-----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, IQYPonERuXs+JymUSId1UYgEUjeM/gmu/s7d+qc+vpckVcfvWpiIbdAY4tFgP3H1 iKm27E08pLgp+k5vaobOqg== 0000899243-99-000831.txt : 19990430 0000899243-99-000831.hdr.sgml : 19990430 ACCESSION NUMBER: 0000899243-99-000831 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIDEWATER INC CENTRAL INDEX KEY: 0000098222 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 720487776 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06311 FILM NUMBER: 99604007 BUSINESS ADDRESS: STREET 1: 1440 CANAL ST STE 2100 CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045681010 MAIL ADDRESS: STREET 1: 1440 CANAL STREET STREET 2: STE 2100 CITY: NEW ORLEANS STATE: LA ZIP: 70112 FORMER COMPANY: FORMER CONFORMED NAME: TIDEWATER MARINE SERVICE INC DATE OF NAME CHANGE: 19780724 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Fiscal Year Ended March 31, 1999 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the Transition Period From ____________________ to ____________________. Commission file number 1-6311 TIDEWATER INC. ------------------------------------------------------------- (Exact name of registrant as specified in its Charter) Delaware 72-0487776 ------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 601 Poydras Street, New Orleans, Louisiana 70130 ------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code (504) 568-1010 ------------------------------------------------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $0.10 New York Stock Exchange, Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange, Pacific Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 the filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of April 22, 1999, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,444,000,000. Excluded from the calculation of market value are 4,985,860 shares held by the Registrant's grantor stock ownership trust. 55,580,997 shares of Tidewater Inc. common stock $0.10 par value per share were outstanding on April 22, 1999. Excluded from the calculation of shares outstanding at April 22, 1999 are 4,985,860 shares held by the Registrant's grantor stock ownership trust. Registrant has no other class of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 1999 Annual Meeting of Stockholders are incorporated into Part III of this report. TABLE OF CONTENTS Part I Page Item Number - ---- ------ 1 & 2. Business and Properties............................................. 3 3. Legal Proceedings................................................... 6 4. Submission of Matters to a Vote of Security Holders................. 6 4A. Executive Officers of the Registrant................................ 7 PART II 5. Market for the Registrant's Common Stock and Related Stockholder Matters............................................... 7 6. Selected Financial Data............................................. 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 9 7A. Quantitative and Qualitative Disclosures About Market Risk.......... 17 8. Financial Statements and Supplementary Data......................... 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... 17 PART III 10. Directors and Executive Officers of the Registrant.................. 18 11. Executive Compensation.............................................. 18 12. Security Ownership of Certain Beneficial Owners and Management...... 18 13. Certain Relationships and Related Transactions...................... 18 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 18 -2- PART I ITEMS 1 and 2. BUSINESS AND PROPERTIES GENERAL Tidewater Inc. (the "company") was incorporated in Delaware in 1956. The company's principal executive offices are located at 601 Poydras Street, New Orleans, Louisiana 70130, and its telephone number is (504) 568-1010. Unless otherwise required by the context, the term "company" as used herein refers to Tidewater Inc. and its consolidated subsidiaries. The company provides services and equipment to the offshore energy industry through the operation of the world's largest fleet of offshore service vessels. On February 20, 1998 the company completed the all cash sale of its compression division for approximately $348 million. Please refer to Note 2 of Notes to Consolidated Financial Statements for further discussion of the sale of Compression operations. On May 16, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.). The total cost of the acquisition of $626 million, which includes $65.6 million of deferred income tax liability, was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several offshore oil and gas exploration areas outside of the United States. On June 30, 1997 the company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint-venture companies in Australia. Approximate cost of the acquisition of $30 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Please refer to Note 3 of Notes to Consolidated Financial Statements for further discussion of the purchases of O.I.L. Ltd. and the Australian equity interest. FORWARD LOOKING INFORMATION In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain statements set forth in Items 1 and 7 and elsewhere in this report, which provide other than historical information and which are forward looking, involve risks and uncertainties that may impact the company's actual results of operations. The company faces many risks and uncertainties, many of which are beyond the control of the company, including: fluctuations in oil and gas prices; changes in capital spending by customers in the energy industry for exploration, development and production; unsettled political conditions, civil unrest and governmental actions, especially in higher risk countries of operations; foreign currency controls; and environmental and labor laws. Other risk factors are discussed elsewhere in this Form 10-K. Readers should consider all of these risk factors, as well as other information contained in this report. MARINE OPERATIONS The company is the world's largest provider of offshore supply vessels and marine support services serving the energy industry. With a fleet of approximately 685 vessels, the company operates, and has a leading market share, in most of the world's significant oil and gas exploration and production markets and provides services supporting all phases of offshore exploration, development and production, including: towing of and anchor-handling of mobile drilling rigs and equipment; transporting supplies and personnel necessary to sustain drilling, workover and production activities; and supporting pipelaying and other offshore construction activities. -3- The company's fleet is deployed in the major offshore oil and gas areas of the world. The principal areas of the company's operations include the U.S. Gulf of Mexico, areas offshore Australia, Brazil, Egypt, India, Indonesia, Malaysia, Mexico, Trinidad, Venezuela and West Africa and in the North Sea and the Persian Gulf. The company conducts its operations through wholly-owned subsidiaries and joint ventures. Information concerning revenues and operating profit derived from domestic and international marine operations and domestic and international marine identifiable assets for each of the fiscal years ended March 31 are summarized below: (in thousands) - -------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------- Revenues: Vessel operations: United States $ 296,161 463,914 338,823 International 614,887 537,737 322,401 Other marine operations 57,944 58,510 29,202 - -------------------------------------------------------------- $ 968,992 1,060,161 690,426 ============================================================== Operating profit: Vessel operations: United States $ 96,376 225,599 120,275 International 171,213 141,133 82,591 Other marine operations 12,526 10,663 4,186 Gain on sales of assets 2,949 16,592 5,352 - -------------------------------------------------------------- $ 283,064 393,987 212,404 ============================================================== Identifiable assets: United States $ 315,509 380,043 376,380 International 990,062 1,064,681 354,561 - -------------------------------------------------------------- Total marine assets $1,305,571 1,444,724 730,941 ============================================================== Please refer to Item 7 of this report and Note 11 of Notes to Consolidated Financial Statements for further discussion of revenues, operating profit and identifiable assets. Marine Vessel Operations. The company's vessels regularly and routinely move from one operating area to another, often to and from offshore operating areas of different continents. Tables comparing the average size of the company's marine fleet by class and geographic distribution for the last three fiscal years are included in Item 7 of this report. The company's largest class of vessels consists of towing-supply and supply vessels that are chartered to customers for use in transporting supplies and equipment from shore bases to offshore drilling rigs, platforms and other installations. In addition, vessels of the towing-supply class are equipped for and are capable of towing drilling rigs and other marine equipment and setting anchors for positioning and mooring drilling rigs. The company's other major classes of vessels include crew and utility vessels that are chartered to customers for use in transporting small quantities of supplies and personnel from shore bases to offshore drilling rigs, platforms and other installations; offshore tugs that tow floating drilling rigs, dock tankers, tow barges, assist pipelaying and construction barges and are used in a variety of other commercial towing operations, including towing barges carrying a variety of bulk cargoes and containerized cargo; and safety/standby vessels which provide fire fighting and rescue services. The company's vessels also include inshore tugs; inshore barges; offshore barges; and production, line-handling and various other special purpose vessels. Inshore tugs, which are operated principally within inland waters, tow drilling rigs to and from their locations, and tow barges carrying equipment and materials for use principally in inland waters for drilling and production operations. Barges are either used in conjunction with company tugs or are chartered to others. -4- Contributions of Main Classes of Vessels. Revenues from vessel operations were derived from the main classes of vessels in the following percentages: Year Ended March 31, - ------------------------------------------------ 1999 1998 1997 ---- ---- ---- Towing-supply/Supply... 73.3% 75.7% 70.2% Offshore Tugs.......... 12.7% 11.9% 15.3% Crew/Utility........... 6.9% 6.3% 6.5% Safety/Standby......... 5.7% 4.6% 5.3% Other.................. 1.4% 1.5% 2.7% - ------------------------------------------------ Shipyards. Quality Shipyards, Inc., a wholly-owned subsidiary of the company, operates two shipyards in Houma, Louisiana, which construct, modify and repair vessels. Approximately 48% of the shipyards' business for the year ended March 31, 1999 related to repairs and modifications of the company's vessels. Risks of Operation and Insurance. The operation of any marine vessel involves an inherent risk of catastrophic marine disaster, adverse weather conditions, mechanical failure, collisions, property losses to the vessel and business interruption due to political action in countries other than the United States. Any such event may result in a reduction in revenues or increased costs. The company's vessels are insured for their estimated market value against damage or loss, including war and pollution risks. The company also carries workers' compensation, maritime employer's liability, general liability (including third party pollution) and other insurance customary in the industry. The company's international marine vessel operations are subject to the usual risks inherent in doing business in countries other than the United States. Such risks include political changes, possible vessel seizure, company nationalization or other governmental actions, currency restrictions and revaluations, and import/export restrictions, all of which are beyond the control of the company. Although it is impossible to predict the likelihood of such occurrences or their effect 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 to constitute a factor materially adverse to the conduct of its international marine vessel operations as a whole. Industry Conditions, Competition and Customers. The company's operations are materially dependent upon the levels of activity in offshore oil and natural gas exploration, development and production throughout the world. Such activity levels are affected both by short-term and long-term trends in world oil and natural gas prices. Fiscal year 1999 company activity has been significantly affected by the downturn in activity and spending in the oil industry resulting from the drop in the price of oil which began in the Fall of 1997. A discussion of current market conditions appears under "Business Overview" in Item 7 of this report. The principal competitive factors for the offshore vessel service industry are suitability and availability of equipment, price and quality of service. The company has numerous competitors in virtually all areas in which it operates. Certain customers of the company own and operate vessels to service certain of their offshore activities. The company's diverse, mobile asset base and geographic distribution allow it to respond to changes in market conditions and provide a broad range of vessel services to its customers throughout the world. Management believes that the company has a significant competitive advantage because of the size, diversity and geographic distribution of its vessel fleet, the company's financial condition and economies of scale. Although one customer accounted for 8% and the five largest customers accounted for approximately 24% of its revenues during the year ended March 31, 1999, the company does not consider its operations dependent on any single customer. -5- Government Regulations. The company's vessels are subject to various statutes and regulations governing their operation and maintenance. Under the Merchant Marine Act of 1936 and the Shipping Act, 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 its common stock. In addition, the company's charter permits the company 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 24% of its common stock. Based on information supplied to the company by its transfer agent, approximately 3.9% of the company's outstanding common stock was owned by non-U.S. citizens as of March 31, 1999. The company's vessels are subject to various statutes and regulations governing their operation. The laws of the United States provide that once a vessel is registered under a flag other than the United States, it cannot thereafter engage in U.S. coastwise trade. Therefore, the company's non-U.S. flag vessels must continue to be operated abroad, and if the company were not able to secure charters 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 685 vessels owned or operated by the company at March 31, 1999, 379 were registered under flags other than the United States and 306 were registered under the U.S. flag. All of the company's offshore vessels are subject to international safety and classification standards. U.S. flag towing-supply and supply vessels are required to undergo periodic inspections and to be recertified under drydock examination at least twice every five years. Non-U.S. flag vessels are also subject to similar regulations. SEASONALITY The company's vessel fleet generally has its highest utilization rates in the warmer temperature months when the weather is more favorable for offshore exploration, development and construction work. However, business volume for the company is more dependent on oil and natural gas prices and the global supply and demand conditions for the company's services than any seasonal variation. ENVIRONMENTAL COMPLIANCE Compliance with existing governmental regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, nor is expected to have, a material adverse effect on the company. EMPLOYEES As of March 31, 1999, the company had approximately 8,100 employees. The company considers relations with employees to be satisfactory. The company is not a party to any union contract in the United States but through several subsidiaries is a party to union agreements covering local nationals in several countries other than the United States. ITEM 3. LEGAL PROCEEDINGS The company is not a party to any litigation which, in the opinion of management, is likely to have a material adverse effect on the company's financial position or results of operations. Please refer to Item 7 and Note 10 of Notes to Consolidated Financial Statements for further discussion of these matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1999. -6- ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Position ---- --- -------- William C. O'Malley....... 62 Chairman, President and Chief Executive Officer since October, 1994. Chairman of the Board from 1987 to 1994 and Chief Executive Officer from 1990 to 1994 of Sonat Offshore Drilling, Inc. Employed 1994. Richard M. Currence....... 60 Executive Vice President since 1992. Ken C. Tamblyn............ 55 Executive Vice President since 1992. Cliffe F. Laborde......... 47 Senior Vice President and General Counsel since 1992. There are no family relationships between the directors or executive officers of the company except that Cliffe F. Laborde, senior vice president and general counsel, is the son of John P. Laborde, a director of the company. The company's officers are elected annually by the Board of Directors and serve for one-year terms or until their successors are elected. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The company's common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange under the symbol TDW. At March 31, 1999, there were approximately 2,356 record holders of the company's common stock, based upon the record holder list maintained by the company's stock transfer agent. The following table sets forth the high and low closing sale prices of the company's common stock as reported on the New York Stock Exchange Composite Tape and the amount of cash dividends per share declared on Tidewater common stock for the periods indicated. - -------------------------------------------------------- Fiscal Year Quarter High Low Dividend - -------------------------------------------------------- 1999 First $44.375 $31.875 $.15 Second 33.813 20.750 .15 Third 30.188 17.563 .15 Fourth 26.563 18.688 .15 1998 First $48.875 $35.875 $.15 Second 60.250 44.000 .15 Third 70.500 47.250 .15 Fourth 55.188 40.000 .15 - -------------------------------------------------------- -7- ITEM 6. SELECTED FINANCIAL DATA The following table sets forth a summary of selected financial data for each of the last five fiscal years. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the company included in this report.
Years Ended March 31 (in thousands, except ratio and per share amounts) 1999 1998(2) 1997(2) 1996 1995 - -------------------------------------------------------------------------------------------------------------------- Revenues: Vessel revenues $ 911,048 1,001,651 661,224 506,180 469,751 Other marine revenues 57,944 58,510 29,202 26,022 31,367 - -------------------------------------------------------------------------------------------------------------------- $ 968,992 1,060,161 690,426 532,202 501,118 ==================================================================================================================== Earnings from continuing operations $ 210,719 243,038 138,235 69,503 44,868 Earnings from discontinued operations --- 10,723 7,776 6,674 6,319 Gain on sale of discontinued operations --- 61,738 --- --- --- - -------------------------------------------------------------------------------------------------------------------- Net earnings $ 210,719 315,499 146,011 76,177 51,187 ==================================================================================================================== Per common share(1): Earnings from continuing operations $ 3.68 3.99 2.23 1.12 .73 Earnings from discontinued operations --- .18 .12 .11 .10 Gain on sale of discontinued operations --- 1.01 --- --- --- - -------------------------------------------------------------------------------------------------------------------- Net earnings $ 3.68 5.18 2.35 1.23 .83 ==================================================================================================================== Total assets $1,394,458 1,492,839 1,061,280 974,410 926,276 ==================================================================================================================== Long-term debt $ --- 25,000 --- --- 20,802 ==================================================================================================================== Working capital $ 198,532 114,907 159,607 106,904 107,849 ==================================================================================================================== Current ratio 3.41 1.56 2.77 2.31 2.20 ==================================================================================================================== Cash dividends declared per common share $ .60 .60 .575 .475 .40 ====================================================================================================================
(1) All per share amounts were computed on a diluted basis. (2) See Notes 2 and 3 of Notes to Consolidated Financial Statements for information regarding business dispositions and business combinations during fiscal years 1998 and 1997. -8- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The company provides services and equipment to the international offshore energy industry through the operation of a diversified fleet of marine service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level of the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and related disclosures. BUSINESS OVERVIEW During the quarter ended June 30, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.). The total cost of the acquisition of $626 million, which includes $65.6 million of deferred income tax liability, was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several offshore oil and gas exploration areas outside of the United States. Goodwill of approximately $355 million was recorded in the Consolidated Balance Sheet and is being amortized over 40 years. To finance the O.I.L. acquisition $500 million of debt was incurred pursuant to a $600 million revolving credit and term loan agreement with several banks and consisted of a $400 million term loan and $100 million borrowed under the $200 million revolving credit facility of the agreement. At March 31, 1998 all debt borrowed to finance the O.I.L. acquisition had been repaid and the $400 million term loan facility canceled. On June 30, 1997 the company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint- venture companies in Australia for a cash payment of $13.2 million and issuance of debt totaling $14.0 million. The debt was discounted to yield interest at 7% and has been repaid in full as of March 31, 1999. The total estimated cost of the acquisition of $30 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Goodwill of approximately $12 million was recorded in the Consolidated Balance Sheet and is being amortized over 40 years. On February 20, 1998 the company completed the sale of its compression division. In consideration of the sale, the company received cash of approximately $348 million. During fiscal 1997 the company purchased for $12.4 million cash the remaining 50.1% equity interest in 22 of 29 safety/standby vessels previously owned and operated by joint-venture companies in the North Sea. The acquisition of these vessels was accounted for using the purchase method. The prolonged drop in oil prices over the past year and a half has resulted in cutbacks in drilling programs adversely affecting U.S.-based vessels throughout fiscal year 1999 and has recently begun weakening international activity. Toward the latter part of fiscal 1998 U.S.-based vessel utilization and day rates were the highest in company history led by the towing- supply/supply vessels which were experiencing 90% utilization and average day rates close to $8,000 per day. As fiscal 1999 began, oil prices were falling due primarily to worldwide oil surpluses. Cutbacks in customer drilling programs resulted, quickly affecting the U.S. Gulf of Mexico vessel market as the duration of vessel contracts in this region normally range from one to three months. U.S.-based vessel revenues for the current fiscal year have declined approximately 36% as compared to the prior fiscal year. As of March 31, 1999, the towing-supply/supply vessels operating in the Gulf of Mexico are experiencing approximately 50% utilization and average day rates of approximately $3,100 per day. This softening in domestic activity is likely to continue for some time with the decline in the -9- number of working drilling rigs. In addition the expected delivery of a number of newly-constructed supply vessels to various industry competitors may create an even further imbalance and/or delay a recovery in the Gulf of Mexico supply vessel market thereby putting continued downward pressure on vessel utilization and day rates. International activity was not affected as dramatically during fiscal year 1999 due primarily to the long-term nature of international vessel contracts. Utilization and day rates for international-based vessels at March 31, 1998 averaged approximately 84% and $5,100 per day, respectively. At March 31, 1999 average utilization and day rates for international-based vessels have declined to 77% and $4,800 per day, respectively. International vessel revenues for fiscal 1999 increased 14% over fiscal 1998 due to higher average day rates for fiscal 1999. However, with continued weakness in oil prices, curtailments of customer projects will likely result in lower demand for internationally-based vessels throughout fiscal 2000. In response to the industry downturn the following actions have been taken. During the fourth quarter of fiscal 1999, the company began stacking and removing from the active fleet those vessels that cannot find gainful employment. Drydockings associated with the stacked vessels have been deferred. Reductions in crew personnel were made and may continue throughout fiscal year 2000 as necessary. Due to the oil industry downturn and having stacked and removed several vessels from the active fleet during the fourth quarter, the company conducted a review of the recoverability of the values of certain vessels. In March 1999, the company recorded a write-down of $7.8 million to reduce the carrying value of certain vessels. Earnings from continuing operations fell 22% below the preceding fiscal year's amount after eliminating the effects of unusual items in both fiscal 1999 and fiscal 1998. Fiscal 1999 earnings from continuing operations included the following unusual items: a $5.1 million, or $.09 per common share, after-tax write-down on certain vessels as previously discussed; and a $30 million, or $.52 per common share, reduction in income tax expense. The reduction in income tax expense consisted of a $2 million reduction of deferred income taxes resulting from the lowering of United Kingdom corporate income tax rates and a $28 million realization of foreign tax credits not previously recognized resulting from a tax planning strategy of selling certain vessels from one taxing jurisdiction to another through intercompany sales. The result of such sales was to pay foreign taxes which are fully creditable on a current basis against U.S. income taxes and the release of previously accrued deferred foreign tax credits. Fiscal 1998 earnings from continuing operations included the following unusual items: a $5.3 million, or $.09 per common share, after-tax provision for possible litigation expenses; a $.8 million, or $.01 per common share, after-tax gain from the settlement of obligations resulting from the fiscal 1996 curtailment of the company's pension plan; and a $7.3 million, or $.12 per common share, reduction in income tax expense. The reduction in income tax expense consisted of a $4 million reduction of deferred income taxes resulting from the lowering of United Kingdom corporate income tax rates and a $3.3 million reduction in a previously established liability for contested U.S. income tax issues. -10- MARINE OPERATIONS Offshore service vessels provide a diverse range of services and equipment to the energy industry. Fleet size, utilization and vessel day rates primarily determine the amount of revenues and operating profit because operating costs and depreciation do not change proportionally when revenue changes. Operating costs primarily consist of crew costs, repair and maintenance, insurance, fuel, lube oil and supplies. Fleet size and utilization are the major factors which affect crew costs. The timing and amount of repair and maintenance costs are influenced by vessel age and scheduled drydockings to satisfy safety and inspection requirements mandated by regulatory agencies. Whenever possible, vessel drydockings are done during seasonally slow periods to minimize any impact on vessel operations and are only done if economically justified, given the vessel's age and physical condition. The following table compares revenues and operating expenses (excluding general and administrative expenses and depreciation expense) for the company's vessel fleet for the years ended March 31. Vessel revenues and operating costs relate to vessels owned and operated by the company, while other marine services relate to third-party activities of the company's shipyards, brokered vessels and other miscellaneous marine-related activities. (in thousands) 1999 1998 1997 - ------------------------------------------------------------------- Revenues (A): Vessel revenues: United States $296,161 463,914 338,823 International 614,887 537,737 322,401 - ------------------------------------------------------------------- 911,048 1,001,651 661,224 Other marine revenues 57,944 58,510 29,202 - ------------------------------------------------------------------- Total revenues $968,992 1,060,161 690,426 =================================================================== Operating costs: Vessel operating costs: Crew costs $262,014 245,515 176,406 Repair and maintenance 132,109 140,515 96,815 Insurance 24,216 31,076 32,817 Fuel, lube and supplies 35,228 36,133 31,875 Other 38,833 32,804 23,582 - ------------------------------------------------------------------- 492,400 486,043 361,495 Costs of other marine revenues 44,672 47,065 24,161 - ------------------------------------------------------------------- Total operating costs $537,072 533,108 385,656 =================================================================== (A) For fiscal 1999, fiscal 1998 and fiscal 1997 one Marine customer accounted for 8%, 11% and 11%, respectively, of revenues. Marine operating profit and other components of earnings from continuing operations before income taxes for the years ended March 31 consists of the following: (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------- Vessel activity: United States $ 96,376 225,599 120,275 International 171,213 141,133 82,591 - ------------------------------------------------------------------------- 267,589 366,732 202,866 Gain on sales of assets 2,949 16,592 5,352 Other marine services 12,526 10,663 4,186 - ------------------------------------------------------------------------- Operating profit 283,064 393,987 212,404 - ------------------------------------------------------------------------- Other income 8,439 7,079 6,705 Other expense --- (6,847) (2,800) Corporate expenses (12,317) (13,074) (11,235) Interest and other debt costs (2,445) (24,677) (1,000) - ------------------------------------------------------------------------- Earnings from continuing operations before income taxes $276,741 356,468 204,074 ========================================================================= Operating profit for fiscal year 1999 decreased as compared with the prior year due to a decline in utilization and average day rates for U.S.-based vessels, a decrease in the number of U.S.-based vessels and lower gains on asset sales. These decreases were somewhat offset by an increase in average day rates for international-based vessels. The number of U.S.-based vessels decreased primarily because of vessels being withdrawn from active service along with some movement of vessels to international locations. Utilization and average day rates for U.S.-based vessels declined for the current fiscal year as the result of reductions in customer drilling programs consequently decreasing U.S.-based vessel operating profit by approximately 57%. Better market conditions in certain international locations throughout most of the current -11- fiscal year resulted in higher average day rates for international-based vessels for the current fiscal year as compared to the preceding fiscal year. While the average day rates for international-based vessels in the current fiscal year have exceeded prior year day rates, utilization and day rates for both the U.S. and international-based fleets have declined steadily throughout fiscal year 1999 as a result of the oil industry downturn. The U.S.