap Provider has authorized the execution and delivery of this Article IX pursuant to which the Security Trustee will act as the Mortgagee of each of the Mortgaged Vessels and as Assignee and secured party with respect to the other Security Documents, and as to any proceeds derived from enforcement thereof. (ii) GRANTING CLAUSE. To secure the payment of all sums of money from time to time owing to the Lenders under this Agreement, the Note and the Security Documents in the maximum principal amount of $49,600,000 plus any amounts due under the Master Agreement and accrued interest thereon and all other amounts owing to the Lenders, the Agent, the Swap Provider or the Security Trustee pursuant to this Agreement, the Note and the Security Documents, and the performance of the covenants of the Borrowers and any other obligor herein and therein contained, and in consideration of the premises and of the covenants herein contained and of the extensions of credit by the Lenders, the Security Trustee does hereby declare that it will hold as such trustee in trust for the benefit of the 54 Lenders, the Agent, and the Swap Provider, from and after the execution and delivery thereof, all of its right, title and interest as mortgagee in, to and under each of the Mortgages and its right, title and interest as Assignee and secured party under the other Security Documents. The right, title and interest of the Security Trustee in and to the property, rights and privileges described above, from and after the execution and delivery thereof, and all property hereafter specifically subjected to the lien of the indenture created hereby and by the Security Documents by any amendment hereto or thereto are herein collectively called the "ESTATE". TO HAVE AND TO HOLD the Estate unto the Security Trustee and its successors and assigns forever. BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Lenders, the Agent, the Swap Provider and their respective successors and assigns without (except as otherwise set forth in Sections 9.02 and 9.03 of this Agreement) any priority of any one over any other. UPON CONDITION that, unless and until an Event of Default under this Agreement shall have occurred and be continuing, the Borrowers shall be permitted, to the exclusion of the Security Trustee, to possess and use the Mortgaged Vessels. IT IS HEREBY COVENANTED, DECLARED AND AGREED that all property subject or to become subject hereto is to be held, subject to the further covenants, conditions, uses and trusts hereinafter set forth, and the Borrowers, for themselves and their respective successors and assigns, hereby covenant and agree to and with the Security Trustee and its successors in said trust, for the equal and proportionate benefit and security of the Lenders, the Agent and the Swap Provider as hereinafter set forth. (iii) ACCEPTANCE OF TRUSTS. The Security Trustee hereby accepts the trusts imposed upon it as Security Trustee by this Agreement, and the Security Trustee covenants and agrees to perform the same as herein expressed and agrees to receive and disburse all monies constituting part of the Estate in accordance with the terms hereof. (c) SCOPE OF DUTIES. Neither the Agent nor the Security Trustee (which terms as used in this sentence and in Section 9.05 and the first sentence of Section 9.06 hereof shall include reference to their respective affiliates and their own respective and their respective affiliates' officers, directors, employees, agents and attorneys-in-fact): (i) shall have any duties or responsibilities except those expressly set forth in this Agreement and in any of the Collateral, and shall not by reason of this Agreement or any of the Security Documents be (except, with respect to the Security Trustee, as specifically stated to the contrary in this Agreement) a trustee for a Lender; (ii) shall be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any of the Collateral, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any of the Collateral, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the Collateral or any other document referred to or provided for herein or therein or for any failure by either of the Borrowers or any other Person to perform any of its obligations hereunder or thereunder or for the location, condition or value of any property covered by any lien under any of the Collateral or for the creation, perfection or priority of any such lien; (iii) shall be required to initiate or conduct any litigation or collection proceedings hereunder or under any of the Collateral unless expressly instructed to do so in writing by the Lenders; and (iv) shall be responsible for any action taken or omitted to be taken by it hereunder or under any of the Collateral or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. Each of the Security Trustee and the Agent may employ agents and attorneys-in-fact and neither 55 the Security Trustee nor the Agent shall be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. Each of the Security Trustee and the Agent may deem and treat the payee of the Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent. SECTION 9.02. RELIANCE . Each of the Security Trustee and the Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telefacsimile, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper person or persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Security Trustee or the Agent, as the case may be. As to any matters not expressly provided for by this Agreement or any of the Collateral, each of the Security Trustee and the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions signed by the Lenders, and such instructions of any one of the Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. SECTION 9.03. KNOWLEDGE. Neither the Security Trustee nor the Agent shall be deemed to have knowledge or notice of the occurrence of a Default or Event of Default (other than, in the case of the Agent, the non-payment of principal of or interest on the Loan or any Advance) unless each of the Security