AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 2002
REGISTRATION NOS. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PETROLEUM HELICOPTERS, INC.
(Exact name of Registrant as Specified in Its Charter)
LOUISIANA 4522 72-0395707
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
2001 S.E. EVANGELINE THRUWAY LANCE F. BOSPFLUG
LAFAYETTE, LOUISIANA 70508 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(800) 235-2452 PETROLEUM HELICOPTERS, INC.
(Address, including zip code, and telephone 2001 S.E. EVANGELINE THRUWAY
number including LAFAYETTE, LOUISIANA 70508
area code, of registrant's principal executive (800) 235-2452
offices) (Name, address, including zip code, and
telephone number, including area code, of
agent for service)
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COPY TO:
RICHARD J. WILKIE
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1900 PENNZOIL PLACE, SOUTH TOWER
711 LOUISIANA STREET
HOUSTON, TEXAS 77002
(713) 220-5800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(1)
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9 3/8% Series B Senior Notes
due 2009................... $200,000,000 100% $200,000,000 $18,400
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Guarantees of 9 3/8% Series B
Senior Notes due 2009(2)... -- -- -- (3)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Each of the subsidiaries of Petroleum Helicopters, Inc. that is listed on
the Table of Additional Registrant Guarantors on the following page has
guaranteed the notes being registered hereby.
(3) No separate consideration will be received for the Guarantees and,
therefore, no additional registration fee is required.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANT GUARANTORS
STATE OR OTHER
JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION
EXACT NAME OF REGISTRANT GUARANTOR(1) ORGANIZATION NUMBER
------------------------------------- ---------------- ---------------
International Helicopter Transport, Inc. ................... Louisiana 72-0542540
Evangeline Airmotive, Inc. ................................. Louisiana 72-0835089
Acadian Composites, L.L.C. ................................. Louisiana 72-1361582
Air Evac Services, Inc. .................................... Louisiana 72-1404705
PHI Aeromedical Services, Inc. ............................. Louisiana 72-1404703
Petroleum Helicopters International, Inc. .................. Louisiana 72-1443677
Helicopter Management, L.L.C. .............................. Louisiana 03-0397562
Helicopter Leasing, L.L.C. ................................. Louisiana 03-0397710
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(1) The address for each Registrant Guarantor is 2001 S.E. Evangeline Thruway,
Lafayette, Louisiana 70508.
Information in this prospectus is not complete and may be changed. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. We may not exchange these securities until
the registration statement is effective. This prospectus is not an offer to sell
or a solicitation of an offer to buy the securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 30, 2002
$200,000,000
[PETROLEUM HELICOPTERS, INC. LOGO]
PETROLEUM HELICOPTERS, INC.
OFFER TO EXCHANGE
9 3/8% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OUTSTANDING 9 3/8% SERIES A
SENIOR NOTES DUE 2009
---------------------
This prospectus, and accompanying letter of transmittal, relate to our
proposed exchange offer. We are offering to exchange up to $200,000,000
aggregate principal amount of new 9 3/8% Series B Senior Notes due 2009, which
we call the Series B notes, which will be freely transferable, for any and all
outstanding 9 3/8% Series A Senior Notes due 2009, which we call the Series A
notes, issued in a private offering on April 23, 2002 and which have transfer
restrictions.
In this prospectus we sometimes refer to the Series A notes and the Series
B notes collectively as the notes.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2002, unless extended.
- The terms of the Series B notes are substantially identical to the terms
of the Series A notes, except that the Series B notes will be freely
transferable and issued free of any covenants regarding exchange and
registration rights.
- All Series A notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of Series A notes may be withdrawn at any time prior to
expiration of the exchange offer.
- We will not receive any proceeds from the exchange offer.
- The exchange of Series A notes for Series B notes will not be a taxable
event for United States federal income tax purposes.
- Holders of Series A notes do not have any appraisal or dissenters' rights
in connection with the exchange offer.
- Series A notes not exchanged in the exchange offer will remain
outstanding and be entitled to the benefits of the indenture, but except
under certain circumstances, will have no further exchange or
registration rights under the registration rights agreement discussed in
this prospectus.
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PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF FACTORS
YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus,
the accompanying letter of transmittal and related documents and any amendments
or supplements to this prospectus carefully before making your investment
decision.
---------------------
The date of this prospectus is , 2002.
TABLE OF CONTENTS
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
The Exchange Offer.......................................... 15
Use of Proceeds............................................. 26
Selected Consolidated Financial Data........................ 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Business.................................................... 41
Description of the Notes.................................... 51
U.S. Federal Income Tax Considerations...................... 89
Plan of Distribution........................................ 91
Legal Matters............................................... 92
Experts..................................................... 92
Available Information....................................... 92
Where You Can Find More Information......................... 93
Forward-looking Statements.................................. 93
Index to Consolidated Financial Statements.................. F-1
Annex A -- Letter of Transmittal............................ A-1
---------------------
The information contained in this prospectus was obtained from us and other
sources believed by us to be reliable. This prospectus also incorporates
important business and financial information about us that is not included in or
delivered with this prospectus.
You should rely only on the information contained in this prospectus or any
supplement and any information incorporated by reference in this prospectus or
any supplement. We have not authorized anyone to provide you with any
information that is different. If you receive any unauthorized information, you
must not rely on it. You should disregard anything we said in an earlier
document that is inconsistent with what is included in or incorporated by
reference in this prospectus.
You should not assume that the information in this prospectus or any
supplement is current as of any date other than the date on the front page of
this prospectus. This prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any state or jurisdiction where the offer or
sale is not permitted.
We include cross references in this prospectus to captions in these
materials where you can find further related discussions. The above table of
contents tells you where to find these captions.
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PROSPECTUS SUMMARY
This summary highlights basic information about us and the notes that we
are offering. You should read this entire prospectus carefully, including the
"Risk factors" section, the financial statements and the notes to those
financial statements. As used in this prospectus, unless the context otherwise
requires, the terms "Petroleum Helicopters," "we," "our" and "us" refer to
Petroleum Helicopters, Inc. and its consolidated subsidiaries, the term "EBITDA"
refers to net earnings before interest, taxes, depreciation and amortization and
excludes special charges, and the term "EBITDAR" refers to EBITDA before rent
expense. "As adjusted" information set forth in this prospectus gives effect to
the offering of Series A notes and the application of the net proceeds to (1)
acquire all of the 102 aircraft that we currently lease and (2) repay all
outstanding amounts under our bank credit facilities.
THE COMPANY
Petroleum Helicopters, Inc., founded in 1949, is one of the world's largest
and most experienced providers of commercial helicopter services. We are a
leading provider of safe and reliable helicopter transportation services to the
oil and gas industry in the Gulf of Mexico, where we operate approximately 175
aircraft. We also provide helicopter services to energy companies operating
offshore California, West Africa and Taiwan. In addition, we provide helicopter
and support services to the healthcare industry and helicopter repair and
refurbishment services to customers.
We provide helicopter services to a broad base of major integrated energy
companies and independent oil and gas producers to transport personnel and, to a
lesser extent, parts and equipment, to, from and among offshore production
platforms, drilling rigs and pipeline and other facilities. For the year ended
December 31, 2001, approximately 72% of our operating revenues came from the oil
and gas industry -- 67% from our U.S. operations and 5% from overseas
operations. We are the principal provider of helicopter services in the Gulf of
Mexico to Shell Oil Company and its affiliates, the largest producer of oil and
gas in the Gulf, and to Unocal, BP, Kerr-McGee and Exxon Mobil. We estimate that
approximately 70% of our 2001 oil and gas-related revenues was attributable to
production and pipeline activity, which represents a more stable revenue source
than exploration and development activity.
We also provide helicopter and support services to the healthcare industry
and technical services representing 17% and 8%, respectively, of our 2001
revenues. Our services to the healthcare industry consist principally of
providing air medical transportation services to hospitals and medical
facilities in 13 U.S. states. Our 39 dedicated air medical helicopters are
specially outfitted to accommodate emergency medical patients, personnel and
equipment. Our technical services business consists principally of providing
helicopter repair and refurbishment services to our customers.
The address of our principal executive offices is 2001 S.E. Evangeline
Thruway, Lafayette, Louisiana 70508 and our telephone number at this address is
(800) 235-2452.
1
THE EXCHANGE OFFER
You are entitled to exchange in the exchange offer your outstanding Series
A notes for Series B notes with substantially identical terms. You should read
the discussion under the heading "Description of the Notes" beginning on page 51
for further information regarding the Series B notes.
We summarize the terms of the exchange offer below. You should read the
discussion under the heading "The Exchange Offer" beginning on page 15 for
further information regarding the exchange offer and resale of the Series B
notes.
Registration Rights
Agreement..................... We sold $200 million in aggregate principal
amount of Series A notes to UBS Warburg LLC and
Deutsche Bank Securities Inc., as initial
purchasers in a transaction exempt from the
registration requirements of the Securities
Act. We entered into a registration rights
agreement dated as of April 23, 2002 with the
initial purchasers which grants the holders of
the Series A notes exchange and registration
rights. This exchange offer satisfies those
exchange rights.
The Exchange Offer............ $1,000 principal amount of Series B notes in
exchange for each $1,000 principal amount of
Series A notes. As of the date of this
prospectus, $200 million aggregate principal
amount of the Series A notes are outstanding.
We will issue Series B notes to holders on the
earliest practicable date following the
Expiration Date.
Resales of the Series B
Notes......................... Based on interpretations by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that, except as
described below, the Series B notes issued
pursuant to the exchange offer may be offered
for resale, resold and otherwise transferred by
holders of the Series B notes, other than a
holder that is an "affiliate" of ours within
the meaning of Rule 405 under the Securities
Act, without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that the Series B
notes are acquired in the ordinary course of
the holder's business and the holder has no
arrangement or understanding with any person to
participate in the distribution of the Series B
notes.
Each broker-dealer that receives Series B notes
pursuant to the exchange offer in exchange for
Series A notes that the broker-dealer acquired
for its own account as a result of
market-making activities or other trading
activities, other than Series A notes acquired
directly from us or our affiliates, must
acknowledge that it will deliver a prospectus
in connection with any resale of the Series B
notes. The letter of transmittal states that by
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act.
If we receive notices in the letter of
transmittal, this prospectus, as it may be
amended or supplemented from time to time, may
be used for the period described below by a
broker-dealer in connection with resales of
Series B notes received in exchange for Series
A notes where the Series A notes were acquired
by
2
the broker-dealer as a result of market-making
activities or other trading activities and not
acquired directly from us.
The letter of transmittal requires
broker-dealers tendering Series A notes in the
exchange offer to indicate whether the
broker-dealer acquired the Series A notes for
its own account as a result of market-making
activities or other trading activities, other
than Series A notes acquired directly from us
or any of our affiliates. If no broker-dealer
indicates that the Series A notes were so
acquired, we have no obligation under the
registration rights agreement to maintain the
effectiveness of the registration statement
past the consummation of the exchange offer or
to allow the use of this prospectus for such
resales. See "The Exchange Offer --
Registration Rights" and "-- Resale of the
Series B Notes; Plan of Distribution."
Expiration Date............... The exchange offer expires at 5:00 p.m., New
York City time, on , 2002 unless we
extend the exchange offer in our sole
discretion, in which case the term "Expiration
Date" means the latest date and time to which
the exchange offer is extended.
Conditions to the Exchange
Offer......................... The exchange offer is subject to certain
conditions which we may waive. See "The
Exchange Offer -- Conditions to the Exchange
Offer."
Procedure for Tendering the
Series A Notes................ Each holder of Series A notes wishing to accept
the exchange offer must complete, sign and date
the accompanying letter of transmittal in
accordance with the instructions, and mail or
otherwise deliver the letter of transmittal
together with the Series A notes and any other
required documentation to the exchange agent
identified below under "Exchange Agent" at the
address set forth in this prospectus. By
executing the letter of transmittal, a holder
will make certain representations to us. See
"The Exchange Offer -- Registration Rights" and
"-- Procedures for Tendering Series A Notes."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Series A notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact the
registered holder promptly and instruct the
registered holder to tender on its behalf. See
"The Exchange Offer -- Procedures for Tendering
Series A Notes."