-based fleet incurred the most dramatic reduction. Included in gain on sales of assets is a fourth quarter write-down of $7.8 million to reduce the carrying value of certain vessels. The write-down resulted from a review of the recoverability of the values of certain vessels. The review was performed due to industry conditions and having stacked and withdrawn from the active fleet several vessels at March 31, 1999. As a result of the uncertainty of certain customers to make payment of vessel charter hire, the company has deferred the recognition of approximately $9.7 million of billings as of March 31, 1999, which would otherwise have been recognized as revenue in fiscal 1999. The company will recognize the amounts as revenue when the uncertainty has been reduced. The significant growth in fiscal 1998 operating profit compared with the preceding fiscal year resulted from higher average day rates for the worldwide vessel fleet, a larger international-based vessel fleet and higher gains from assets sales, partially offset by higher operating costs. Higher average day rates for the worldwide vessel fleet resulted from a more favorable supply/demand relationship for company services both in the U.S. Gulf of Mexico and internationally. Higher fiscal 1998 operating costs resulted from the expansion of the international-based vessel fleet through the purchase of the O.I.L. and Australian vessels, increased costs associated with attracting, training and retaining qualified vessel personnel and a greater number of vessel drydockings. Higher gains on asset sales in fiscal 1998 resulted from the disposal of several vessels, most of which had previously been withdrawn from active service due to obsolescence and prohibitive repair costs. Fiscal 1998 other expense of $6.8 million consists of an $8 million provision for litigation costs resulting from certain alleged labor-law pay violations in various areas of the world where marine vessel operations are conducted, and a $1.2 million gain from the settlement of obligations resulting from the fiscal 1996 curtailment of the company's pension plan. At March 31, 1999 $7.5 million has been paid in settlements relating to these alleged labor- law pay violations. Other expense of $2.8 million for fiscal 1997 is a charge for possible losses resulting from one of the company's insurers filing for liquidation. Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created through the level of offshore exploration, development and production spending by energy companies relative to the supply of offshore service vessels. Suitability of equipment and the degree of service provided also influence vessel day rates. The following tables compare day-based utilization percentages and average day rates by vessel class and in total for each of the quarters in the years ended March 31: -12- UTILIZATION: - ----------- 1999 First Second Third Fourth Year - ----------------------------------------------------------------------- Domestic-based fleet: Towing-supply/Supply 85.4% 73.2 74.1 60.1 73.4 Crew/Utility 88.8 86.5 79.8 84.1 85.0 Offshore Tugs 61.1 55.8 50.7 38.1 51.7 Other 45.7 48.2 49.7 35.2 44.8 Total 79.9% 71.0 69.6 58.3 70.0 International-based fleet: Towing-supply/Supply 86.3% 84.0 81.0 79.2 82.6 Crew/Utility 80.2 88.0 89.3 89.6 86.8 Offshore Tugs 76.1 71.7 74.9 70.1 73.2 Safety/Standby 80.7 84.6 78.6 75.2 79.9 Other 67.9 69.8 69.2 72.1 69.7 Total 82.2% 81.8 80.2 78.5 80.7 Worldwide fleet: Towing-supply/Supply 85.9% 80.0 78.4 72.2 79.2 Crew/Utility 83.6 87.5 85.9 87.7 86.1 Offshore Tugs 69.6 65.2 64.8 56.8 64.2 Safety/Standby 80.7 84.6 78.6 75.2 79.9 Other 62.7 64.4 64.6 63.5 63.8 Total 81.4% 78.0 76.5 71.5 76.9 ======================================================================= 1998 First Second Third Fourth Year - ----------------------------------------------------------------------- Domestic-based fleet: Towing-supply/Supply 91.0% 91.1 91.8 91.9 91.5 Crew/Utility 90.9 88.9 92.1 90.7 90.7 Offshore Tugs 63.1 64.3 61.8 53.1 60.6 Other 59.5 60.5 53.3 40.6 54.1 Total 84.8% 84.8 85.0 83.0 84.4 International-based fleet: Towing-supply/Supply 89.4% 88.0 88.9 88.3 88.6 Crew/Utility 82.4 80.9 80.7 90.2 83.4 Offshore Tugs 83.1 80.3 79.7 76.6 80.0 Safety/Standby 78.1 71.3 65.6 70.1 71.0 Other 83.0 78.1 67.2 68.2 74.4 Total 86.0% 83.9 82.9 83.8 84.1 Worldwide fleet: Towing-supply/Supply 90.1% 89.2 90.1 89.7 89.8 Crew/Utility 86.1 84.2 85.4 90.4 86.5 Offshore Tugs 74.7 73.6 71.9 66.3 71.7 Safety/Standby 78.1 71.3 65.6 70.1 71.0 Other 77.7 73.9 63.9 62.4 69.8 Total 85.5% 84.2 83.7 83.5 84.2 ======================================================================= 1997 First Second Third Fourth Year - ----------------------------------------------------------------------- Domestic-based fleet: Towing-supply/Supply 91.3% 90.2 90.0 93.3 91.2 Crew/Utility 90.9 94.1 88.6 86.7 90.1 Offshore Tugs 62.4 67.0 62.9 63.9 64.1 Other 48.8 61.9 50.2 45.1 51.3 Total 83.6% 85.1 82.4 84.0 83.7 International-based fleet: Towing-supply/Supply 87.5% 88.1 90.9 92.1 89.7 Crew/Utility 90.5 85.4 80.9 83.6 84.9 Offshore Tugs 75.4 70.3 79.3 85.9 77.6 Safety/Standby 84.4 78.2 83.9 80.1 80.8 Other 76.2 74.4 84.4 82.0 79.0 Total 84.0% 82.1 86.4 87.8 85.1 Worldwide fleet: Towing-supply/Supply 89.2% 89.1 90.5 92.7 90.4 Crew/Utility 90.7 90.1 85.0 85.2 87.7 Offshore Tugs 69.7 68.8 71.8 75.9 71.5 Safety/Standby 84.4 78.2 83.9 80.1 80.8 Other 69.7 71.7 75.9 72.1 72.3 Total 83.8% 83.3 84.7 86.2 84.5 ======================================================================= -13- AVERAGE DAY RATES: - ----------------- 1999 First Second Third Fourth Year - ------------------------------------------------------------------------ Domestic-based fleet: Towing-supply/Supply $7,709 6,331 4,545 4,043 5,844 Crew/Utility 2,280 2,121 2,021 2,014 2,121 Offshore Tugs 7,649 7,543 7,643 7,311 7,561 Other 3,449 3,053 2,073 2,006 2,674 Total $6,658 5,631 4,450 3,968 5,315 International-based fleet: Towing-supply/Supply $6,523 6,643 6,562 6,229 6,495 Crew/Utility 2,447 2,406 2,428 2,399 2,419 Offshore Tugs 4,273 4,141 4,303 4,411 4,280 Safety/standby 6,541 6,351 6,201 6,014 6,291 Other 876 918 891 1,250 973 Total $5,330 5,320 5,225 5,024 5,223 Worldwide fleet: Towing-supply/Supply $6,975 6,536 5,860 5,555 6,269 Crew/Utility 2,376 2,303 2,293 2,270 2,311 Offshore Tugs 5,558 5,341 5,396 5,218 5,388 Safety/standby 6,541 6,351 6,201 6,014 6,291 Other 1,313 1,317 1,104 1,347 1,253 Total $5,806 5,420 4,980 4,725 5,253 ========================================================================= 1998 First Second Third Fourth Year - ------------------------------------------------------------------------- Domestic-based fleet: Towing-supply/Supply $6,986 7,532 7,853 7,877 7,566 Crew/Utility 1,976 2,142 2,216 2,219 2,138 Offshore Tugs 6,443 6,558 6,617 8,465 6,960 Other 2,626 2,757 3,167 3,611 2,959 Total $5,876 6,308 6,569 6,837 6,395 International-based fleet: Towing-supply/Supply $4,806 5,440 5,655 6,069 5,515 Crew/Utility 1,982 2,190 2,213 2,375 2,194 Offshore Tugs 3,413 3,494 3,752 4,160 3,691 Safety/Standby 6,002 6,138 6,087 6,229 6,116 Other 873 935 953 938 921 Total $3,909 4,438 4,653 4,976 4,501 Worldwide fleet: Towing-supply/Supply $5,750 6,267 6,539 6,798 6,351 Crew/Utility 1,979 2,169 2,215 2,306 2,169 Offshore Tugs 4,492 4,621 4,832 5,667 4,878 Safety/Standby 6,002 6,138 6,087 6,229 6,116 Other 1,173 1,291 1,387 1,299 1,280 Total $4,677 5,127 5,380 5,670 5,216 ========================================================================= 1997 First Second Third Fourth Year - ------------------------------------------------------------------------- Domestic-based fleet: Towing-supply/Supply $4,278 5,049 5,842 6,382 5,401 Crew/Utility 1,424 1,512 1,664 1,800 1,594 Offshore Tugs 4,994 5,355 5,651 6,355 5,592 Other 3,158 3,050 3,505 3,224 3,231 Total $3,773 4,317 4,948 5,470 4,630 International-based fleet: Towing-supply/Supply $3,695 3,838 3,965 4,116 3,903 Crew/Utility 1,728 1,735 1,916 1,958 1,834 Offshore Tugs 2,708 2,916 3,290 3,299 3,063 Safety/Standby 5,194 4,907 5,290 5,906 5,331 Other 719 662 705 812 722 Total $2,939 3,144 3,296 3,475 3,218 Worldwide fleet: Towing-supply/Supply $3,965 4,387 4,833 5,177 4,596 Crew/Utility 1,562 1,610 1,776 1,875 1,703 Offshore Tugs 3,602 3,971 4,237 4,468 4,079 Safety/Standby 5,194 4,907 5,290 5,906 5,331 Other 1,123 1,109 1,168 1,213 1,152 Total $3,298 3,639 3,988 4,310 3,814 ========================================================================= -14- The average age of the company's owned or chartered vessel fleet is approximately 19 years. The following table compares the average number of vessels by class and geographic distribution during the years ended March 31 and the actual March 31, 1999 vessel count:
Actual Vessel Average Number Count at of Vessels During March 31, Year Ended March 31, - ---------------------------------------------------------------------------------------------- 1999 1999 1998 1997 - ---------------------------------------------------------------------------------------------- Domestic-based fleet: Towing-supply/supply 132 137 146 140 Crew/utility 27 32 39 42 Offshore tugs 37 39 40 43 Other 10 10 10 15 - ---------------------------------------------------------------------------------------------- Total 206 218 235 240 - ---------------------------------------------------------------------------------------------- International-based fleet: Towing-supply/supply 225 231 218 166 Crew/utility 50 55 53 37 Offshore tugs 51 53 53 52 Safety/standby 25 28 29 22 Other 33 33 35 46 - ---------------------------------------------------------------------------------------------- Total 384 400 388 323 - ---------------------------------------------------------------------------------------------- Owned or chartered vessels included in marine revenues 590 618 623 563 Vessels withdrawn from active service 49 29 17 21 Joint-venture and other 46 48 56 52 - ---------------------------------------------------------------------------------------------- Total 685 695 696 636 - ----------------------------------------------------------------------------------------------
From fiscal 1997 to fiscal 1998 the net increase in the average number of vessels is the result of the addition of O.I.L. vessels. Consolidated general and administrative expenses for the years ended March 31 consists of the following components: (In thousands) 1999 1998 1997 - --------------------------------------------------- Personnel $44,666 43,797 32,515 Office and property 13,193 13,726 10,260 Sales and marketing 5,405 5,213 3,496 Professional service 5,587 5,065 4,548 Other 4,617 5,125 3,031 - --------------------------------------------------- $73,468 72,926 53,850 =================================================== Higher fiscal 1998 general and administrative expenses are the result of the O.I.L. and Australian acquisitions and higher costs associated with incentive pay plans. LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS The company's current ratio, level of working capital and amount of cash flows from continuing operations for any year are directly related to fleet activity and vessel day rates. Fleet activity and vessel day rates are ultimately determined by the supply/demand relationship for oil and natural gas. Variations from year-to-year in these items are primarily the result of market conditions. Cash from ongoing operations in combination with available lines of credit provide the company, in management's opinion, with adequate resources to satisfy financing requirements. At March 31, 1999, all of the company's $200 million revolving line of credit was available for future financing needs. Continued payment of dividends, currently $.15 per quarter per common share, is subject to declaration by the Board of Directors. Excluding the sale of compression operations and the O.I.L. and Australian acquisitions, investing activities in fiscal year 1998 used cash of approximately $45 million. Proceeds from sales of assets were higher in fiscal year 1998 versus fiscal years 1999 and 1997 due to a greater number of vessels being sold in that year. Additions to properties and equipment were higher in fiscal year 1998 versus fiscal years 1999 and 1997 as a result of a greater number of vessel acquisitions and capitalized vessel repairs and modifications during that year. -15- Fiscal year 1999 financing activities used $175 million of cash which included $105 million prepayment on the credit facility and repayment of $6.5 million of debt incurred from the Australian acquisitions. In addition $80 million was borrowed primarily for income tax payments of which approximately $68 million related to the sale of the compression division. The company purchased 3,950,000 shares of common stock during fiscal year 1999 at an aggregate cost of $109.3 million including broker commissions and fees. Fiscal 1998 financing activities included scheduled principal payments on long-term debt of $34.1 million, $477.4 million of prepayments on the credit facility, and the repayment of $14.8 million of debt assumed from the O.I.L. and Australian acquisitions. The company purchased 1,481,000 shares of common stock during the quarter ended March 31, 1998 at an aggregate cost of $65.2 million. During fiscal year 1997, the company purchased 1,788,100 shares of common stock at an aggregate cost of $84.8 million. YEAR 2000 The Year 2000 (Y2K) issue is the result of computer programs written using two digits rather than four to define the applicable year. In response to the Y2K issue, the company began a program in fiscal 1997 designed to identify, assess and address significant Y2K issues in its information technology (IT) systems and non-IT systems. As of March 31, 1999, the company believes that it is on schedule to successfully implement any required systems and equipment modifications that might be necessary to make the company's critical systems Y2K compliant before December 31, 1999. The company's critical IT systems are comprised primarily of the company's mainframe computer and the software programs used on the mainframe, including general ledger accounting and financial reporting software programs and related application modules, personnel and payroll systems, and an insurance claims and accounting system. The assessment of the company's IT systems found that some of the IT systems were not Y2K compliant. Approximately 90% of the changes necessary to make these systems Y2K compliant have been completed, with the remaining changes expected to be completed by mid-1999. Because many of the company's computer systems have been upgraded or replaced in recent years as part of the company's ongoing upgrade program, specific Y2K compliance costs have been insignificant to date (believed to be less than $100,000). Remaining compliance costs related to the IT systems are also expected to be insignificant (probably less than $100,000) because the company will continue to utilize existing personnel resources to assist in the implementation of its Y2K compliance initiative. Non-IT systems are comprised primarily of computer-controlled equipment and electronic devices, including equipment with embedded microprocessors that are used to operate equipment on the company's vessels. Telephone systems and other office-based electronic equipment systems are also being considered in the assessment of non-IT systems. The company has substantially completed the process of identifying the components that are likely to have a Y2K problem and is in the process of communicating with the appropriate vendors to assess what, if any, changes are necessary to make the component Y2K compliant. The company believes that this assessment will be completed well in advance of December 31, 1999 and does not expect the costs of any required modifications or upgrades to be material with respect to the company's results of operations and financial position. The company has contacted its key vendors and financial services providers to assess their progress with their own Y2K issues and to anticipate potential risks associated with those third parties. Although there is currently no indication that these parties will not achieve their Y2K compliance plans, there can be no guarantee that the systems of other companies with whom the company transacts business will be timely converted. Additionally, there can be no guarantee that the company will not experience Y2K problems. Despite efforts to address all significant Y2K issues in advance, the company could potentially experience disruptions to some aspects of its activities or operations, including, but not limited to, delays in payments to the company from customers or payments by the company to suppliers and disruptions in shipments of equipment and supplies required to operate the company's vessels. Based upon the company's current assessment of its IT systems and non-IT systems and based upon communications to date with vendors, the company has not determined a need to develop a -16- contingency plan for Y2K issues. The company will continue to monitor its decision on contingency planning and such a plan will be developed if and when it is considered necessary to do so. NEW ACCOUNTING PRONOUNCEMENTS During fiscal 1999 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for all fiscal years beginning after June 15, 1999. The company does not anticipate that the adoption of the new statement will have a material financial impact. CURRENCY FLUCTUATIONS AND INFLATION Because of its significant international operations, the company is exposed to currency fluctuations and exchange risk. To minimize the financial impact of these items the company attempts to contract a majority of its services in United States dollars. Day-to-day operating costs are generally affected by inflation. However, because the energy services industry requires specialized goods and services, general economic inflationary trends may not affect the company's operating costs. The major impact on operating costs is the level of offshore exploration, development and production spending by energy exploration and production companies. As this spending increases, prices of goods and services used by the energy industry and the energy services industry will increase. Future increases in vessel day rates may shield the company from the inflationary effects on operating costs. ENVIRONMENTAL MATTERS During the ordinary course of business the company's operations are subject to a wide variety of environmental laws and regulations. The company attempts to comply with these laws and regulations in order to avoid costly accidents and related environmental damage. Compliance with existing governmental regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, nor is expected to have, a material effect on the company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At March 31, 1999 the company had no debt or derivative financial instruments outstanding. The company is exposed to foreign currency fluctuations and exchange risks but attempts to minimize the financial impact of these items by contracting the majority of its services in United States dollars. In addition, the company attempts to maintain a balance in its foreign currency assets and liabilities in order to minimize its exposure to foreign currency fluctuations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is included in Part IV of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -17- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors of the company is incorporated by reference from the company's definitive proxy statement to be filed on or before July 29, 1999. For information regarding executive officers of the company, see Item 4A of this report. ITEM 11. EXECUTIVE COMPENSATION Information concerning executive compensation is incorporated by reference from the proxy statement described in Item 10 of this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the proxy statement described in Item 10 of this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is incorporated by reference from the proxy statement described in Item 10 of this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. Financial Statements and Schedules The Consolidated Financial Statements and Schedule of the company listed on the accompanying Index to Financial Statements and Schedule (see page F-1) are filed as part of this report. B. Reports on Form 8-K The company filed a current report on Form 8-K dated January 29, 1999 to disclose that the company had established a Grantor Trust Stock Ownership Program. C. Exhibits The index below describes each exhibit filed as a part of this report. Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. 3(a) - Restated Certificate of Incorporation of Tidewater Inc. (filed with the Commission as Exhibit 3(a) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 3(b) - Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 4(a) - Restated Rights Agreement dated as of September 19, 1996 between Tidewater Inc. and The First National Bank of Boston (filed with the Commission as Exhibit 1 to Form 8-A on September 30, 1996). -18- *10(a) - $200,000,000 Revolving Credit and Term Loan Agreement dated February 18, 1999. 10(b) - Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in 1990 (filed with the Commission as Exhibit 10(c) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1991). 10(c) - Tidewater Inc. 1992 Stock Option and Restricted Stock Plan (filed with the Commission as Exhibit 10(f) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(d) - Tidewater Inc. Amended and Restated Supplemental Executive Retirement Plan (filed with the Commission as Exhibit 10(g) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(e) - Tidewater Inc. Amended and Restated Employees' Supplemental Savings Plan (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(f) - Supplemental Health Plan for Executive Officers of Tidewater Inc. (filed with the Commission as Exhibit 10(i) to a Registration Statement on September 12, 1989, Registration No. 33-31016). 10(g) - Tidewater Inc. Deferred Compensation Plan for Directors (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1994). 10(h) - Tidewater Inc. Retirement Plan for Directors as adopted on March 22, 1990 (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1990). 10(i) - Change in Control Agreement dated September 30, 1996 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(j) - Form of Change in Control Agreement entered into as of September 30, 1996 with three executive officers (filed with the Commission as Exhibit 10(l) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(k) - Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission as Exhibit 10(m) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(l) - Employment Agreement dated September 25, 1997 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10 to the company's report on Form 10-Q for the quarter ended September 30, 1997). 10(m) - Tidewater Inc. 1997 Stock Incentive Plan filed with the Commission as Exhibit 10(o) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1998. *21 - Subsidiaries of the Company. *23 - Consents of Independent Auditors. *27 - Financial Data Schedule. Certain instruments respecting long-term debt of Tidewater have been omitted pursuant to Regulation S-K, Item 601. Tidewater hereby agrees to furnish a copy of any such instrument to the Commission upon request. -19- SIGNATURES OF REGISTRANT 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 on April 29, 1999. TIDEWATER INC. (Registrant) By: /s/ William C. O'Malley ------------------------------- William C. O'Malley Chairman of the Board of Directors, President, and Chief Executive Officer By: /s/ Ken C. Tamblyn ------------------------------- Ken C. Tamblyn Executive Vice President, Chief Financial Officer and Principal Accounting Officer SIGNATURES OF DIRECTORS 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 indicated on April 29, 1999. /s/ Robert H. Boh /s/ Larry D. Hornbeck - ------------------------- --------------------------- Robert H. Boh Larry D. Hornbeck /s/ Donald T. Bollinger /s/ Paul W. Murrill - ------------------------- --------------------------- Donald T. Bollinger Paul W. Murrill /s/ Arthur R. Carlson /s/ William C. O'Malley - ------------------------- --------------------------- Arthur R. Carlson William C. O'Malley /s/ Hugh J. Kelly /s/ Lester Pollack - ------------------------- --------------------------- Hugh J. Kelly Lester Pollack /s/ John P. Laborde /s/ J. Hugh Roff, Jr. - ------------------------- --------------------------- John P. Laborde J. Hugh Roff, Jr. /s/ Donald G. Russell --------------------------- Donald G. Russell -20- TIDEWATER INC. ANNUAL REPORT ON FORM 10-K ITEMS 8, 14(A), AND 14(D) INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS Page ---- Reports of Independent Auditors F-2 Consolidated Balance Sheets, March 31, 1999 and 1998 F-4 Consolidated Statements of Earnings, three years ended March 31, 1999 F-5 Consolidated Statements of Stockholders' Equity, three years ended March 31, 1999 F-6 Consolidated Statements of Cash Flows, three years ended March 31, 1999 F-7 Notes to Consolidated Financial Statements F-8 FINANCIAL STATEMENT SCHEDULE II. Tidewater Inc. and Subsidiaries Valuation and Qualifying Accounts F-22
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or the related notes. F-1 REPORTS OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Tidewater Inc. We have audited the accompanying consolidated balance sheets of Tidewater Inc. as of March 31, 1999 and 1998, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the accompanying Index to Financial Statements and Schedule for the years ended March 31, 1999 and 1998. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The consolidated financial statements and schedule of Tidewater Inc. for the year ended March 31, 1997, were audited by other auditors whose report dated April 30, 1997, expressed an unqualified opinion on those statements and schedule. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1999 and 1998 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tidewater Inc. at March 31, 1999 and 1998 and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New Orleans, Louisiana April 27, 1999 F-2 The Board of Directors and Shareholders Tidewater Inc. We have audited the consolidated statements of earnings, stockholders' equity, and cash flows of Tidewater Inc. for the year ended March 31, 1997. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedule for the year ended March 31, 1997, as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of Tidewater Inc.'s operations and their cash flows for the year ended March 31, 1997 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP New Orleans, Louisiana April 30, 1997 F-3
CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------- March 31, 1999 and 1998 (in thousands) ASSETS 1999 1998 - ---------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 10,422 24,977 Trade and other receivables, less allowance for doubtful accounts of $11,125 in 1999 and $14,078 in 1998 238,002 258,517 Marine operating supplies 27,971 31,498 Other current assets 4,483 4,122 - ---------------------------------------------------------------------------------------------- Total current assets 280,878 319,114 - ---------------------------------------------------------------------------------------------- Investments in, at equity, and advances to unconsolidated companies 17,307 21,825 Properties and equipment: Vessels and related equipment 1,505,441 1,534,948 Other properties and equipment 42,744 33,887 - ---------------------------------------------------------------------------------------------- 1,548,185 1,568,835 Less accumulated depreciation 910,005 863,209 - ---------------------------------------------------------------------------------------------- Net properties and equipment 638,180 705,626 - ---------------------------------------------------------------------------------------------- Goodwill, net of accumulated amortization of $17,172 in 1999 and $8,002 in 1998 347,176 356,394 Other assets 110,917 89,880 - ---------------------------------------------------------------------------------------------- $1,394,458 1,492,839 ============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt --- 6,466 Accounts payable and accrued expenses 71,256 105,914 Accrued property and liability losses 6,605 12,156 Income taxes 4,485 79,671 - ---------------------------------------------------------------------------------------------- Total current liabilities 82,346 204,207 - ---------------------------------------------------------------------------------------------- Deferred income taxes 128,826 158,540 Long-term debt --- 25,000 Accrued property and liability losses 66,052 57,289 Other liabilities and deferred credits 49,527 49,027 Stockholders' equity 1,067,707 998,776 Commitments and contingencies - ---------------------------------------------------------------------------------------------- $1,394,458 1,492,839 ==============================================================================================
See accompanying Notes to Consolidated Financial Statements. F-4
CONSOLIDATED STATEMENTS OF EARNINGS - ---------------------------------------------------------------------------------------------------- Years Ended March 31, 1999, 1998 and 1997 (in thousands, except share and per share data) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------- Revenues: Vessel revenues $ 911,048 1,001,651 661,224 Other marine revenues 57,944 58,510 29,202 - ---------------------------------------------------------------------------------------------------- 968,992 1,060,161 690,426 - ---------------------------------------------------------------------------------------------------- Costs and expenses: Vessel operating costs 492,400 486,043 361,495 Costs of other marine revenues 44,672 47,065 24,161 Depreciation and amortization 94,783 91,410 55,937 General and administrative 73,468 72,926 53,850 - ---------------------------------------------------------------------------------------------------- 705,323 697,444 495,443 - ---------------------------------------------------------------------------------------------------- 263,669 362,717 194,983 Other income (expenses): Foreign exchange loss (12) (635) (382) Gain on sales of assets 2,949 16,531 5,320 Equity in net earnings of unconsolidated companies 7,505 6,381 4,901 Minority interests (1,601) (1,258) (1,311) Interest and miscellaneous income 6,676 4,256 4,363 Other expense --- (6,847) (2,800) Interest and other debt costs (2,445) (24,677) (1,000) - ---------------------------------------------------------------------------------------------------- 13,072 (6,249) 9,091 - ---------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 276,741 356,468 204,074 Income taxes 66,022 113,430 65,839 - ---------------------------------------------------------------------------------------------------- Earnings from continuing operations 210,719 243,038 138,235 Earnings from discontinued Compression operations --- 10,723 7,776 Gain on sale of discontinued Compression operations --- 61,738 --- - ---------------------------------------------------------------------------------------------------- Net earnings $ 210,719 315,499 146,011 ==================================================================================================== Earnings per common share: Earnings from continuing operations $ 3.68 4.01 2.24 Earnings from discontinued Compression operations --- .18 .13 Gain on sale of discontinued Compression operations --- 1.02 --- - ---------------------------------------------------------------------------------------------------- Earnings per common share $ 3.68 5.21 2.37 ==================================================================================================== Diluted earnings per common share: Earnings from continuing operations $ 3.68 3.99 2.23 Earnings from discontinued Compression operations --- .18 .12 Gain on sale of discontinued Compression operations --- 1.01 --- - ---------------------------------------------------------------------------------------------------- Diluted earnings per common share $ 3.68 5.18 2.35 ==================================================================================================== Weighted average common shares outstanding 57,189,946 60,552,315 61,606,144 Incremental common shares from stock options 78,579 341,329 438,188 - ---------------------------------------------------------------------------------------------------- Adjusted weighted average common shares 57,268,525 60,893,644 62,044,332 ==================================================================================================== Cash dividends declared per common share $ .60 .60 .575 ====================================================================================================
See accompanying Notes to Consolidated Financial Statements. F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 1999, 1998 and 1997 (in thousands)
Accumulated Grantor foreign Deferred Trust Stock Additional currency compensation- Ownership Common paid-in Retained translation restricted Program stock capital earnings adjustment stock (GSOP) Total - ------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1996 $ 6,188 421,655 322,736 (10,771) (1,058) --- 738,750 Net earnings --- --- 146,011 --- --- --- 146,011 Exercise of stock options 23 4,368 --- --- --- --- 4,391 Cash dividends declared --- --- (35,400) --- --- --- (35,400) Common stock purchased (178) (84,608) --- --- --- --- (84,786) Other --- --- --- 95 603 --- 698 - ------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1997 6,033 341,415 433,347 (10,676) (455) --- 769,664 Net earnings --- --- 315,499 --- --- --- 315,499 Issuance of restricted stock 9 4,492 --- --- (4,501) --- --- Exercise of stock options 54 14,280 --- --- --- --- 14,334 Cash dividends declared --- --- (36,383) --- --- --- (36,383) Common stock purchased (148) (65,034) --- --- --- --- (65,182) Other --- --- --- 94 750 --- 844 - ------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1998 5,948 295,153 712,463 (10,582) (4,206) --- 998,776 Net earnings --- --- 210,719 --- --- --- 210,719 Exercise of stock options 4 788 --- --- --- --- 792 Cash dividends declared --- --- (34,394) --- --- --- (34,394) Common stock purchased (395) (108,917) --- --- --- --- (109,312) Establishment of GSOP 500 106,688 --- --- --- (107,188) --- Issuance of common shares --- (27) --- --- --- 304 277 Other --- (127) --- --- 976 --- 849 - ------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1999 $ 6,057 293,558 888,788 (10,582) (3,230) (106,884) 1,067,707 ========================================================================================================================