Trustee and the Agent has received notice from a Lender or the Borrowers specifying such Default and stating that such notice is a "Notice of Default". If the Agent received such a notice of the occurrence of such Default or Event of Default, the Agent shall give prompt notice thereof to the Security Trustee and the Lenders (and shall give each Lender prompt notice of each such non-payment). Subject to Section 9.08 hereof, the Security Trustee and the Agent shall take such action with respect to such Event of Default or other event as shall be directed by the Lenders, except that, unless and until the Security Trustee and the Agent shall have received such directions, each of the Security Trustee and the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or other event as it shall deem advisable in the best interest of the Lenders. SECTION 9.04. SECURITY TRUSTEE AND AGENT AS LENDERS. Each of the Security Trustee and the Agent (and any successor acting as Security Trustee or Agent, as the case may be) in its individual capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Security Trustee or the Agent, as the case may be, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include each of the Security Trustee and the Agent in their respective individual capacities. Each of the Security Trustee and the Agent (and any successor acting as Security Trustee and Agent, as the case may be) and their respective affiliates may (without having to account therefor to a Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrowers (or any of them and any of their respective subsidiaries or affiliates) as if it were not acting as the Security Trustee or the Agent, as the case may be, and each of the Security Trustee and the Agent and their respective affiliates may accept fees and other consideration from the Borrowers for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. SECTION 9.05. INDEMNIFICATION OF SECURITY TRUSTEE AND AGENT. The Lenders agree to indemnify each of the Agent and the Security Trustee (to the extent not reimbursed under other provisions of this Agreement, but without limiting the obligations of the Borrowers under said 56 other provisions, ratably in accordance with the aggregate principal amount of each Lenders' participation in the Loan), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Security Trustee or the Agent in any way relating to or arising out of this Agreement or any of the Collateral or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby (including, without limitation, the costs and expenses which the Borrowers are to pay hereunder, but excluding, unless an Event of Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of their respective agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, except that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. SECTION 9.06. RELIANCE ON SECURITY TRUSTEE OR AGENT. Each Lender agrees that it has, independently and without reliance on the Security Trustee, the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrowers and decision to enter into this Agreement and that it will, independently and without reliance upon the Security Trustee, the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the Collateral. None of the Security Trustee or the Agent shall be required to keep itself informed as to the performance or observance by the Borrowers of this Agreement or any of the Collateral or any other document referred to or provided for herein or therein or to inspect the properties or books of any of the Borrowers. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Security Trustee or the Agent hereunder, neither the Security Trustee nor the Agent shall have any duty or responsibility to provide a Lender with any credit or other information concerning the affairs, financial condition or business of the Borrowers or any of its parents or affiliates which may come into the possession of the Security Trustee, the Agent or any of their respective affiliates. SECTION 9.07. ACTIONS BY SECURITY TRUSTEE AND AGENT. Except for action expressly required of the Security Trustee or the Agent hereunder and under the other Collateral, each of the Security Trustee, the Security Trustee and the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 9.05 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. SECTION 9.08. RESIGNATION. Subject to the appointment and acceptance of a successor Security Trustee or Agent (as the case may be) as provided below, each of the Security Trustee and the Agent may resign at any time by giving notice thereof to the Lenders and the Borrowers, and the Security Trustee or the Agent may be removed at any time with or without cause by the Lenders. Upon any such resignation or removal, the Lenders shall have the right to appoint a successor Security Trustee or Agent, as the case may be. If no successor Security Trustee or Agent, as the case may be, shall have been so appointed by the Lenders or, if appointed, shall not have accepted such appointment within 30 days after the retiring Security Trustee's or Agent's, as the case may be, giving of notice of resignation or the Lenders' removal of the retiring Security Trustee or Agent, as the case may be, then the retiring Security Trustee or Agent, as the case may 57 be, may, on behalf of the Lenders, appoint a successor Security Trustee or Agent, as the case may be, which shall be a Lender, or a Lender with an affiliate, which has an office in New York, New York. Upon the acceptance of any appointment as Security Trustee or Agent hereunder by a successor Security Trustee or Agent, such successor Security Trustee or Agent, as the case may be, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Security Trustee or Agent, as the case may be, and the retiring Security Trustee or Agent shall be discharged from its duties and obligations hereunder. After any retiring Security Trustee or Agent's resignation or removal hereunder as Security Trustee or Agent, as the case may be, the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Security