Guaranteed Delivery
Procedures.................... Holders of Series A notes who wish to tender
their Series A notes when those securities are
not immediately available or who cannot deliver
their Series A notes, the letter of transmittal
or any other documents required by the letter
of transmittal to the exchange agent prior to
the Expiration Date must tender their Series A
notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Procedures for Tendering Series A
Notes -- Guaranteed delivery."
Withdrawal rights............. Tenders of Series A notes pursuant to the
exchange offer may be withdrawn at any time
prior to the Expiration Date.
3
Acceptance of Series A Notes
and Deliver of Series B
Notes......................... We will accept for exchange any and all Series
A notes that are properly tendered in the
exchange offer, and not withdrawn, prior to the
Expiration Date. The Series B notes issued
pursuant to the exchange offer will be issued
on the earliest practicable date following our
acceptance for exchange of Series A notes. See
"The Exchange Offer -- Terms of the Exchange
Offer."
Exchange Agent................ The Bank of New York is serving as exchange
agent in connection with the exchange offer.
See "The Exchange Offer -- Exchange Agent."
Federal Income Tax
Considerations................ The exchange of Series A notes for Series B
notes pursuant to the exchange offer will not
be treated as a taxable exchange for federal
income tax purposes. See "U.S. Federal Income
Tax Considerations."
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
EIGHT MONTHS TWELVE MONTHS YEAR ENDED DECEMBER 31,
YEAR ENDED APRIL 30, ENDED ENDED -------------------------
-------------------- DECEMBER 31, DECEMBER 31, PRO FORMA
1997 1998 1999 1999 1999 2000 2001 2001(2)
----- ----- ----- ------------ ------------- ------ ---- ---------
(UNAUDITED)
2.2x 2.1x 1.4x 0.6x(1) 0.4x(1) (0.3)x(1) 2.3x 1.5x
---------------
(1) For the eight and twelve months ended December 31, 1999 and the year ended
December 31, 2000, earnings were inadequate to cover fixed charges by $3.3
million, $7.1 million and $17.1 million, respectively.
(2) Pro forma 2001 gives effect to the offering of the Series A notes and the
application of the net proceeds to (A) acquire all of the 102 aircraft that
we currently lease and (B) repay all outstanding amounts under our bank
credit facility as if these transactions occurred as of January 1, 2001.
These computations include us and our Restricted Subsidiaries. The term
"fixed charges" means the sum of the following:
- interest expensed and capitalized;
- amortized premiums, discounts and capitalized expenses related to
indebtedness;
- an estimate of the interest within rental expenses; and
- minority interest in consolidated subsidiaries.
4
RISK FACTORS
You should carefully consider the risks described below as well as other
information and data included or incorporated by reference in this prospectus
before making an investment decision. Additional risks and uncertainties not
currently known to us or that we consider to be immaterial may also materially
impact our business, operations or financial condition. Any of the following
risks could impair our business, financial condition or operating results.
RISKS RELATING TO THE EXCHANGE OFFER
THE MARKET VALUE OF YOUR SERIES A NOTES MAY BE LOWER IF YOU DO NOT EXCHANGE
YOUR SERIES A NOTES OR FAIL TO PROPERLY TENDER YOUR SERIES A NOTES FOR
EXCHANGE.
Consequences of Failure to Exchange
To the extent that Series A notes are tendered and accepted for exchange
pursuant to the exchange offer, the trading market for Series A notes that
remain outstanding may be significantly more limited, which might adversely
affect the liquidity of the Series A notes not tendered for exchange. The extent
of the market and the availability of price quotations for Series A notes would
depend upon a number of factors, including the number of holders of Series A
notes remaining at such time and the interest in maintaining a market in such
Series A notes on the part of securities firms. An issue of securities with a
smaller outstanding market value available for trading, or float, may command a
lower price than would a comparable issue of securities with a greater float.
Therefore, the market price for Series A notes that are not exchanged in the
exchange offer may be affected adversely to the extent that the amount of Series
A notes exchanged pursuant to the exchange offer reduces the float. The reduced
float also may tend to make the trading price of the Series A notes that are not
exchanged more volatile.
Consequences of Failure to Properly Tender
Issuance of the Series B notes in exchange for the Series A notes pursuant
to the exchange offer will be made following the prior satisfaction, or waiver,
of the conditions set forth in "The Exchange Offer -- Conditions to the Exchange
Offer" and only after timely receipt by the exchange agent of the Series A
notes, a properly completed and duly executed letter of transmittal and all
other required documents. Therefore, holders of Series A notes desiring to
tender Series A notes in exchange for Series B notes should allow sufficient
time to ensure timely delivery of all required documentation. Neither we, the
exchange agent nor any other person is under any duty to give notification of
defects or irregularities with respect to the tenders of Series A notes for
exchange. Series A notes that may be tendered in the exchange offer but which
are not validly tendered will, following the consummation of the exchange offer,
remain outstanding and will continue to be subject to the same transfer
restrictions currently applicable to the Series A notes.
THERE IS NO PUBLIC MARKET FOR THE NOTES AND YOU CANNOT BE SURE AN ACTIVE
TRADING MARKET FOR THE NOTES WILL DEVELOP.
The Series A notes have not been registered under the Securities Act, and
may not be resold by purchasers thereof unless the Series A notes are
subsequently registered or an exemption from the registration requirements of
the Securities Act is available. However, we cannot assure you that, even
following registration or exchange of the Series A notes for Series B notes,
that an active trading market for the Series A notes or the Series B notes will
exist, and we will have no obligation to create such a market. At the time of
the private placement of the Series A notes, the initial purchasers advised us
that they intended to make a market in the Series A notes and, if issued, the
Series B notes. However, the initial purchasers are not obligated to make a
market in the Series A notes or the Series B notes, and any such market-making
may be discontinued at any time at the sole discretion of the initial
purchasers. No assurance can be given as to the liquidity of or trading market
for the Series A notes or the Series B notes.
5
The liquidity of any market for the notes will depend upon the number of
holders of the notes, the overall market for high yield securities, our
financial performance or prospects or in the prospects for companies in our
industry generally, the interest of securities dealers in making a market in the
notes and other factors.
If the number of outstanding Series A notes is reduced through the exchange
offer, the existing limited market for the Series A notes will become further
constricted, with a probable decrease in the liquidity of the Series A notes.
Further, the Series A notes that are not tendered in the exchange offer will
continue to be subject to the existing restrictions upon their transfer. We will
have no obligation to provide for the registration under the Securities Act of
unexchanged Series A notes.
RISKS RELATING TO THE NOTES
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS.
On an as adjusted basis as of December 31, 2001, we would have had:
- $200.6 million of indebtedness (including the notes and capital lease
obligations), or 68.6% of our as adjusted total capitalization; and
- $50.0 million in total borrowing capacity under our new senior revolving
credit facility, which if borrowed would have been senior secured debt
effectively senior to the notes.
The degree to which we are leveraged could have important consequences to
you, including:
- our ability to satisfy our obligations under the notes or other debt
could be affected and any failure to comply with the requirements of any
of our debt agreements could result in an event of default under the
indenture;
- a substantial portion of our cash flow from operations will be required
to be dedicated to interest and principal payments and may not be
available for operations, working capital, capital expenditures,
expansion, acquisitions or general corporate or other purposes;
- our ability to obtain additional financing in the future may be impaired;
- we may be more highly leveraged than our competitors, which may place us
at a competitive disadvantage;
- our flexibility in planning for, or reacting to, changes in our business
and industry may be limited; and
- our degree of leverage may make us more vulnerable in the event of a
downturn in our business, our industry or the economy in general.
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations, business
prospects and ability to satisfy our obligations under the notes.
We could incur additional debt, which could negatively impact our financial
condition, results of operations and business prospects and prevent us from
satisfying our obligations under the notes. If we incur additional debt, the
leverage-related risks that we face could intensify.
In addition, our ability to make payments on and to refinance our debt,
including the notes, will depend on our ability to generate cash in the future.
This, to a lesser extent, is subject to general economic, business, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
6
WE MAY NOT BE ABLE TO ACQUIRE ON SATISFACTORY FINANCIAL TERMS THE HELICOPTERS
THAT WE CURRENTLY LEASE AND INTEND TO PURCHASE WITH THE PROCEEDS FROM THE
OFFERING OF OUR SERIES A NOTES, WHICH COULD RESULT IN THE INCURRENCE OF
SIGNIFICANT AIRCRAFT CARRYING COSTS.
We intend to use approximately $125 million of the net proceeds from the
offering of our Series A notes to acquire substantially all of the 102 aircraft
that we currently lease as soon as practicable following completion of the
offering. However, most of the leases provide that we may only purchase the
aircraft from the lessors on specific dates in the future. Some of the leases do
not provide for the acquisition of the aircraft by us.
Of the leased aircraft we intend to acquire with a portion of the net
proceeds from the Series A notes offering, we have the contractual right to
purchase aircraft valued at approximately $65.5 million on or prior to January
2, 2003 and additional aircraft valued at approximately $28.8 million on or
prior to December 31, 2003. We are seeking commitments from our lessors to allow
us to purchase substantially all of the 102 aircraft we lease, but no assurances
can be made that we will be successful. We have received commitments from our
lessors which will allow us to purchase aircraft valued at approximately $92.6
million. If we are not successful, we will be obligated to continue to make
lease payments during the period until the leases permit us to purchase the
aircraft. On those leases that do not have purchase options, we may not be able
to purchase the aircraft and will continue to be obligated to pay the lease
amounts until the termination of the lease. The continued incurrence of these
lease payments, together with the interest on the notes offered hereby for a
substantial period of time, could materially adversely affect our cash flows,
profitability and financial condition.
IN THE EVENT OF OUR BANKRUPTCY OR LIQUIDATION, HOLDERS OF THE NOTES WILL BE
PAID FROM ANY ASSETS REMAINING AFTER PAYMENTS TO ANY HOLDERS OF SECURED DEBT
AND DEBT OF OUR NON-GUARANTOR SUBSIDIARIES.
The notes will be general unsecured senior obligations of us and our
subsidiary guarantors, effectively junior to any of our existing or future
secured debt to the extent of the value of assets securing that debt. If we are
declared bankrupt or insolvent, or are liquidated, holders of our secured debt
and any secured debt of our subsidiaries will be entitled to be paid from our
assets before any payment may be made with respect to the notes. In addition, in
that circumstance, holders of debt of our non-guarantor subsidiaries would be
entitled to be paid from the assets of those subsidiaries before the proceeds of
those assets could be applied to pay the notes. If any of the foregoing events
occurs, we cannot assure you that we will have sufficient assets to pay amounts
due on our secured debt, the secured debt of our subsidiary guarantors, the debt
of our non-guarantor subsidiaries, and the notes and other liabilities of us and
our subsidiaries. As a result, holders of the notes may receive less, ratably,
than holders of secured debt of us or our subsidiary guarantors or the debt of
our non-guarantor subsidiaries in the event of bankruptcy or liquidation.
RESTRICTIONS IN OUR DEBT AGREEMENTS COULD LIMIT OUR GROWTH AND OUR ABILITY TO
RESPOND TO CHANGING CONDITIONS.
Our new senior revolving credit facility and the indenture governing the
notes contain a number of significant covenants in addition to covenants
restricting the incurrence of additional debt. These covenants limit our
ability, among other things, to:
- pay cash dividends or distributions on our capital stock or to repurchase
our capital stock;
- make certain investments;
- create certain liens on our assets to secure debt;
- merge or enter into other business combination transactions;
- issue and sell capital stock of our subsidiaries;
- enter into sale and leaseback transactions;
7
- enter into certain transactions with affiliates; and
- transfer and sell assets.