See accompanying Notes to Consolidated Financial Statements. F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, 1999, 1998 and 1997 (in thousands) 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Operating activities: Earnings from continuing operations $ 210,719 243,038 138,235 Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operating activities: Depreciation and amortization 94,783 91,410 55,937 Provision for deferred income taxes (29,910) (1,604) 12,117 Gain on sales of assets (2,949) (16,531) (5,320) Equity in earnings of unconsolidated companies, less dividends (2,512) (2,330) 250 Minority interests, less dividends 918 (1,050) 556 Compensation expense - restricted stocck 976 750 603 Changes in assets and liabilities, net: Trade and other receivables 19,558 (34,879) (36,129) Marine operating supplies 3,527 (1,720) (4,471) Other current assets (204) 1,897 (236) Accounts payable and accrued expenses (39,822) 28,095 2,579 Accrued property and liability losses (5,792) (1,092) 2,404 Other, net 5,072 5,994 1,396 - --------------------------------------------------------------------------------------------------- Net cash provided by continuing operating activities 254,364 311,978 167,921 Net cash provided by discontinued operating activities --- 34,108 42,025 - --------------------------------------------------------------------------------------------------- Net cash provided by operating activities 254,364 346,086 209,946 - --------------------------------------------------------------------------------------------------- Investing activities: Proceeds from sales of assets 21,396 41,944 22,737 Proceeds from sale of Compression operations (68,442) 340,001 --- Additions to properties and equipment (48,283) (82,501) (58,002) Acquisitions, net of cash acquired --- (581,099) (3,435) Other 950 (4,853) --- - --------------------------------------------------------------------------------------------------- Net cash used in investing activities (94,379) (286,508) (38,700) - --------------------------------------------------------------------------------------------------- Financing activities: Common stock purchased (109,312) (65,182) (84,786) Principal payments on long-term debt (111,466) (526,281) (58,019) Debt borrowings 80,000 544,035 15,000 Proceeds from issuance of common stock 632 8,044 4,391 Cash dividends (34,394) (36,383) (35,400) - --------------------------------------------------------------------------------------------------- Net cash used in financing activities (174,540) (75,767) (158,814) - --------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (14,555) (16,189) 12,432 Cash and cash equivalents at beginning of year 24,977 41,166 28,734 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 10,422 24,977 41,166 =================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 2,360 23,937 702 Income taxes $ 203,354 111,427 56,249 =================================================================================================== Supplemental noncash investing activity: Acquisitions: Fair value of assets acquired $ --- 693,672 51,305 Fair value of liabilities assumed --- (112,573) (47,870) - --------------------------------------------------------------------------------------------------- Net cash payment $ --- 581,099 3,435 ===================================================================================================
See accompanying Notes to Consolidated Financial Statements. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- March 31, 1999, 1998 and 1997 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The company provides services and equipment to the offshore energy industry through the operation of the world's largest fleet of offshore service vessels. Revenues, net earnings and cash flows from operations are dependent upon the activity level for the vessel fleet which is ultimately dependent upon oil and natural gas prices which, in turn, are determined by the supply/demand relationship for oil and natural gas. USE OF ESTIMATES In preparing the company's financial statements, management makes informed estimates and judgements that affect the amounts reported in the financial statements and related disclosures. Actual results may differ from these estimates. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the accounts of Tidewater Inc. and its subsidiaries. Significant intercompany balances and transactions are eliminated in consolidation. PROPERTIES AND EQUIPMENT Properties and equipment are carried at cost. Depreciation for financial reporting purposes is computed primarily on the straight-line basis beginning with the first charter, with salvage values of 5%-10% for marine equipment, using estimated useful lives of: Years - -------------------------------------------------------------------------------- Marine equipment (from date of construction) 15 - 25 Other properties and equipment 3 - 30 Used equipment is depreciated in accordance with the above schedule; however, no life less than six years is used for marine equipment regardless of the date constructed. Maintenance and repairs are charged to operations as incurred during the asset's original estimated useful life. Major repair costs incurred after the original estimated useful life that also have the effect of extending the useful life of the asset are capitalized and amortized over three years. Major modifications to equipment are capitalized and amortized over the remaining life of the equipment. GOODWILL Goodwill primarily relates to the O.I.L. acquisition made during fiscal 1998 and is being amortized over 40 years. Management periodically reviews goodwill to access recoverability, and impairments would be recognized in operating results if a permanent diminution in value were to occur. IMPAIRMENT OF LONG-LIVED ASSETS Impairment losses are recorded on long-lived assets used in operations or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by these assets or through their sale are less than the assets' carrying amount. In March 1999 the company recorded a charge to earnings of $7.8 million, included in gain on sales of assets, to reduce the carrying amount of certain vessels. The write-down of these vessels was determined based on internally developed valuations. F-8 ACCRUED PROPERTY AND LIABILITY LOSSES The company's insurance subsidiary establishes case based reserves for estimates of reported losses on direct business written, estimates received from ceding reinsurers, and reserves based on past experience of unreported losses. Such losses principally relate to the company's marine operations and are included as a component of costs of marine operations in the Consolidated Statements of Earnings. The liability for such losses and the related reimbursement receivable from reinsurance companies are classified in the Consolidated Balance Sheet into current and noncurrent amounts based upon estimates of when the liabilities will be settled and when the receivables will be collected. PENSION AND OTHER POSTRETIREMENT BENEFITS Pension costs are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 87 and are funded to at least meet the minimum funding requirements as required by law. Prior service costs are amortized on the straight-line basis over the average remaining service period of employees expected to receive pension benefits. Postretirement benefits other than pensions are accounted for in accordance with SFAS No. 106. The estimated cost of postretirement benefits other than pensions are accrued during the employees' active service period. The company has adopted SFAS No. 132, "Employers' Disclosures about Pension and Other Postretirement Benefits," which standardizes the disclosures for pensions and other postretirement benefit plans and requires additional information to be disclosed related to changes in benefit obligations and the fair value of plan assets. Information for prior years has been included. INCOME TAXES Income taxes are accounted for in accordance with the provisions of SFAS No. 109. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. EARNINGS PER SHARE Earnings per share are computed in accordance with SFAS No. 128. SFAS No. 128 requires the reporting of both earnings per share and diluted earnings per share. The calculation of earnings per share excludes any dilutive effect of stock options, while diluted earnings per share includes the dilutive effect of stock options. Per share amounts disclosed in these Notes to Consolidated Financial Statements are on a diluted basis. FOREIGN CURRENCY TRANSLATION Assets and liabilities of international operations, other than international operations in highly inflationary economies, are translated into U.S. dollars using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using weighted average exchange rates during the period. Adjustments resulting from the balance sheet account translations, net of deferred income taxes, are included in stockholders' equity as foreign currency translation adjustments. CASH EQUIVALENTS The company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. REVENUE RECOGNITION Marine services are generally contracted for on a rate per day of service basis; therefore, marine vessel revenues are recognized on a daily basis throughout the contract period. F-9 CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the company to concentrations of credit risk consist principally of trade and other receivables. These receivables are with a variety of domestic, international and national energy companies and also include reinsurance companies for recoverable insurance losses. The company manages its exposure to risk through ongoing credit evaluations of its customers and generally does not require collateral. The company maintains an allowance for doubtful accounts for potential losses and does not believe it is exposed to concentrations of credit risk that are likely to have a material adverse impact on the company's financial position or results of operations. STOCK-BASED COMPENSATION The company uses the intrinsic value method of accounting for stock-based compensation prescribed by Accounting Principles Board Opinion No. 25 and, accordingly, adopted the disclosure provisions of SFAS No. 123. COMPREHENSIVE INCOME The Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires companies to display comprehensive income and its components as part of the basic financial statements. All comprehensive income amounts other than net earnings in fiscal years 1999, 1998 and 1997 were de minimis. NEW ACCOUNTING PRONOUNCEMENTS During fiscal 1999 the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for all fiscal years beginning after June 15, 1999. The company does not anticipate that the adoption of the new statement will have a material financial impact. (2) BUSINESS DISPOSITION On February 20, 1998 the company completed the sale of its compression division. The compression division provided natural gas and air compression equipment and services, principally to the energy industry. In consideration of the sale the company received cash of approximately $348 million. Accordingly, the company's consolidated financial statements for all periods have been reclassified to report separately financial position, results of operations, and operating cash flows from continuing operations and the discontinued compression operation. Results of operations of the compression division are set forth below:
(in thousands) Eleven Months Ended Twelve Months Ended February 20, 1998 March 31, 1997 ------------------- ------------------- Revenues $94,438 112,584 Operating costs 46,679 64,153 Depreciation and amortization 23,462 26,335 General and administration 8,615 11,005 - ------------------------------------------------------------------------------------ 15,682 11,091 Other income 1,275 1,369 - ------------------------------------------------------------------------------------ Earnings before income taxes 16,957 12,460 Income taxes 6,234 4,684 - ------------------------------------------------------------------------------------ Earnings from discontinued operations $10,723 7,776 ====================================================================================
The gain from the sale of Compression operations of $98.0 million, less applicable income taxes of $36.3 million, is net of legal, accounting and investment banking fees, severance and other costs associated with the sale. F-10 (3) BUSINESS COMBINATIONS On May 16, 1997 the company acquired all of the shares of O.I.L. Ltd. (O.I.L.). The total cost of the acquisition of $626 million, which includes $65.6 million of deferred income tax liability, was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. Prior to the purchase O.I.L. was principally engaged in the business of operating approximately 100 marine vessels, primarily platform supply and anchor handling towing-supply vessels, in several offshore oil and gas exploration areas outside of the United States. The results of O.I.L.'s operations have been consolidated with the company's effective May 16, 1997. Pro forma combined results of continuing operations of the company and of O.I.L. including appropriate purchase accounting adjustments for the year ended March 31, 1998 as though the acquisition had taken place on April 1, 1997 were not significantly different than actual results. To finance the O.I.L. acquisition, $500 million of debt was incurred pursuant to a $600 million Revolving Credit and Term Loan agreement with several banks and consisted of a $400 million term loan and $100 million borrowed under the $200 million revolving credit facility of the agreement. At March 31, 1998 all debt borrowed to finance the O.I.L. acquisition had been repaid and the $400 million term loan facility canceled. On June 30, 1997 the company acquired the remaining 50% equity interest in nine towing-supply and supply vessels previously owned and operated by joint- venture companies in Australia for a cash payment of $13.2 million and issuance of debt totaling $14.0 million. The debt was discounted to yield interest at 7% and has been repaid in full as of March 31, 1999. The total estimated cost of the acquisition of $30 million was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed, plus amounts for professional fees, severance and other transaction costs and the related deferred tax effect of the acquisition. On May 31, 1996 the company purchased for $12.4 million cash the remaining 50.1% equity interest in 22 of 29 safety/standby vessels previously owned and operated by joint-venture companies in the North Sea. The acquisition was accounted for by the purchase method. (4) UNCONSOLIDATED COMPANIES Investments in, at equity, and advances to unconsolidated marine joint- venture companies at March 31 were as follows: Percentage (in thousands) ownership 1999 1998 - --------------------------------------------------------------------------- National Marine Service (Abu Dhabi-UAE) 40% $12,847 12,317 Others 20%-50% 4,460 9,508 - --------------------------------------------------------------------------- $17,307 21,825 =========================================================================== The aggregate amount of undistributed earnings of all unconsolidated joint- venture companies included in consolidated stockholders' equity at March 31, 1999 is approximately $19.2 million. (5) INCOME TAXES Earnings from continuing operations before income taxes derived from United States and international operations for the years ended March 31 are as follows: (in thousands) 1999 1998 1997 - ------------------------------------------------ United States $ 96,421 192,788 114,942 International 180,320 163,680 89,132 - ------------------------------------------------ $276,741 356,468 204,074 ================================================ F-11 Income tax expense attributable to earnings from continuing operations for the years ended March 31 consists of the following: (in thousands) U.S. ------- Federal State International Total - --------------------------------------------------------- 1999 - --------------------------------------------------------- Current $ (386) 8,333 87,985 95,932 Deferred 5,710 --- (35,620) (29,910) - --------------------------------------------------------- $ 5,324 8,333 52,365 66,022 ========================================================= 1998 - --------------------------------------------------------- Current $96,336 1,083 17,615 115,034 Deferred (1,604) --- --- (1,604) - --------------------------------------------------------- $94,732 1,083 17,615 113,430 ========================================================= 1997 - --------------------------------------------------------- Current $41,628 562 11,532 53,722 Deferred 12,117 --- --- 12,117 - --------------------------------------------------------- $53,745 562 11,532 65,839 ========================================================= The actual income tax expense attributable to earnings from continuing operations for the years ended March 31, 1999, 1998 and 1997 differs from the amounts computed by applying the U.S. federal tax rate of 35% to pre-tax earnings as a result of the following: (in thousands) 1999 1998 1997 - ------------------------------------------------------------------------------- Computed "expected" tax expense $ 96,859 124,764 71,426 Increase (reduction) resulting from: Effect of United Kingdom tax rate change (2,000) (4,000) --- Overaccrual of income tax expense in prior years --- (3,300) --- Foreign tax credits not previously recognized (35,620) --- (1,303) Utilization of net operating loss carryforwards (792) (620) (386) Expenses which are not deductible for tax purposes 833 611 45 State taxes 5,416 704 365 Other, net 1,326 (4,729) (4,308) - ------------------------------------------------------------------------------- $ 66,022 113,430 65,839 =============================================================================== During the fourth quarter of the year ended March 31, 1999 approximately $28 million of foreign tax credits not previously recognized were realized as the result of a tax planning strategy of selling certain vessels from one taxing jurisdiction to another through intercompany sales. The result of such sales was to pay foreign taxes which are fully creditable on a current basis against U.S. income taxes and to accelerate the release of previously accrued deferred foreign tax credits. The reversal of taxes overaccrued in prior years for the year ended March 31, 1998 is the result of the company's settlement of open income tax audits with the Internal Revenue Service for fiscal years 1993, 1994 and 1995. The significant components of deferred income tax expense for the years ended March 31 are as follows:
(in thousands) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------- Deferred income tax expense (benefit) (exclusive of the effects of other components listed below) $ 12,719 2,396 3,628 Investment, foreign and minimum tax credits (5,009) --- 8,489 Foreign tax credits not previously recognized (35,620) --- --- Effect of United Kingdom tax rate charges (2,000) (4,000) --- - ---------------------------------------------------------------------------------------------------- $(29,910) (1,604) 12,117 ====================================================================================================
F-12 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 1999 and 1998 are as follows: (in thousands) 1999 1998 - ------------------------------------------------------------------------------ Deferred tax assets: Financial provisions not deducted for tax purposes $ 11,243 16,520 Foreign net operating loss carryforwards 9,043 13,887 Tax credit carryforwards 8,860 3,851 Other 3,088 234 - ------------------------------------------------------------------------------ Gross deferred tax assets 32,234 34,492 Less valuation allowance (14,302) (16,756) - ------------------------------------------------------------------------------ Net deferred tax assets 17,932 17,736 - ------------------------------------------------------------------------------ Deferred tax liabilities: Depreciation and amortization (119,668) (155,339) Other (9,158) (3,201) - ------------------------------------------------------------------------------ Gross deferred tax liabilities (128,826) (158,540) - ------------------------------------------------------------------------------ Net deferred tax liabilities $(110,894) (140,804) ============================================================================== The net changes in the valuation allowance for the years ended March 31, 1999 and 1998 were a decrease of $2.5 million and an increase of $14.8 million, respectively. The valuation allowance is the result of a doubt over the ultimate realization of benefits from certain foreign net operating losses. The remaining balance of the deferred tax assets is expected to be realized through future operating results and the reversal of taxable temporary differences. The company has not recognized a deferred tax liability of approximately $31.5 million for the undistributed earnings of certain non-U.S. subsidiaries that arose in prior years because the company currently does not expect those unremitted earnings to reverse and become taxable to the company in the foreseeable future. A deferred tax liability will be recognized when the company expects that it will realize those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of investments. As of March 31, 1999, the undistributed earnings of these subsidiaries were approximately $90 million. (6) LONG-TERM DEBT At March 31, 1999, the company has a $200 million revolving credit facility with a group of banks and at that date there were no borrowings outstanding under the facility. Borrowings bear interest, at the company's option, at prime or Federal Funds rates plus .5% or Eurodollar rates plus margins from .5% to .75% based on the company's funded debt to total capitalization ratio. The revolving credit commitment expires on April 30, 2001, at which time the then outstanding balance will convert to a term loan payable in 16 quarterly installments beginning July 31, 2001. All of the borrowings under the agreement are unsecured and the company pays an annual fee of .25% on the unused portion of the facility. Under the terms of the agreement, the company has agreed to limitations on future levels of investments and aggregate indebtedness, and maintenance of certain debt to capitalization ratios and also debt to earnings ratios. The agreement also prohibits the company from encumbering its assets for the benefit of others. (7) BENEFIT PLANS Upon meeting various citizenship, age and service requirements, employees are eligible to participate in a defined contribution savings plan and can contribute from 2% to 15% of their base salary to an employee benefit trust. The company matches with company common stock 50% of the employee's contribution to the plan up to a maximum of 6% of the employee's base salary. The plan held 429,835 shares and 487,571 F-13 shares of the company's common stock at March 31, 1999 and 1998, respectively. Amounts charged to expense for the plan for 1999, 1998 and 1997 were $1.8 million, $1.8 million and $1.7 million, respectively. A defined benefit pension plan covers certain U.S. citizen employees and employees who are permanent residents of the United States. Benefits are based on years of service and employee compensation. The company's policy is to fund the plan based upon minimum funding requirements of the Employee Retirement Income Security Act of 1974. The company also has a supplemental retirement plan (supplemental plan) that provides pension benefits to certain employees in excess of those allowed under the company's tax-qualified pension plan. Certain benefits programs are maintained in several other countries which provide retirement income for covered employees. Qualified retired employees currently are covered by a program which provides limited health care and life insurance benefits. Costs of the program are based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who are expected to qualify for these benefits. This plan is not funded. The company has adopted Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pension and Other Postretirement Benefits," which revises the required disclosures about pension and other postretirement benefit plans. Changes in plan assets and obligations during the years ended March 31, 1999 and 1998 and the funded status of the U.S. defined benefit pension plan and the supplemental plan (referred to collectively as "Pension Benefits") and the postretirement health care and life insurance plan (referred to as "Other Benefits") at March 31, 1999 and 1998 were as follows:
(in thousands) Pension Benefits Other Benefits ---------------- -------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $29,636 35,445 13,082 14,559 Service cost 848 987 1,068 1,255 Interest cost 2,189 2,230 961 1,132 Participant contributions --- --- 223 261 Plan amendments --- 1,147 --- 721 Curtailments --- (1,121) --- (1,781) Settlements --- (8,319) --- --- Benefits paid (1,034) (950) (628) (409) Actuarial (gain) loss 3,159 217 820 (2,656) - -------------------------------------------------------------------------------------------- Benefit obligation at end of year $34,798 29,636 15,526 13,082 - -------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $28,772 29,847 --- --- Actual return 1,290 7,202 --- --- Employer contributions 74 992 405 148 Participant contributions --- --- 223 261 Benefits paid (1,034) (950) (628) (409) Settlements --- (8,319) --- --- - -------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $29,102 28,772 --- --- - -------------------------------------------------------------------------------------------- Funded (unfunded) status (5,696) (864) (15,526) (13,082) Unrecognized actuarial (gain) loss 2,083 (2,538) (3,395) (4,454) Unrecognized prior service cost 908 1,206 880 914 - -------------------------------------------------------------------------------------------- Net accrued benefit cost $(2,705) (2,196) (18,041) (16,622) ============================================================================================ NET ACCRUED BENEFIT COST CONSISTS OF: Prepaid benefit cost $ 1,536 807 --- --- Accrued benefit liability (6,762) (4,902) (18,041) (16,622) Intangible asset 2,521 1,899 --- --- - -------------------------------------------------------------------------------------------- Net accrued benefit cost $(2,705) (2,196) (18,041) (16,622) ============================================================================================
For pension plans with benefit obligations in excess of plan assets, the projected benefit obligation at March 31, 1999 and 1998 was $9.6 million and $6.6 million, respectively. The accumulated benefit obligation F-14 for pension plans with benefit obligations in excess of plan assets was $6.8 million and $4.9 million at March 31, 1999 and 1998, respectively. Net periodic pension cost for the U.S. defined benefit pension plan and the supplemental plan for 1999, 1998 and 1997 include the following components: (in thousands) 1999 1998 1997 - ------------------------------------------------------------------- Service cost $ 848 987 844 Interest cost 2,189 2,230 2,258 Expected return on plan assets (2,693) (2,465) (1,875) Amortization of prior service cost 269 279 158 Recognized actuarial (gain) loss (29) 120 138 - ------------------------------------------------------------------- Net periodic pension cost $ 584 1,151 1,523 =================================================================== Net periodic postretirement health care and life insurance costs for 1999, 1998 and 1997 include the following components: (in thousands) 1999 1998 1997 - ------------------------------------------------------------------- Service cost $1,068 1,255 928 Interest cost 961 1,132 874 Other amortization and deferral (205) (28) (207) - ------------------------------------------------------------------- Net periodic postretirement benefit cost $1,824 2,359 1,595 =================================================================== Assumptions used in actuarial calculations were as follows: 1999 1998 1997 - ---------------------------------------------------------------------------- Discount rate 7.0% 7.5% 7.5% Expected long-term rate of return on assets 9.5% 9.5% 9.5% Rates of annual increase in compensation levels 4.0% 5.0% 5.2% ============================================================================ The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation will be 6.5% in 2000, gradually declining to 4% in the year 2005 and thereafter. A 1% increase in the assumed health care cost trend rates for each year would increase the accumulated postretirement benefit obligation by approximately $2.2 million at March 31, 1999 and increase the cost for the year ended March 31, 1999 by $.3 million. A 1% decrease in the assumed health care cost trend rates for each year would decrease the accumulated postretirement benefit obligation by approximately $1.8 million at March 31, 1999 and decrease the cost for the year ended March 31, 1999 by $.3 million. During the fourth quarter of fiscal 1996 the company recorded as other expense an estimated curtailment charge of $3 million as a result of the removal of fleet personnel from the company's U.S. defined benefit pension plan. During the third quarter of fiscal 1998, the obligations related to the curtailment of the plan were settled and a gain on settlement of $1.2 million was recorded as other income. Beginning April 1, 1996 those employees removed from this defined benefit pension plan, along with all new employees of the company who are eligible for pension plan membership, were enrolled in a new defined contribution retirement plan. This plan is noncontributory by the employee, but the company contributes in cash 3% of an eligible employee's compensation to an employee benefit trust. The cost of the plan for fiscal 1999, 1998 and 1997 was $1.7 million, $2.7 million and $2.3 million, respectively. Fiscal 1999 cost of the plan has been reduced by $.9 million of forfeitures due to employee severances. During the fourth quarter of fiscal 1998, as a result of the sale of the company's compression division, the company recorded as part of the gain on sale of discontinued compression operations a pre-tax curtailment gain of $2.4 million resulting from the removal of all compression personnel from the U.S. defined benefit pension plan, the supplemental plan and the post-retirement health care and life insurance plan. F-15 (8) OTHER ASSETS, OTHER LIABILITIES AND DEFERRED CREDITS A summary of other assets at March 31 follows: (in thousands) 1999 1998 - ------------------------------------------------------------------- Recoverable insurance losses $ 66,052 57,289 Assets held for sale 14,589 4,086 Deferred income tax assets 17,932 17,736 Other 12,344 10,769 - ------------------------------------------------------------------- $110,917 89,880 =================================================================== A summary of other liabilities and deferred credits at March 31 follows: (in thousands) 1999 1998 - ------------------------------------------------------------------- Postretirement benefits liability $ 18,041 16,622 Pension liability 5,226 4,095 Minority interests in net assets of subsidiaries 4,665 7,481 Deferred vessel income 10,264 6,071 Provision for litigation and claims costs 427 7,889 Other 10,904 6,869 - ------------------------------------------------------------------- $ 49,527 49,027 =================================================================== (9) CAPITAL STOCK The company has 125 million shares of $.10 par value common stock authorized. At March 31, 1999 and 1998, 60,566,857 shares and 59,482,769 shares were issued, respectively. At March 31, 1999, 4,985,860 shares were held by the Grantor Trust Stock Ownership Program, which are not included in common shares outstanding for earnings per share calculations. At March 31, 1999 and 1998, three million shares of no par value preferred stock were authorized and unissued. Under the company's stock option and restricted stock plans, the Compensation Committee of the Board of Directors has authority to grant stock options and restricted shares of the company's stock to officers and other key employees. At March 31, 1999, 4,349,483 shares of common stock are reserved for issuance under the plans of which 1,329,800 shares are available for future grants. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All outstanding stock options have ten- year terms and most of the outstanding options vest and become exercisable in equal installments over a three-year period from the grant date. The per share weighted-average fair values of stock options granted during fiscal years 1999, 1998 and 1997 were $8.37, $17.69 and $15.46, respectively, on the dates of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1999 1998 1997 - ------------------------------------------------------------------- Risk-free interest rate 5.15% 5.75% 6.40% Expected dividend yield 2.50% 1.25% 1.25% Expected stock price volatility 42.79% 34.93% 32.57% Expected stock option life 5 years 5 years 5 years =================================================================== The company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the company F-16 determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the company's net earnings would have been reduced to the pro forma amounts as follows: 1999 1998 1997 - -------------------------------------------------------------------- Net earnings (in thousands): As reported $210,719 315,499 146,011 Pro forma $204,778 312,215 145,032 Earnings per common share: As reported $ 3.68 5.21 2.37 Pro forma $ 3.58 5.16 2.35 Diluted earnings per common share: As reported $ 3.68 5.18 2.35 Pro forma $ 3.58 5.13 2.34 ==================================================================== Pro forma net earnings and diluted earnings per common share reflect only options granted during fiscal years 1999, 1998 and 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma amounts presented above because compensation cost is reflected over the options' vesting period of three years and compensation cost for options granted prior to April 1, 1995 is not considered. Stock option activity during 1999, 1998 and 1997 was as follows: Weighted-average Number Exercise Price of Shares - ------------------------------------------------------------------------ Balance at March 31, 1996 $ 22.38 1,666,505 Granted 43.49 520,000 Exercised 15.36 (269,177) Expired or cancelled 19.14 (4,225) - ------------------------------------------------------------------------ Balance at March 31, 1997 29.11 1,913,103 Granted 49.19 762,000 Exercised 20.97 (620,054) Expired or cancelled 41.60 (94,984) - ------------------------------------------------------------------------ Balance at March 31, 1998 38.89 1,960,065 Granted 23.18 1,121,000 Exercised 19.78 (33,061) Expired or cancelled 42.04 (38,998) - ------------------------------------------------------------------------ Balance at March 31, 1999 $ 33.21 3,009,006 ======================================================================== The 3,009,006 options outstanding at March 31, 1999 fall into three general exercise-price ranges as follows:
Exercise Price Range - ---------------------------------------------------------------------------------------------------------------- $10.00 - $19.63 $20.13 - $25.13 $35.75-$59.00 - ---------------------------------------------------------------------------------------------------------------- Options outstanding at March 31, 1999 207,348 1,363,630 1,438,028 Weighted average exercise price $17.35 $22.83 $45.33 Weighted average remaining contractual life 4.3 years 8.9 years 8.4 years Options exercisable at March 31, 1999 207,348 307,630 787,675 Weighted average exercise price of options exercisable at March 31, 1999 $17.35 $23.10 $43.42 ================================================================================================================
At March 31, 1999, 1998 and 1997, the number of options exercisable under the stock option plans was 1,302,653, 865,383 and 940,579, respectively; and the weighted average exercise price of those options was $34.47, $28.47 and $21.51, respectively. During fiscal years 1998 and 1999, 37,200 shares of restricted common stock of the company were granted to certain key employees. These restricted shares vest and become freely transferable over a four-year period provided the employee remains employed by the company during the vesting period. During the restricted period, the restricted shares may not be transferred or encumbered, but the recipient has the right to vote and receive dividends on the restricted shares. The fair market value of the stock at the time of the grants totaled approximately $1.6 million and was classified in stockholders' equity as deferred compensation F-17 - - restricted stock. The deferred amount is being amortized by equal monthly charges to earnings over the four-year vesting period. In accordance with a June 13, 1994 employment agreement with the company's chairman of the board, 70,000 shares of restricted common stock of the company were granted to him on October 20, 1994. The restricted stock agreement contained provisions for vesting of the shares at varying intervals when the average market price of the common stock reaches certain predetermined levels. By March 31, 1998, the total 70,000 shares had vested due to the attainment of the price levels applicable to those shares and the total deferred amount of $1.6 million had been charged to earnings. In accordance with a new employment agreement with the company's chairman of the board entered into on September 25, 1997, 50,000 shares of restricted common stock were granted on that date. These restricted shares also vest at varying intervals when the average market price of the common stock reaches certain predetermined levels. The fair market value of the stock at the time of grant totaling approximately $3 million was deferred and is being amortized by equal monthly charges to earnings over five years. The company's Board of Directors has authorized three separate share repurchase programs during fiscal years 1999, 1998 and 1997 whereby the company could purchase shares of company common stock in the open market or through privately negotiated transactions. Stock repurchase activity during fiscal years 1999, 1998 and 1997 was as follows:
1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Number of shares repurchased 3,950,000 1,481,000 1,788,100 Total cost, including broker commissions and fees (in thousands) $ 109,300 65,200 84,800 Average cost per share $ 27.67 44.02 47.42
A share repurchase program, authorized in March 1999, allows the company to purchase up to $50 million of company common stock through March 31, 2000. No shares had been purchased under this program as of March 31, 1999. On January 29, 1999 the company established a Grantor Trust Stock Ownership Program in connection with which the company entered into a trust agreement with a bank providing for the establishment of the related trust (the "trust"). The trust is designed to acquire, hold and distribute shares of the common stock of the company to provide for the payment of benefits and compensation under the company's employee benefit plans, including its stock option plans and 401(k) plan. The trust will not increase or alter the amount of benefits or compensation that will be paid under these plans. On January 29, 1999 the company sold at market value 5,000,000 shares (the "acquired shares") of common stock to the trust for $107,187,500, or $21.4375 per share. In payment for the acquired shares, the trust paid $500,000 in cash and issued a promissory note payable to the company for the remaining balance. Acquired shares will be released to satisfy the company's obligations to pay benefits under company benefit plans as the promissory note is paid down or forgiven. For financial reporting purposes the trust is consolidated with the company. Any dividend transactions between the company and the trust are eliminated. Acquired shares held by the trust remain valued at the market price at the date of purchase and are shown as a reduction to stockholders' equity in the company's consolidated balance sheet. The difference between the trust share value and the fair market value on the date shares are released from the trust is included in additional paid-in capital. Common stock held in the trust is not considered outstanding in the computation of earnings per share. The trust held 4,985,860 shares of common stock at March 31, 1999. The trustee will vote or tender shares held by the trust in accordance with the confidential instructions of participants in the company's stock option plans and 401(k) plan. Under a Shareholder Rights Plan, one preferred stock purchase right has been distributed as a dividend for each outstanding common share. Each right entitles the holder to purchase, under certain conditions, one F-18 one-hundredth of a share of Series A Participating Preferred Stock at an exercise price of $160, subject to adjustment. The rights will not be exercisable unless a person (as defined in the plan) acquires beneficial ownership of 15% or more of the outstanding common shares, or a person commences a tender offer or exchange offer, which upon its consummation such person would beneficially own 15% or more of the outstanding common shares. The Board of Directors is authorized in certain circumstances to lower the beneficial ownership percentage to not less than 10%. If after the rights become exercisable a person becomes the beneficial owner of 15% or more of the outstanding common shares (except pursuant to an offer for all shares approved by the Board of Directors), each holder (other than the acquirer) will be entitled to receive, upon exercise, common shares having a market value of twice the exercise price. In addition, if the company is involved in a merger (other than a merger which follows an offer for all shares approved by the Board of Directors), major sale of assets or other business combination after a person becomes the beneficial owner of 15% or more of the outstanding common shares, each holder of a right (other than the acquirer) will be entitled to receive, upon exercise, common stock of the acquiring company having a market value of twice the exercise price. The rights may be redeemed for $.01 per right at any time prior to ten days following the acquisition by a person of 15% or more of the outstanding common shares. The rights expire on November 1, 2006. (10) COMMITMENTS AND CONTINGENCIES An employment agreement exists with the company's chairman of the board whereby he will serve in such capacity as well as president and chief executive officer through September 19, 2000. The terms of the employment agreement provide for an annual base salary and certain other benefits. Compensation continuation agreements exist with all other officers of Tidewater Inc. whereby each receives compensation and benefits in the event that their employment is terminated following certain events relating to a change in control of the company. The maximum amount of cash compensation that could be paid under the agreements, based on present salary levels, is approximately $10.7 million. During fiscal 1997 the Internal Revenue Service (IRS) notified the company of proposed deficiencies aggregating approximately $17.5 million of additional income taxes resulting from audits of the company's income tax returns for the years ended March 31, 1993, 1994 and 1995. During the fourth quarter of fiscal 1998 the company and the IRS settled all outstanding issues regarding these audits with no additional taxes due. As a result of the settlement, the company reduced previously provided for income taxes in the amount of $3.3 million. The company is the defendant to several alleged labor-law pay violations claimed by certain current and former employees in various areas of the world where its marine vessel operations are conducted. During the second quarter of fiscal 1998, the company provided $8 million for the possible adverse outcome of these labor-law matters. Pursuant to a court-approved settlement, as of March 31, 1999 the company has paid $7.5 million in settlements relating to certain of these alleged labor-law pay violations. In management's opinion, the amount of the company's liability in excess of amounts provided in the financial statements for these labor-law matters, if any, will not have a material adverse effect on the company's financial position or the results of its ongoing operations. During the fourth quarter of fiscal 1997 the company recorded as other expense a charge of $2.8 million ($1.9 million after tax, or $.03 per common share) to establish a provision for loss resulting from one of the company's insurers filing for liquidation. Various legal proceedings and claims are outstanding which arose in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the company's financial position or results of its ongoing operations. F-19 (11) SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS The company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." With the sale of the company's Compression business as explained in Note 2, the company operates in only one business segment. The following table provides a comparison of revenues, operating profit, identifiable assets, and depreciation and amortization and additions to properties and equipment for the years ended March 31. Vessel revenues and operating costs relate to vessels owned and operated by the company while other marine services relate to the activities of the company's shipyards, brokered vessels and other miscellaneous marine-related businesses.
(in thousands) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- Marine revenues (A): Vessel revenues: United States $ 296,161 463,914 338,823 International (B) 614,887 537,737 322,401 - ---------------------------------------------------------------------------------------------------------------- 911,048 1,001,651 661,224 Other marine services 57,944 58,510 29,202 - ---------------------------------------------------------------------------------------------------------------- $ 968,992 1,060,161 690,426 ================================================================================================================ Marine operating profit: Vessel activity: United States $ 96,376 225,599 120,275 International 171,213 141,133 82,591 - ---------------------------------------------------------------------------------------------------------------- 267,589 366,732 202,866 Gains on sales of assets 2,949 16,592 5,352 Other marine services 12,526 10,663 4,186 - ---------------------------------------------------------------------------------------------------------------- 283,064 393,987 212,404 Other income 8,439 7,079 6,705 Other expense --- (6,847) (2,800) Corporate expenses (12,317) (13,074) (11,235) Interest and other debt costs (2,445) (24,677) (1,000) - ---------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes $ 276,741 356,468 204,074 ================================================================================================================ Identifiable assets: Marine: United States $ 317,411 379,118 376,380 International (B) 970,853 1,043,781 334,005 - ---------------------------------------------------------------------------------------------------------------- 1,288,264 1,422,899 710,385 Investments in and advances to unconsolidated Marine companies 17,307 21,825 20,556 - ---------------------------------------------------------------------------------------------------------------- 1,305,571 1,444,724 730,941 Net assets of discontinued Compression operations --- --- 253,305 General corporate 88,887 48,115 77,034 - ---------------------------------------------------------------------------------------------------------------- $1,394,458 1,492,839 1,061,280 ================================================================================================================ Depreciation and amortization: Marine equipment depreciation $ 84,823 83,002 55,569 General corporate depreciation 790 406 368 Goodwill amortization 9,170 8,002 --- - ---------------------------------------------------------------------------------------------------------------- $ 94,783 91,410 55,937 ================================================================================================================ Additions to properties and equipment: Marine equipment operations $ 40,959 62,555 40,003 Discontinued Compression operations --- 17,597 17,949 General corporate 7,324 2,349 50 - ---------------------------------------------------------------------------------------------------------------- $ 48,283 82,501 58,002 ================================================================================================================
(A) One marine customer accounted for 8%, 11% and 11% of revenues for the fiscal years ended March 31, 1999, 1998 and 1997, respectively. (B) Marine support services are conducted worldwide with assets that are highly mobile. Revenues are principally derived from offshore service vessels, which regularly and routinely move from one operating area to another, often to and from offshore operating areas in different continents. Because of this asset mobility, revenues and long-lived assets attributable to the company's international marine operations in any one country are not "material" as that term is defined by SFAS No. 131. Equity in net assets of non-U.S. subsidiaries is $674.5 million, $795.1 million and $211.5 million at March 31, 1999, 1998 and 1997, respectively. Other international identifiable assets include accounts receivable and other balances denominated in currencies other than the U.S. dollar which aggregate approximately $12.9 million, $19.1 million and $6.7 million at March 31, 1999, 1998 and 1997, respectively. These amounts are subject to the usual risks of fluctuating exchange rates and government-imposed exchange controls. F-20 (12) SUPPLEMENTARY INFORMATION--QUARTERLY FINANCIAL DATA (UNAUDITED) Years Ended March 31, 1999 and 1998 (in thousands, except per share data) 1999 First Second Third Fourth - ------------------------------------------------------------------------------- Marine revenues $284,877 254,235 232,984 196,896 =============================================================================== Marine operating profit $ 97,584 84,201 62,767 38,512 =============================================================================== Net earnings $ 62,772 56,678 39,780 51,489 =============================================================================== Earnings per share $ 1.06 .98 .71 .93 =============================================================================== Diluted earnings per share $ 1.05 .98 .71 .93 =============================================================================== 1998 First Second Third Fourth - ------------------------------------------------------------------------------- Marine revenues $230,440 270,413 280,697 278,611 =============================================================================== Marine operating profit $ 78,774 104,382 115,638 95,193 =============================================================================== Earnings from continuing operations $ 48,136 61,053 70,298 63,551 Earnings from discontinued Compression operations 2,625 3,276 3,661 1,161 Gain on sale of discontinued Compression operations --- --- --- 61,738 - ------------------------------------------------------------------------------- Net earnings $ 50,761 64,329 73,959 126,450 =============================================================================== Earnings per share: Continuing operations $ 0.80 1.01 1.15 1.05 Discontinued Compression operations 0.04 0.05 0.06 .02 Gain on sale of discontinued Compression operations --- --- --- 1.02 - ------------------------------------------------------------------------------- Net earnings $ 0.84 1.06 1.21 2.09 =============================================================================== Diluted earnings per share: Continuing operations $ 0.80 1.01 1.15 1.05 Discontinued Compression operations 0.04 0.05 0.06 .02 Gain on sale of discontinued Compression operations --- --- --- 1.01 - ------------------------------------------------------------------------------- Net earnings $ 0.84 1.06 1.21 2.08 =============================================================================== Operating profit consists of revenues less operating costs and expenses, depreciation, general and administrative expenses and other income and expenses of the Marine division. See Notes 1, 2, 3, 5, 7 and 10 for detailed information regarding transactions which affect fiscal 1999 and 1998 quarterly amounts. Fiscal year 1999 company activity has been significantly affected by the downturn in activity and spending in the oil industry resulting from the drop in the price of oil which began in the Fall of 1997. A discussion of current market conditions appears in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the company's 1999 annual report. F-21 SCHEDULE II TIDEWATER INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1999, 1998, AND 1997 (IN THOUSANDS) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance Balance at at Beginning Additions End of Description of period at Cost Deductions Period ----------- --------- ------- ---------- ------ 1999 Deducted in balance sheet from trade accounts receivables: Allowance for doubtful accounts $14,078 685 3,638 (A) 11,125 ======= ====== ===== ====== Deducted in balance sheet from other assets: Amortization of goodwill, prepaid rent and debt issuance costs $12,219 10,092 --- 22,311 ======= ====== ===== ====== 1998 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $10,330 3,992 244 (A) 14,078 ======= ====== ===== ====== Deducted in balance sheet from other assets: Amortization of goodwill, prepaid rent and debt issuance costs $ 3,028 9,191 --- 12,219 ======= ====== ===== ====== 1997 Deducted in balance sheet from trade accounts receivables: Allowance for doubtful accounts $ 7,866 3,148 684 (A) 10,330 ======= ====== ===== ====== Deducted in balance sheet from other assets: Amortization of prepaid rent and debt issuance costs $ 2,292 736 --- 3,028 ======= ====== ===== ====== (A) Accounts receivable amounts considered uncollectible and removed from accounts receivable by reducing allowance for doubtful accounts. F-22 TIDEWATER INC. EXHIBITS FOR THE ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED MARCH 31, 1999 EXHIBIT INDEX The index below describes each exhibit filed as a part of this report. Exhibits not incorporated by reference to a prior filing are designated by an asterisk; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. 3(a) - Restated Certificate of Incorporation of Tidewater Inc. (filed with the Commission as Exhibit 3(a) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 3(b) - Tidewater Inc. Bylaws (filed with the Commission as Exhibit 3(b) to the company's quarterly report on Form 10-Q for the quarter ended September 30, 1993). 4(a) - Restated Rights Agreement dated as of September 19, 1996 between Tidewater Inc. and The First National Bank of Boston (filed with the Commission as Exhibit 1 to Form 8-A on September 30, 1996). *10(a) - $200,000,000 Revolving Credit and Term Loan Agreement dated February 18, 1999. 10(b) - Tidewater Inc. 1975 Incentive Program Stock Option Plan, as amended in 1990 (filed with the Commission as Exhibit 10(c) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1991). 10(c) - Tidewater Inc. 1992 Stock Option and Restricted Stock Plan (filed with the Commission as Exhibit 10(f) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(d) - Tidewater Inc. Amended and Restated Supplemental Executive Retirement Plan (filed with the Commission as Exhibit 10(g) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(e) - Tidewater Inc. Amended and Restated Employees' Supplemental Savings Plan (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1993). 10(f) - Supplemental Health Plan for Executive Officers of Tidewater Inc. (filed with the Commission as Exhibit 10(i) to a Registration Statement on September 12, 1989, Registration No. 33-31016). 10(g) - Tidewater Inc. Deferred Compensation Plan for Directors (filed with the Commission as Exhibit 10(h) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1994). 10(h) - Tidewater Inc. Retirement Plan for Directors as adopted on March 22, 1990 (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1990). 10(i) - Change in Control Agreement dated September 30, 1996 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10(k) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(j) - Form of Change in Control Agreement entered into as of September 30, 1996 with three executive officers (filed with the Commission as Exhibit 10(l) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(k) - Tidewater Inc. 1996 Annual Incentive Plan (filed with the Commission as Exhibit 10(m) to the company annual report on Form 10-K for the fiscal year ended March 31, 1997). 10(l) - Employment Agreement dated September 25, 1997 between Tidewater Inc. and William C. O'Malley (filed with the Commission as Exhibit 10 to the company's report on Form 10-Q for the quarter ended September 30, 1997). 10(m) - Tidewater Inc. 1997 Stock Incentive Plan filed with the Commission as Exhibit 10(o) to the company's annual report on Form 10-K for the fiscal year ended March 31, 1998. *21 - Subsidiaries of the Company. *23 - Consents of Independent Auditors. *27 - Financial Data Schedule. Certain instruments respecting long-term debt of Tidewater have been omitted pursuant to Regulation S-K, Item 601. Tidewater hereby agrees to furnish a copy of any such instrument to the Commission upon request. EX-10.A 2 REVOLVING CREDIT AND TERM LOAN AGREEMENT EXHIBIT 10(a) REVOLVING CREDIT AND TERM LOAN AGREEMENT AMONG TIDEWATER INC., ET AL (as Companies) BANKBOSTON, N.A. (as Administrative Agent) BANK ONE, LOUISIANA, NATIONAL ASSOCIATION (as Documentation Agent) CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (as Syndication Agent) BANKBOSTON, N.A. BANK ONE, LOUISIANA, NATIONAL ASSOCIATION CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (as Agents) and CERTAIN BANKS (as Lenders) ---------- $200,000,000.00 ---------- Dated: as of February 18, 1999 TABLE OF CONTENTS Page No. Introduction........................................................... 1 Section 1. Commitment of Lenders...................................... 1 1.1 Line of Credit; Term Loan...................................... 2 1.2 Borrowing Procedure Under the Credit Facility.................. 2 1.3 Use of Proceeds................................................ 2 1.4 Liability of the Companies; Additional Domestic Subsidiaries... 3 1.5 Termination of the Prior Credit Facility....................... 3 Section 2. Promissory Notes........................................... 3 2.1 Line of Credit Notes........................................... 3 2.2 Term Notes..................................................... 3 2.3 Principal Payment Dates........................................ 3 Section 3. Interest and Fees.......................................... 4 3.1 Interest....................................................... 4 3.2 Administrative Agent's Determination........................... 4 3.3 Interest Payment Dates; Late Payment and Default Rate.......... 8 3.4 Facility Fee; Agents' Fee...................................... 8 3.5 Method of Calculating Interest and Fees........................ 8 Section 4. Payments, Reduction or Termination of the Credit Facility and Prepayments.................................. 8 4.1 Place of Payment............................................... 9 4.2 Reduction of Facility Credit; Prepayments...................... 9 4.3 Prepayments of Term Notes...................................... 9 4.4 Pro Rata Payments.............................................. 10 Section 5. Representations and Warranties of the Companies............ 10 5.1 Corporate Existence............................................ 10 5.2 Authorization; Validity........................................ 10 5.3 Conflicting Agreements and Other Matters....................... 10 5.4 Financial Statements........................................... 11 5.5 Litigation and Contingent Liabilities.......................... 11 5.6 Outstanding Debt............................................... 12 5.7 Title to Properties............................................ 12 5.8 Purpose........................................................ 12 ii 5.9 Margin Stock................................................... 12 5.10 ERISA.......................................................... 12 5.11 Consents....................................................... 13 5.12 Tax Returns; Taxes............................................. 13 5.13 Compliance with Laws........................................... 13 5.14 Foreign Assets Control Regulations............................. 13 5.15 Disclosure..................................................... 13 5.16 Environmental Matters.......................................... 14 5.17 Year 2000 Compliance........................................... 14 5.18 Special Provisions............................................. 14 Section 6. Covenants of the Companies................................. 15 6.1 Financial Statements........................................... 15 6.2 Inspection of Property and Books and Records................... 18 6.3 Covenant to Secure Notes Equally............................... 18 6.4 Guaranteed or Collateralized Obligations....................... 18 6.5 Maintenance of Insurance....................................... 19 6.6 Maintenance of Corporate Existence/Compliance with Law/ Preservation of Property...................................... 19 6.7 Compliance with Environmental Laws............................. 19 6.8 Liens.......................................................... 20 6.9 Investments.................................................... 21 6.10 Dispositions of Stock and Debt................................. 22 6.11 Mergers and Consolidations..................................... 23 6.12 Minimum EBITDA to Fixed Charge Ratio........................... 23 6.13 Maximum Debt to EBITDA Ratio................................... 23 6.14 Maximum Debt to Total Capitalization Ration.................... 23 6.15 Transactions with Related Party................................ 23 6.16 Stock Transactions by Subsidiaries............................. 24 6.17 ERISA.......................................................... 24 6.18 Federal Reserve Regulations, etc............................... 24 6.19 Environmental Matters.......................................... 24 6.20 Taxes.......................................................... 25 Section 7A. Conditions Precedent to the Funding of the Initial Advance under the Credit Facility.................................. 25 7A.1 Resolutions of the Companies.................................... 25 7A.2 Organization Documents; Good Standing........................... 25 7A.3 Incumbency...................................................... 25 7A.4 Notes........................................................... 25 7A.5 Officer's Certificate........................................... 25 iii 7A.6 Opinion......................................................... 26 7A.7 Payment of Fees and Expenses.................................... 26 7A.8 Termination of Prior Credit Facility............................ 26 Section 7B. Conditions Precedent to the Funding of the Term Loan....... 26 7B.1 Notes........................................................... 26 7B.2 Officer's Certificate........................................... 26 Section 8. Conditions Precedent to Subsequent Advances Under the Line of Credit and Funding of the Term Loan..................... 27 8.1 Default......................................................... 27 8.2 Representations and Warranties.................................. 27 Section 9. Events of Default; Remedies; Set Offs....................... 27 9.1 Events of Default............................................... 27 9.2 Remedies........................................................ 29 9.3 Waiver of Set-Offs.............................................. 30 Section 10. The Agents.................................................. 30 10.1 Appointment and Authorization................................... 30 10.2 Agents' Reliance................................................ 30 10.3 Acts by Administrative Agent after Default, etc................. 31 10.4 Lender Credit Decision.......................................... 31 10.5 Agents.......................................................... 32 10.6 Assignments and Participations.................................. 32 10.7 Indemnification of the Agents................................... 33 Section 11. General.................................................... 34 11.1 Definitions..................................................... 34 11.2 Financial Terms................................................. 44 11.3 Delay........................................................... 44 11.4 Notices......................................................... 44 11.5 Costs, Expenses and Taxes; Indemnification...................... 45 11.6 Foreign Lenders................................................. 46 11.7 Severability.................................................... 48 11.8 Counterparts.................................................... 48 11.9 Law............................................................. 48 11.10 Successors...................................................... 48 11.11 Singular and Plural............................................. 48 11.12 Amendments....................................................... 48 11.13 Entire Agreement................................................. 49 iv Signatures.............................................................. 50 Exhibit A List of Domestic Subsidiaries................................ 61 Exhibit B Commitments of Lenders....................................... 62 Exhibit C Form of Line of Credit Note.................................. 66 Exhibit D Form of Term Note............................................ 70 Exhibit E Form of Assignment and Acceptance............................ 