Trustee or the Agent, as the case may be. SECTION 9.09. RELEASE OF COLLATERAL. Without the prior written consent of the Majority Lenders, neither the Security Trustee nor the Agent will consent to any modifications, supplement or waiver under any of the Collateral nor without the prior written consent of all of the Lenders release any collateral or otherwise terminate any lien under the Collateral, except that no such consent is required, and each of the Security Trustee and the Agent is authorized, to release any lien covering property if the Obligations have been paid and performed in full or which is the subject of a disposition of property permitted hereunder or to which the Majority Lenders have consented. ARTICLE X MISCELLANEOUS SECTION 10.01. JUDGMENT CURRENCY. If for the purpose of obtaining judgment in any court in any country it becomes necessary to convert into any other currency (herein called a "Judgment Currency") any amount of the Loan or any Advance thereof payable hereunder or other sum payable by the Borrowers under this Agreement, the Note, the Collateral or any instrument granting or creating rights in any of the Collateral, then such conversion shall be made at the Rate of Exchange (as hereinafter defined) prevailing one Banking Day before the day on which judgment is given. For this purpose "Rate of Exchange" means for the Agent or any Lender, as the case may be, the rate at which the Agent or such Lender is able on the relevant date of conversion to purchase the relevant amount of the Loan or any Advance thereof or other sum as aforesaid with the Judgment Currency. If there is a change in the Rate of Exchange prevailing between the Banking Day before the day on which the judgment is given and the actual date of payment of the amount due, the Borrowers agree to pay such additional or lesser amounts as the case may be (if any) as may be necessary to ensure that the amount thus paid on such date is the amount in the Judgment Currency which when computed at the Rate of Exchange prevailing on the date of payment is the amount then due and payable under this Agreement in the currency of the Loan before conversion into the Judgment Currency was made. Any amount due from the Borrowers under this Section shall be due and payable as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement. SECTION 10.02. BOOKS OF LENDERS AND THE AGENT CONCLUSIVE. To determine the amount and origin of any amount due to a Lender or to the Agent, as the case may be, at any time by the Borrowers pursuant to this Agreement, the Note, the Collateral or any instrument granting or creating rights in any of the Collateral, the books and accounts of each Lender and the Agent shall 58 (save in the case of manifest error) always be conclusive that payment of any amount being claimed by such Lender or the Agent is due and payable and payment can at no time be suspended or withheld by the Borrowers by reason of a dispute on what is due and payable, without prejudice, however, to the obligation of such Lender and the Agent to repay any amount collected or received in excess. SECTION 10.03. COSTS AND EXPENSES; INDEMNITY. (a) Whether or not any Advances are made or the transactions contemplated by this Agreement are consummated (including, without limitation, the proposed execution and delivery of the other Loan Documents), the Borrowers agree, jointly and severally, to pay on demand all reasonable costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents and the other documents to be delivered hereunder, including, without limitation, (i) all due diligence, transportation, computer, duplication, appraisal, audit and insurance expenses and fees and expenses of consultants engaged with the prior consent of the Borrowers (which consent shall not be unreasonably withheld) and (ii) the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and for advising the Agent as to its rights and responsibilities under this Agreement. The Borrowers further agree, jointly and severally, to pay on demand all costs and expenses of the Agent, the Swap Provider and the Lenders (including, without limitation, reasonable counsel fees and expenses, including such counsel who are employees of the Lenders, the Swap Provider and the Agent), for the enforcement (whether through negotiations, legal proceedings or otherwise) of the Loan Documents and the other documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses for the enforcement of rights under this Section 10.03(a). (b) The Borrowers agree, jointly and severally, to indemnify and hold harmless the Agent and each Lenders and each of their respective Affiliates, control persons, officers, directors, employees and agents (each an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel) for which any of them may become liable or which may be incurred by or asserted against any of them in connection with or by reason of (or in connection with the preparation for a defense of) any investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising out of, related to or in connection with the transactions described herein or the use of proceeds of any Advance, whether or not any Indemnified Party or a Borrower is a party thereto, whether or not the transactions contemplated hereby are consummated and whether or not any such claim, investigation, litigation or proceeding is brought by a Borrower or any other person (excluding any claims, damages, liabilities or expenses found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct). (c) If any payment of principal of any Borrowing is made by the Borrowers to or for the account of a Lender other than on the last day of the Interest Period for such Borrowing for any reason other than in accordance with Section 2.07(c) or acceleration of the maturity of the Note pursuant to Section 8.01, the Borrowers shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss, cost or expense incurred by 59 reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (d) The