In addition, our new senior revolving credit facility requires us to
maintain certain financial ratios and satisfy certain financial condition tests
and may require us to take action to reduce our debt or take some other action
to comply with them.
These restrictions could limit our ability to obtain future financings,
make needed capital expenditures, withstand a future downturn in our business or
the economy in general, or otherwise conduct necessary corporate activities. We
may also be prevented from taking advantage of business opportunities that arise
because of the limitations that the restrictive covenants under our new senior
revolving credit facility and the indenture impose on us.
A breach of any of these covenants would result in a default under the
applicable debt agreement. A default, if not waived, could result in
acceleration of the debt outstanding under the agreement and in a default with
respect to, and acceleration of, the debt outstanding under the other debt
agreements. The accelerated debt would become immediately due and payable. If
that should occur, we may not be able to pay all such debt or to borrow
sufficient funds to refinance it. Even if new financing were then available, it
may not be on terms that are acceptable to us. See "Description of the
Notes -- Events of Default."
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES OR REPAY DEBT UNDER OUR CREDIT
FACILITY UPON A CHANGE OF CONTROL.
Upon the occurrence of a change of control, holders of the notes may
require us to offer to repurchase all or any part of their notes. We may not
have sufficient funds at the time of the change of control to make the required
repurchases, or restrictions under our new senior revolving credit facility may
not allow such repurchases. Additionally, an event constituting a "change of
control" (as defined in the indenture) will likely be an event of default under
our new senior revolving credit facility that would, if it should occur, permit
the lenders to accelerate the debt outstanding under our new senior revolving
credit facility and that, in turn, would cause an event of default under the
indenture.
The source of funds for any repurchase required as a result of any change
of control will be our available cash or cash generated from oil and gas
operations or other sources, including borrowings, sales of assets, sales of
equity or funds provided by a new controlling entity. We cannot assure you,
however, that sufficient funds would be available at the time of any change of
control to make any required repurchases of the notes tendered and to repay debt
under our new senior revolving credit facility. Furthermore, using available
cash to fund the potential consequences of a change of control may impair our
ability to obtain additional financing in the future. Any of our future credit
agreements or other agreements relating to debt will most likely contain similar
restrictions and provisions.
THE SUBSIDIARY GUARANTEES COULD BE DEEMED FRAUDULENT CONVEYANCES UNDER CERTAIN
CIRCUMSTANCES, AND A COURT MAY SUBORDINATE OR VOID THE SUBSIDIARY GUARANTEES.
The notes are guaranteed by our existing operating and future U.S.
subsidiaries. Under various fraudulent conveyance or fraudulent transfer laws, a
court could subordinate or void the subsidiary guarantees. Generally, to the
extent that a U.S. court were to find that at the time one of our subsidiaries
entered into a subsidiary guarantee either:
- the subsidiary incurred the guarantee with the intent to hinder, delay or
defraud any present or future creditor, or contemplated insolvency with a
design to favor one or more creditors to the exclusion of others; or
- the subsidiary did not receive fair consideration or reasonably
equivalent value for issuing the subsidiary guarantee and, at the time it
issued the subsidiary guarantee, the subsidiary
- was insolvent or became insolvent as a result of issuing the subsidiary
guarantee,
8
- was engaged or about to engage in a business or transaction for which the
remaining assets of the subsidiary constituted unreasonably small
capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they matured (as all of the foregoing terms
are defined or interpreted under the relevant fraudulent transfer or
conveyance statutes),
then the court could void or subordinate the subsidiary guarantee in favor of
the subsidiary's other obligations.
A legal challenge of a subsidiary guarantee on fraudulent conveyance
grounds may focus, among other things, on the benefits, if any, the subsidiary
realized as a result of our issuing the notes. To the extent a subsidiary
guarantee is voided as a fraudulent conveyance or held unenforceable for any
other reason, the holders of the notes would not have any claim against that
subsidiary and would be creditors solely of us and any other subsidiary
guarantors whose guarantees are not held unenforceable.
YOUR ABILITY TO SELL THE NOTES MAY BE LIMITED BY THE ABSENCE OF AN ACTIVE
TRADING MARKET, AND THERE IS NO ASSURANCE THAT AN ACTIVE TRADING MARKET WILL
DEVELOP FOR THE NOTES.
The notes are a new issue of securities for which there is no established
public market. The initial purchasers have advised us that they intend to make a
market in the notes, and the exchange notes, if issued, as permitted by
applicable laws and regulations. However, the initial purchasers are not
obligated to make a market in the notes or the exchange notes, and they may
discontinue their market-making activities at any time without notice.
Therefore, we cannot assure you that an active market for the notes or exchange
notes will develop or, if developed, that it will continue. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the notes.
We cannot assure you that the market, if any, for the notes or exchange notes
will be free from similar disruptions or that any such disruptions may not
adversely affect the prices at which you may sell your note. In addition,
subsequent to their initial issuance, the notes or exchange notes may trade at a
discount from their initial offering price, depending upon prevailing interest
rates, the market for similar notes, our performance and other factors. We
expect that the notes will be eligible to be traded in The PORTAL Market(SM). We
do not intend to apply for listing of the notes on any securities exchange.
RISKS RELATING TO OUR BUSINESS
OUR OPERATIONS ARE DEPENDENT UPON THE LEVEL OF EXPLORATION AND PRODUCTION
ACTIVITY IN THE OIL AND GAS INDUSTRY.
For the year ended December 31, 2001, approximately 72% of our operating
revenues was attributable to helicopter services provided to oil and gas
exploration and production companies. As such, our revenues, profitability and
future growth are highly dependent upon the levels of oil and natural gas
exploration and production activity. Such activity levels are affected by trends
in, and expectations regarding, oil and natural gas prices. These prices have
been, and are likely to continue to be, extremely volatile for both seasonal and
cyclical reasons. Oil and gas prices depend on factors that we cannot control,
such as:
- the supply of, and demand for, oil and natural gas and market
expectations regarding supply and demand;
- actions of OPEC, Middle Eastern and other oil producing countries to
control prices or change production levels;
- general economic conditions in the United States and worldwide;
- war, civil unrest or terrorist activities;
- governmental regulation; and
- the price and availability of alternative fuels.
9
Any substantial or extended decline in the prices of oil and natural gas
below historical averages could depress the level of helicopter activity in
support of exploration and production activity and thus have a material adverse
effect on our business, results of operations and financial condition.
Moreover, companies in the oil and gas exploration and production industry
continually seek to implement cost-savings measures. As part of these measures,
oil and gas companies have attempted to improve operating efficiencies with
respect to helicopter support services. For example, certain oil and gas
companies have pooled helicopter services among operators, reduced staffing
levels by using technology to permit unmanned production installations and
decreased the frequency of transportation of employees offshore by increasing
the lengths of shifts offshore. The continued implementation of such measures
could reduce demand for helicopter services and have a material adverse impact
on our business, results of operations and our financial condition.
WE DEPEND ON A SMALL NUMBER OF LARGE OIL AND GAS INDUSTRY CUSTOMERS FOR A
SIGNIFICANT PORTION OF OUR REVENUES.
We derive a significant amount of our revenues from a small number of major
integrated energy companies and independent oil and gas companies. Our largest
customer, Shell Oil Company and its affiliates, accounted for 15%, 12%, 13% and
17%, of our operating revenues for the years ended December 31, 2001 and
December 31, 2000, the eight months ended December 31, 1999 and the year ended
April 30, 1999, respectively. Our largest ten customers represented
approximately 54%, 47%, 47% and 46% of our operating revenues for the same
periods. Accordingly, our inability to continue to perform services for one or
more of these large existing customers would, if not offset by revenues from new
or other existing customers, have a material adverse effect on our revenues,
profitability and financial condition.
OUR OPERATIONS ARE DEPENDENT UPON THE LEVEL OF ACTIVITY IN THE GULF OF MEXICO.
Approximately 67% of our 2001 operating revenues was derived from our
helicopter support services to oil and gas customers operating in the Gulf of
Mexico. The Gulf of Mexico is the most profitable segment of our operations. If
activity in oil and natural gas exploration and production in the Gulf of Mexico
declines, our business, financial condition and results of operations would be
materially and adversely affected.
OUR CUSTOMERS ARE CONCENTRATED IN THE OIL AND GAS INDUSTRY AND, AS A RESULT,
OUR CREDIT EXPOSURE WITHIN THIS INDUSTRY IS SIGNIFICANT.
The majority of our customers are engaged in oil and gas exploration and
production. This concentration of customers may impact our overall exposure to
credit risk, either positively or negatively, in that such customers may be
similarly affected by changes in economic and industry conditions. We generally
do not require letters of credit or other collateral to support our trade
receivables. Accordingly, a sudden or protracted downturn in the economic
conditions of the oil and gas industry could adversely impact our ability to
collect our receivables and thus our financial condition.
THE RECENT UNIONIZATION OF OUR PILOTS WILL INCREASE OUR COSTS AND COULD HAVE
AN ADVERSE IMPACT ON OUR EARNINGS AND FINANCIAL CONDITION.
In June 2001, our U.S. pilots ratified a three-year collective bargaining
agreement between the Office & Professional Employees International Union, or
OPEIU, and us. This agreement, which expires on May 31, 2004, includes
provisions for periodic pilot salary increases. Accordingly, unless we are able
to pass these cost increases through to our customers, our profit margins will
decrease during this period. Moreover, although our collective bargaining
agreement contains certain work stoppage protections, a strike, work stoppage or
other labor disruption, even if in breach of the existing agreement, or the
failure to negotiate a new agreement following the expiration of the existing
agreement, could have a material
10
adverse impact on our revenues, operations or financial condition. In addition,
we cannot predict whether there will be any additional long-term adverse impact
on our business from the unionization of our pilots.
TERRORIST ACTIVITY AND THE THREAT OF TERRORISM HAVE INCREASED OUR COSTS AND
COULD INTERRUPT OR HARM OUR OPERATIONS IN THE FUTURE.
After the terrorist attacks on September 11, 2001, the Federal Aviation
Administration, or FAA, suspended all U.S. domestic flights, including our
operations, for three days. The FAA also further limited air travel for a number
of weeks thereafter. Our flight hours were severely impacted by these
restrictions. In addition to these temporary disruptions, we continue to incur
ongoing costs resulting from these attacks that we believe will continue for the
foreseeable future. Examples of these costs include higher insurance premiums
relating to the risk of war and terrorism and additional costs in connection
with the implementation of heightened security measures. Any additional
terrorist threats or attacks could further harm our business, results of
operations and financial condition.
OUR OPERATIONS ARE SUBJECT TO WEATHER-RELATED SEASONAL FLUCTUATIONS THAT COULD
ADVERSELY IMPACT OUR REVENUES AND FINANCIAL CONDITION.
Our operations may be impacted by weather-related or seasonal phenomena
that impact us, including poor weather conditions generally, tropical storm
season in the Gulf of Mexico and the limited hours of daylight in winter months.
Poor visibility, high winds and heavy precipitation can affect the
operation of helicopters and result in a reduced number of flight hours. A
significant portion of our revenues is dependent on actual flight hours and a
substantial portion of our direct costs is fixed. Thus, prolonged periods of
adverse weather could materially and adversely affect our business, results of
operations and financial condition.
In the Gulf of Mexico, the winter months of December, January and February
generally have more days of adverse weather conditions than the other months of
the year. In addition, June through November is tropical storm season in the
Gulf of Mexico. When a tropical storm is about to enter, or begins to develop
in, the Gulf of Mexico, flight activity may increase because of evacuations of
offshore workers. However, during tropical storms, we are unable to operate
offshore, with no flight activity possible until the storm leaves the Gulf of
Mexico.
Fall and winter months have fewer hours of daylight. Consequently, flight
hours are generally lower at these times, which typically results in a reduction
in operating revenues during those months. We currently operate only 44
helicopters in our services to the oil and gas industry that are equipped to fly
pursuant to instrument flight rules, or IFR, which enable these aircraft, when
manned by IFR-rated pilots and co-pilots, to operate at times when poor
visibility prevents flights by aircraft that can fly only by visual flight
rules.