74 Schedule 5.6 Outstanding Debt Schedule 5.16 Environmental Matters v REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "Agreement") dated as of February 18, 1999 (the "Effective Date"), by and among Tidewater Inc., a Delaware corporation (the "Company"), the Domestic Subsidiaries (as hereinafter defined) of the Company named on Exhibit "A", attached hereto and made a part hereof, the respective state of incorporation of each of which Domestic Subsidiaries being set forth opposite its name and which Domestic Subsidiaries constitute all of the Domestic Subsidiaries of the Company (herein together with the Company called the "Companies"), and BankBoston, N.A., a national banking association, as administrative agent (the "Administrative Agent"), Bank One, Louisiana, National Association, a national banking association, as documentation agent (the "Documentation Agent") and Chase Bank of Texas, National Association, as Syndication Agent (the "Syndication Agent")(the Administrative Agent, the Documentation Agent and the Syndication Agent, collectively, the "Agents"), and the banks listed on the signature pages hereof (the "Lenders"). RECITALS A. Subject to the terms and conditions of this Agreement, the Lenders have severally agreed to make a $200,000,000 revolving line of credit available to the Companies, and the Companies have agreed to accept the line of credit from the Lenders. B. The Companies, Agents and Lenders desire to set forth the terms and conditions of the line of credit herein. AGREEMENT NOW, THEREFORE, for and in consideration of the mutual covenants, agreements and undertakings herein contained, the Agents, Lenders and the Companies hereby agree as follows: Section 1. Commitment of Lenders. Subject to the terms and conditions hereof, each Lender severally agrees to make a line of credit and loan to the Companies, on the terms and conditions set forth in this Agreement, in the aggregate principal amounts set forth on Exhibit B hereto: 1.1 Line of Credit; Term Loan. The Lenders shall severally establish a revolving line of credit (the "Line of Credit") which may be drawn upon by the Companies on any Business Day during the period from the date hereof until and including the Drawdown Termination Date, in such amounts (but not less than $5,000,000 per Advance and above $5,000,000 in even multiples of $1,000,000) as the Companies may from time to time request (individually, an "Advance" and, collectively, the "Advances"), but not exceeding the Commitments for the Line of Credit set forth on Exhibit B hereto (the "Line of Credit Commitments"). The amount outstanding under said Line of Credit as of the close of business on the Drawdown Termination Date shall then convert on the following day to a four (4) year term loan (the "Term Loan") with principal payable quarterly on a four (4) year amortization schedule. The credit available to the Companies from time to time under the Line of Credit shall be reduced by the aggregate of the face amount of any and all unpaid Advances made by the Lenders to the Companies pursuant to this Agreement and shall constitute the "Available Credit." 1.2 Borrowing Procedure Under the Credit Facility. Advances shall be made as follows: (i) in the case of a Base Rate Advance, on notice from the Company to the Administrative Agent received by the Administrative Agent no later than 10:00 A.M. (Eastern time) on the date of such proposed Advance, specifying the amount thereof; and (ii) in the case of a Eurodollar Rate Advance, on notice from the Company to the Administrative Agent at least three (3) Business Days prior to the date of such proposed Advance. The Administrative Agent will use its best efforts to give telephone notice of a proposed Advance on the same day such notice is received by the Administrative Agent from the Company. Not later than 2:00 P.M. (Eastern time) on the date of such Advance and upon fulfillment of the applicable conditions set forth in Section 7A(in the case of the initial Advance under the Line of Credit) and Section 8 (in the case of subsequent Advances under the Line of Credit and/or funding of the Term Loan), the Lenders will make such Advance available to the Administrative Agent, which shall make such total Advance available to the Company in same day funds at the Administrative Agent's office at 100 Federal Street, Boston, Massachusetts. The request for an Advance under the Line of Credit shall constitute a certification by the Companies that all of the representations and warranties contained in Section 5 are true and correct as of the date of such request. The Lenders shall be obligated to fund Advances in proportion to their respective Commitments. The obligations of the Lenders under this Agreement shall be separate and several and not joint and several or solidary; none of the Lenders shall be responsible or liable for the acts or omissions of any of the other Lenders. 1.3 Use of Proceeds. The Companies shall use the proceeds of the Line of Credit only (i) for the refinancing of any existing indebtedness of the Companies pursuant to the Revolving Credit and Term Loan Agreement among the Companies, the Agents and certain other lenders, dated as of March 19, 1997, as amended, and (ii) for general corporate purposes not inconsistent with the provisions of this Agreement. 2 1.4 Liability of the Companies; Additional Domestic Subsidiaries. Irrespective of the Company or Companies who directly or indirectly receive the amounts funded on Advances, each of the Companies shall be liable jointly and severally and solidarily to the Lenders for all amounts outstanding from time to time under the Credit Facility. The Company shall promptly notify the Documentation Agent of the creation or acquisition of any company that becomes a Domestic Subsidiary after the Effective Date and shall sign such instruments as the Documentation Agent prepares (which shall be reasonably consistent with instruments executed in connection with the execution of this Agreement) to make such new Domestic Subsidiary a party thereto. 1.5 Termination of the Prior Credit Facility. Not later than the Business Day following the Effective Date, the Companies shall give notice to the administrative agent pursuant to the Revolving Credit and Term Loan Agreement, dated as of March 19, 1997, as amended (the "Prior Credit Facility"), of the Companies' termination of said agreement and the credit facility available thereunder. The Companies agree (i) that they will not obtain any advances under the Prior Credit Facility on or after the Effective Date of this Agreement, and (ii) that if there are any advances outstanding under the Prior Credit Facility as of the Effective Date of this Agreement, the Companies shall repay said advances in full (either with their own funds or with Advances under this Credit Facility or a combination of both) prior to or simultaneously with obtaining Advances under this Credit Facility for any other purpose. Section 2. Promissory Notes. 2.1 Line of Credit Notes. The Line of Credit shall be evidenced by promissory notes of the Companies, each in the form of Exhibit "C" hereto, dated the Effective Date, and payable to each Lender respectively (together with any and all renewals, extensions, rearrangements and/or modifications thereof, the "Line of Credit Notes"), in the amount of the Lenders' respective Line of Credit Commitments, with appropriate insertions, and payable in full on the Drawdown Termination Date. 2.2 Term Notes. The Term Loan shall be evidenced by promissory notes of the Companies in the form of Exhibit "D" hereto, dated the day following the Drawdown Termination Date, payable to the order of each Lender respectively (together with any and all renewals, extensions, rearrangements and/or modifications thereof, the "Term Notes"), in the Lenders' respective proportionate amount of the Term Loan, with appropriate insertions. The Term Notes shall provide for payment of 16 quarterly installments of principal in an amount equal to one-sixteenth (1/16th) of the initial principal balance thereof, and shall be payable in full on the fourth anniversary of the Drawdown Termination Date. Once the Term Loan is initially funded, the Lenders shall not fund any additional Advances under the Term Loan. 2.3 Principal Payment Dates. Principal payments under each respective Loan shall be allocated first to Base Rate Tranches, then to Eurodollar Rate Tranches having a Eurodollar 3 Rate Interest Period ending on the quarterly installment payment date, and then to Eurodollar Rate Tranches having a Eurodollar Rate Interest Period ending subsequent to the quarterly installment payment date (in which case the Companies shall pay any loss or expense incurred or sustained by the Lenders as specified in Section 3.2(e) hereof). Section 3. Interest and Fees. 3.1 Interest. The unpaid principal of the Credit Facility shall bear interest at one (or both) of the following interest rates, at the Company's option: (i) Base Rate plus the Applicable Base Rate Margin or (ii) Eurodollar Rate plus the Applicable Eurodollar Rate Margin. The Company shall select the interest rate applicable to each Tranche at the time of funding each Advance, and the selected interest rate shall continue as to said Tranche until changed in accordance with the following. The Company shall notify the Administrative Agent of the Company's desire to change the interest rate on Advances (or any portion thereof) not less than three (3) Business Days prior to the date on which such change shall be effective. The Company may change from Base Rate Advances to Eurodollar Rate Advances at any time without payment of premium or penalty, but the Company may change from Eurodollar Rate Advances to Base Rate Advances only as of the last day of a Eurodollar Rate Interest Period without payment of premium or penalty. In the absence of any specific rate election by the Company, the Credit Facility shall bear interest at the Base Rate. Not more than twelve (12) Line of Credit Eurodollar Rate Tranches shall be permitted at any time, and not more than two (2) Term Loan Eurodollar Rate Tranches shall be permitted at any time. No Credit Facility Tranche may have a principal amount of less than $5,000,000, and each Tranche shall be proportionately the same on each Note. 3.2 Administrative Agent's Determination. (a) The Administrative Agent shall determine the amount of interest payable on each Tranche, and its determination shall be conclusive in the absence of manifest error. The Administrative Agent shall endeavor to notify the Company of the amount of any interest payment prior to the date on which an interest payment is due: provided that the failure of the Administrative Agent to provide such notice shall not affect the Companies' obligation to pay interest on such date. (b) If the Administrative Agent gives notice to the Company that no Eurodollar Rate is quoted to the Administrative Agent for the applicable Eurodollar Rate Interest Period or in the applicable amounts, then (i) the obligation of the Lenders to make a Eurodollar Rate Advance and the ability of the Company to select the Eurodollar Rate for a Tranche shall be suspended, and (ii) the Companies shall either prepay all Eurodollar Rate Tranches for which an interest rate is to be determined on such date or the Notes shall thereafter bear interest at the Base Rate plus the Applicable Base Rate Margin. (c) If any applicable domestic or foreign law, treaty, rule or regulation (whether 4 now in effect or hereinafter enacted or promulgated, including Regulation D of the Board of Governors of the Federal Reserve System) or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law): (i) changes the basis of taxation of payments to the Lenders of any principal, interest, or other amounts attributable to any Eurodollar Rate Tranche (other than taxes imposed on the overall net income of the Lenders or any lending office of the Lenders by any jurisdiction in which the Lenders or any such lending office is located); (ii) changes, imposes, modifies, applies or deems applicable any reserve, special deposit, insurance assessments or similar requirements in respect of any such Eurodollar Rate Tranche (excluding those for which the Lenders are fully compensated pursuant to adjustments made in the definition of Eurodollar Rate) or against assets of, deposits with or for the account of, or credit extended by, the Lenders; or (iii) imposes on the Lenders or the interbank eurocurrency deposit and transfer market any other condition affecting any such Eurodollar Rate Tranche, and the result of any of the foregoing is to increase the cost to the Lenders of funding or maintaining any such Eurodollar Rate Tranche (other than costs for which the Lenders are fully compensated pursuant to adjustments made in the definition of Eurodollar Rate) or to reduce the amount of any sum receivable by the Lenders in respect of any such Eurodollar Rate Tranche by an amount deemed by the Lenders to be material, then the Administrative Agent shall promptly notify the Companies in writing (such writing including the necessary calculations in reasonable detail) of the happening of such event and the Companies shall upon demand pay to the Lenders such additional amount or amounts as will compensate the Lenders for such additional cost or reduction accrued as of the time of such notice and thereafter, the Companies may either continue to pay to the Lenders such additional amount as will compensate the Lenders for the additional cost or reduction of Eurodollar Rate Tranches, or the Companies may elect, by giving to the Administrative Agent not less than three Business Days' notice, to change the interest rate applicable to such Tranche from the Eurodollar Rate plus the Applicable Eurodollar Rate Margin to the Base Rate plus the Applicable Base Rate Margin. (d) Notwithstanding any other provision hereof, if any change in applicable laws, treaties, rules or regulations or in the interpretation or administration thereof of or in any jurisdiction whatsoever, domestic or foreign, shall make it unlawful or impracticable for the Lenders to maintain Eurodollar Rate Tranches bearing interest at the Eurodollar Rate plus the Applicable Eurodollar Rate Margin, or shall materially restrict the authority of the Lenders to 5 purchase, sell or take certificates of deposit or offshore deposits of dollars, then all Eurodollar Rate Tranches which are then outstanding and which cannot lawfully or practicably be maintained shall immediately cease to bear interest at the Eurodollar Rate plus the Applicable Eurodollar Rate Margin and shall commence to bear interest at the Base Rate plus the Applicable Base Rate Margin. The Companies agree to indemnify the Lenders and hold them harmless against all costs, expenses, claims, penalties, liabilities and damages which may result from any such change in law, treaty, rule, regulation, interpretation or administration, arising out of or in connection with this Agreement and the Loans. (e) The Companies will indemnify the Lenders against, and reimburse each Lender on demand for, any loss or expense incurred or sustained by the Lenders (including without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lenders to fund or maintain Eurodollar Rate Tranches) as a result of (i) any payment or prepayment (whether authorized or required hereunder or otherwise) of all or a portion of any such Tranche on a day other than the day on which the applicable Eurodollar Rate Interest Period ends, (ii) any payment or prepayment, whether required hereunder or otherwise, of Eurodollar Rate Tranches made after the delivery, but before the effective date, of an election to have the Eurodollar Rate plus the Applicable Eurodollar Rate Margin apply to a Eurodollar Rate Tranche, if such payment or prepayment prevents such election from becoming fully effective, (iii) the failure of any Eurodollar Rate Tranche to be made by the Lenders or of any such election to become effective due to any condition precedent to a Eurodollar Rate Tranche not being satisfied or due to any other action or inaction of the Companies, (iv) the Companies' election to change the interest rate from the Eurodollar Rate plus the Applicable Eurodollar Rate Margin to the Base Rate plus the Applicable Base Rate Margin pursuant to Section 3.2(f)(iv) hereof, or (v) the occurrence of a Default or the non-payment of the Notes at maturity of the Notes for any reason as set forth in Section 3.3 hereof. For purposes of this Subsection, funding losses arising by reason of liquidation or reemployment of deposits or other funds acquired by the Lenders to fund or maintain Eurodollar Rate Tranches shall be calculated as (A) the remainder, if a positive number, obtained by subtracting (1) the yield (reflecting both stated interest rate and discount, if any) to maturity of obligations of the United States Treasury as determined by the Administrative Agent in an amount equal or comparable to such advance for the period of time commencing on the date of the payment, prepayment or change of rate as provided above and ending on the last day of the subject Eurodollar Rate Interest Period, from (2) the Eurodollar Rate plus the Applicable Eurodollar Rate Margin of the subject Eurodollar Rate Interest Period, (B) times the number of days from the date of payment, prepayment or change of rate to the last day of the Eurodollar Rate Interest Period, divided by 360, (C) times the amount of the applicable Eurodollar Rate Tranche. Any payment due under this section will be paid to the Administrative Agent within five days after the Administrative Agent delivers to the Company a certificate setting forth in reasonable detail the amount of such payment, which certificate shall be conclusive in the absence of manifest error. 6 (f) The Companies covenant and agree that: (i) The Companies will pay, when due and on an after-tax basis, all present and future stamp and other taxes, levies, costs and charges whatsoever imposed, assessed, levied or collected on or in respect of any Eurodollar Rate Tranche (other than taxes, levies, costs or charges imposed on or measured by the overall net income of the Lenders, or any lending office of the Lenders by any jurisdiction in which the Lenders or any such lending office is located) (all such non-excluded taxes, levies, costs and charges being collectively called "Reimbursable Taxes"). Promptly after the date on which payment of any Reimbursable Taxes is due pursuant to applicable law, the Companies will, at the request of the Administrative Agent, furnish to the Lenders evidence in form and substance satisfactory to the Lenders that the Companies have met their obligation under this subsection. (ii) The Companies will indemnify the Administrative Agent and the Lenders against, and reimburse the Administrative Agent and the Lenders on demand for, any Reimbursable Taxes paid by the Administrative Agent and the Lenders and any loss, liability, claim or expense, including interest, penalties and legal fees, that the Administrative Agent and the Lenders may incur at any time arising out of or in connection with the failure of the Companies to make any payment of Reimbursable Taxes when due. Any payment due under this subsection will be paid to the Administrative Agent within five days after demand therefor by the Administrative Agent. (iii) All payments on account of the principal of, and interest on, Eurodollar Rate Tranches and all other amounts payable by the Companies to the Lenders hereunder shall be made free and clear of and without reduction by reason of any Reimbursable Taxes. (iv) If the Companies are ever required to pay any Reimbursable Taxes with respect to any Eurodollar Rate Tranches, the Companies may elect, by giving to the Administrative Agent not less than three (3) Business Days' notice, to change the interest rate applicable to any such advance from the Eurodollar Rate plus the Applicable Eurodollar Rate Margin to the Base Rate plus the Applicable Base Rate Margin, but such election shall not diminish the Companies' obligation to pay all Reimbursable Taxes theretofore imposed, assessed, levied or collected. (g) If any applicable law or regulation, or the action of any applicable regulatory requirement increases the reserves or capital required for the Credit Facility, the Administrative Agent shall promptly deliver a certificate to the Company specifying in reasonable detail the additional amount as will compensate the Lenders for the additional costs, 7 which certificate shall be conclusive in the absence of manifest error. The Companies shall pay the amount specified in such certificate promptly upon receipt. 3.3 Interest Payment Dates; Late Payment and Default Rate. Interest on Base Rate Advances under any of the Loans shall be payable quarterly in arrears on the last day of each March, June, September and December, beginning March 31, 1999; interest on Eurodollar Rate Advances shall be payable on the last day of each Eurodollar Rate Interest Period (1 month, 2 months, 3 months or 6 months), and in the case of 6-month Eurodollar Rate Interest Periods, also at the end of the first 3 months thereof. Upon the occurrence of a Default and for so long as such Default remains uncured, the interest rate on the Notes shall be increased to the Base Rate plus the Applicable Base Rate Margin plus two percent (2%). Interest after maturity of the Notes for any reason whatsoever (including acceleration following the occurrence of an Event of Default) shall be increased to the Base Rate plus the Applicable Base Rate Margin plus two percent (2%) and shall be payable on demand. 3.4 Facility Fee; Agents' Fee. (a) A facility fee equal to the Applicable Facility Fee Rate on the daily average Available Credit shall begin to accrue on the Effective Date of this Credit Facility, and shall be payable by the Companies quarterly in arrears on the last day of each March, June, September and December, beginning March 31, 1999, through and including the Drawdown Termination Date. (b) A commitment fee for the Credit Facility in the amount of $150,000 (being 0.075% of the Commitments) shall be payable by the Companies to the Administrative Agent to be shared pro rata among the Lenders based on their respective commitments. (c) An Agents' fee for the Credit Facility in the amount set forth in the Agents' Fee Agreement shall be payable by the Companies to the Agents in accordance with the Agents' Fee Agreement. 3.5 Method of Calculating Interest and Fees. Interest at the Base Rate (based on the Prime Rate) shall be computed on the basis of a year consisting of 365 days (366 days in a leap year) and paid for the actual days elapsed. Interest at the Base Rate (based on the Federal Funds Rate) shall be computed on the basis of a year consisting of 360 days and a month consisting of 30 days and paid for the actual days elapsed. Interest at the Eurodollar Rate shall be computed on the basis of a year consisting of 360 days and a month consisting of 30 days and paid for the actual days elapsed. Interest at the Applicable Facility Fee Rate shall be computed on the basis of a year consisting of 360 days and a month consisting of 30 days and paid for the actual days elapsed. 8 Section 4. Payments, Reduction or Termination of the Credit Facility and Prepayments. 4.1 Place of Payment. All payments hereunder (including payments of interest, principal and fees) with respect to the Notes shall be made by the Companies to the Administrative Agent in immediately available funds, prior to 1:00 p.m. (Eastern time) at its offices at 100 Federal Street, Boston, Massachusetts, or at such other place as may be designated by Administrative Agent to the Companies in writing. Any payment received after 1:00 p.m. (Eastern time) shall be deemed received on the next Business Day. Whenever any payment to be made hereunder or under the Notes fall on a date other than a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall be included in the computation of payment of interest or any fees. 4.2 Reduction of Credit Facility; Prepayments. (a) The Companies may from time to time (in the case of Base Rate Tranches) or at the end of any Eurodollar Rate Interest Period (in the case of Eurodollar Rate Tranches), upon at least three (3) Business Days prior telephonic notice (confirmed in writing) to Administrative Agent, permanently reduce the amount of the Commitments available under the Line of Credit (which Commitments shall be reduced proportionately by the Lenders), but only upon payment of the outstanding principal amount of the Line of Credit Notes in excess of the then reduced amount of the Commitments available under the Line of Credit. Any such reduction shall be in an amount of $10,000,000.00 or an integral multiple thereof. The Companies may at any time (in the case of Base Rate Tranches) or at the end of any Eurodollar Rate Interest Period (in the case of Eurodollar Rate Tranches), on like notice, terminate the Commitments available under the Line of Credit upon payment in full of the Line of Credit Notes and other liabilities of the Companies hereunder. In the case of either a reduction or termination of the Commitments, the Companies shall thereafter have no right to increase or restore the Commitments. (b) The Companies may from time to time (in the case of Base Rate Tranches) or at the end of any Eurodollar Rate Interest Period (in the case of Eurodollar Rate Tranches) prepay the principal of the Line of Credit Notes in whole or in part without premium; provided, however, any partial prepayment of principal shall be in an amount of $1,000,000.00 or any integral multiple thereof. Any prepayment of the principal of the Line of Credit Note shall include accrued interest to the date of prepayment on the principal amount being prepaid. 4.3 Prepayments of Term Notes. The Companies may from time to time (in the case of Base Rate Tranches) or at the end of any Eurodollar Rate Interest Period (in the case of Eurodollar Rate Tranches), upon at least three Business Day's prior telephonic notice (confirmed in writing) to the Administrative Agent, prepay the principal of the Term Notes in whole or in part without premium; provided, however, any partial prepayment of principal shall be in an amount not less than $20,000,000.00. Any prepayment of the principal of the Term Notes shall include accrued interest to the date of prepayment on the principal amount 9 being prepaid. All prepayments when made shall be applied pro rata to unpaid installments of principal, and shall not relieve the Companies from the obligation to pay scheduled installments of principal (as reduced by the pro rata application of the prepayment) in accordance with the Term Notes. 4.4 Pro Rata Payments. All payments and prepayments of principal, interest, fees (except the fees payable to the Agents pursuant to the Agents' Fee Agreement), and other amounts paid by the Companies to the Administrative Agent from time to time under this Agreement shall be promptly wired by the Administrative Agent to the Lenders in proportion to their respective Commitments. Section 5. Representations and Warranties of the Companies. The Companies represent and warrant to the Lenders that as of the Effective Date and any date thereafter: 5.1 Corporate Existence. Each of the Companies is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and is duly qualified and in good standing in all jurisdictions wherein the property it owns or the business it transacts make such qualification necessary as a foreign corporation, except where the failure to so qualify would not materially impair the ability of the Company or any of its Subsidiaries to operate its business or own its assets; and each of the Companies has and will continue to have (i) all necessary corporate power and authority and (ii) all necessary material permits, licenses, patents, trademarks and other intangibles, to acquire, own and hold the property and all other properties it purports to own and hold and to carry on its business as now conducted. The Domestic Subsidiaries listed on Exhibit "A" attached hereto constitute all of the Domestic Subsidiaries of the Company. 5.2 Authorization; Validity. Each of the Companies is and/or has been duly authorized to execute and deliver this Agreement and the Notes, and is and will continue to be duly authorized to borrow monies hereunder and to perform its obligations under this Agreement and the Notes. This Agreement and the Notes, as executed and when delivered, shall constitute the legal, valid and binding obligations of each of the Companies, enforceable in accordance with their respective terms. 5.3 Conflicting Agreements and Other Matters. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects the business, property, assets, or financial condition of the Company and its Subsidiaries, taken as a whole. Neither the execution nor delivery of this Agreement or the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including 10 any agreement with stockholders) or instrument to which the Company or any of its Subsidiaries is now a party, or result in the creation of any Lien on any property or assets of the Company or any of its Subsidiaries, or constitute a violation of any law, statute, rule, regulation, order, judgment or decree to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which (i) limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Companies of the type to be evidenced by the Credit Facility, or (ii) which imposes restrictions on the granting of Liens by the Companies on otherwise unencumbered assets of the Companies as security for the Credit Facility. 5.4 Financial Statements. The Company has furnished the Lenders with the consolidated balance sheets of the Company and its Subsidiaries as at fiscal year end in each of the years 1996 through 1998, inclusive, and for the nine- month period ending December 31, 1998, and a consolidated statement of income and statement of cash flows for each such fiscal year and such nine-month period, all identified by a principal financial officer of such Company and all (other than any financial information for such nine-month period) certified by KPMG Peat Marwick LLP with respect to the fiscal years ending March 31, 1996 and March 31, 1997 and by Ernst & Young, LLP with respect to the fiscal year ending March 31, 1998. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and normal year-end adjustments) and have been prepared in accordance with generally accepted accounting principles, and, unless otherwise set forth therein, consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the related statements of earnings, stockholders' equity and cash flows fairly present the results of the operations of the Company and its Subsidiaries for the periods indicated. As of the date of this Agreement, there has been no material adverse change in the business, condition or operations (financial or otherwise) of the Company and its Subsidiaries taken as a whole, since December 31, 1998. 5.5 Litigation and Contingent Liabilities. No litigation or governmental proceedings are pending or threatened against the Company or any of its Subsidiaries, the results of which are likely to materially adversely affect the financial condition or operations of the Company and its Subsidiaries on a consolidated basis, except as provided for or disclosed in the financial statements referred to in Section 5.4 hereof. Other than any liability incident to such litigation or proceedings provided for or disclosed in the financial statements referred to in Section 5.4 hereof, or any other material contingent liabilities provided for or disclosed in the financial statements referred to in Section 5.4 hereof, the Company and its Subsidiaries, on a consolidated basis, do not have any material contingent liabilities. 11 5.6 Outstanding Funded Debt. Neither the Company nor any of its Subsidiaries has outstanding any Funded Debt except as set forth on Schedule 5.6 attached hereto and made a part hereof. There exists no default under the provisions of any instrument evidencing Debt or of any agreement relating thereto. 5.7 Title to Properties. Except for assets which are the subject of Capitalized Lease Obligations, the Company and its Subsidiaries each have and will continue to have good and marketable title to their respective properties and assets, including the properties and assets reflected in the financial statements described in Section 5.4 hereof, subject to no Lien of any kind except Liens permitted by Section 6.8 hereof. All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid and subsisting and are in full force and effect. 5.8 Purpose. The proceeds of the Loan will be used by the Companies only for the purposes specified in Section 1.3 hereof. 5.9 Margin Stock. Neither the Company nor any of its Subsidiaries is engaged in the business of purchasing or selling margin stock (as defined in any regulation of the Board of Governors of the Federal Reserve System) or extending credit to others for the purpose of purchasing or carrying margin stock and no part of the proceeds of any borrowing hereunder will be used to purchase or carry any margin stock or for any other purpose which would violate any of the margin regulations of such Board of Governors. 5.10 ERISA. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company or any of its Subsidiaries which is or would be materially adverse to the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has incurred or presently expects to incur any withdrawal of liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the Company and its Subsidiaries taken as a whole. The execution and delivery of this Agreement will not, and the delivery of the Notes will not, involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended; the term "Plan" shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or by any trade or business, whether or not incorporated, which, together with the Company, is under common control, as described in Section 414(b) or (c) of the Code; and the term "Multiemployer Plan" shall mean any plan which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). 