indemnities provided in this Section 10.03 shall survive the repayment of the Advances and the termination of this Agreement. SECTION 10.04. NOTICES. All communications provided for or permitted hereunder shall be in writing or by telex or telefacsimile confirmed in writing and shall be delivered, air mailed, telexed or transmitted to the following addresses: If addressed to: The Borrowers: c/o Seabulk International, Inc. 2200 Eller Drive, Building 27 Fort Lauderdale, Florida 33316 Attention: Legal Dept. Fax: 954-527-1772 The Guarantors: c/o Seabulk International, Inc. 2200 Eller Drive, Building 27 Fort Lauderdale, Florida 33316 Attention: Legal Dept. Fax: 954-527-1772 The Agent, the Security Trustee or the Swap Provider: Nordea Bank Finland Plc, New York Branch 437 Madison Avenue New York, New York 10022 Fax: 212-421-4420 Attention: Martin Lunder and Anne Engen Any Lender: To the address set forth for each Lender on Schedule 1 hereto. or to such other address as any party to receive such communication may designate by written notice to the other. Any such communication shall be deemed to have been validly given and received on the date of dispatch (or, if received after normal business hours, on the next Banking Day following such date) if sent by telefacsimile (as verified by automatic telefacsimile verification by the sender's machine and confirmed in writing) and five (5) Banking Days after having been posted if sent by first class airmail post. SECTION 10.05. SUCCESSORS AND ASSIGNS. (a) BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders and the Agent and their respective successors and assigns, except where the context otherwise requires. (b) ASSIGNMENTS AND PARTICIPATIONS. 60 (i) None of the Credit Parties may assign or transfer any of their rights hereunder without the prior written consent of the Majority Lenders. (ii) Each Lender shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in its Commitment hereunder to any subsidiary, holding company or other Affiliate of such Lender, to any subsidiary or other Affiliate company of any thereof or, with the consent of the Borrowers, not to be unreasonably withheld, to any other bank or financial institution, and such Lender shall forthwith give notice of any such assignment or participation to the Borrowers and the Agent; PROVIDED, HOWEVER, that any such assignment must be made pursuant to an Assignment and Acceptance. The Borrowers will take all reasonable actions requested by the Agent or any Lender to effect such assignment, including, without limitation, the execution of a written consent to such assignment. Any such assignment pursuant to this Section 10.05 shall be at no additional cost to the Borrowers. (iii) The Agent shall maintain at its address referred to in Section 10.04 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (iv) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (A) accept such Assignment and Acceptance, (B) record the information contained therein in the Register and (C) give prompt notice thereof to the Borrowers. (v) In the event a Lender sells a participation to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Commitment and the Advances owing to it): (A) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrowers hereunder) shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (C) such Lender shall remain the Lender for all purposes of this Agreement, (D) the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (E) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by the Borrowers therefrom. (vi) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.05, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers to be furnished to such Lender by or on behalf of the Borrowers. 61 (c) ASSIGNMENT TO FEDERAL RESERVE LENDER. Notwithstanding any other provision in this Agreement, a Lender may at any time create a security interest in all or any portion of its rights under this Agreement, the Note and/or any of the Collateral (including, without limitation, its participation in the Loan) in favor of any Federal Reserve Lender of the Board of Governors of the Federal Reserve System. SECTION 10.06. FINANCING STATEMENTS. The Agent is hereby authorized to sign and file Financing Statements and amendments thereto (including Forms UCC-1 and UCC-3) on behalf of the Borrowers as provided in Article 9 of the Uniform Commercial Code. SECTION 10.07. MODIFICATION OF AGREEMENT. Except as otherwise provided in this Agreement, this Agreement or any term hereof may be amended, modified, waived, discharged or terminated only by an instrument in writing, signed by the Credit Parties, the Agent and the Lenders or by the Credit Parties and the Agent acting with the consent of the Lenders; except that no amendment, modification or waiver shall, unless by an instrument signed by all the Lenders or by the Agent acting with the consent of all of the Lenders: (i) increase the commitment of any Lender or increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of any Advance, (ii) extend the date fixed for the payment of principal or interest on any Advance, (iii) reduce the amount of any payment of principal thereof or the rate at which interest is payable thereon or any fee is payable hereunder, (iv) alter the terms of this Section 10.07, (v) waive any of the conditions precedent set forth in Article III, or (vi) release any Collateral, except as contemplated in the this agreement. SECTION 10.08. GOVERNING LAW. This Agreement and the Note shall be governed by and construed in accordance with the laws of the State of New York. SECTION 10.09. WAIVER OF JURY TRIAL. THE CREDIT PARTIES IRREVOCABLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE DOCUMENTS OR TRANSACTIONS CONTEMPLATED HEREBY. SECTION 10.10. WAIVER OF IMMUNITIES. IF A CREDIT PARTIES ACQUIRES ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS WHETHER SERVICE OR NOTICE, ATTACHMENT BEFORE JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE WITH RESPECT TO ITSELF, ITS PROPERTY OR REVENUES, SUCH