HELICOPTER OPERATIONS INVOLVE RISK THAT MAY NOT BE COVERED BY OUR INSURANCE OR
MAY INCREASE THE COST OF OUR INSURANCE.
The operation of helicopters inherently involves a degree of risk. Hazards
such as aircraft accidents, collisions, fire and adverse weather and marine
conditions are part of the business of providing helicopter services and may
result in personal injury, loss of life, damage to property and equipment and
suspension or reduction of operations. We maintain hull and liability insurance
on our aircraft that insures us against physical loss of, or damage to, our
aircraft and against certain legal liabilities to others. We also carry aviation
liability and general liability coverage. In addition, we carry war risk,
expropriation, confiscation and nationalization insurance for our aircraft
involved in international operations. In some instances, we are covered by
indemnity agreements from our customers in lieu of, or in addition to, our own
insurance. Our aircraft are not insured against loss of use and we do not
maintain business interruption insurance. The loss of our liability insurance
coverage or the loss, expropriation or confiscation of, or severe damage to, a
material number of our helicopters could adversely affect our operations or
financial condition. Although we believe our existing insurance coverage is
adequate and consistent with industry standards, we cannot
11
assure you that we will be able to maintain adequate insurance coverage in the
future at commercially reasonable rates or that it will remain available to us.
FAILURE TO MAINTAIN AN ACCEPTABLE SAFETY RECORD WOULD HAVE AN ADVERSE IMPACT
ON OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.
Our customers consistently cite safety and reliability as primary concerns
in selecting a provider of air transportation services. If we fail to maintain
our safety and reliability record, our ability to attract new customers and
retain current customers would be adversely impacted.
INCREASED GOVERNMENTAL REGULATION COULD INCREASE OUR COSTS OR REDUCE OUR
ABILITY TO OPERATE SUCCESSFULLY.
We are subject to government regulation by a number of different federal
and state agencies. Our flight operations are regulated and we are licensed by
the FAA. The FAA also has authority to exercise jurisdiction over many aspects
of our business, including personnel, aircraft and ground facilities. Aircraft
accidents are subject to the jurisdiction of the National Transportation Safety
Board, or NTSB. Standards relating to the workplace health and safety of our
employees are created and monitored through the Occupational Safety and Health
Act, or OSHA. We are also subject to the Communications Act of 1934 and the
jurisdiction of the Federal Communications Commission because we use radio
facilities in our operations. We are also subject to various federal and state
environmental laws and regulations.
Under the Federal Aviation Act, it is unlawful to operate certain aircraft
for hire within the United States unless such aircraft are registered with the
FAA and the operator of such aircraft has been issued an operating certificate
by the FAA. As a general rule, aircraft may be registered under the Federal
Aviation Act only if the aircraft are owned or controlled by one or more
citizens of the United States and an operating certificate may be granted only
to a citizen of the United States. For the purpose of these requirements, a
corporation is deemed to be a citizen of the United States only if, among other
things, at least 75% of the voting interest therein is owned or controlled by
U.S. citizens. In the event that persons other than U.S. citizens should come to
own or control more than 25% of our outstanding voting interest, we have been
advised that our aircraft may be subject to deregistration under the Federal
Aviation Act and loss of the privilege of operating within the United States.
Numerous other federal statutes and rules regulate our offshore operations
and those of our customers pursuant to which the federal government has the
ability to suspend, curtail or modify our offshore operations. A suspension or
substantial curtailment of offshore operations for any prolonged period would
have an immediate and materially adverse effect on our revenues and financial
condition. A substantial modification of our current offshore operations could
adversely affect the economics of such operations and result in reduced demand
for our helicopter services.
MORE STRINGENT ENVIRONMENTAL REGULATION COULD INCREASE OUR COSTS AND
ENVIRONMENTAL LIABILITIES COULD HARM OUR BUSINESS.
We are subject to federal, state and local environmental laws and
regulations in the U.S. and foreign jurisdictions where we operate that impose
limitations on the discharge of pollutants into the environment and establish
standards for the treatment, storage, recycling, and disposal of toxic and
hazardous wastes. The nature of the business of operating and maintaining
helicopters requires that we use, store, and dispose of materials that are
subject to federal and state environmental regulation. We periodically conduct
environmental site surveys at our facilities, and determine whether there is a
need for environmental remediation based on these surveys. Although we maintain
reserves for potential environmental costs, these reserves may not be adequate
and liabilities associated with environmental matters could have a material
adverse impact on our profitability and financial condition.
OUR FAILURE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD HAVE AN ADVERSE
EFFECT ON US.
Our ability to attract and retain qualified pilots, mechanics and other
highly trained personnel will be an important factor in determining our future
success. Many of our customers require pilots of aircraft that
12
service them to have inordinately high levels of flight experience. The market
for these experienced and highly trained personnel is competitive and will
become more competitive if oil and gas industry activity levels increase.
Accordingly, we cannot assure you that we will be successful in our efforts to
attract and retain such persons. Some of our pilots and mechanics and those of
our competitors are members of the U.S. military reserves and could be called to
active duty. If significant numbers of such persons are called to active duty,
it would reduce the supply of such workers and likely increase our labor costs.
POTENTIAL FUTURE ACQUISITIONS AND EXPANSIONS OF OPERATIONS MAY ADVERSELY
AFFECT OUR BUSINESS BY SUBSTANTIALLY INCREASING THE LEVEL OF OUR INDEBTEDNESS
AND CONTINGENT LIABILITIES AND OUR RISK OF BEING UNABLE TO EFFECTIVELY
INTEGRATE THESE NEW OPERATIONS.
We may acquire assets that we believe will present opportunities to realize
synergies, expand our role in our industry and increase our market position.
Asset acquisitions may require substantial capital, and we may not be able to
raise the necessary funds on satisfactory terms or at all.
We periodically engage in discussions with respect to potential acquisition
and investment opportunities. If we consummate any future acquisitions, our
capitalization and results of operations may change significantly and you will
not have the opportunity to evaluate the economic, financial and other relevant
information that we will consider in determining the application of these funds.
Any acquisition or investment could result in the incurrence of indebtedness and
contingent liabilities and an increase in interest expense, impairment charges
related to goodwill and amortization expenses related to other intangible
assets, which could have a material adverse effect upon our business, results of
operations and financial condition.
Acquisitions and business expansions involve numerous risks, including
difficulties in the assimilation of the operations, technologies, services and
products of the acquired companies or business segments, inefficiencies and
difficulties that arise because of unfamiliarity with new assets and the
businesses associated with them and new geographic areas and the diversion of
management's attention from other business concerns. Management and other
personnel may be required to devote substantial time to integrate acquired
assets with existing operations, for instance, and these efforts may temporarily
distract their attention from day-to-day business and other business
opportunities. For all of these reasons, as acquisitions and expansions occur,
our business, results of operations and financial condition could be adversely
affected.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO POLITICAL, ECONOMIC AND OTHER
UNCERTAINTIES.
We currently provide helicopter services in Angola, Antarctica, Democratic
Republic of Congo and Taiwan. We operate approximately 21 aircraft in these
international markets, representing approximately 8% of our operating revenues
for the year ended December 31, 2001. Our international operations are subject
to a number of risks inherent in operating in foreign countries including, but
not limited to:
- political, social and economic instability;
- potential seizure or nationalization of assets;
- increased operating costs;
- modification or renegotiating of contracts;
- import-export quotas;
- currency fluctuations or devaluation; and
- other forms of government regulation.
Our international operations are susceptible to adverse events beyond our
control that could occur in foreign countries in which we conduct operations.
Our contracts to provide services internationally generally provide for payment
in U.S. dollars. However, to the extent we make investments in foreign assets or
currencies to fund our operations or receive revenues in currencies other than
U.S. dollars, our
13
revenues and assets associated with our international operations could be
adversely affected by fluctuations in the value of local currencies.
Additionally, competitiveness in international market areas may be
adversely affected by regulations, including but not limited to regulations
requiring:
- the awarding of contracts to local contractors;
- the employment of local citizens; and
- the establishment of foreign subsidiaries with significant ownership
positions reserved by the foreign government for local citizens.
OUR PRINCIPAL SHAREHOLDER CONTROLS THE OUTCOME OF SHAREHOLDER VOTING AND MAY
EXERCISE HIS VOTING POWER IN A MANNER ADVERSE TO YOU.
Al A. Gonsoulin, our Chairman of the Board, owns approximately 52% of the
voting power of our outstanding common stock. As long as he maintains this
voting control, he will have the ability to elect or replace all of our other
directors and management. Accordingly, he will have the ability to effectively
control our policies, management and affairs and the outcome of corporate
actions requiring shareholder approval. His interests may differ from the other
shareholders, the holders of the notes and other stakeholders of Petroleum
Helicopters.
THE HELICOPTER SERVICES BUSINESS IS HIGHLY COMPETITIVE.
The helicopter services industry is highly competitive in each of the
markets in which we operate. Many of our contracts are awarded following a
competitive bidding process. Factors that affect competition in our industry
include safety, price, reliability, availability and quality of service.
We are a leading provider of helicopter services in the Gulf of Mexico to
oil and gas exploration and production companies. There are two major and
several small competitors operating in the Gulf market. In addition, many of our
customers and potential customers in the oil and gas industry operate their own
captive helicopter fleets, which impacts demand for and prices for our services.
In the healthcare market, we compete against national firms, and there is
usually more than one competitor in each local market. Most of our healthcare
customers are independent hospitals who serve a particular city or region.
Competition in the air medical market continues to increase.
Our technical services business competes regionally and nationally against
various small and large repair centers in the United States and Canada.
Competition has intensified with aggressive pricing and acquisition moves by
several service providers and original equipment manufacturers and their
subsidiaries.
Our international business primarily serves customers in the oil and gas
industry, although it does service some government contracts. Most of our
international contracts are subject to competitive bidding, and our principal
competitors are generally the same companies that we compete with in the United
States.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY IMPACT OUR BUSINESS AND FINANCIAL
CONDITION.
Our future success is dependent on the quality of our key management
personnel, including Al A. Gonsoulin, our Chairman of the Board, and Lance F.
Bospflug, our Chief Executive Officer and President. The loss of Mr. Gonsoulin,
Mr. Bospflug or other key members of management could have an adverse effect on
our business. We do not maintain key employee insurance on any of our officers
or other employees. With the exception of Mr. Bospflug, none of our employees is
party to an employment agreement with us.
14
THE EXCHANGE OFFER
For the purposes of this section, "we" means Petroleum Helicopters, Inc.
and the Subsidiary Guarantors.
REGISTRATION RIGHTS
At the closing of the offering of the Series A notes, we entered into a
registration rights agreement with the initial purchasers pursuant to which we
agreed, for the benefit of the holders of the Series A notes, at our cost,
- to file an exchange offer registration statement with the SEC with
respect to the exchange offer for the Series B notes within 60 days after
the date of the original issuance of the Series A notes,
- to use our reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
within 150 days after the date of original issuance of the Series A
notes, and
- to use our reasonable best efforts to complete the exchange offer within
180 days after the date of original issuance of the Series A notes.
For each Series A note surrendered to us pursuant to the exchange offer,
the holder of such Series A note will receive a Series B note having a principal
amount equal to that of the surrendered Series A note. Interest on each Series B
note will accrue from the last interest payment date on which interest was paid
on the Series A note surrendered in exchange therefor or, if no interest has
been paid on such Series A note, from the date of its original issue. The
registration rights agreement also provides an agreement to include in the
prospectus for the exchange offer certain information necessary to allow a
broker-dealer who holds Series A notes that were acquired for its own account as
a result of market-making activities or other ordinary course trading activities
(other than Series A notes acquired directly from us or one of our affiliates)
to exchange such Series A notes pursuant to the exchange offer and to satisfy
the prospectus delivery requirements in connection with resales of Series B
notes received by such broker-dealer in the exchange offer. We agreed to use our
reasonable best efforts to maintain the effectiveness of the exchange offer
registration statement for these purposes for a period of at least 180 days
after the exchange offer registration statement has become effective.