12 5.11 Consents. No consent, approval or authorization of, or registration or declaration with, any federal or state governmental authority or other regulatory agent for the validity of the execution and delivery or for the performance by any of the Companies of this Agreement and the Notes or any agreement or instrument executed in connection herewith, is or will be required. 5.12 Tax Returns; Taxes. The Company has and each of its Subsidiaries have filed all federal, state, foreign and other income tax returns which, to the knowledge of the officers of the Company, are required to be filed by any jurisdiction, and each has paid and will pay all taxes which have or subsequently become due pursuant to said returns or pursuant to any assessments, except those contested in good faith by appropriate proceedings and for which sufficient reserves have been or will be established. 5.13 Compliance with Laws. The Company and each of its Subsidiaries is in substantial compliance with all laws and regulations applicable to the Companies and the businesses conducted by them (including without limitation, laws and regulations relating to pollution and environmental control, equal employment opportunity and employer safety) in all jurisdictions in which the Company and each of its Subsidiaries is presently doing business, and the Company will substantially comply and cause each of its Subsidiaries to substantially comply with all such laws and regulations which may be legally imposed in the future in jurisdictions in which the Company or any Subsidiary may then be doing business. 5.14 Foreign Assets Control Regulations. Neither the borrowing by the Companies hereunder nor their use of the proceeds thereof will violate the Foreign Assets Control Regulations, the Burmese Sanctions Regulations, the Cuban Assets Control Regulations, the Iranian Assets Control Regulations, the Libyan Sanctions Regulations, the Iranian Transactions Regulations, Iraqi Sanctions Regulations, the Sudanese Sanctions Regulations, the UNITA (Angola) Sanctions Regulations or the Federal Republic of Yugoslavia (Serbia and Montenegro) Sanctions Regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V), or the Comprehensive Anti-Apartheid Act of 1986 (P.L. 99-440), or any similar asset control regulations now existing or hereafter promulgated by the United States Treasury Department. 5.15 Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to the Lenders by or on behalf of the Company and the Subsidiaries in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, property or assets, or financial condition, of the Company and any of its Subsidiaries, taken as a whole, and which has not been set forth in this Agreement or in the 13 other documents, certificates and statements furnished to the Lenders by or on behalf of the Company prior to the date hereof in connection with the transactions contemplated hereby. 5.16 Environmental Matters. (i) Neither the Company nor any Subsidiary is subject to any Environmental Liability or Environmental Requirement which could reasonably be expected to have a material adverse effect on the business, financial condition, operations or prospects of the Company and its Subsidiaries, taken as a whole. (ii) Except as set forth on Schedule 5.16, neither the Company nor any Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. None of the Properties has been identified on any current or proposed National Priorities List under 40 C.F.R. (S)300 or any list arising from a state statute similar to CERCLA. None of the Properties has been identified on any CERCLIS list. (iii) No Hazardous Materials have been or are being used, produced, manufactured, processed, generated, stored, disposed of, released, managed at or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties or, to the best knowledge of the Companies, at or from any adjacent site or facility, except for Hazardous Materials used, produced, manufactured, processed, generated, stored, disposed of, released and managed in the ordinary course of business in compliance with all applicable Environmental Requirements, except where failure to comply could not reasonably be expected to have a material adverse affect on the business, operations, or financial condition of the Company and its Subsidiaries, taken as a whole. (iv) Except as set forth in Schedule 5.16, the Company and each of its Subsidiaries has procured all permits, licenses or authorizations (or any variances or waivers) necessary under Environmental Requirements for the conduct of its business. 5.17 Year 2000 Compliance. The Company represents and warrants as follows to Lenders that all devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (collectively, the "Systems") necessary for the Company and its Subsidiaries to carry on its business as presently conducted are Year 2000 Compliant or will be Year 2000 Compliant within a period of time calculated to result in no material disruption of any of the Companies' business operations. For the purposes hereof, "Year 2000 Compliant" means that such Systems are designed to be used prior to, during and after the Gregorian calendar year 2000 A.D. and will operate during each such time period without material error relating to date data, specifically including any error relating to, or the product of, date data which represents or references different centuries or more than one century. 5.18 Special Provisions. The foregoing representations and warranties shall be true and correct as of the Effective Date, and shall remain true and correct from and after the Effective Date. 14 Section 6. Covenants of the Companies. From the date of this Agreement and thereafter until the expiration or termination of the Credit Facility and until the Notes and other liabilities of the Companies hereunder are paid in full: 6.1 Financial Statements: The Company agrees that it will furnish to the Documentation Agent one copy for each of the Lenders of the following: (a) as soon as practicable and in any event within forty-five (45) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period and the related statement of earnings and cash flows for the period from the beginning of the current fiscal year to the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Company, subject to changes resulting from year end adjustments; provided, however, that delivery pursuant to clause (c) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (a); (b) as soon as practicable and in any event within ninety (90) days after the end of each fiscal year, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related statements of earnings, stockholders' equity and cash flow for such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in accordance with generally accepted accounting principles and unrestricted in audit scope and certified as to consolidated statements of the Company by independent public accountants of recognized standing selected by the Company whose certificate shall be in scope and substance satisfactory to Lenders; provided, however, that delivery pursuant to clause (c) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (b); (c) promptly upon transmission thereof, copies of all such financial 15 statements, proxy statements, notices and reports as the Company shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which the Company files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (d) promptly upon receipt thereof, a copy of each other report submitted to the Company or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any of its Subsidiaries and which the Company or any of its Subsidiaries shares with the audit committee of the Board of Directors of the Company; (e) with reasonable promptness, such other financial data as Lenders may reasonably request; and (f) as soon as practicable but in any event not later than ninety (90) days after the beginning of each fiscal year, a consolidated budget of the Company and its Subsidiaries for the ensuing fiscal year. Together with each delivery of financial statements required by clauses (a) and (b) above, the Company will deliver to the Documentation Agent an original of an Officer's Certificate demonstrating (with computations in reasonable detail) compliance with Sections 6.12, 6.13 and 6.14, stating that there exists no Event of Default or Default, or, if any such Event of Default or Default exists, specifying the nature thereof, the period of existence thereof and what action the Company proposes to take with respect thereto. Together with each delivery of financial statements required by clause (b) above, the Company will also deliver to the Documentation Agent an original of a certificate of said accountants stating that, in making the audit necessary to the certification of such financial statements, they have obtained no knowledge of any Default or any Event of Default, or, if any such Event of Default or Default exists, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any such Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Companies also agree that forthwith upon the chief executive officer, principal financial officer or principal accounting officer of the Company obtaining knowledge of: (i) an Event of Default or Default; (ii) a material adverse change in the financial condition, business or 16 operations of the Company and its Subsidiaries, taken as a whole; (iii) the institution of legal proceedings against the Company and/or any Subsidiary, which is likely to materially adversely affect the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole, or which in any manner draws into question the validity of or is likely to impair the ability of the Companies to perform their obligations under this Agreement or the Notes; (iv) the occurrence of any default (after the passage of any grace period) by a Company under any agreement or note evidencing borrowed money for an aggregate initial principal amount equal to or greater than $1,000,000; (v) any (A) Environmental Liability which is likely to materially adversely affect the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole, (B) pending, threatened or anticipated Environmental Proceedings, which is likely to materially adversely affect the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole, (C) Environmental Notice which is likely to materially adversely affect the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole, (D) Environmental Judgment or Order which is likely to materially adversely affect the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole, or (E) Environmental Releases at, on, in, under or in any way materially affecting the Properties; (vi) any violation of the provisions of Section 6.17 hereto relating to ERISA compliance; or (vii) the occurrence of any other event that is likely to impair the ability of the Companies to meet their obligations hereunder. the Company will deliver to the Documentation Agent an Officer's Certificate specifying the nature and period of existence thereof and what action the Company has taken, is taking or proposes to take with respect thereto. The Documentation Agent will promptly distribute to the Lenders, originals (to the extent available) or copies of the financial statements and reports, the Officer's Certificates and all other documents received by the Documentation Agent from the Borrower pursuant to this Section 6.1. 17 6.2 Inspection of Property and Books and Records. The Companies agree that they will permit the Agents, each Lender (with prior notice to the Agents) and any Person designated by the Agents in writing, at Agents' (or Lender's) expense, to visit and inspect any of the properties of the Company and its Subsidiaries, to examine the corporate books and financial records of the Companies and make copies thereof or extracts therefrom, and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of each of the Companies and their respective independent public accountants, all at such reasonable times and as often as Agents or the Lenders may reasonably request. 6.3 Covenant to Secure Notes Equally. (a) The Companies agree that if the Company or any Subsidiary shall create or assume any Lien of any kind upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of Section 6.8 (unless prior written consent to the creation or assumption thereof shall have been obtained), they will make or cause to be made effective provisions whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured, as long as any such other Debt shall be so secured. (b) The Companies agree not to become a party to, or otherwise be subject to, any provision contained in any instrument evidencing indebtedness of any of the Companies which imposes restrictions on the granting of Liens by the Companies on otherwise unencumbered assets of the Companies as security for the Notes, except as set forth herein. 6.4 Guaranteed or Collateralized Obligations. The Company agrees that if it or any of its Subsidiaries incurs or permits to exist any Debt in any event in excess of an aggregate principal amount equal to $10,000,000 guaranteed or collateralized (except as permitted by Sections 6.8(v) and 6.8(ix) hereof) in any other manner by any other Person (other than any governmental entity, or other than in connection with (y) bonds, letters of credit, letters of undertaking, or other instruments related to litigation, or the avoidance thereof, involving the Company or its Subsidiaries, including the release of assets of the Company or its Subsidiaries in connection with such litigation, or (z) performance bonds, surety bonds, letters of credit, bank guaranties, and other instruments related to the conduct of the business of the Company or its Subsidiaries, excluding any obligation for borrowed money), it will simultaneously cause such Person to execute and deliver to the Lenders a guaranty agreement or collateral agreement, as the case may be, in form and substance satisfactory to the Lenders either (i) guaranteeing payment of the principal amount of the Notes and any premium and interest thereon, which bears the same ratio to the total unpaid principal amount of the Notes as the amount of such other obligation which is guaranteed bears to the total unpaid principal amount of such other obligation or (ii) collateralizing the Notes equally and ratably with such other obligation, as the case may be. Nothing contained in the foregoing shall be deemed to permit the Companies to incur Liens to Persons other than the Lenders in excess of those permitted by Section 6.8 hereof. 18 6.5 Maintenance of Insurance. Each Company agrees that it and each Subsidiary will maintain, with responsible insurers, insurance with respect to its properties and business against such casualties and contingencies (including, but not limited to, public liability, larceny, embezzlement or other criminal misappropriation, pollution and war risks) and in such amounts as is customary in the case of similarly situated corporations engaged in the same or similar businesses. 6.6 Maintenance of Corporate Existence/Compliance with Law/Preservation of Property. Except as allowed under Sections 6.10 and 6.11, each Company covenants that it and each Subsidiary will do or cause to be done all things necessary to preserve, renew and keep in full force and effect the corporate existence of such Company and its Subsidiaries and comply in all material respects with all laws and regulations (including, without limitation, laws and regulations relating to equal employment opportunity and employee safety) applicable to it and its Subsidiaries, the failure with which to comply is likely to materially adversely affect the business, operations or financial condition of such Company and its Subsidiaries, taken as a whole; at all times maintain, preserve and protect all material intellectual property of such Company and its Subsidiaries, and preserve all the remainder of its material property used or useful in the conduct of its business and keep the same in good repair, working order and condition. The Companies shall not enter into business activities materially different from the nature of the business activities of the Companies as of the date of this Agreement. 6.7 Compliance with Environmental Laws. Each of the Companies will, and the Company will cause each of its Subsidiaries to, comply in a timely fashion with, or operate pursuant to valid waivers of the provisions of, all Environmental Requirements including, without limitation, requirements with respect to the emission of wastewater effluent, solid and hazardous waste and air pollution, and any other applicable requirements for conducting, on a timely basis, periodic tests and monitoring for contamination of ground water, surface water, air and land and for biological toxicity of the aforesaid, and comply with any applicable regulations (except to the extent such regulations are waived by appropriate governmental authorities) of the Environmental Protection Agency or other relevant federal, state or local governmental authority, except where the failure to do so is not likely to materially adversely affect the business, operations or financial condition of the Company and the Subsidiaries, taken as a whole. To the fullest extent permitted by applicable law, each Company agrees to indemnify and hold the Agents, the Lenders, their officers, agents and employees harmless from any loss, liability, claim or expense that they may incur or suffer as a result of a breach by the Company or any of the Subsidiaries, as the case may be, of this covenant. No Company shall be deemed to have breached or violated this Section 6.7 if such Company or Subsidiary is challenging in good faith by appropriate proceedings diligently pursued the application or enforcement of such Environmental Requirements for which adequate reserves have been established in accordance with generally accepted accounting principles. 19 6.8 Liens. The Companies agree that they will not and will not permit any Subsidiary to create, assume or suffer to exist any Lien upon any of their respective property or assets, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of the Credit Facility in accordance with the provisions of Section 6.3) except: (i) Liens for taxes (including ad valorem and property taxes) not yet due or which are being contested in good faith by appropriate proceedings; (ii) Liens incidental to the conduct of their businesses or the ownership of their property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances of credit, and which do not in the aggregate materially detract from the value of their property or assets or materially impair the use thereof in the operation of their business; (iii) presently existing Liens on property or assets of any of the Subsidiaries to secure obligations of any of such Subsidiaries to the Company or another Subsidiary; (iv) presently existing Liens on property or assets of any Foreign Subsidiary consisting of marine mortgages on new vessels under construction or on vessels already constructed, which Liens were required as a condition of new vessel financing from non-United States sources, all of which Liens (other than Liens which are incidental and do not materially affect such property or assets) are set forth on Schedule 2-Part 1 attached hereto and made a part hereof; (v) any presently existing Lien which existed on any real or personal property of any corporation at the time it became a Subsidiary, or which existed prior to the time of acquisition upon any real or personal property acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the Company or any Subsidiary, or placed upon real or personal property acquired by the Company or any Subsidiary, in connection with the purchase thereof, all of which Liens (other than Liens which are incidental and do not materially affect such property) are set forth on Schedule 2-Part 2 attached hereto and made a part hereof, provided that any such Lien shall not encumber any other property of the Company or any Subsidiary; (vi) any Lien renewing, extending or refunding any Lien permitted by clause 20 (v) above, provided that the principal amount secured is not increased and the Lien is not extended to other property; (vii) Liens to secure up to $20,000,000 of letters of credit obligations of the Company; (viii) any common law right of set off or banker's lien arising in the ordinary course of business in connection with deposit arrangements maintained by the Company and its Subsidiaries with its banks or other financial institution, other than a Lender in connection with this Agreement (which such rights have been waived pursuant to Section 9.3 hereof); and (ix) Liens on assets covered by financing arrangements, including lease financing arrangements which would be characterized as capitalized leases in accordance with generally accepted accounting principles, if the indebtedness for all such agreements does not in the aggregate exceed ten percent (10%) of Consolidated Stockholders' Equity. 6.9 Investments. The Companies agree that they will not and will not permit any Subsidiary to make any investment in, or any loan or advance to, or own, purchase or acquire (other than as allowed in Section 6.11) any stock or securities of, any Person (all of the foregoing being herein called "Restricted Investments"), except that: (i) the Company or any of its Subsidiaries may own, purchase or acquire (A) direct obligations of the United States of America or any of its agencies or obligations guaranteed by the United States of America or any of its agencies and having maturities not in excess of two years from the date of purchase or acquisition, (B) prime commercial paper rated A1 or P1 and having maturities not in excess of two years from the date of purchase or acquisition, (C) certificates of deposit issued by any banks with a net worth of at least $100,000,000 and a rating by either Moody's Investor Services, Inc. or Standard & Poors of at least A or better and having maturities not in excess of two years from the date of purchase or acquisition; provided, however, that in the case of any Lender or Lenders whose rating is less than A, the maximum amount of the certificates of deposit issued by such Lender or Lenders shall not exceed $3,000,000 individually or $12,000,000 in the aggregate; (ii) any Canadian Subsidiary may own, purchase or acquire direct obligations of the Canadian Government having maturities not in excess of two years from the date of purchase or acquisition; 21 (iii) the Company or any of its Subsidiaries may (A) make or permit to remain outstanding loans or advances to the Company or any Subsidiary, (B) own, purchase or acquire stock or securities of a Subsidiary or of a corporation which immediately after such purchase or acquisition will be a Subsidiary, or (C) acquire and own stock or securities received in a settlement of debts created in the ordinary course of business and owed to the Company or any Subsidiary; (iv) any Foreign Subsidiary may own, purchase or acquire certificates of deposit having maturities not in excess of two years from the date of purchase or acquisition and issued by foreign banks or by the foreign branches of United States banks if each such foreign bank or foreign branch has a net worth of at least $100,000,000 and a rating by either Moody's Investor Services, Inc. or Standard & Poors of at least A or better; and (v) the Company or any Subsidiary may make loans or advances to or own, purchase or acquire stock or securities or an interest in any joint venture entity; provided, however, that the aggregate amount of all such loans, advances and investments in joint venture entities at any time outstanding shall not exceed $100,000,000. The foregoing restrictions on investments by the Companies shall not apply to funds maintained in rabbi trusts established by the Companies for supplemental executive retirement plans and early retirement incentive programs. Furthermore, the foregoing restrictions on investments by the Company shall not apply to purchases by the Company of its own stock or securities. 6.10 Dispositions of Stock and Debt. The Companies agree that they will not and will not permit any Subsidiary to sell or otherwise dispose of any shares of stock or Debt of any Subsidiary, except (i) to the Company or another Subsidiary, (ii) a sale of shares of a Subsidiary in connection with the creation of a joint venture (subject to the limitations on investments set forth in Subsections 6.9(v), and (iii) except that all shares of stock and Debt of any Subsidiary at the time owned by or owed to the Company or any of its Subsidiaries may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Board of Directors of the Company) at the time of sale of the shares and Debt so sold; provided that the assets of such Subsidiary do not constitute a substantial part of the consolidated assets of the Company and its Subsidiaries; and provided further that, at the time of such sale, such Subsidiary shall not own, directly or indirectly, any Debt of the Company or any shares of stock or Debt of any other Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary owned, directly or indirectly by the Company and all Subsidiaries are simultaneously being sold as permitted by this Section 6.10; and provided, 22 further, that the Company may sell 70% of the stock of Tidewater (Malaysia) Sdn.Bhd. to citizens of Malaysia. 6.11 Mergers and Consolidations. The Companies agree that they will not and will not permit any Subsidiary to merge or consolidate with any other corporation or sell, lease or transfer or otherwise dispose of all or a substantial part of its assets to any Person, except that provided no Default has occurred and is continuing and further provided that no Default will occur as a result thereof: (i) any Subsidiary may merge or consolidate with the Company (provided that the Company shall be the continuing or surviving corporation) or with any one or more other Subsidiaries; (ii) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Company or another Subsidiary; (iii) any Subsidiary may sell or otherwise dispose of all or substantially all of its assets subject to the conditions specified in Section 6.11 with respect to a sale of the stock of such Subsidiary; (iv) the Company may merge or consolidate with any corporation provided that the Company shall be the continuing or surviving corporation; and (v) any Subsidiary may merge or consolidate with any corporation provided such continuing or surviving corporation shall remain or become a Subsidiary of the Company. 6.12 Minimum EBITDA to Fixed Charge Ratio. The Company agrees that it will not permit its EBITDA to Fixed Charge Ratio to be less than 2.00 to 1.00. 6.13 Maximum Funded Debt to EBITDA Ratio. The Company agrees that it will not permit its Funded Debt to EBITDA Ratio to be greater than 3.00 to 1.00. 6.14 Maximum Funded Debt to Total Capitalization Ratio. The Company agrees that it will not permit its Funded Debt to Total Capitalization Ratio to be greater than 0.40 to 1.00. 6.15 Transactions with Related Party. The Companies agree that they will not and will not permit any Subsidiary to effect any transaction with any Affiliate or Subsidiary by which any asset or services of a Company or a Subsidiary is transferred to such Affiliate or Subsidiary, or from such Affiliate or Subsidiary or enter into any other transaction with an Affiliate or Subsidiary, on terms less favorable to such Company or such Subsidiary than would be reasonably expected to be given in a similar transaction with an unrelated entity. 23 The foregoing restrictions shall not apply to transactions between the Company and a Subsidiary or a Subsidiary and another Subsidiary. 6.16 Stock Transactions by Subsidiaries. The Company agrees that it will not permit any Subsidiary to issue, sell or dispose of any shares of any class of its stock (other than directors' qualifying shares or shares which are effectively controlled by the Company) except to the Company or another Subsidiary or as permitted by Section 6.11. 6.17 ERISA. The Company agrees that it will not, and will not permit any Subsidiary to: (i) terminate or withdraw from any Plan so as to result in any material liability to the PBGC; (ii) engage in or permit any Person to engage in any prohibited transaction (as defined in Section 4975 of the Code) involving any Plan (other than a Multiemployer Plan) which would subject the Company or any Subsidiary to any material tax, penalty or other Liability; (iii) incur or suffer to exist any material accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, involving any Plan (other than a Multiemployer Plan); or (iv) allow or suffer to exist any risk or condition, which presents a material risk of incurring a material liability to the PBGC. 6.18 Federal Reserve Regulations, etc. The Company agrees that it will not, and will not permit any Subsidiary or any agent acting on behalf of the Company or any Subsidiary, to take any action which might cause this Agreement or the Notes to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in effect. 6.19 Environmental Matters. Each of the Companies agrees that it will not, and will not permit any Third Party to, use, produce, manufacture, process, generate, store, dispose of, manage at, or ship or transport to or from the Properties any Hazardous Materials except for Hazardous Materials used, produced, manufactured, processed, generated, stored, disposed of, released or managed in the ordinary course of business in compliance with all applicable Environmental Requirements and except for Hazardous Materials released in amounts which do not require remediation pursuant to applicable law or regulation, and which do not present any danger to health, safety or the environment, or unless any liability resulting from such remediation is not likely to materially adversely affect the business, operations or financial 24 condition of the Company and its Subsidiaries, taken as a whole. 6.20 Taxes. The Company agrees that it will pay when due, and cause each of its Subsidiaries to pay when due, all taxes, assessments, and other liabilities, other than for borrowed money, except and so long as contested in good faith. Section 7A. Conditions Precedent to the Funding of the Initial Advance under the Credit Facility. The obligation of the Lenders to make the initial Advance under the Line of Credit to the Companies under this Agreement are subject to the receipt by the Documentation Agent of the following: 7A.1 Resolutions of the Companies. Copies, duly certified by the secretary or assistant secretary of each of the Companies, of (a) the resolutions of the Board of Directors of each of the Companies authorizing the borrowings hereunder and the execution and delivery of this Agreement and the Notes, (b) all documents evidencing other necessary corporate action, and (c) all approvals, or consents, if any, necessary with respect to this Agreement and the Notes. 7A.2 Organization Documents; Good Standing. Copies of (a) the certificate of incorporation of the Company (certified as of a recent date by the Secretary of State of Delaware), (b) the by-laws of the Company, certified by the secretary or assistant secretary of the Company, (c) the certificate of incorporation and by-laws of each Identified Subsidiary, certified by the secretary or assistant secretary of such Identified Subsidiary, in each case as in effect on the Effective Date, (d) certificates of good standing for the Company and each of the Identified Subsidiaries, issued by the Secretary of State of their respective states of incorporation, (e) certificate of qualification to do business of the Company issued by the Secretary of State of the State of Louisiana. 7A.3 Incumbency. Certificates of the secretary or assistant secretary of each of the Companies, certifying the name of the officers of each of the Companies, respectively, authorized to execute this Agreement and the Notes, and all other documents or certificates to be delivered hereunder, together with the true signatures of such officers. 7A.4 Notes. The duly executed Line of Credit Notes payable to the respective Lenders. 7A.5 Officer's Certificate. A certificate of the president or chief financial officer of the Company, dated as of the Effective Date, certifying that as of the Effective Date (i) the representations and warranties of the Companies set forth in Section 5 hereof are true and correct, (ii) no Event of Default has occurred, and (iii) no material adverse change in the financial condition, business, operations or prospects of the Company or its Subsidiaries has occurred since December 31, 1998. 25 7A.6 Opinion. The opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., special counsel to the Company, addressed to the Lenders, to the effect that (a) each of the Company and the Identified Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified and in good standing as a foreign corporation in all jurisdictions wherein the property it owns or the business it transacts makes such qualification necessary, except where the failure to so qualify would not impair the ability of Company or any of the Identified Subsidiaries to operate its business or own its assets; (b) each of the Companies has full power to execute, deliver and perform its obligations under this Agreement, the Line of Credit Notes and the Term Notes; (c) such actions have been duly authorized by all necessary corporate action, and are not in conflict with any provision of law or of the charter or by-laws of any of the Companies, nor in conflict with any agreement binding upon the Company or any of the Identified Subsidiaries; (d) this Agreement and the Line of Credit Notes, when executed and delivered, are the legal and binding obligations of the Companies, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, reorganization, moratorium or similar laws; and (e) no consent or approval of the shareholders of the Company or of any governmental authority is required as a condition to the validity or enforceability of this Agreement or the Notes. 