CREDIT PARTY, TO THE FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS HEREUNDER, UNDER THE NOTES OR THE COLLATERAL. SECTION 10.11. CONSENT TO JURISDICTION. Each of the parties hereby agrees that any legal action or proceeding with respect to this Agreement, the Note or any of the Collateral or any instrument granting or creating rights in any of the Collateral, or to enforce any judgment obtained against any of the Credit Parties may be brought in the courts of any jurisdiction where a Credit Party or any of its assets may be found or located, or in the courts of the State of New York, Borough of Manhattan, or in the United States Federal courts in Southern District of New York, or in the courts of any other appropriate jurisdiction, as such party may elect; and by 62 execution and delivery of this Agreement, each party irrevocably submits to each such jurisdiction and service of process may be made as provided by law. The Credit Parties hereby irrevocably designate, appoint and empower Corporate Creations Network Inc., 15 North Mill Street, Nyack, NY 10960, United States of America, as their authorized agent solely to receive for and on its behalf service of summons or other legal process in any action, suit or proceeding the Security Trustee, the Agent or any of the Lenders may bring with respect to this Agreement or any of the other Loan Documents within the jurisdictions of courts of the State of New York, Borough of Manhattan, or in the United States Federal courts in Southern District of New York, or in the courts of any other appropriate jurisdiction, as such party may elect. As long as this Agreement remains in force, the Credit Parties shall maintain a duly appointed and authorized agent to receive for and on their behalf service of any summons, complaint or other legal process in any action, suit or proceeding the Security Trustee, the Agent or any of the Lenders may bring with respect to this Agreement or any of the other Loan Documents within the jurisdictions of courts of the State of New York, Borough of Manhattan, or in the United States Federal courts in Southern District of New York, or in the courts of any other appropriate jurisdiction, as such party may elect with respect to this Agreement. The Credit Parties shall keep the Agent advised of the identity and location of such agent. Final judgment against any of the Credit Parties (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of such company therein described) in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. THE CREDIT PARTIES IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 10.12. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrowers (except for fiduciary and custody accounts or deposits held to or for the credit of the Borrowers and which were identified as such at the establishment of such account in accordance with normal banking practice) against any and all of the obligations of the Borrowers to all of the Lenders, pro rata, now or hereafter existing under this Agreement, whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrowers and the Agent after any such set-off and application made by such Lender, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. SECTION 10.13. NO WAIVER; REMEDIES. No failure on the part of any Lender or the Agent or the Security Trustee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 63 SECTION 10.14. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 10.15. EXECUTION IN COUNTERPARTS; INTEGRATION. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Agreement and the exhibits and schedules hereto constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 10.16. JOINT AND SEVERAL. The obligations of the Credit Parties under this Agreement and the other Loan Documents and under each provision hereof are joint and several whether or not so specified in any provision hereof. Each Borrower shall be entitled to rights of contribution as against the other Borrower, provided, however, that such rights of contribution shall (a) not in any way condition or lessen the liability of any Borrower as a joint and several borrower for the whole of the obligations owed to the Lenders hereunder, under the Note or under the Loan Documents and (b) be fully subject and subordinate to the rights of the Lenders hereunder, under the Note and under the Loan Documents. SECTION 10.17. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 64 WHEREFORE, the parties hereto have caused this Loan Agreement to be executed by their officers or representatives thereunto duly authorized on the day, month and year first above written. SEABULK GLOBAL TRANSPORT, INC., SEABULK OVERSEAS TRANSPORT, INC., as Borrower as Borrower By /s/ L. Stephen Willrich By /s/ L. Stephen Willrich ------------------------------ ------------------------------- Name: L. Stephen Willrich Name: L. Stephen Willrich Title: President Title: President SEABULK INTERNATIONAL, INC. SEABULK GLOBAL CARRIERS, INC. SEABULK TANKERS, INC., as Guarantors By /s/ Vincent J. deSostoa ------------------------------ Name: Vincent J. deSostoa Title: Senior Vice President NORDEA BANK NORGE ASA, Grand Cayman Branch, as Lender By /s/ Martin Lunder By /s/ Anne Engen ------------------------------ ------------------------------- Name: Martin Lunder Name: Anne Engen Title: Senior Vice President Title: Vice President NORDEA BANK FINLAND PLC, New York Branch, as Arranger and Agent By /s/ Martin Lunder By /s/ Anne Engen ------------------------------ ------------------------------- Name: Martin Lunder Name: Anne Engen Title: Senior Vice President Title: Vice President NORDEA BANK FINLAND PLC, New York Branch, as Security Trustee By /s/ Martin Lunder By /s/ Anne Engen ------------------------------ ------------------------------- Name: Martin Lunder Name: Anne Engen Title: Senior Vice President Title: Vice President NORDEA BANK FINLAND PLC, New York Branch, as Swap Provider By /s/ Martin Lunder By /s/ Anne Engen ------------------------------ ------------------------------- Name: Martin