The preceding agreement is needed because any broker-dealer who acquires
Series A notes for its own account as a result of market-making activities or
other trading activities is required to deliver a prospectus meeting the
requirements of the Securities Act. This prospectus covers the offer and sale of
the Series B notes pursuant to the exchange offer made hereby and the resale of
Series B notes received in the exchange offer by any broker-dealer who held
Series A notes of the same series acquired for its own account as a result of
market-making activities or other trading activities other than Series A notes
acquired directly from us or one of our affiliates.
Each holder of the Series A notes (other than certain specified holders)
who wishes to exchange Series A notes for Series B notes in the exchange offer
will be required to make certain representations, including:
- that it is not an affiliate of Petroleum Helicopters, Inc.,
- that it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B notes,
- that it is acquiring the Series B notes in the exchange offer in its
ordinary course of business,
15
- if such Holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, a distribution of Series B notes, and
- if such Holder is a broker-dealer that will receive Series B notes for
its own account in exchange for Notes that were acquired as a result of
market-making or other trading activities, it will deliver a prospectus
in connection with any resale of such Series B notes.
We further agreed to file with the SEC a shelf registration statement to
register for public resale the Series B notes held by any such holder who
provides Petroleum Helicopters, Inc. with certain information for inclusion in
the shelf registration statement if:
- the exchange offer is not permitted by applicable law or SEC policy,
- for any reason, the exchange offer is not consummated within 180 days
after the effective date,
- the holder is prohibited by law or SEC policy from participating in the
exchange offer, or
- the Initial Purchasers request with respect to Notes that have the status
of unsold allotments in an initial distribution.
The registration rights agreement provides that:
(1) if we fail to file an exchange offer registration statement with
the SEC on or prior to the 60th day after the closing of the offering of
the Series A notes,
(2) if the exchange offer registration statement is not declared
effective by the SEC on or prior to the 150th day after the closing of the
offering of the Series A notes,
(3) if the exchange offer is not consummated on or before the 180th
day after the closing of the offering of the Series A notes, or
(4) subject to certain conditions, if the exchange offer registration
statement or the shelf registration statement, as the case may be, is
declared effective but thereafter ceases to be effective or useable, for
such time of non-effectiveness or non-usability (each, a "Registration
Default"),
we agree to pay to each holder of affected Notes liquidated damages in an amount
equal to 0.25% per annum of principal amount of Series A notes while the
Registration Default continues for the first 90-day period immediately following
the occurrence of such Registration Default. The amount of the liquidated
damages shall increase by an additional 0.25% per annum of principal amount of
Series A notes with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of liquidated
damages of 1.0% per annum of principal amount of Series A notes. We shall not be
required to pay liquidated damages for more than one Registration Default at any
given time. Upon curing all Registration Defaults, liquidated damages will cease
to accrue.
Holders of the notes will be required to make certain representations to us
(as described in the registration rights agreement) in order to participate in
the exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement.
If we effect the registered exchange offer, we will be entitled to close
the registered exchange offer 30 business days after the commencement thereof;
provided that the we have accepted all notes theretofore validly rendered in
accordance with the terms of the exchange offer and no brokers or dealers
continue to hold any notes.
This summary of the material provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is filed as an exhibit to the registration statement
of which this prospectus is a part.
16
Except as set forth above, after consummation of the exchange offer,
holders of Series A notes which are the subject of the exchange offer have no
registration or exchange rights under the registration rights agreement. See
"-- Consequences of Failure to Exchange," and "-- Resale of the Series B Notes;
Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
The Series A notes which are not exchanged for Series B notes pursuant to
the exchange offer and are not included in a resale prospectus which, if
required, will be filed as part of an amendment to the registration statement of
which this prospectus is a part, will remain restricted securities and subject
to restrictions on transfer. Accordingly, such Series A notes may only be resold
(1) to us, upon redemption thereof or otherwise,
(2) so long as the Series A notes are eligible for resale pursuant to
Rule 144A, to a person whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities
Act, purchasing for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or
other transfer is being made in reliance on Rule 144A,
(3) in an offshore transaction in accordance with Regulation S under
the Securities Act,
(4) pursuant to an exemption from registration in accordance with Rule
144, if available, under the Securities Act,
(5) in reliance on another exemption from the registration
requirements of the Securities Act, or
(6) pursuant to an effective registration statement under the
Securities Act.
In all of the situations discussed above, the resale must be in accordance
with any applicable securities laws of any state of the United States and
subject to certain requirements of the registrar or co-registrar being met,
including receipt by the registrar or co-registrar of a certification and, in
the case of (3), (4) and (5) above, an opinion of counsel reasonably acceptable
to us and the registrar.
To the extent Series A notes are tendered and accepted in the exchange
offer, the principal amount of outstanding Series A notes will decrease with a
resulting decrease in the liquidity in the market therefor. Accordingly, the
liquidity of the market of the Series A notes could be adversely affected. See
"Risk Factors -- Consequences of Failure to Exchange."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, a copy of which is attached to this prospectus
as Annex A, we will accept any and all Series A notes validly tendered and not
withdrawn prior to the Expiration Date. We will issue $1,000 principal amount of
Series B notes in exchange for each $1,000 principal amount of Series A notes
accepted in the exchange offer. Holders may tender some or all of their Series A
notes pursuant to the exchange offer. However, Series A notes may be tendered
only in integral multiples of $1,000 principal amount.
The form and terms of the Series B notes are the same as the form and terms
of the Series A notes, except that
- the Series B notes will have been registered under the Securities Act and
will not bear legends restricting their transfer pursuant to the
Securities Act, and
- except as otherwise described above, holders of the Series B notes will
not be entitled to the rights of holders of Series A notes under the
registration rights agreement.
The Series B notes will evidence the same debt as the Series A notes which
they replace, and will be issued under, and be entitled to the benefits of, the
indenture which governs all of the notes.
17
Solely for reasons of administration and for no other purpose, we have
fixed the close of business on , 2002 as the record date for the
exchange offer for purposes of determining the persons to whom this prospectus
and the letter of transmittal will be mailed initially. Only a registered holder
of Series A notes or such holder's legal representative or attorney-in-fact as
reflected on the records of the trustee under the indenture may participate in
the exchange offer. There will be no fixed record date for determining
registered holders of the Series A notes entitled to participate in the exchange
offer.
Holders of the Series A notes do not have any appraisal or dissenters'
rights under Louisiana law or the indenture in connection with the exchange
offer. We intend to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder.
We shall be deemed to have accepted validly tendered Series A notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders of the Series A
notes for the purposes of receiving the Series B notes. The Series B notes
delivered pursuant to the exchange offer will be issued on the earliest
practicable date following our acceptance for exchange of Series A notes.
If any tendered Series A notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Series A notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Series A notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of the
Series A notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" with respect to the exchange offer, shall mean
5:00 p.m., New York City time, on , 2002 unless we, in our sole
discretion, extend the exchange offer, in which case the term "Expiration Date"
shall mean the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date of the exchange offer.
We reserve the right, in our sole discretion,
(1) to delay accepting any Series A notes,
(2) to extend the exchange offer,
(3) if any of the conditions set forth below under "-- Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange offer, or
(4) to amend the terms of the exchange offer in any manner.
We may effect any such delay, extension or termination by giving oral or
written notice thereof to the exchange agent.
Except as specified in the second paragraph under this heading, any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by a public announcement thereof. If the exchange offer
is amended in a manner determined by us to constitute a material change, we will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the Series A notes. The exchange
offer will then be extended for a period of five to 10 business days, as
required by law, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the exchange offer would otherwise
expire during such five to 10 business day period.
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Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, termination or amendment of the exchange
offer, we shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
thereof to the Dow Jones News Service.
PROCEDURES FOR TENDERING SERIES A NOTES
TENDERS OF SERIES A NOTES
The tender by a holder of Series A notes pursuant to any of the procedures
set forth below will constitute the tendering holder's acceptance of the terms
and conditions of the exchange offer. Our acceptance for exchange of Series A
notes tendered pursuant to any of the procedures described below will constitute
a binding agreement between such tendering holder and us in accordance with the
terms and subject to the conditions of the exchange offer. Only holders are
authorized to tender their Series A notes. The procedures by which Series A
notes may be tendered by beneficial owners that are not holders will depend upon
the manner in which the Series A notes are held.
DTC has authorized DTC participants that are beneficial owners of Series A
notes through DTC to tender their Series A notes as if they were holders. To
effect a tender, DTC participants should either (1) complete and sign the letter
of transmittal or a facsimile thereof, have the signature thereon guaranteed if
required by Instruction 1 of the letter of transmittal, and mail or deliver the
letter of transmittal or such facsimile pursuant to the procedures for
book-entry transfer set forth below under "-- Book-Entry Delivery Procedures,"
or (2) transmit their acceptance to DTC through the DTC Automated Tender Offer
Program ("ATOP"), for which the transaction will be eligible, and follow the
procedures for book-entry transfer, set forth below under "-- Book-Entry
Delivery Procedures."
TENDER OF SERIES A NOTES HELD IN PHYSICAL FORM
To tender effectively Series A notes held in physical form pursuant to the
exchange offer,
- a properly completed letter of transmittal applicable to such notes (or a
facsimile thereof) duly executed by the holder thereof, and any other
documents required by the letter of transmittal, must be received by the
exchange agent at one of its addresses set forth below, and tendered
Series A notes must be received by the exchange agent at such address (or
delivery effected through the deposit of Series A notes into the exchange
agent's account with DTC and making book-entry delivery as set forth
below) on or prior to the Expiration Date of the exchange offer, or
- the tendering holder must comply with the guaranteed delivery procedures
set forth below.
LETTERS OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT ONLY TO THE EXCHANGE
AGENT AND SHOULD NOT BE SENT TO US.
TENDER OF SERIES A NOTES HELD THROUGH A CUSTODIAN
To tender effectively Series A notes that are held of record by a custodian
bank, depository, broker, trust company or other nominee, the beneficial owner
thereof must instruct such holder to tender the Series A notes on the beneficial
owner's behalf. A letter of instructions from the record owner to the beneficial
owner may be included in the materials provided along with this prospectus which
may be used by the beneficial owner in this process to instruct the registered
holder of such owner's Series A notes to effect the tender.
TENDER OF SERIES A NOTES HELD THROUGH DTC
To tender effectively Series A notes that are held through DTC, DTC
participants should either
- properly complete and duly execute the letter of transmittal (or a
facsimile thereof), and any other documents required by the letter of
transmittal, and mail or deliver the letter of transmittal or such
facsimile pursuant to the procedures for book-entry transfer set forth
below, or
19
- transmit their acceptance through ATOP, for which the transaction will be
eligible, and DTC will then edit and verify the acceptance and send an
Agent's Message to the exchange agent for its acceptance.
Delivery of tendering Series A notes held through DTC must be made to the
exchange agent pursuant to the book-entry delivery procedures set forth below or
the tendering DTC participant must comply with the guaranteed delivery
procedures set forth below.
The method of delivery of Series A notes and letters of transmittal, any
required signature guarantees and all other required documents, including
delivery through DTC and any acceptance or Agent's Message transmitted through
ATOP, is at the election and risk of the person tendering Series A notes and
delivering letters of transmittal. Except as otherwise provided in the letter of
transmittal, delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, it is suggested that the holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the exchange agent prior to such date.
Except as provided below, unless the Series A notes being tendered are
deposited with the exchange agent on or prior to the Expiration Date
(accompanied by a properly completed and duly executed letter of transmittal or
a properly transmitted Agent's Message), we may, at our option, reject such
tender. Exchange of Series B notes for Series A notes will be made only against
deposit of the tendered Series A notes and delivery of all other required
documents.