7A.7 Payment of Fees and Expenses. Evidence that the Company has paid (i) all underwriting fees due the Administrative Agent pursuant to the Agents' Fee Agreement, and (ii) all other fees and expenses of the Agents and their counsel as described in Section 11.5 hereof. 7A.8 Termination of Prior Credit Facility. Copy of the irrevocable notice of termination given by the Company pursuant to Section 1.5 hereof, to fully terminate the credit facility pursuant to the Revolving Credit and Term Loan Agreement, dated as of March 19, 1997, as amended, together with a certification by the Company that all amounts due thereunder have been paid in full or will be paid in full simultaneously with the initial Advance under this Credit Facility. Section 7B. Conditions Precedent to the Funding of the Term Loan. In addition to the conditions precedent set forth in Section 7A above, the obligation of the Lenders to make the Term Loan to the Companies, are subject to the receipt by the Documentation Agent on the Drawdown Termination Date of the following: 7B.1 Notes. The duly executed Term Notes payable to the respective Lenders. 7B.2 Officer's Certificate. A certificate of the president or chief financial officer of the Company, dated as of the Drawdown Termination Date, certifying that as of the Drawdown Termination Date (i) the representations and warranties of the Companies set forth 26 in Section 5 hereof are true and correct, (ii) no Event of Default has occurred, and (iii) no material adverse change in the financial condition, business, operations or prospects of the Company or its Subsidiaries has occurred since the date of the most recent financial statements timely furnished by the Company to the Documentation Agent. Section 8. Conditions Precedent to Subsequent Advances Under the Line of Credit and Funding of the Term. In addition to the applicable conditions precedent set forth in Section 7A or Section 7B above, the obligation of the Lenders to make any subsequent Advances under the Line of Credit, and the obligation of the Lenders to fund the Term Loan, are subject to the satisfaction of each of the following conditions precedent: 8.1 Default. Before and after giving effect to such Advance or funding of the Term Loan, no Default shall have occurred and be continuing. 8.2 Representations and Warranties. Before and after giving effect to such Advance or funding of the Term Loan, the representations and warranties in Section 5 hereof shall be true and correct as though made on the date of such Advance or funding of the Term Loan, except (i) for such changes as are specifically permitted hereunder and (ii) that the representations and warranties contained in the last sentence of Section 5.4 hereof (relating to no material adverse change) shall refer to changes from the most recently timely submitted financial statements of the Company. Section 9. Events of Default; Remedies; Set Offs. 9.1 Events of Default. Any one of the following events shall constitute Events of Default hereunder and under the Credit Facility and the Notes, individually and collectively: (a) The Companies default in the payment of any principal on any Note when the same shall become due, either by the terms thereof or otherwise as herein provided. (b) The Companies default in the payment of any interest on any Note or any other amount due hereunder for more than 5 days after the date due. (c) The Company or any Subsidiary defaults in any payment of principal or of interest on any other obligation for borrowed money (including, but not limited to, any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or in the performance or observance of any other agreement, term or condition contained in any agreement under which any such obligation is created if the effect of such 27 default is to cause, or permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be defeased or repurchased by the Company or any Subsidiary) prior to its stated maturity, provided that the aggregate amount of all obligations as to which such payment default shall occur and be continuing or such failure (or defeasance or resale) or other event causing or permitting acceleration shall occur and be continuing exceeds $1,000,000, individually or in the aggregate. (d) Any representation or warranty made by the Companies herein or in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made or deemed made. (e) The Companies default in the performance or observance of any agreement or covenant contained in Sections 6.8 through 6.20 of this Agreement. (f) The Companies default in the performance or observance of any other agreement, covenant, term or condition contained herein and such default shall not have been remedied within 30 days after the earlier to occur of (i) the date on which the President, the Treasurer or the Chief Financial Officer of the Company obtains actual knowledge thereof or (ii) the date on which written notice thereof shall have been received by the Company from the Administrative Agent. (g) The Company or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due. (h) Any decree or order for relief in respect of the Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereinafter in effect (herein called "Bankruptcy Law"), of any jurisdiction. (i) The Company or any Subsidiary petitions or applies to any tribunal for, or consents to the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official, of the Company or any Subsidiary, or of any substantial part of the assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction. (j) Any such petition or application described in Section 9.1(i) is filed, or any such proceedings are commenced, against the Company or any Subsidiary, and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto, or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, 28 custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days. (k) Any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order remains in effect for more than 60 days. (l) Any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary, as the case may be, decreeing a split-up of the Company or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary whose assets represent a substantial part, of the assets of the Company and its Subsidiaries or which requires the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of the Consolidated Net Income of the Company and its Subsidiaries for any of the three (3) fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days. (m) A final judgment in an amount in excess of $1,000,000 is rendered against the Company or any Subsidiary and, within 60 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment is not discharged. 9.2 Remedies. (a) If any Event of Default specified in Subsections 9.1(h), 9.1(i) or 9.1(j) occurs, the Credit Facility shall automatically be deemed terminated and the outstanding Notes shall automatically become immediately due and payable, all without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Companies. If any Event of Default occurs under any other subsection of Section 9.1, the Required Lenders may, at their option, and in addition to any right, power or remedy provided by law or equity, by notice in writing to the Company, declare the Credit Facility to be terminated and the outstanding Notes to be immediately due and payable, whereupon the Credit Facility shall be terminated and the outstanding Notes shall become immediately due and payable, all without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Companies. (b) In furtherance to the remedies specified above, the Documentation Agent (with the direction of the Required Lenders) may proceed to protect and enforce the Lenders' rights under this Agreement and the outstanding Notes by exercising such remedies as are available to the Documentation Agent or the Lenders in respect thereof under applicable law (except to the extent waived by Section 9.3 hereof), either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid for the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the Documentation Agent or the Lenders is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall 29 be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise, except to the extent waived by Section 9.3 hereof. 9.3 Waiver of Set-Offs. The Administrative Agent, each Agent and each Lender hereby specifically waive (i) the right to set-off any funds of any of the Companies in possession of the Administrative Agent, each Agent or any Lender against the obligation of the Companies to the Administrative Agent, each Agent or any Lender pursuant to this Agreement, or (ii) any counterclaim against, security interest in or banker's or other lien on, any of such funds or accounts of the Companies. Section 10. The Agents. 10.1 Appointment and Authorization. (a) Each Lender appoints and authorizes the Administrative Agent to receive all payments of principal, interest, fees and other amounts payable by the Companies under this Agreement and to remit same immediately to the Lenders, to disburse the Advances from the Lenders, and to take such action and to exercise such powers under this Agreement and the Notes as are delegated to the Administrative Agent by the Lenders from time to time. The Administrative Agent shall promptly distribute to the Lenders upon receipt all payments and prepayments of principal, interest, fees and other amounts paid by the Companies under this Agreement, in proportion to the Lenders' Commitments. Similarly, the Lenders shall be obligated to fund Advances in proportion to their Commitments. The Administrative Agent shall promptly distribute to the Agents the fees payable by the Companies pursuant to the Agents' Fee Agreement. The Administrative Agent may resign at any time by written notice to the Lenders; the successor Administrative Agent shall be selected by the Required Lenders from between the remaining Agents. (b) Each Lender appoints and authorizes the Documentation Agent to hold this Agreement and all other documentation in connection herewith (except for the Notes which will be held by the respective Lenders), and to take such action and exercise such powers under this Agreement and the Notes as are delegated to the Documentation Agent by the Lenders from time to time. Any requests by the Company for consent by the Lenders or waiver or amendment of provisions of the Agreement shall be delivered by the Company to the Documentation Agent (with copies to the other Agents), but favorable action on such requests shall require the approval of the Required Lenders. (c) Each Lender appoints and authorizes the Syndication Agent to supervise the syndication of the Credit Facility to a group of financial institutions identified by the Syndication Agent in consultation with the Administrative Agent, the Documentation Agent and the Company in accordance with the provisions of Section 10.6 hereof. 10.2 Agents' Reliance. Neither the Agents nor any of their directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or 30 in connection with this Agreement and the Notes, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agents: (i) may treat the payee of any of the Notes as the holder thereof until the Documentation Agent receives written notice of the assignment or transfer thereof, signed by such payee and in form satisfactory to the Documentation Agent; (ii) may consult with legal counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement and the Notes; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement and the Notes or to inspect any property (including the books and records) of the Companies; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement and the Notes or any other instrument or document furnished pursuant thereto; and (vi) shall incur no liability under or in respect to this Agreement and the Notes by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. 10.3 Acts by Administrative Agent after Default, etc. In the event that the Administrative Agent shall have been notified in writing by any of the Companies or the Lenders of any Event of Default (or in the event that the officer of the Administrative Agent responsible for the Borrower's account obtains actual knowledge of an Event of Default), the Administrative Agent (a) shall immediately notify the Lenders; (b) shall take such action and assert such rights under this Agreement as it is expressly required to do pursuant to the terms of this Agreement with the consent of the Required Lenders; (c) may take such other actions and assert such other rights as it deems advisable, in its discretion, for the protection of the interests of the Lenders pursuant to applicable laws with the consent of the Required Lenders; and (d) shall inform all the Lenders of the taking of action or assertion of rights pursuant to this Section. Each Lender agrees with the Administrative Agent and the other Lenders that the decisions and determinations of the Required Lenders in enforcing this Agreement and the Notes and guiding the Administrative Agent in those matters shall be binding upon all the Lenders, including, without limitation, authorizing the Administrative Agent at the pro rata expense of all the Lenders (to the extent not reimbursed by the Companies) to retain attorneys to seek judgment on this Agreement and the Notes. Each Lender agrees with the other Lenders that it will not, without the consent of the other Lenders, separately seek to institute any legal action with respect to the Loan; provided that following the maturity of the Notes (whether by acceleration or at stated maturity), each Lender may, without the concurrence of the other Lenders, separately seek to institute any legal action with respect to the Loan. 10.4 Lender Credit Decision. Each Lender acknowledges that it has, independently 31 and without reliance upon the Agents or any other Lender and based on the financial statements referred to in Section 5.4 hereof and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents 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 this Agreement and the Notes. 10.5 Agents. Agents shall have the same rights and powers under this Agreement and the Notes as any other Lender and may exercise the same as though it were not the Agents; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Agents in its individual capacity. Agents may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with the Company as if Agents were not the Agents and without any duty to account therefor to the Lenders. 10.6 Assignments and Participations. (a) No Lender may assign to any other Person any portion of its interests, rights and obligations under this Agreement (including, without limitation, any portion of its Commitment or the Loan at the time owing to it and Note held by it) unless each of the following conditions is or has been satisfied: (i) each of the Documentation Agent and Administrative Agent have given its prior written consent (which consent will not be unreasonably withheld), (ii) the Company has given its prior written consent (which consent will not be unreasonably withheld), (iii) each such assignment is of a constant, and not a varying, percentage of all the assigning Lender's rights and obligations under this Agreement, (iv) the assignment is for a Commitment of $10,000,000 or more, (v) the parties to such assignment have executed and delivered to the Documentation Agent an Assignment and Acceptance, substantially in the form of Exhibit "E" hereto (the "Assignment and Acceptance"), together with any Note subject to such assignment, one or more signature pages to this Agreement containing the signature of the assignee, and (following the Effective Date) payment by the assignee to the Documentation Agent for its own account of an assignment administration fee in the amount of $3,500, (vi) the Documentation Agent shall have delivered to the Company a copy of such fully-executed Assignment and Acceptance, and (vii) the assignee is (A) a state or national commercial bank located in the United States or (B) a bank organized under a jurisdiction other than the United States, provided that such foreign bank has provided the Documentation Agent and the Company with the tax forms prescribed in Section 11.6(c) hereof, and provided further that such foreign bank shall not transfer its interests, rights and obligations under this Agreement to any Affiliate of such foreign bank unless such Affiliate provides the Documentation Agent and the Company with the aforesaid tax forms. Upon satisfaction of each of the foregoing conditions and upon acceptance and notation by the Documentation Agent, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (x) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender, and 32 (y) the assigning Lender shall, to the extent provided in such assignment, be released from its obligations under this Agreement. Notwithstanding the foregoing, the restrictions contained above in this Section 10.6(a) shall not apply to assignments to any Federal Reserve Bank, and the conditions set forth in clauses (i) and (ii) above shall not apply to assignments by any Lender to any Person which controls, is controlled by, or is under common control with, or is otherwise substantially affiliated with that Lender. (b) Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment together with any Note or Notes subject to such assignment and the written consent of the Documentation Agent, Administrative Agent and the Company to such assignment, the Documentation Agent shall give prompt notice thereof to the Company and the Lenders. Within five (5) Business Days after receipt of such notice, the Companies at their own expense, shall execute and deliver to the Documentation Agent, in exchange for the surrendered Note, a new Note or Notes to the order of such assignee(s) in an amount equal to the amount assumed by such assignee(s) pursuant to such Assignment and Acceptance and, if the assigning Lender has retained some portion of its obligations hereunder, a new Note or Notes to the order of the assigning Lender in an amount equal to the amount retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in the form of the assigned Note. The surrendered Note shall be cancelled and returned to the Company. The Documentation Agent shall have the right to substitute a revised Exhibit B hereto to reflect the respective commitments following each such assignment. (c) Each Lender, without the consent of the Company or the Agents, may sell participations to one or more banks in all or a portion of its Loans (including its Commitment) under this Agreement, provided that the selling Lender shall retain the sole right and responsibility to enforce the obligations of the Companies relating to such Loans and that the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of this Agreement shall be the right to approve waivers, amendments, or modifications which require the consent of all of the Lenders as provided in Section 11.12 hereof. Section 10.7 Indemnification of the Agents. The Lenders ratably (computed by reference to each Lender's respective Commitment) shall indemnify each Agent, their respective affiliates and the respective shareholders, directors, officers, employees, agents and counsel of the foregoing (each an " Agent Indemnitee") and hold each Agent Indemnitee harmless from and against any and all claims (whether groundless or otherwise), liabilities, losses, damages, costs and expenses of any kind, including, without limitation, (i) the reasonable fees and disbursements of counsel and (ii) any expenses for which the Agents have not been reimbursed by the Companies as required by this Agreement), which may be incurred by such Agent Indemnitee arising out of or related to this Agreement or the transactions 33 contemplated hereby, or the Agents' actions taken hereunder; provided that no Agent Indemnitee shall have the right to be indemnified hereunder for such Agent Indemnitee's own gross negligence or willful misconduct, as determined by a court of competent jurisdiction, or to the extent that such claim relates to the breach by such Agent Indemnitee of its obligations under this Agreement. Section 11. General. 11.1 Definitions. As used in this Agreement, terms used herein with initial capital letters shall have the following meanings, unless defined elsewhere in this Agreement or unless the context clearly indicates otherwise: "Administrative Agent" shall mean BankBoston, N.A., or its successor selected pursuant to Section 10.1 hereof. "Agent Indemnitee" shall have the meaning specified in Section 10.7 hereof. "Advances" shall have the meaning specified in Section 1.1 hereof. "Affiliate" shall mean, as to any Person, any Subsidiary of such Person and any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" shall mean the possession of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and an Affiliate of any of the Companies includes, without limitation, any officer or director of such corporation and any Person who beneficially owns, directly or indirectly, 10% or more of the issued outstanding capital stock of such corporation. "Agents" shall mean BankBoston, N.A., Bank One, Louisiana, National Association and Chase Bank of Texas, National Association. "Agents Fee Agreement" shall mean any agreement among the Agents and the Company from time to time relating to the compensation of the Agents in connection with the preparation, negotiation, syndication and administration of the Credit Facility. "Agreement" shall mean this Revolving Credit and Term Loan Agreement, as it may be amended and restated, modified and/or supplemented from time to time. "Applicable Base Rate Margin" shall mean the following per annum interest rate applicable to Base Rate Advances from time to time depending on the Funded Debt to Total Capitalization Ratio Level of the Company: 34 Level Applicable Base Rate Margin ----- --------------------------- Level I 0.000% Level II 0.000% Level III 0.000% The Applicable Base Rate Margin for any fiscal quarter shall be determined by reference to the Funded Debt to Total Capitalization Ratio as of the last day of the second fiscal quarter prior to the quarter for which the Applicable Base Rate Margin is determined. For example, the Applicable Base Rate Margin for the fiscal quarter beginning April 1, 1999 shall be determined on the basis of the Funded Debt to Total Capitalization Ratio of the Company as of December 31, 1998. "Applicable Eurodollar Rate Margin" shall mean the following per annum interest rate applicable to Eurodollar Rate Advances from time to time depending on the Funded Debt to Total Capitalization Ratio Level of the Company: Level Applicable Eurodollar Rate Margin ----- --------------------------------- Level I 0.500% Level II 0.625% Level III 0.750% The Applicable Eurodollar Rate Margin for any fiscal quarter shall be determined by reference to the Funded Debt to Total Capitalization Ratio as of the last day of the second fiscal quarter prior to the quarter for which the Applicable Eurodollar Rate Margin is determined. For example, the Applicable Eurodollar Rate Margin for the fiscal quarter beginning April 1, 1999 shall be determined on the basis of the Funded Debt to Total Capitalization Ratio of the Company as of December 31, 1998. "Applicable Facility Fee Rate" shall mean the following per annum facility fee interest rate applicable to the Available Credit from time to time depending on the Funded Debt to Total Capitalization Ratio Level of the Company: Level Applicable Facility Fee Rate ----- ---------------------------- Level I 0.250% Level II 0.250% Level III 0.250% The Applicable Facility Fee Rate for any fiscal quarter shall be determined by reference to the Funded Debt to Total Capitalization Ratio as of the last day of the second fiscal quarter prior to the quarter prior to the quarter for which the Applicable Facility Fee Rate is determined. For example, the Applicable Facility Fee Rate for the fiscal quarter beginning April 1, 1999 shall 35 be determined on the basis of the Funded Debt to Total Capitalization Ratio of the Company as of December 31, 1998. "Assignment and Acceptance" shall have the meaning specified in Section 10.6 hereof. "Available Credit" shall have the meaning specified in Section 1.1 hereof. "Bankruptcy Law" shall have the meaning specified in Section 9.1(h) hereof. "Base Rate" shall mean the greater of (i) the Prime Rate or (ii) the Federal Funds Rate plus 0.5%. "Base Rate Advances" shall mean advances bearing interest at the Base Rate plus the Applicable Base Rate Margin. "Base Rate Tranche" shall mean any part of the principal amount of the Loans that constitutes Base Rate Advances. "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New Orleans, Louisiana (or London, England in the case of Eurodollar Rate Advances or payments) are required or authorized to be closed. "Canadian Subsidiary" shall mean any Subsidiary organized under the laws of Canada or any province thereof. "Capital Asset" shall mean any asset other than a current asset (as determined in accordance with generally accepted accounting principles). "Capitalized Lease Obligation" shall mean any rental obligation which, under generally accepted accounting principles, is or will be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles, on a consolidated basis. "CERCLA" shall mean the Comprehensive Environmental Response Compensation and Liability Act, as amended. "CERCLIS" shall mean the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Code" shall have the meaning specified in Section 5.10. "Commitments" shall mean the Line of Credit Commitments. 36 "Company" shall mean Tidewater Inc. "Companies" shall mean the Company and the Domestic Subsidiaries. "Consolidated EBITDA" shall mean Consolidated Net Income of the Company and its Subsidiaries, plus (i) interest expense, (ii) tax expense and (iii) depreciation and amortization expense, to the extent that any of such items are deducted from consolidated gross revenues of the Company and its Subsidiaries for the purpose of determining Consolidated Net Income. "Consolidated Fixed Charge" shall mean the sum of all scheduled payments of principal and interest due (and whether or not paid) on all Funded Debt of the Company and its Subsidiaries for the preceding 12 months, under which the Company or any of its Subsidiaries is the obligor, on a consolidated basis. "Consolidated Funded Debt" shall mean the sum of (i) the aggregate principal amounts outstanding on all indebtedness of the Companies for borrowed money and all obligations of the Companies evidenced by notes, debentures, bonds or similar instruments; and (ii) all Capitalized Lease Obligations (excluding any obligation to purchase any asset at the end of a lease term until such asset is so purchased), all determined in accordance with generally accepted accounting principles on a consolidated basis. "Consolidated Net Income" shall mean, for any period, the consolidated net income of the Company and its Subsidiaries (excluding unusual, extraordinary and/or non-recurring income and/or losses) determined on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Stockholders' Equity" shall mean total stockholders' equity of the Company, on a consolidated basis, as shown on the Company's financial statements prepared in accordance with generally accepted accounting principles determined as of the last day of each fiscal quarter. "Credit Facility" shall mean the Line of Credit and the Term Loan. "Debt" shall mean, without duplication, (a) any obligation for borrowed money (and any notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money); (b) any obligation secured by a Lien on, or payable out of the proceeds of production from, property of the Company or any Subsidiary (even though such obligation shall not be assumed by the Company or such Subsidiary); and (c) any obligation, which under generally accepted accounting principles is shown on the balance sheet as a liability (including, without limitation, Capitalized Lease Obligations and excluding reserves for deferred income taxes and for foreign employee service indemnities and 37 other reserves to the extent that such reserves do not constitute an obligation); (d) amounts equal to the aggregate net rentals (after making allowance for any interest, taxes or other expenses included therein) under any lease (whether or not such rentals accrue and become payable only on an annual or other periodic basis) which lease (i) constitutes the substantial equivalent of a purchase of the property subject to such lease, (ii) has an initial term materially less than the useful life of such property and provides that the lessee has the option to renew such lease for the remaining useful life of such property at a rental which at the inception of such lease appears to be substantially less than the fair rental value of such property, or (iii) provides an option to the lessee to acquire the property subject to such lease at a price which, at the inception of such lease, appears to be substantially less than the probable fair value of such property at the time or times of permitted acquisition by the lessee; (e) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) in connection with the obligations, stock or dividends of any Person; (f) obligations under any contract providing for the making of loans, advances or capital contributions to any Person, or for the purchase of any property from any Person, in each case in order to enable such Person primarily to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses; (g) obligations under any contract for the purchase of materials, supplies or other property if such contract (or any related document) requires that payment for such materials, supplies or other property shall be made regardless of whether or not delivery of such materials, supplies or other property is ever made or tendered; (h) obligations under any contract to rent or lease (as lessee) any real or personal property if such contract (or any related document) provides that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use or requires that the lessee purchase or otherwise acquire securities or obligations of the lessor; (i) obligations under any contract for the sale or use of materials, supplies or other property if such contract (or any related document) requires that payment for such materials, supplies or other property, or the use thereof, shall be subordinated to any indebtedness (of the purchaser or user of such materials, supplies or other property) owed or to be owed to any Person; and (j) obligations under any other contract which, in economic effect, is substantially equivalent to a guarantee; all as determined in accordance with generally accepted accounting principles. "Default" shall have the meaning specified in the definition of Event of Default hereinafter. "Domestic Subsidiary" shall mean any Subsidiary organized under the laws of any State of the United States. "Drawdown Termination Date" shall mean April 30, 2001, or such later date as the Agents, Lenders and the Companies agree to in writing. "EBITDA to Fixed Charge Ratio" shall mean the ratio of (i) Consolidated EBITDA for 38 the immediately preceding four consecutive fiscal quarters, less the tax expense for taxes actually paid during such period to (ii) Consolidated Fixed Charge for such period. "Effective Date" shall mean the date on which this Agreement is executed by the Companies and the Agents. "Environmental Authority" shall mean any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Judgments and Orders" shall mean all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" shall mean any liabilities, whether accrued or contingent, arising from or relating in any way to any Environmental Requirements. "Environmental Notices" shall mean any written communication from any Environmental Authority stating possible or alleged noncompliance with or possible or alleged liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority for correction of any purported violation of any Environmental Requirements or any investigation concerning any purported violation of any Environmental Requirements. Environmental Notices also means (i) any written communication from any private Person threatening litigation or administrative proceedings against or involving any Company relating to an alleged violation of any Environmental Requirements and (ii) any complaint, petition or similar documents filed by any private Person commencing litigation or administrative proceedings against or involving any Company relating to alleged violation of any Environmental Requirements. "Environmental Proceedings" shall mean any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" shall mean releases (as defined in CERCLA or under any applicable state or local environmental law or regulation) of Hazardous Materials. Environmental Releases do not include releases for which no remediation or reporting is required by applicable Environmental Requirements and which do not present a danger to health, safety or the environment. "Environmental Requirements" shall mean any applicable local, state or federal law, rule, regulation, permit, order, decision, determination or requirement relating in any way to Hazardous Materials or to the protection of human health or the environment. 