Lunder Name: Anne Engen Title: Senior Vice President Title: Vice President 65 SCHEDULE 1 LENDERS AND COMMITMENTS Lender Commitment - ------ ---------- NORDEA BANK NORGE ASA $49,600,000 Grand Cayman Branch 437 Madison Avenue New York, New York 10022 Attention: Martin Lunder and Anne Engen Facsimile: 212-421-4420 WITH A COPY TO: NORDEA BANK FINLAND PLC New York Branch 437 Madison Avenue New York, New York 10022 Attention: Martin Lunder and Anne Engen Facsimile: 212-421-4420 EXHIBIT "A" FORM OF ASSIGNMENT AND ACCEPTANCE Dated as of _______________ Reference is made to the Loan Agreement dated as of March 18, 2004 (as the same may be from time to time amended, supplemented or otherwise modified, the "Loan Agreement") among (i) SEABULK GLOBAL TRANSPORT, INC. and SEABULK OVERSEAS TRANSPORT, INC., each a Liberian corporation, as joint and several borrowers (each, a "Borrower" and collectively, the "Borrowers"), (ii) the Guarantors named therein, (iii) the banks and financial institutions named therein as Lenders (each, a "Lender", and collectively, the "Lenders"), (iv) Nordea Bank Finland plc, New York Branch, as agent (the "Agent"), (v) Nordea Bank Finland plc, New York Branch, as Arranger, and (vi) Nordea Bank Finland plc, New York Branch, as Swap Provider, pursuant to which the Lenders agreed to lend to the Borrowers up to US$49,600,000 to finance the acquisition of the Liberian registered vessels SEABULK RELIANT and SEABULK TRUST. Terms defined in the Loan Agreement are used herein with the same meanings. ______________________ (the "Assignor") and ________________________ (the "Assignee") agree as follows: 1. As of the Effective Date (defined in Paragraph 4 below), the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Loan Agreement which represents the Percentage Interest specified in Section 1 of Annex 1 hereto in the Assignor's Commitment and the Advance owing to the Assignor. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Advance owing to the Assignee will be as set forth in Section 2 of Annex 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; and (ii) makes no representation or warranty and assumes no responsibility with respect to (a) any statements, warranties or representations made in or in connection with the Loan Agreement, the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement, or any other instrument or document furnished pursuant thereto and (b) the financial condition of the Borrowers or the performance or observance by the Borrowers of any of its obligations under the Loan Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Loan Agreement and the other Loan Documents, together with copies of the financial statements referred to in the Loan Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Agreement; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will be bound by the Loan Agreement and perform in accordance with its terms all of the obligations which by the terms of the Loan Agreement are required to be performed by it as a Lender; (v) specifies as its address for notices the offices set forth beneath its name on the signature page hereof; and (vi) attaches hereto an executed counterpart signature page to the Loan Agreement (reflecting the Assignee's aggregate commitment after giving effect hereto). 4. The effective date (the "Effective Date") for this Assignment and Acceptance shall be the date of acceptance hereof by the Agent, unless a later date is specified in Annex 1 hereto, PROVIDED THAT no Assignment and Acceptance shall be effective until and unless the terms and conditions of Section 10.05 of the Loan Agreement are complied with. Following the execution of this Assignment and Acceptance, two counterparts will be promptly delivered by the Assignee to the Agent, and the Agent shall promptly forward a counterpart to the Borrowers. 5. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder; and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Agreement. 6. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Loan Agreement in respect of the assignment effected hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Loan Agreement for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and shall be construed in accordance with, the laws of the State of New York. NAME OF ASSIGNOR By: -------------------------------- Title: NAME OF ASSIGNEE By: -------------------------------- Title: Address for Notices: - ------------------------------------ - ------------------------------------ - ------------------------------------ 2 Annex 1 to Assignment and Acceptance Dated as of ____________ SECTION 1 Percentage Interest: SECTION 2 Assignee's Commitment: $ Aggregate Outstanding Principal Amount of Advances owing to the Assignee: $ SECTION 3 Effective Date: NAME OF ASSIGNOR By: -------------------------------- Title: 3 EXHIBIT "B" FORM OF ASSIGNMENT OF EARNINGS EXHIBIT "C" FORM OF ASSIGNMENT OF INSURANCES EXHIBIT "D" FORM OF DESIGNATION NOTICE ADDRESS Transaction Reference # The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Swap Transaction entered into between (a) Nordea Bank Finland Plc, New York Branch ("Party A"), and (b) Seabulk Global Transport, Inc., Seabulk Overseas Transport, Inc. and Seabulk International, Inc. (collectively, "Party B"), on the Trade Date specified below. This is a Designated Transaction for purposes of the Loan Agreement dated as of March 18, 2004 among Seabulk Global Transport, Inc. and Seabulk Overseas Transport, Inc., as joint and several Borrowers, the Seabulk International, Inc. and the other guarantors named therein, as joint and several Guarantors, the banks and financial institutions listed on Schedule 1 thereto as Lenders, Nordea Bank Finland Plc, as Agent, Nordea Bank Finland Plc, as Security Trustee, and Party A, as Swap Provider. The definitions and provisions contained in the 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc. ("ISDA") are incorporated in this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of _____ __, 2004, as amended and supplemented from time to time (the "Agreement"), between Party A and Party B. All provisions contained in the Agreement shall govern this confirmation except as expressly modified below. 