BOOK-ENTRY DELIVERY PROCEDURES
The exchange agent will establish accounts with respect to the Series A
notes at DTC for purposes of the exchange offer within two business days after
the date of this prospectus, and any financial institution that is a participant
in DTC may make book-entry delivery of the Series A notes by causing DTC to
transfer such Series A notes into the exchange agent's account in accordance
with DTC's procedures for such transfer. However, although delivery of Series A
notes may be effected through book-entry at DTC, the letter of transmittal (or
facsimile thereof), with any required signature guarantees or an Agent's Message
in connection with a book-entry transfer, and any other required documents,
must, in any case, be transmitted to and received by the exchange agent at one
or more of its addresses set forth in this prospectus on or prior to the
Expiration Date, or compliance must be made with the guaranteed delivery
procedures described below. Delivery of documents to DTC does not constitute
delivery to the exchange agent. The confirmation of a book-entry transfer into
the exchange agent's account at DTC as described above is referred to herein as
a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
each participant in DTC tendering the Series A notes and that such participant
has received the letter of transmittal and agrees to be bound by the terms of
the letter of transmittal and we may enforce such agreement against such
participant.
SIGNATURE GUARANTEES
Signatures on all letters of transmittal must be guaranteed by a recognized
member of the Medallion Signature Guarantee Program or by any other "eligible
guarantor institution," as such term is defined in Rule 17Ad-15 promulgated
under the Exchange Act (each of the foregoing, an "Eligible Institution"),
unless the Series A notes tendered thereby are tendered (1) by a registered
holder of Series A notes (or by a participant in DTC whose name appears on a DTC
security position listing as the owner of such Series A notes) who has not
completed either the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal, or (2) for the account of
an Eligible Institution. See Instruction 1 of the letters of transmittal. If the
Series A notes are registered in the name of a person other than the signer of
the letter of transmittal or if Series A notes not accepted for exchange or not
tendered are to be returned to a person other than the registered holder, then
the signatures on the letter
20
of transmittal accompanying the tendered Series A notes must be guaranteed by an
Eligible Institution as described above. See Instructions 1 and 5 of the letter
of transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Series A notes pursuant to the exchange offer
and time will not permit the letter of transmittal, certificates representing
such Series A notes and all other required documents to reach the exchange
agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date of the exchange offer, such Series A notes may
nevertheless be tendered if all the following conditions are satisfied:
(1) the tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by us herewith, or an Agent's
Message with respect to guaranteed delivery that is accepted by us, is
received by the exchange agent on or prior to the Expiration Date, as
provided below; and
(3) the certificates for the tendered Series A notes, in proper form
for transfer (or a Book-Entry Confirmation of the transfer of such Series A
notes into the exchange agent's account at DTC as described above),
together with the letter of transmittal (or facsimile thereof), property
completed and duly executed, with any required signature guarantees and any
other documents required by the letter of transmittal or a properly
transmitted Agent's Message, are received by the exchange agent within two
business days after the date of execution of the Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be sent by hand delivery, telegram,
facsimile transmission or mail to the exchange agent and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, delivery of Series B notes by
the exchange agent for Series A notes tendered and accepted for exchange
pursuant to the exchange offer will, in all cases, be made only after timely
receipt by the exchange agent of such Series A notes (or Book-Entry Confirmation
of the transfer of such Series A notes into the exchange agent's account at DTC
as described above), and the letter of transmittal (or facsimile thereof) with
respect to such Series A notes, properly completed and duly executed, with any
required signature guarantees and any other documents required by the letter of
transmittal, or a properly transmitted Agent's Message.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Series A notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all Series A notes not
properly tendered or any Series A notes our acceptance of which, in the opinion
of our counsel, would be unlawful.
We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Series A notes. The interpretation of the
terms and conditions of our exchange offer (including the instructions in the
letter of transmittal) by us will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Series A
notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with
respect to tenders of Series A notes through the exchange agent, neither we, the
exchange agent nor any other person is under any duty to give such notice, nor
shall they incur any liability for failure to give such notification. Tenders of
Series A notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
Any Series A notes received by the exchange agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived, or if Series A notes are submitted in a principal
21
amount greater than the principal amount of Series A notes being tendered by
such tendering holder, such unaccepted or non-exchanged Series A notes will
either be
(1) returned by the exchange agent to the tendering holders, or
(2) in the case of Series A notes tendered by book-entry transfer into
the exchange agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described below, credited to an
account maintained with such Book-Entry Transfer Facility.
By tendering, each registered holder will represent to us that, among other
things,
- the Series B notes to be acquired by the holder and any beneficial
owner(s) of the Series A notes in connection with the exchange offer are
being acquired by the holder and any beneficial owner(s) in the ordinary
course of business of the holder and any beneficial owner(s),
- the holder and each beneficial owner are not participating, do not intend
to participate, and have no arrangement or understanding with any person
to participate, in a distribution of the Series B notes,
- the holder and each beneficial owner acknowledge and agree that (x) any
person participating in the exchange offer for the purpose of
distributing the Series B notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction with respect to the Series B notes
acquired by such person and cannot rely on the position of the Staff of
the SEC set forth in no-action letters that are discussed herein under
"-- Resale of the Series B Notes; Plan of Distribution," and (y) any
broker-dealer that receives Series B notes for its own account in
exchange for Series A notes pursuant to the exchange offer must delivery
a prospectus in connection with any resale of such Series B notes, but by
so acknowledging, the holder shall not be deemed to admit that, by
delivering a prospectus, it is an "underwriter" within the meaning of the
Securities Act,
- neither the holder nor any beneficial owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of ours except as otherwise
disclosed to us in writing, and
- the holder and each beneficial owner understands, that a secondary resale
transaction described in clause (3) above should be covered by an
effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the SEC.
Each broker-dealer that receives Series B notes for its own account in
exchange for Series A notes, where such Series A notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B notes. See "-- Resale of the Series B Notes;
Plan of Distribution."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A notes pursuant to
the exchange offer may be withdrawn, unless accepted for exchange as provided in
the exchange offer, at any time prior to the Expiration Date of the exchange
offer.
To be effective, a written or facsimile transmission notice of withdrawal
must be received by the exchange agent at its address set forth herein prior to
the Expiration Date of the exchange offer. Any such notice of withdrawal must
- specify the name of the person having deposited the Series A notes to be
withdrawn,
- identify the Series A notes to be withdrawn, including the certificate
number or numbers of the particular certificates evidencing the Series A
notes (unless such Series A notes were tendered by book-entry transfer),
and aggregate principal amount of such Series A notes, and
- be signed by the holder in the same manner as the original signature on
the letter of transmittal (including any required signature guarantees)
or be accompanied by documents of transfer
22
sufficient to have the trustee under the indenture register the transfer of the
Series A notes into the name of the person withdrawing such Series A notes.
If Series A notes have been delivered pursuant to the procedures for
book-entry transfer set forth in "-- Procedures for Tendering Series A
Notes -- Book-Entry delivery procedures," any notice of withdrawal must specify
the name and number of the account at the appropriate book-entry transfer
facility to be credited with such withdrawn Series A notes and must otherwise
comply with such book-entry transfer facility's procedures.
If the Series A notes to be withdrawn have been delivered or otherwise
identified to the exchange agent, a signed notice of withdrawal meeting the
requirements discussed above is effective immediately upon written or facsimile
notice of withdrawal even if physical release is not yet effected. A withdrawal
of Series A notes can only be accomplished in accordance with these procedures.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us in our sole discretion, which
determination shall be final and binding on all parties. No withdrawal of Series
A notes will be deemed to have been properly made until all defects or
irregularities have been cured or expressly waived. Neither we, the exchange
agent nor any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or revocation, nor shall
we or they incur any liability for failure to give any such notification. Any
Series A notes so withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer and no Series B notes will be issued with respect
thereto unless the Series A notes so withdrawn are retendered. Properly
withdrawn Series A notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering Series A Notes" at any time
prior to the Expiration Date of the exchange offer.
Any Series A notes which have been tendered but which are not accepted for
exchange due to the rejection of the tender due to uncured defects or the prior
termination of the exchange offer, or which have been validly withdrawn, will be
returned to the holder thereof unless otherwise provided in the letter of
transmittal, as soon as practicable following the Expiration Date of the
exchange offer or, if so requested in the notice of withdrawal, promptly after
receipt by us of notice of withdrawal without cost to such holder.
CONDITIONS TO THE EXCHANGE OFFER
The exchange offer shall not be subject to any conditions, other than that
(1) the SEC has issued an order or orders declaring the indenture
governing the notes qualified under the Trust Indenture Act of 1939,
(2) the exchange offer, or the making of any exchange by a holder,
does not violate applicable law or any applicable interpretation of the
staff of the SEC,
(3) no action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency with respect to the
exchange offer, which, in our judgment, might impair our ability to proceed
with the exchange offer,
(4) there shall not have been adopted or enacted any law, statute,
rule or regulation which, in our judgment, would materially impair our
ability to proceed with the exchange offer, or
(5) there shall not have occurred any material change in the financial
markets in the United States or any outbreak of hostilities or escalation
thereof or other calamity or crisis the effect of which on the financial
markets of the United States, in our judgment, would materially impair our
ability to proceed with the exchange offer.
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If we determine in our sole discretion that any of the conditions to the
exchange offer are not satisfied, we may
(1) refuse to accept any Series A notes and return all tendered Series
A notes to the tendering holders,
(2) extend the exchange offer and retain all Series A notes tendered
prior to the Expiration Date applicable to the exchange offer, subject,
however, to the rights of holders to withdraw such Series A notes (see
"-- Withdrawal of Tenders"), or
(3) waive such unsatisfied conditions with respect to the exchange
offer and accept all validly tendered Series A notes which have not been
withdrawn.
If such waiver constitutes a material change to the exchange offer, we will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and will extend the exchange offer for a
period of five to 10 business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the exchange
offer would otherwise expire during such five to 10 business day period.
EXCHANGE AGENT
The Bank of New York, the trustee under the indenture governing the notes,
has been appointed as exchange agent for the exchange offer. Questions and
requests for assistance, requests for additional copies of this prospectus or of
the letter of transmittal and requests for Notices of Guaranteed Delivery and
other documents should be directed to the exchange agent addressed as follows:
By Mail:
The Bank of New York
15 Broad Street
16th Floor
New York, NY 10007
Attention: Reorganization Unit
By Facsimile:
(212)
Attention: Reorganization Unit
Confirm by Telephone:
(212)
Attention: Reorganization Unit
By Hand:
The Bank of New York
15 Broad Street
16th Floor
New York, NY 10007
Attention: Reorganization Unit
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by officers and regular employees of
Petroleum Helicopters, Inc. and our affiliates.
No dealer-manager has been retained in connection with the exchange offer
and no payments will be made to brokers, dealers or others soliciting acceptance
of the exchange offer. However, reasonable and
24
customary fees will be paid to the exchange agent for its services and it will
be reimbursed for its reasonable out-of-pocket expenses in connection therewith.
Our out of pocket expenses for the exchange offer will include fees and
expenses of the exchange agent and the trustee under the indenture, accounting
and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
Series A notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Series A notes pursuant to
the exchange offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Series B notes will be recorded at the carrying value of the Series A
notes and no gain or loss for accounting purposes will be recognized. The
expenses of the exchange offer will be amortized over the term of the Series B
notes.
RESALE OF THE SERIES B NOTES; PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of Series B notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Series B notes received in exchange
for Series A notes where such Series A notes were acquired as a result of
market-making activities or other trading activities. In addition, until
, 2002 (90 days after the date of this prospectus), all dealers effecting
transactions in the Series B notes, whether or not participating in this
distribution, may be required to deliver a prospectus. This requirement is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
We will not receive any proceeds from any sale of Series B notes by
broker-dealers. Series B notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions
(1) in the over-the-counter market,
(2) in negotiated transactions,
(3) through the writing of options on the Series B notes or a
combination of such methods of resale,
(4) at market prices prevailing at the time of resale,
(5) at prices related to such prevailing market prices, or
(6) at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Series B
notes.