39 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Eurodollar Rate" means during any Eurodollar Rate Interest Period for any Tranche, an interest rate per annum equal to the quotient (converted to a percentage) of (i) the rate per annum as determined by the Administrative Agent at or about 9:00 o'clock A.M. (Eastern time) (or as soon thereafter as practicable) on the second Business Day prior to the first day of each Eurodollar Rate Interest Period, as being the rate at which deposits of United States Dollars are offered to the Administrative Agent in the London inter-bank market by the Reference Banks, at the time of determination and in accordance with the normal practice in such market, for delivery on the first day of such Eurodollar Rate Interest Period and for the number of days comprised therein, in amounts equal (as nearly as may be) to the amount of the Tranche as of the first day of such Eurodollar Rate Interest Period, divided by (ii) 1.00 minus the Eurodollar Rate Reserve Requirement (as defined below), expressed as a decimal, for such Eurodollar Rate Interest Period. "Eurodollar Rate Reserve Requirement" shall mean for any day during a Eurodollar Rate Interest Period for any Eurodollar Rate Tranche, that percentage which is specified by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any marginal reserve requirement) for the Lenders with respect to liabilities consisting of or including "Eurocurrency liabilities" (as defined in Regulation D of the Board of Governors of the Federal Reserve System) with a maturity equal to such Eurodollar Rate Interest Period. In determining the percentage, the Administrative Agent may use any reasonable averaging and attribution methods. "Reference Banks" shall mean (i) the principal London offices of the banks shown on page 16 of the Telerate screen (or such other page as may replace the Eurodollar page on that service for the purpose of displaying London interbank offered rates of major banks), in the case of Eurodollar Rate Interest Periods of 1 month, 2 months, 3 months or 6 months. "Eurodollar Rate Interest Period" shall be the period between the Business Day on which the Eurodollar Rate plus the Applicable Eurodollar Rate Margin shall begin and the day on which the Eurodollar Rate plus the Applicable Eurodollar Rate Margin shall end. The duration of each Eurodollar Rate Interest Period for a Eurodollar Rate Advance shall be 1 month, 2 months, 3 months or 6 months as the Company may select, subject to the following: (i) no Eurodollar Rate Interest Period shall extend past the maturity date of either the Line of Credit Notes or the Term Notes; (ii) whenever the last day of any Eurodollar Rate Interest Period would otherwise occur on a day other than a Business Day, the last day of such Eurodollar Rate Interest Period shall be extended to occur on the next succeeding Business Day, except that if the next succeeding Business Day would occur in the next following calendar month, the last day of such Eurodollar Rate Interest Period shall be shortened to occur on the next preceding Business Day; and (iii) Eurodollar Rate Tranches outstanding under each Term Loan may not at any time exceed the aggregate principal amount outstanding on such respective Term Loan. 40 "Eurodollar Rate Advances" shall mean Advances bearing interest at the Eurodollar Rate plus the Applicable Eurodollar Rate Margin. "Eurodollar Rate Interest Period" shall have the meaning specified in the definition of Eurodollar Rate. "Eurodollar Rate Tranche" shall mean any part of the principal amount of the Loans that constitutes Eurodollar Rate Advances for a specific Eurodollar Rate Interest Period. "Event of Default" shall mean any of the events specified in Section 9, provided that there has been satisfied any requirements in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "Default" shall mean any of such events, whether or not any such requirement has been satisfied. "Federal Funds Rate" shall mean the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to BankBoston, N.A., Boston, Massachusetts on such day on such transactions as determined by the Administrative Agent. "Foreign Subsidiary" shall mean any Subsidiary other than a Domestic Subsidiary. "Funded Debt to EBITDA Ratio" shall mean the ratio of (i) Consolidated Funded Debt determined as of the last day of each fiscal quarter, to (ii) Consolidated EBITDA for the immediately preceding four consecutive fiscal quarters. "Funded Debt to Total Capitalization Ratio" shall mean the ratio of (i) Consolidated Funded Debt to (ii) the sum of Consolidated Funded Debt plus Consolidated Stockholders' Equity. "Hazardous Materials" includes, without limitation (a) hazardous waste as defined in the Resource Conservation and Recovery Act of 1976, or in any applicable state or local law or regulation, (b) hazardous substances, as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation or (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. 41 "Identified Subsidiaries" shall mean each of Tidewater Marine, Inc.; Tidewater Marine Alaska, Inc.; and Zapata Gulf Marine Corporation. "Lease Rental Expenses" shall mean lease rentals payable by the Company or any Subsidiary pursuant to any agreements to rent or lease any real or personal property (excluding rentals or leases of data processing equipment and sales offices, rentals treated as Debt and rentals of real property which have been subleased to others by the Company or any Subsidiary for the remaining term of such leases at rents at least equal to those payable by the Company or any Subsidiary). "Lender Indemnitee" shall have the meaning specified in Section 11.5(b) hereof. "Lenders" shall have the meaning specified in the first introductory paragraph hereof, together with any other financial institutions which become a party to this Agreement and the holder of a Note, from time to time. "Level" shall mean the following levels based on the Funded Debt to Total Capitalization Ratio indicated: Funded Debt to Total Capitalization Ratio Level ---------------------- ----- Less than 25% I 25% through 32.49% II 32.5% through 39.99% III "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose of, or having the effect of protecting a creditor against loss or securing the payment or preference of any obligation. "Liens" shall not include unsecured guarantees. "Line of Credit" shall have the meaning specified in Section 1.1 hereof. "Line of Credit Commitment" shall have the meaning specified in Section 1.1 hereof. "Line of Credit Notes" shall have the meaning specified in Section 2.1 hereof. "Loan" shall mean the loans under the Credit Facility (including the Term Loan). "Multiemployer Plan" shall have the meaning specified in Section 5.10. 42 "Notes" shall mean the Line of Credit Notes and the Term Notes, collectively, and any and all modifications, amendments, supplements, renewals, rearrangements and/or extensions thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation. "Plan" shall have the meaning specified in Section 5.10 hereof. "Persons" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Prime Rate" shall mean the rate of interest announced publicly by BankBoston, N.A. from time to time as its prime or base rate. "Properties" means all real property owned, leased or otherwise used or occupied by the Company or any Subsidiary, wherever located. "Reimbursable Taxes" shall have the meaning specified in Section 3.2(f) hereof. "Required Lenders" shall mean Lenders holding at least 66-2/3rds of the aggregate principal amount of the Notes. "Restricted Investments" shall have the meaning set forth in Section 6.10 hereof. "Subsidiary" shall mean any corporation all of the stock of every class of which, except directors' qualifying shares, shall, at the time as of which any determination is being made, be beneficially owned or effectively controlled by the Company, either directly or through Subsidiaries. "Taxes" shall have the meaning set forth in Section 11.6. "Term Loan" shall have the meaning specified in Section 1.1 hereof. "Term Notes" shall have the meaning specified in Section 2.2 hereof. "Third Party" shall mean all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of the Company's business (consistent with its practices on the date of this Agreement) and on a temporary basis. "Tranche" shall mean a part of the Loans that bears interest at a particular rate 43 depending on whether such tranche is a Eurodollar Rate Tranche or Base Rate Tranche. 11.2 Financial Terms. Unless otherwise defined or the context otherwise requires, all financial and accounting terms shall be defined under generally accepted accounting principles. 11.3 Delay. No delay on the part of the Lenders or any holder of the Notes, in the exercise of any power or right shall operate as a waiver thereof, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof, or the exercise of any other power or right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law (except to the extent waived by Section 9.3 hereof). 11.4 Notices. Any notice or demand which, by any provision of this Agreement, is required or permitted to be given or served by any Agent or Lenders to or on the Companies shall be deemed to have been sufficiently given and served for all purposes (if mailed) three calendar days after being deposited, postage prepaid, in the United States mail, registered or certified mail, or (if delivered by express courier) one calendar day after being delivered to such courier, or (if delivered in person) the same day as delivery, in each case addressed (until another address or addresses are given in writing by the Companies to Documentation Agent and Administrative Agent or Lenders) as follows: Tidewater Inc. Pan American Life Center - Suite 1900 601 Poydras Street New Orleans, Louisiana 70130 Attention: Chief Financial Officer With a copy to: Tidewater Inc. Pan American Life Center - Suite 1900 601 Poydras Street New Orleans, Louisiana 70130 Attention: General Counsel Any notice or demand which, by any provision of this Agreement, is required or permitted to be given or served by the Companies to or on Administrative Agent or Documentation Agent shall be deemed to have been sufficiently given and served for all purposes (if mailed) three calendar days after being deposited, postage prepaid, in the United States mail, registered or certified mail, or (if delivered by express courier) one calendar day after being delivered to such courier, or (if delivered in person) the same day as delivery, in each case addressed (until another address or addresses are given in writing by Administrative 44 Agent or Documentation Agent to the Companies) as follows: Administrative Agent: BankBoston, N.A. 100 Federal Street Boston, Massachusetts 02110 Attention: Transportation Division (Mail Stop 01-08-01) Documentation Agent: Bank One, Louisiana, National Association 201 St. Charles Avenue, 29th Floor New Orleans, LA 70170 Attention: Energy Group J. Charles Freel, Jr. Senior Vice President With a copy to: Philip deV. Claverie, Esq. Phelps Dunbar, L.L.P. Texaco Center - 30th Floor 400 Poydras Street New Orleans, Louisiana 70130 Any notice or demand which, by any provision of this Agreement, is required or permitted to be given or served by the Companies to or on Lenders shall be deemed to have been sufficiently given and served for all purposes (if mailed) three calendar days after being deposited, postage prepaid, in the United States mail, registered or certified mail, or (if delivered by express courier) one calendar day after being delivered to such courier, or (if delivered in person) the same day as delivery, in each case addressed (until another address or addresses are given in writing by Lenders to the Companies) to the Lenders at the addresses set forth on Exhibit B hereto. 11.5 Costs, Expenses and Taxes; Indemnification. (a) The Companies shall pay on demand the reasonable out-of-pocket costs and expenses of the Agents in connection with the negotiation, syndication, preparation, execution and delivery of this Agreement and any amendments thereto or waivers thereof which may be requested by the Companies, including the reasonable fees and out-of- pocket expenses of legal counsel to Agents. The Companies shall pay on demand the reasonable out-of-pocket costs and expenses of the Agents and each of 45 the Lenders in connection with the enforcement of this Agreement and/or the Notes and in connection with any amendments thereto or waivers thereof which may be requested by the Companies during the continuance of, or to avoid, a Default or Event of Default, including any amendments or waivers tantamount to a refinancing, restructuring, or reorganization (whether or not under any Bankruptcy Law). The out-of-pocket costs and expenses referred to in the previous sentence shall include the reasonable fees and out-of-pocket expenses of any legal counsel retained by the Agents or by any Lender, and the reasonable fees and out-of-pocket expenses of any independent public accountants and other outside experts retained by the Agents on behalf of the Lenders. The Lenders agree that, with respect to the retention of separate legal counsel for each Lender under such circumstances, each will consider in good faith whether separate legal counsel is reasonably appropriate under the policies of that Lender and, in any event, endeavor to avoid unreasonable duplication of work effort by such legal counsel. The Companies shall pay any and all documentary and other taxes (other than income or gross receipts taxes generally applicable to banks) and shall reimburse, hold harmless, and indemnify the Agents and each Lender from and against any and all loss, liability, or legal or other expense with respect to or resulting from any delay in paying or failure to pay any tax, cost, expense, fee, or charge or that any of them may suffer or incur by reason of the failure of the Companies to perform any of its obligations under this Agreement or the Notes. Any amount payable to the Agents or any Lender under this Section shall bear interest from the date of receipt of demand for payment at the Base Rate plus one percent (1%). (b) The Companies shall indemnify each Agent and Lender, their respective affiliates and the respective shareholders, directors, officers, employees, agents and counsel of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Credit Facility or any actual or proposed use of proceeds of the Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction, or to the extent that such claim relates to the breach by such Lender Indemnitee of its obligations under this Agreement. 11.6 Foreign Lenders. (a) All payments by the Company under the Credit Facility shall be made free and clear of and without deduction for or on account of any present or future income, stamp, or other taxes, fees, duties, withholding or other charges of any nature whatsoever imposed by any taxing authority, excluding in the case of each Lender taxes imposed on or measured by its net income or franchise taxes imposed in lieu of net income taxes by the jurisdiction in which it is organized or through which it acts for purposes of this Agreement. 46 (b) If as a result of any change in law (or the interpretation thereof) after the Effective Date, any withholding or deduction from any payment to be made to, or for the account of, a Lender by the Companies hereunder is required in respect of any non-excluded taxes referred to in Subsection (a) above pursuant to any applicable law, rule, or regulation, then the Company will (i) pay to the relevant authority the full amount required to be so withheld or deducted; (ii) to the extent available, promptly forward to the Agent an official receipt or other documentation satisfactory to the Documentation Agent evidencing such payment to such authority; and (iii) pay to the Administrative Agent, for the account of each affected Lender, such additional amount or amounts as are necessary to ensure that the net amount actually received by such Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Each Lender shall determine such additional amount or amounts payable to it (which determination shall, in the absence of manifest error, be conclusive and binding on the Company). If a Lender becomes aware that any such withholding or deduction from any payment to be made by the Company under the Credit Facility is required, then such Lender shall promptly notify the Documentation Agent and the Company thereof stating the reasons therefor and the additional amount required to be paid under this Section, and such Lender shall execute and deliver to the Documentation Agent and the Company such forms as it may be required to execute and deliver pursuant to Subsection (c) hereof. To the extent that any such withholding or deduction results from the failure of a Lender to provide a form required by Subsection (c) hereof, the Company shall have no obligation to pay the additional amount required by clause (iii) above. Anything in this Section notwithstanding, if any Lender elects to require payment by the Company of any material amount under this Section, the Company may, within 60 days after the date of receiving notice thereof and so long as no Default shall have occurred and be continuing, elect to terminate such Lender as a party to this Agreement; provided that, concurrently with such termination, the Company shall (i) if the Documentation Agent and each of the other Lenders shall consent, pay that Lender all principal, interest and fees and other amounts owed to such Lender through such date of termination or (ii) have arranged for another financial institution approved by the Documentation Agent (such approval not to be unreasonably withheld) as of such date, to become a substitute Lender for all purposes under this Agreement in the manner provided for herein; provided further that, prior to substitution for any Lender, the Company shall have given written notice to the Documentation Agent of such intention and the Lenders shall have the option, but not the obligation, for a period of 60 days after receipt of such notice, to increase their Commitments in order to replace the affected Lender in lieu of such substitution. (c) With respect to each Lender which is organized under the laws of a jurisdiction outside the United States, on the day of the initial borrowing from each such Lender hereunder and from time to time thereafter if requested by the Company or the Documentation Agent, such Lender shall provide the Documentation Agent and the Company with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Lender's status for purposes of determining exemption from United States withholding taxes with 47 respect to all payments to be made to such Lender hereunder or other documents satisfactory to such Lender and Documentation Agent indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax. Unless the Documentation Agent and the Company shall have received such forms or such documents indicating that payments hereunder are not subject to United States withholding tax, the Administrative Agent and the Company shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. 11.7 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 portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 11.8 Counterparts. This Agreement may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 11.9 Law. This Agreement and the Notes shall be contracts made under and governed by the laws of the State of Louisiana. 11.10 Successors. This Agreement shall be binding upon the Companies and Lenders, and their respective successors and assigns, and shall inure to the benefit of the Companies and Lenders, and the successors and assigns of Lenders. The Companies shall not assign their rights or duties hereunder without the consent of Lenders. 11.11 Singular and Plural. Words used herein in the singular, where the context so permits, shall be deemed to include the plural and vice versa. The definition of words in the singular herein shall apply to such words when used in the plural where the context so permits and vice versa. 11.12 Amendments. No amendment or waiver of any provision of this Agreement or consent to any departure therefrom by the Companies or Lenders shall be effective unless the same shall be in writing and signed by the Companies, the Agents and the Required Lenders, provided that, without the written consent of all of the Lenders, no amendment to this Agreement shall (i) change the maturity of any Note, or (ii) change the principal of or the rate or time of payment of interest or any premium payable with respect to any Note, or (iii) change the principal payment date of any installment of the Term Notes, or (iv) increase the Commitments, or (v) release any of the Companies, or affect the time, amount or allocation of any required prepayments, or (vi) reduce the proportion of the Required Lenders required with respect to any consent, or (vii) change the definition of Required Lenders or amend this 48 Section 11.12. No course of dealing between any of the Companies and the Lenders nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any of the Lenders. In the case of a waiver or consent, such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 11.13 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes any and all prior agreements with respect to the transactions contemplated hereby. [Signatures on Following Pages] 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first written above. TIDEWATER INC. By: /s/ Ken C. Tamblyn ---------------------- Name: Ken C. Tamblyn Title: Executive Vice President and Chief Financial Officer GULF FLEET SUPPLY VESSELS, INC. HILLIARD OIL & GAS, INC. JACKSON MARINE CORPORATION JAVA BOAT CORPORATION QUALITY SHIPYARDS, INC. S.O.P., INC. SEAFARER BOAT CORPORATION POINT MARINE, INC. T. BENETEE CORPORATION TIDEWATER OFFSHORE (GP-1984), INC. TIDEWATER MARINE, INC. TIDEWATER MARINE ALASKA, INC. TIDEWATER MARINE SERVICE, INC. TIDEWATER MARINE WESTERN, INC. TT BOAT CORPORATION TWENTY GRAND MARINE SERVICE, INC. TWENTY GRAND OFFSHORE, INC. ZAPATA GULF MARINE CORPORATION ZAPATA GULF MARINE OPERATORS, INC. ZAPATA GULF PACIFIC, INC. By: /s/ Ken C. Tamblyn ----------------------- Name: Ken C. Tamblyn Title: Authorized Officer 50 BANKBOSTON, N.A. Agent and Lender By: /s/ Victor M. Garcia ------------------------ Name: Victor M. Garcia Title: Director BANK ONE, LOUISIANA, NATIONAL ASSOCIATION, Agent and Lender By: /s/ J. Charles Freel, Jr. -------------------------- Name: J. Charles Freel, Jr. Title: Senior Vice President CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, Agent and Lender By: /s/ Mona M. Foch -------------------------- Name: Mona M. Foch Title: Managing Director AMSOUTH BANK, Lender By: /s/ Donald M. Sinclair -------------------------- Name: Donald M. Sinclair Title: Vice President 51 DEPOSIT GUARANTY NATIONAL BANK, Lender By: /s/ Bill Hinrichs ------------------------ Name: Bill Hinrichs Title: Senior Vice President SUNTRUST BANK, ATLANTA, Lender By: /s/ Deborah S. Armstrong -------------------------- Name: Deborah S. Armstrong Title: First Vice President WACHOVIA BANK OF GEORGIA, N.A., Lender By: /s/ Steven M. Takei ---------------------- Name: Steven M. Takei Title: Senior Vice President FIRST UNION NATIONAL BANK, Lender By: /s/ Michael J. Labrum ------------------------ Name: Michael J. Labrum Title: Vice President HIBERNIA NATIONAL BANK, Lender By: /s/ Bruce L. Ross ------------------------ Name: Bruce L. Ross Title: Vice President 52 WHITNEY NATIONAL BANK, Lender By: /s/ Donald J. Zornman ------------------------- Name: Donald J. Zornman Title: Vice President 53 EX-21 3 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 ---------- SUBSIDIARIES OF THE COMPANY
PERCENTAGE STATE OR OF VOTING JURISDICTION OF SECURITIES NAME INCORPORATION OWNED ---- --------------- ---------- Al Wasl Marine LLC..................................................... Dubai 49% Antilles Marine Service Limited........................................ Trinidad & Tobago 50% Asie Zapata Marine Service Sdn. Bhd.................................... Malaysia 49% BESSA Cash Backed PLC.................................................. England 100% BESSA Cash Backed II PLC............................................... England 100% BESSA Cash Backed III PLC.............................................. England 100% Compania Maritima de Magallanes Limitada............................... Chile 100% Divetide Limited....................................................... Thailand 49% Equipo Mara, C.A....................................................... Venezuela 19.9% Equipo Zulia, C.A...................................................... Venezuela 100% Fairway Personnel Services Limited..................................... England 100% Four Star Marine, Inc.................................................. Louisiana 49% Gulf Fleet Abu Dhabi................................................... Abu Dhabi 49% Gulf Fleet Middle East, Inc............................................ Panama 100% Gulf Fleet N.V......................................................... Netherlands Antilles 100% Gulf Fleet Supply Vessels, L.L.C....................................... Louisiana 100% Hilliard Oil & Gas, Inc................................................ Nevada 100% Hornbeck Shipping Limited.............................................. Isle of Man 100% Jackson Marine, L.L.C.................................................. Louisiana 100% Jackson Marine, S.A.................................................... Panama 100% Java Boat Corporation.................................................. Louisiana 100% Lamnalco-Tidewater Marine Service Limited.............................. Vanuatu 50% Maritide Offshore Oil Services Company S.A.E........................... Egypt 49% Mashhor Marine Sdn. Bhd................................................ Brunei 70% Matchmobile Limited.................................................... England 100% Mightmethod Limited.................................................... England 100% Neatearn Limited....................................................... England 100% Nuigini Energy Services (unincorporated)............................... New Guinea 50% Offshore Pacific Pty. Ltd.............................................. Vanuatu 100% O.I.L. Limited......................................................... England 100% O.I.L. (Nigeria) Limited............................................... Nigeria 82.1% OSA do Brasil Representacoes Ltda...................................... Brazil 100% OSA Marine Services (Asia) Pte. Limited................................ Singapore 100% OSA Marine Services GmbH............................................... Germany 100% Pacific Tidewater Pty. Ltd............................................. Australia 100% Pan-Marine do Brasil Transportes Ltda.................................. Brazil 100% Pan Marine International, Inc.......................................... Cayman Islands 100% Parktor Shipping NV.................................................... Netherlands Antilles 100% Pental Insurance Co. Ltd............................................... Bermuda 100% Point Marine, L.L.C.................................................... Louisiana 100% Provident Marine Ltd................................................... Turks & Caicos Islands 50% Quality Shipyards, L.L.C............................................... Louisiana 100% Remolcadores y Gabarras Remigasa, S.A.................................. Venezuela 19.9% Seafarer Boat Corporation.............................................. Louisiana 100% Servicios de Abastecimientos Mexicanos, S. de R.L. de C.V.............. Mexico 100%
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PERCENTAGE STATE OR OF VOTING JURISDICTION OF SECURITIES NAME INCORPORATION OWNED ---- --------------- ---------- Servicios Maritimos del Carmen, S.A. de C.V............................ Mexico 100% Servicios Maritimos Ves, S. de R.L. de C.V............................. Mexico 100% Servicios y Representaciones Maritimas Mexicanas, S.A. de C.V.......... Mexico 100% Sin-Hai Offshore Co. Pte. Ltd.......................................... Singapore 97.5% Solo Fleet Sdn. Bhd.................................................... Malaysia 49% Solo Fleet Two Sdn. Bhd................................................ Malaysia 49% Solo Support Services Sdn. Bhd......................................... Malaysia 30% Sonatide Marine, Ltd................................................... Cayman Islands 49% S.O.P., Inc............................................................ Louisiana 100% Southern Ocean Services Pte. Ltd....................................... Singapore 100% T. Benetee L.L.C....................................................... Louisiana 100% Thabet and O.I.L. Co. Ltd.............................................. Yemen 30% Thai OSA Services Limited.............................................. Thailand 49% The National Marine Services Company................................... Abu Dhabi 40% Tidewater Australia Pte. Ltd........................................... Australia 100% Tidewater Caribe, C.A.................................................. Venezuela 100% Tidewater Crewing Limited.............................................. Cayman Islands 100% Tidewater Cyprus Limited............................................... Cyprus 49.9% Tidewater Foreign Sales Corporation.................................... Barbados 100% Tidewater Marine Alaska, Inc........................................... Alaska 100% Tidewater Marine, L.L.C................................................ Louisiana 100% Tidewater Marine International, Inc.................................... Panama 100% Tidewater Marine International Pte. Ltd................................ Singapore 100% Tidewater Marine (IOM) Limited......................................... Isle of Man 100% Tidewater Marine (Malaysia) Sdn. Bhd................................... Malaysia 100% Tidewater Marine North Sea Limited..................................... England 100% Tidewater Marine Service, C.A. (SEMARCA)............................... Venezuela 100% Tidewater Marine Service, Inc.......................................... Louisiana 100% Tidewater Marine West Indies Limited................................... Bahama Islands 100% Tidewater Marine Western, Inc.......................................... Texas 100% Tidewater Offshore (GP-1984), Inc...................................... Delaware 100% Tidewater Offshore Limited............................................. Scotland 100% Tidewater Port Jackson Marine Pty. Limited............................. Australia 100% Tidex (Malaysia) Sdn. Bhd.............................................. Malaysia 100% Tidex Nigeria Limited.................................................. Nigeria 60% Tidex/OTS Nigeria Limited (unincorporated)............................. Nigeria 50% TT Boat Corporation.................................................... Louisiana 100% Twenty Grand Marine Service, L.L.C..................................... Louisiana 100% Twenty Grand Offshore, Inc............................................. Louisiana 100% VTG Supply Boat Liberia Inc............................................ Liberia 100% Zapata Gulf Crews, Inc................................................. Panama 100% Zapata Gulf Indonesia Limited.......................................... Vanuatu 80% Zapata Gulf Marine L.L.C............................................... Louisiana 100% Zapata Gulf Marine International Limited............................... Vanuatu 100% Zapata Gulf Marine Operators, L.L.C.................................... Louisiana 100% Zapata Gulf Pacific, Inc............................................... Delaware 100% Zapata Marine Service (Nigeria) Limited................................ Nigeria 100% Zapata Servicos Maritimos Ltda......................................... Brazil 100% Zhong Chang Offshore Marine Service Company Ltd........................ China 50%
-2- EX-23.1 4 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS - ------------------------------- We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-63094, No. 33-38240, No. 333-32729, and No. 333-47687) of Tidewater Inc. of our report dated April 27, 1999, with respect to the consolidated financial statements and schedule of Tidewater Inc. included in this Annual Report (Form 10-K) for the year ended March 31, 1999. Ernst & Young LLP New Orleans, Louisiana April 27, 1999 EX-23.2 5 CONSENT OF KPMG LLP EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT - ----------------------------- The Board of Directors Tidewater Inc. We consent to the incorporation by reference in the Registration Statements (No. 33-63094, 33-38240, 333-32729, and 333-47687) on Form S-8 of Tidewater Inc. of our report dated April 30, 1997, relating to the consolidated statements of earnings, stockholders' equity, and cash flows of Tidewater Inc. for the year ended March 31, 1997, and related schedule, which report appears in the March 31, 1999, annual report on Form 10-K of Tidewater Inc. KPMG LLP New Orleans, Louisiana April 27, 1999 EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and the Consolidated Statements of Earnings at the date and for the period indicated and is qualified in its entirety by reference to such financial statements. All amounts shown are in thousands of dollars, except per share data. 1 12-MOS MAR-31-1999 APR-01-1998 MAR-31-1999 10,422 0 249,127 11,125 27,971 280,878 1,548,185 910,005 1,394,458 82,346 0 0 0 6,057 1,061,650 1,394,458 968,992 968,992 705,323 705,323 0 0 2,445 276,741 66,022 210,719 0 0 0 210,719 3.68 3.68
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