2. The terms of the particular Swap Transaction to which this Confirmation relates are as follows: Notional Amount: Trade Date: Effective Date: Termination Date: , subject to adjustment in accordance with the Modified Following Business Day Convention Fixed Amounts: Fixed Rate Payer: Party B Fixed Rate Payer Payment Dates: , subject to adjustment in accordance with the Modified Following Business Day Convention Fixed Rate: Fixed Rate Day Count Fraction: Actual/360 Floating Amounts: Floating Rate Payer: Party A Floating Rate Payer Payment Dates: , subject to adjustment in accordance with the Modified Following Business Day Convention Floating Rate for Initial Calculation Period: Floating Rate Option: Spread: Inapplicable Floating Rate Day Count Fraction: Actual/360 Reset Dates: The first day of each Calculation Period, subject to adjustment in accordance with the modified following Business Day Compounding: Inapplicable Business Days: Calculation Agent: Party A 3. Account Details: Payments to Party A: Nordea Bank, Helsinki, for Nordea Bank Plc, New York Payments to Party B: Nordea Bank Finland Plc, New York Branch, pursuant to the terms of the Loan Agreement 4. Offices: (a) The Office of Party A for the Swap Transaction is New York, New York 2 (b) The Office of Party B for the Swap Transaction is Fort Lauderdale, Florida Please confirm that the foregoing correctly sets forth the terms of our agreement by executing one copy of this Confirmation and returning it to us. NORDEA BANK FINLAND Plc, By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Confirmed as of the date first written above: SEABULK GLOBAL TRANSPORT, INC., SEABULK OVERSEAS TRANSPORT, INC., as Borrower as Borrower By By ----------------------------- -------------------------------------- Name: Name: Title: Title: SEABULK INTERNATIONAL, INC. By: --------------------------- Name: Title: 3 EXHIBIT "E" FORM OF MORTGAGE EXHIBIT "F" FORM OF NOTE EXHIBIT "G" FORM OF NOTICE OF DRAWDOWN NOTICE OF DRAWDOWN March __, 2004 NORDEA BANK FINLAND PLC, New York Branch As Agent 437 Madison Avenue New York, NewYork 10022 Ladies and Gentlemen: The undersigned refers to the Loan Agreement dated as of March 18, 2004 (the "Loan Agreement") among (i) the undersigned as Borrowers, (ii) the Guarantors named therein, (iii) the banks and financial institutions named therein as Lenders, (iv) Nordea Bank Finland plc, New York Branch, as Agent, (v) Nordea Bank Finland plc, New York Branch, as Security Trustee, and (vi) Nordea Bank Finland plc, New York Branch, as Swap Provider. All capitalized terms not otherwise defined have the meaning ascribed to them in the Loan Agreement. The undersigned hereby gives you irrevocable notice that it hereby requests an Advance under the Loan Agreement as follows: (a) The Drawdown Date of the proposed Advance is March __, 2004. (b) The aggregate principal amount of the Advance is $__________, consisting of a Tranche A portion in the amount of $__________ and a Tranche B portion in the amount of $_____________ and the initial Interest Period is _______ month(s). (c) The proceeds of the Advance are to be used to acquire the Panamanian registered vessel WORLD __________ (t.b.r SEABULK ___________ and reflagged under Liberian flag) from its present owner, _______________. (d) The payment instructions for the Advance are as follows: Amount: $_______________ For Credit to: the account of HSH Nordbank, London Branch, with Wachovia Bank, N.A., New York SWIFT Code: PNBPUS3NNYC For Further Credit to: the account of ___________, Account Number _________, with HSH Nordbank, London Branch, SWIFT Code: HSHNGB2L Reference: Sale of M/T _________ -and- Amount: $_________ Bank: Citibank N.A. 111 Wall Street NY, NY 10005 Wire Instructions: ABA Number 0210-00089 Attention: Private Banking for credit to Watson, Farley & Williams Account No.: 37348799 Value Date: March __, 2004 The undersigned hereby certify that before and after giving effect to the proposed Advance, unless waived by the Agent or the Lenders, (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom and (ii) all representations and warranties contained in Section 4.01 of the Loan Agreement shall be true and correct in all material respects as though such representations and warranties had been made on and as of the date of making of the Advance. Very truly yours, SEABULK GLOBAL TRANSPORT, INC., SEABULK OVERSEAS TRANSPORT, INC., as Borrower as Borrower By By ---------------------------- ----------------------------------- Name: Name: Title: Title: 2 EX-21 5 g88084exv21.txt LIST OF SUBSIDIARIES Exhibit 21 SEABULK INTERNATIONAL, INC. LIST OF SUBSIDIARIES ANGOLA ANGOBULK SARL (NOTE: JOINT VENTURE BETWEEN SEABULK GIANT, INC. AND ANGOLA DRILLING COMPANY SARL) ARGENTINA MARANTA S.A. BRAZIL SEABULK OFFSHORE DO BRASIL LTDA. BRITISH VIRGIN ISLANDS MODANT HERON LIMITED MODANT JASPER LIMITED MODANT LINCOLN LIMITED MODANT MALLARD LIMITED MODANT SWIFT LIMITED (NOTE: JOINT VENTURE COMPANIES. SEABULK OWNS 20%) EQUATORIAL GUINEA SEABULK OFFSHORE EQUATORIAL GUINEA, S.L. LIBERIA OFFSHORE MARINE MANAGEMENT INTERNATIONAL, INC. SEABULK AFRICA, INC. SEABULK ARIZONA, INC. SEABULK GLOBAL CARRIERS, INC. SEABULK GLOBAL TRANSPORT, INC. SEABULK OVERSEAS TRANSPORT, INC. MARSHALL ISLANDS OPERATING COMPANIES 1. SEABULK OFFSHORE GLOBAL HOLDINGS, INC., 2. SEABULK OFFSHORE HOLDINGS, INC. 3. SEABULK COMMAND, INC. 4. SEABULK CONDOR, INC. 5. SEABULK DANAH, INC. 6. SEABULK EAGLE II, INC. 7. SEABULK E.G. HOLDINGS, INC. (f/k/a SEABULK PENNY, INC.) 8. SEABULK GIANT, INC. 9. SEABULK HERON, INC. 10. SEABULK JASPER, INC. 11. SEABULK LINCOLN, INC. 12. SEABULK MALLARD, INC. 13. SEABULK MASTER, INC. 14. SEABULK SWIFT, INC. VESSEL OWNING COMPANIES 1. SEABULK ALKATAR, INC. 2. SEABULK AIRES II, INC. 3. SEABULK BETSY, INC. 4. SEABULK CAPRICORN, INC. 5. SEABULK CAROL, INC. 6. SEABULK CLIPPER, INC. 