Any broker-dealer that resells Series B notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such Series B notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B notes and any commission on concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver a prospectus and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
25
We agreed to permit the use of this prospectus by such broker-dealers to
satisfy this prospectus delivery requirement. To the extent necessary to ensure
that the prospectus is available for sales of Series B notes by broker-dealers,
we agreed to use our best efforts to keep the exchange offer registration
statement continuously effective, supplemented, amended and current for a period
of at least 180 business days from the closing of the offering of the Series A
notes or such shorter period as will terminate when all Series B notes covered
by such registration statement have been sold. We will provide sufficient copies
of the latest version of this prospectus to such broker-dealers no event later
than one day after such request at any time during this period.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the Series B notes offered by this prospectus. In consideration for
issuing the Series B notes as contemplated in this prospectus, we will receive
in exchange Series A notes in like principal amount, the form and terms of which
are the same as the form and terms of the Series B notes, except as otherwise
described herein under "The Exchange Offer -- Terms of the Exchange Offer." The
Series A notes surrendered in exchange for the Series B notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Series B notes
will not result in any increase in our indebtedness.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our historical consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
The selected consolidated financial data as of and for each of the years
ended April 30, 1997 through 1999, as of and for the eight months ended December
31, 1999 and the years ended December 31, 2000 and 2001 have been derived from
our audited consolidated financial statements. The consolidated statement of
operations data for the twelve months ended December 31, 1999 are unaudited and
shown for comparison purposes only. Historical results are not necessarily
indicative of the results to be expected in the future.
EIGHT MONTHS TWELVE MONTHS
YEAR ENDED APRIL 30, ENDED ENDED YEAR ENDED DECEMBER 31,
------------------------------ DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1999 1999 1999(1) 2000 2001
-------- -------- -------- ------------ ------------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF OPERATIONS DATA:
Operating revenues............ $211,663 $236,582 $247,339 $146,380 $223,112 $232,074 $277,052
Gain on disposition of
property and equipment...... 1,285 3,313 3,583 6,595 8,743 3,963 1,351
Other......................... -- (1,291) -- -- -- -- 1,461
-------- -------- -------- -------- -------- -------- --------
212,948 238,604 250,922 152,975 231,855 236,037 279,864
-------- -------- -------- -------- -------- -------- --------
Expenses:
Direct expenses............. 184,456 203,421 214,516 139,902 209,769 225,567(2) 238,153
Selling, general and
administrative............ 12,778 17,798 18,017 12,359 18,461 18,165 18,029
Equity in net (gain) or loss
of unconsolidated
subsidiaries.............. 560 (242) 40 686 812 716 --
Special charges............. -- -- 7,298 -- 4,846 3,571 --
Interest expense.............. 4,297 5,118 6,017 3,978 5,889 5,813 6,190
-------- -------- -------- -------- -------- -------- --------
202,091 226,095 245,888 156,925 239,777 253,832 262,372
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
income taxes.............. 10,857 12,509 5,034 (3,950) (7,922) (17,795) 17,492
Income taxes.................. 4,387 5,092 2,046 (1,251) (2,903) (5,501) 6,472
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)......... $ 6,470 $ 7,417 $ 2,988 $ (2,699) $ (5,019) $(12,294) $ 11,020
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA AND
RATIOS:
EBITDA(3)(5).................. $ 25,131 $ 30,161 $ 34,542 $ 9,683 $ 18,097 $ 5,302 $ 38,764
EBITDAR(4)(5)................. 39,189 47,077 51,128 19,968 33,701 23,623 58,735
Capital expenditures.......... 40,835 25,475 42,271 10,047 22,265 28,179 29,502
Gross proceeds from asset
dispositions................ 6,583 13,982 19,881 16,254 24,473 24,142 24,304
Cash flows from operating
activities.................. $ 8,489 $ 10,508 $ 16,495 $ (3,815) $ 4,994 $ 9,351 $ 18,680
Cash flows from investing
activities.................. (32,274) (20,223) (22,814) 5,627 1,565 (5,011) (4,848)
Cash flows from financing
activities.................. 24,323 10,031 6,591 (3,174) (5,101) (5,140) (9,260)
Ratio of earnings to fixed
charges(6).................. 2.2x 2.1x 1.4x 0.6x 0.4x (0.3)x 2.3x
Pro forma ratio of earnings to
fixed charges(7)............ 1.5x
27
EIGHT MONTHS TWELVE MONTHS
YEAR ENDED APRIL 30, ENDED ENDED YEAR ENDED DECEMBER 31,
------------------------------ DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1999 1999 1999(1) 2000 2001
-------- -------- -------- ------------ ------------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Current assets................ $ 71,958 $ 88,517 $ 85,188 $ 86,324 $ 86,324 $ 87,891 $ 92,626
Working capital............... 41,247 47,971 51,030 54,699 54,699 41,547 46,987
Property and equipment, net... 121,827 135,119 144,560 135,047 135,047 131,856 122,168
Total assets.................. 196,631 227,021 231,575 223,056 223,056 222,755 225,645
Total debt, including current
portion..................... 62,460 72,619 80,296 77,640 77,640 74,819 66,616
Shareholders' equity.......... 87,416 94,705 96,581 93,623 93,623 81,622 91,872
---------------
(1) Information for the twelve months ended December 31, 1999 is derived from
our unaudited financial information and presented for comparison purposes
only. Effective December 31, 1999, we changed our fiscal year-end from April
30 to December 31.
(2) Includes a $4.3 million write-down of inventory.
(3) EBITDA is defined as income from continuing operations before depreciation
and amortization, interest expense and income taxes and is calculated before
special charges. Management believes that EBITDA is commonly used as an
analytical indicator within our industry and also serves as a measure of
leverage capacity and debt service ability. EBITDA should not be considered
a measure of financial performance under generally accepted accounting
principles, and the items excluded from EBITDA are significant components in
understanding and assessing financial performance. EBITDA should not be
considered in isolation or as an alternative to net income, cash flows
generated by operating, investing or financing activities or other financial
statement data presented in the consolidated financial statements or as an
indicator of financial performance or liquidity. Because EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as
presented may not be comparable to other similarly titled measures of other
companies.
(4) EBITDAR is defined as EBITDA before rent expense.
(5) The following table sets forth how EBITDA and EBITDAR were determined for
the periods presented:
EIGHT MONTHS TWELVE MONTHS YEAR ENDED
YEAR ENDED APRIL 30, ENDED ENDED DECEMBER 31,
--------------------------- DECEMBER 31, DECEMBER 31, ------------------
1997 1998 1999 1999 1999 2000 2001
------- ------- ------- ------------ ------------- -------- -------
(IN THOUSANDS)
Net earnings (loss)......... $ 6,470 $ 7,417 $ 2,988 $(2,699) $(5,019) $(12,294) $11,020
Depreciation and
amortization.............. 9,977 12,534 16,193 9,655 15,284 13,713 15,082
Special charges............. -- -- 7,298 -- 4,846 3,571 --
Interest expense............ 4,297 5,118 6,017 3,978 5,889 5,813 6,190
Income taxes................ 4,387 5,092 2,046 (1,251) (2,903) (5,501) 6,472
EBITDA...................... 25,131 30,161 34,542 9,683 18,097 5,302 38,764
Rent expense................ 14,058 16,916 16,586 10,285 15,604 18,321 19,971
EBITDAR..................... 39,189 47,077 51,128 19,968 33,701 23,623 58,735
(6) Fixed charges are defined as the sum of interest and the estimated interest
component of our rent expense. For this calculation, fixed charges are added
back to net earnings before income taxes and equity in net gains or losses
of unconsolidated subsidiaries. For the eight months and twelve months ended
December 31, 1999 and the year ended December 31, 2000, earnings were
inadequate to cover fixed charges by $3.3 million, $7.1 million and $17.1
million, respectively.
(7) Pro forma 2001 ratio of earnings to fixed charges gives effect to the
offering of Series A notes and the application of net proceeds to (A)
acquire all of the 102 aircraft we currently lease and (B) repay all
outstanding amounts under our bank credit facilities as if these
transactions occurred as of January 1, 2001.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements, related notes and other financial information
appearing elsewhere in this prospectus. In addition, please read "Risk Factors"
and "Forward-looking Statements."
OVERVIEW
Petroleum Helicopters, Inc., founded in 1949, is one of the world's largest
and most experienced providers of commercial helicopter services. We are a
leading provider of safe and reliable helicopter transportation services to the
oil and gas industry in the Gulf of Mexico, where we operate approximately 175
aircraft. We also provide helicopter services to energy companies operating
offshore California, West Africa and Southeast Asia. In addition, we provide
helicopter and support services to the healthcare industry and helicopter repair
and refurbishment services. We operate in four business segments, which we refer
to as:
- Domestic Oil and Gas;
- International;
- Aeromedical; and
- Technical Services.
See "Business -- Description of Operations" for a description of these
segments.
Beginning in 2001, we implemented a number of measures to improve our
profitability and cost efficiency. In early 2001, we began to implement a
market-based rate structure that resulted in a substantial increase in our
flight rates for our Gulf of Mexico operations. In addition, in 2001 we reduced
our workforce by approximately 161 employees, and in 2002, we continued to
reduce our workforce and also implemented an early retirement program. In 2001,
we also divested or ceased certain non-core or unprofitable operations. We
ceased our operations in Brazil and Mexico and sold our interest in operations
in Kazakhstan. In 2001, we also sold or terminated leases on 40 aircraft that we
considered obsolete or non-core or that were related to our discontinued
operations and we closed our former executive offices in Metairie, Louisiana. As
a result of such measures, we increased our net earnings to $11.0 million in
2001 from a net loss in the prior year.
During 2001, we changed the strategic focus of our Technical Services
business from providing maintenance and overhaul services to all available
customers to only those customers that are currently serviced by our helicopter
operations. We implemented this change to allow our Technical Services segment
to focus on servicing our aircraft and components. We also plan to fulfill our
obligation to provide maintenance to certain military aircraft in 2002.
During 2001, we commenced a review and conversion of our accounting,
inventory and other systems and processes. We expect to spend approximately $2.2
million in 2002 related to this conversion process.
We recorded $1.3 million in 2001 for discretionary incentive compensation
to be paid to our non-executive employees. Future incentive compensation
expenses are dependent upon our achieving desired profit levels. We also reduced
our environmental provision by $1.2 million that primarily relates to one site.
Remediation costs at that site are estimated to be less than originally
estimated.
Effective June 1, 2001, we entered into a three-year collective bargaining
agreement covering our U.S. pilots. This agreement will result in compensation
increases of 5% for the pilots in each of the succeeding three years.
We continue to review our cost structure, certain business segments, and
certain contracts and customer rates. We terminated an aeromedical contract in
late 2001 and reduced certain Technical
29
Services activities as a result of these reviews. Management expects to take
actions to implement cost reductions or achieve increased profitability related
to certain areas as this review process continues.
We recognize revenues related to aviation transportation services after the
services are performed or the contractual obligations are met. Aircraft
maintenance service revenues are generally recognized at the time the repair or
service work is completed. Revenues related to emergency flights generated by
our subsidiary, Air Evac, are recorded net of contractual allowances under
agreements with third-party payors when the services are provided.
Effective December 31, 1999, we changed our fiscal year-end to December 31.
The consolidated statements of operations, shareholders' equity, comprehensive
income (loss) and cash flows for the period from May 1, 1999 to December 31,
1999 represent a transition period of eight months, which is referred to as the
eight months ended December 31, 1999.