7. SEABULK COOT I, INC. 8. SEABULK COOT II, INC. 9. SEABULK CORMORANT, INC. 10. SEABULK CYGNET I, INC. 11. SEABULK CYGNET II, INC. 12. SEABULK DEFENDER, INC. 13. SEABULK DUKE, INC. 14. SEABULK EMERALD, INC. 15. SEABULK EXPLORER, INC. 16. SEABULK FALCON II, INC. 17. SEABULK FREEDOM, INC. 18. SEABULK GANNETT II, INC. 19. SEABULK GREBE, INC. 20. SEABULK HABARA, INC. 21. SEABULK HAWAII, INC. 22. SEABULK HAWK, INC. 23. SEABULK HERCULES, INC. 24. SEABULK HORIZON, INC. 25. SEABULK JEBEL ALI, INC. 26. SEABULK KESTREL, INC. 27. SEABULK LAKE EXPRESS, INC. 28. SEABULK MAINTAINER, INC. 29. SEABULK MARLENE, INC. 30. SEABULK MARTIN I, INC. 31. SEABULK MARTIN II, INC. 32. SEABULK MERLIN, INC. 33. SEABULK NEPTUNE, INC. 34. SEABULK NYON, INC. (f/k/a SEABULK TREASURE ISLAND, INC.) 35. SEABULK OSPREY, INC. 36. SEABULK PENGUIN I, INC. 37. SEABULK PENGUIN II, INC. 38. SEABULK PERSISTENCE, INC. 39. SEABULK PETREL, INC. 40. SEABULK PLOVER, INC. 41. SEABULK RAVEN, INC. 42. SEABULK SAPPHIRE, INC. 43. SEABULK SARA, INC. 44. SEABULK SERVICE, INC. 45. SEABULK SOUTH ATLANTIC, INC. (f/k/a SEABULK TITAN, INC.) 46. SEABULK TENDER, INC. 47. SEABULK TIMS I, INC 48. SEABULK TOOTA, INC. 49. SEABULK TOUCAN, INC. 50. SEABULK VERITAS, INC. MEXICO SEABULK OFFSHORE DE MEXICO, S.A. DE C.V. NIGERIA SEABULK OFFSHORE OPERATORS NIGERIA LIMITED MODANT SEABULK NIGERIA LIMITED (NOTE: JOINT VENTURE COMPANY. SEABULK OWNS 40%) SWITZERLAND SEABULK OFFSHORE S. A. TRINIDAD & TOBAGO SEABULK OFFSHORE OPERATORS TRINIDAD LIMITED UNITED ARAB EMIRATES SEABULK OFFSHORE DUBAI, L.L.C. UNITED KINGDOM SEABULK OFFSHORE U.K. LIMITED UNITED STATES 1. DELAWARE TANKER HOLDING I INC. (DELAWARE) 2. DELAWARE TANKER HOLDING II INC. (DELAWARE) 3. DELAWARE TANKER HOLDING III INC. (DELAWARE) 4. DELAWARE TANKER HOLDING IV INC. (DELAWARE) 5. DELAWARE TANKER HOLDING V INC. (DELAWARE) 6. KINSMAN LINES, INC. (DELAWARE) 7. LIGHTSHIP LIMITED PARTNER HOLDINGS, LLC (DELAWARE) 8. LIGHTSHIP PARTNERS, L.P. (DELAWARE) 9. LIGHTSHIP TANKER HOLDINGS, LLC (DELAWARE) 10. LIGHTSHIP TANKERS I LLC (DELAWARE) 11. LIGHTSHIP TANKERS II LLC (DELAWARE) 12. LIGHTSHIP TANKERS III LLC (DELAWARE) 13. LIGHTSHIP TANKERS IV LLC (DELAWARE) 14. LIGHTSHIP TANKERS V LLC (DELAWARE) 15. LONE STAR MARINE SERVICES, INC. (FLORIDA) 16. SEABULK AMERICA PARTNERSHIP LTD. (FLORIDA) 17. SEABULK ARIZONA USA, INC. (FLORIDA) 18. SEABULK ENERGY CARRIERS INC. (FLORIDA) 19. SEABULK ENERGY TRANSPORT, INC. (FLORIDA) 20. SEABULK MARINE INTERNATIONAL INC. (FLORIDA) 21. SEABULK OCEAN SYSTEMS CORPORATION (FLORIDA) 22. SEABULK OCEAN SYSTEMS HOLDING CORPORATION (FLORIDA) 23. SEABULK OCEAN TRANSPORT, INC. (FLORIDA) 24. SEABULK OFFSHORE LTD. (FLORIDA) 25. SEABULK OFFSHORE ABU DHABI INC. (FLORIDA) 26. SEABULK OFFSHORE DUBAI INC. (FLORIDA) 27. SEABULK OFFSHORE INTERNATIONAL INC. (FLORIDA) 28. SEABULK OFFSHORE OPERATORS INC. (FLORIDA) 29. SEABULK OPERATORS INC. (FLORIDA) 30. SEABULK PETROLEUM TRANSPORT, INC. (FLORIDA) 31. SEABULK TANKERS INC. (F/K/A OSTC) (DELAWARE) 32. SEABULK TANKERS LTD. (FLORIDA) 33. SEABULK TOWING INC. (DELAWARE) 34. SEABULK TOWING SERVICES INC. (FLORIDA) 35. SEABULK TRANSMARINE II INC. (FLORIDA) 36. SEABULK TRANSMARINE PARTNERSHIP LTD. (FLORIDA) 37. SEABULK TRANSPORT INC. (FLORIDA) 38. SEABULK MARINE SERVICES INC. (FLORIDA) EX-23.1 6 g88084exv23w1.txt CONSENT OF ERNST & YOULG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-30390 and Form S-4 No. 333-34716, Form S-4 No. 333-110138, Form S-8 No. 333-61806 and Form S-8 No. 333-108732) of Seabulk International, Inc. and in the related Prospectus of our report dated February 27, 2004, (except for the last paragraph of Note 17, as to which the date is March 8, 2004) with respect to the consolidated financial statements of Seabulk International, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2003. /s/ Ernst & Young LLP Fort Lauderdale, Florida March 30, 2004 EX-31.1 7 g88084exv31w1.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION OF GERHARD E. KURZ, PRINCIPAL EXECUTIVE OFFICER OF SEABULK INTERNATIONAL, INC. PURSUANT TO EXCHANGE ACT RULE 13A-14(A) I, Gerhard E. Kurz, certify that: 1. I have reviewed this Annual Report on Form 10-K of Seabulk International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 /s/ GERHARD E. KURZ ------------------------------ Name: Gerhard E. Kurz Title: Chairman, President and Chief Executive Officer EX-31.2 8 g88084exv31w2.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION OF VINCENT J. DESOSTOA, PRINCIPAL FINANCIAL OFFICER OF SEABULK INTERNATIONAL, INC. PURSUANT TO EXCHANGE ACT RULE 13A-14(A) I, Vincent J. deSostoa, certify that: 1. I have reviewed this Annual Report on Form 10-K of Seabulk International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 /s/ VINCENT J. DESOSTOA -------------------------------- Name: Vincent J. deSostoa Title: Senior Vice President and Chief Financial Officer EX-32.1 9 g88084exv32w1.txt SECTION 906 CERTIFICATION - P.E.O. EXHIBIT 32.1 CERTIFICATION OF GERHARD E. KURZ, CHIEF EXECUTIVE OFFICER OF SEABULK INTERNATIONAL, INC. PURSUANT TO 18 U.S.C. SS. 1350 AND EXCHANGE ACT RULE 13A-14(B) The undersigned, being the Chief Executive Officer of Seabulk International, Inc. (the "Company"), does hereby certify that the Annual Report on Form 10-K for the year ended December 31, 2003 (the "Form 10-K") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. ----------------------------- Name: Gerhard E. Kurz Date: March 30, 2004 EX-32.2 10 g88084exv32w2.txt SECTION 906 CERTIFICATION - PFO EXHIBIT 32.2 CERTIFICATION OF VINCENT J. DESOSTOA, CHIEF FINANCIAL OFFICER OF SEABULK INTERNATIONAL, INC. PURSUANT TO 18 U.S.C. SS. 1350 AND EXCHANGE ACT RULE 13A-14(B) The undersigned, being the Chief Financial Officer of Seabulk International, Inc. (the "Company"), does hereby certify that the Annual Report on Form 10-K for the year ended December 31, 2003 (the "Form 10-K") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. ----------------------------- Name: Vincent J. deSostoa Date: March 30, 2004 -----END PRIVACY-ENHANCED MESSAGE-----