RESULTS OF OPERATIONS
The following tables present segment operating revenues and segment
operating profit before tax, along with certain non-financial operating
statistics, for the twelve months ended December 31, 1999 and the years ended
December 31, 2000 and 2001:
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1999(1) 2000 2001
------------- ---------- ----------
(DOLLARS IN THOUSANDS)
SEGMENT OPERATING REVENUES
Domestic Oil and Gas............................ $137,087 $149,062 $185,606
International................................... 22,336 21,703 22,634
Aeromedical..................................... 45,104 44,282 47,493
Technical Services.............................. 18,585 17,027 21,319
-------- -------- --------
Total........................................ $223,112 $232,074 $277,052
======== ======== ========
SEGMENT OPERATING PROFIT(2)
Domestic Oil and Gas............................ $ (3,052) $ (2,201) $ 24,661
International................................... (2,014) (714) 115
Aeromedical..................................... 489 (1,454) 308
Technical Services.............................. 2,965 (550) 3,490
-------- -------- --------
Net segment operating profit (loss).......... (1,612) (4,919) 28,574
Unallocated costs............................... (14,241) (16,123) (13,894)
Other net(3).................................... 7,931 3,247 2,812
-------- -------- --------
Earnings (loss) before income taxes............. $ (7,922) $(17,795) $ 17,492
======== ======== ========
FLIGHT HOURS
Domestic Oil and Gas............................ 150,785 158,094 148,563
International................................... 23,529 22,338 21,235
Aeromedical..................................... 21,845 21,490 22,005
Other........................................... 581 545 950
-------- -------- --------
Total........................................ 196,740 202,467 192,753
======== ======== ========
30
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
1999(1) 2000 2001
------------- ---------- ----------
(DOLLARS IN THOUSANDS)
AIRCRAFT OPERATED AT PERIOD END
Domestic Oil and Gas............................ 200 204 177
International................................... 27 29 21
Aeromedical..................................... 50 46 41
-------- -------- --------
Total........................................ 277 279 239
======== ======== ========
---------------
(1) Information for the twelve months ended December 31, 1999 is derived from
unaudited financial information and presented for comparison purposes only.
(2) Includes special charges. See Note 2 to our consolidated financial
statements included elsewhere in this prospectus.
(3) Includes gains on disposition of property and equipment, equity in losses of
unconsolidated subsidiaries and other income.
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000
Operating revenues for 2001 were $277.1 million compared to $232.1 million
for the prior year, an increase of $45.0 million, or 19.4%. The increase in
operating revenues was due to rate increases to customers implemented during the
year. In addition, we received a reimbursement of $0.8 million from the United
States Department of Transportation under the Air Safety and System
Stabilization Act that was a result of the events of September 11, 2001, which
we recorded in other income, net.
Our flight hours decreased 5%, or 9,714 hours, to 192,753 hours in 2001
compared to 202,467 hours in 2000. The decrease in flight hours was due to a
decrease in activity in the Gulf of Mexico, which is our primary market, but
also due to the tragic events of September 11, 2001. Flight hours for the month
of September 2001 were 3,513 hours fewer than in September 2000. We estimate
that we lost approximately 1,350 flight hours as a result of the three-day
suspension of flight operations by the FAA in September 2001.
Net income for the year ended December 31, 2001 was $11.0 million as
compared to a net loss for the year ended December 31, 2000 of $12.3 million.
Earnings before tax was $17.5 million in 2001 as compared to a loss of $17.8
million in 2000. Results for 2000 included special charges and adjustments
totaling $7.9 million before tax.
The improvement in earnings was primarily due to customer rate increases
implemented during 2001. It was also due to reductions in certain costs and the
sale or disposal of unprofitable business units and assets.
The decrease in flight activity, as mentioned above, occurred primarily in
the period after September 11, 2001. We expect that we will experience reduced
activity in 2002. Also, we expect our insurance costs to increase in 2002 as a
result of the events that occurred September 11, 2001. As a result of the
elimination of certain unprofitable contracts and the sale of certain
operations, our fleet was reduced by 40 aircraft in 2001. We do not expect
significant changes in our fleet size in 2002.
For the year ended December 31, 2000, we recorded certain significant
adjustments ($4.3 million related to inventory) and special charges ($3.6
million) that resulted from a reduction in work force, asset writedowns and
decisions to exit certain operations. Where appropriate, the above items are
allocated to our business segments and are included in the respective discussion
of each segment.
31
Domestic Oil and Gas
Our Domestic Oil and Gas segment revenues increased 24.5% to $185.6 million
for 2001 compared to $149.1 million for the prior year. The increase in revenues
was due to customer rate increases implemented in 2001. Flight hours in the
Domestic Oil and Gas segment decreased 6.0% to 148,563 as compared to 158,094
for 2000. The decrease in flight hours was due to decreased activity in the oil
and gas industry and also due to the events of September 11, 2001.
The segment had a $24.7 million operating profit in 2001 compared to a $2.2
million operating loss for the prior year. Operating margin was 13.3% for 2001
compared to (1.5)% for the prior year. The improvement in earnings in 2001 was a
result of customer rate increases implemented in 2001. In addition, there were
cost reductions, sales and disposals of unprofitable business units and assets
and personnel reductions, which were more than offset by other cost increases,
primarily increases in compensation of pilots and mechanics, aircraft part costs
and other costs. Additionally, the operating loss in 2000 included a $2.4
million charge for the write-down of inventory and $0.8 million for severance
costs that were included in special charges.
International
Our International segment's revenues increased 4.3% to $22.6 million for
2001 compared to $21.7 million for the prior year. The increase was due to a
full year of operations related to a contract in Taiwan and also due to rate
increases on a contract in West Africa. Flight hours in the International
segment decreased 4.9% to 21,235 as compared to 22,338 for 2000. The decrease in
flight hours was due to decreased demand for flight services in West Africa,
partially offset by the activities in Taiwan.
The International segment had a $0.1 million operating profit for 2001
compared to a $0.7 million operating loss for the prior year. Operating margin
was 0.5% for 2001 compared to (3.3)% for the prior year. The improvement in
earnings was related to customer rate increases and also due to a full year of
operations related to a contract in Taiwan. Additionally, the operating loss in
2000 included a $0.3 million charge for the write-down of inventory and $0.1
million for severance costs that were included in special charges.
In the second quarter of 2001, we recorded the sale of our interest in
Clintondale Aviation, Inc., or Clintondale, which operated helicopters and
fixed-wing aircraft primarily in Kazakhstan. We previously leased four aircraft
to Clintondale. We received a promissory note for $3.1 million from Clintondale
in exchange for the previously leased four aircraft, certain amounts receivable
from Clintondale and our 50% equity interest in Clintondale. Following downward
adjustments and payments, the book value of such note was $0.9 million at
December 31, 2001.
Aeromedical
Our Aeromedical segment's revenues increased 7.3% to $47.5 million for 2001
compared to $44.3 million in the prior year. The increase in revenues is
primarily attributable to a full year operation related to a contract in Grand
Junction, Colorado, rate increases on certain other contracts and a slight
increase in flight hours. Flight hours in the Aeromedical segment increased 2.4%
to 22,005 as compared to 21,490 for 2000.
At December 31, 2001, we terminated a contract with an aeromedical customer
that produced an unacceptable return. Revenues in 2001 for that contract were
$4.1 million.
Our Aeromedical segment had an operating profit of $0.3 million for 2001
compared to an operating loss of $1.5 million for the prior year. Operating
margin was 0.6% for the year ended December 31, 2001 compared to (3.3)% for the
prior year. The improvement in earnings was the result of some customer rate
increases partially offset by cost increases described under "-- Direct
Expenses," including significant increases in compensation of pilots and
mechanics and aircraft part costs. Additionally, the operating loss in 2000
included a $0.7 million charge for the write-down of inventory.
32
Technical Services
Our Technical Services segment's revenues increased 25.2% to $21.3 million
for 2001 compared to $17.0 million for the prior year. The increase in revenues
was primarily attributable to an ongoing contract to provide maintenance on
certain military aircraft and components.
We expect revenues from this segment to decrease in 2002. During 2001, we
changed the strategic focus of our Technical Services business from providing
repair and refurbishment services to all available customers to only those
customers that are currently serviced by our helicopter operations. We
implemented this change to allow our Technical Services segment to focus on
servicing our aircraft and components. We also plan to fulfill our obligation to
provide maintenance to certain military aircraft in 2002.
Technical Services operating profit in 2001 was $3.5 million compared to an
operating loss of $0.6 million for the prior year. The operating margin was
16.4% for the year ended December 31, 2001 and (3.2)% for the prior year. The
increased operating profit was due to increased activity. The operating loss in
2000 included a $0.9 million charge for the write-down of inventory and $0.2
million for severance costs that were recorded in special charges.
Other Income and Losses
Gains on property and equipment dispositions were $1.4 million in 2001 as
compared to $4.0 million in 2002. During 2001, we reduced our fleet by 40 owned
or leased aircraft. We do not expect a significant change in our fleet size in
2002.
Equity in net losses from unconsolidated subsidiaries for 2000, excluding
an impairment charge against our investment in Clintondale that we recorded in
special charges, was $0.7 million. We recorded no equity income or losses in
2001. In 2000, we recognized an impairment of our remaining equity investment in
Clintondale, and during 2001, sold our 50% interest in Clintondale. Also, in
2000, we closed the operations of our unconsolidated subsidiary that operated in
Thailand.
Other income for 2001 included $0.7 million of interest income and $0.8
million for the reimbursement received from the Department of Transportation
under the Air Safety and Systems Stabilization Act as a result of the events of
September 11, 2001. During 2001, we recorded interest income for amounts
received for interest on prior years' tax refunds, interest credited to us on
prepaid rent on our new Lafayette facility and interest earned on overnight cash
investments.
Direct Expenses
Direct expenses for 2001 increased $12.6 million, or 5.6%, to $238.2
million for 2001 compared to $225.6 million for the prior year. The increase was
due to increases in human resource costs, cost of sales related to our Technical
Services segment, insurance costs, aircraft part costs, helicopter rent and an
increase in depreciation expense. The most significant of these increases was
the human resource costs. Numerous actions were taken during the year including
closure of certain business operations and a reduction in our workforce. These
actions reduced the effect of the cost increases as further described below.
Of the $12.6 million increase in direct expenses, the increase in human
resource costs accounted for 37% of the total increase. This resulted from wage
and benefit increases for our pilots and mechanics as well as certain employees
(including non-executive incentive compensation of $1.3 million) and was
partially offset by a reduction in our workforce implemented in February 2001.
These wage and benefit increases were implemented to achieve competitive wages
in our workforce, consistent with our compensation philosophy to maintain an
industry-competitive compensation package for all of our employees. Our total
employee count at December 31, 2001 was 1,778 compared to 1,939 at December 31,
2000, a decrease of 161 personnel.
33
Cost of sales in the Technical Services segment accounted for 18.0% of the
total increase in costs. As previously described, there was an increase in
activity in the Technical Services segment due to a full year of activity on a
contract to perform repair and refurbishment services for certain military
aircraft and components.
The cost of aircraft parts accounted for 11.0% of the total increase in
costs, due to price increases implemented by manufacturers in 2001.
Our insurance costs increased in 2001 generally reflecting increases in the
industry. In addition, as a result of the tragic events of September 11, 2001,
and also the helicopter industry in general, we expect these costs will increase
further in 2002. Notwithstanding these expectations, we are currently reviewing
our insurance program through a competitive bidding process.
Helicopter rent also increased in 2001. This increase related to the number
of aircraft under operating leases entered into during the latter part of 2000.
As previously stated, in 2001, we purchased a number of aircraft that we leased
under operating leases.
Depreciation expense included in direct expenses for 2001 was $13.8 million
compared to $12.5 million for the prior year. Total depreciation expense, which
includes expense charged to selling, general and administrative expense, was
$15.1 million and $13.7 million for these periods, respectively.
Depreciation expense increased due to acceleration of depreciation of
leasehold improvements on the Lafayette facilities vacated at the time we moved
to our new Lafayette facilities, and also due to the depreciation of aircraft
refurbishments and upgrades accomplished during recent years.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $18.0 million for
2001 compared to $18.2 million for the prior year. The decrease in selling,
general and administrative expenses was due to lower compensation and bad debt
expense, mostly offset by consulting costs related to a review of our inventory
and accounting systems and legal costs associated with our union contract
negotiation.
Special Charges
In the fourth quarter of 2000, in connection with our plan to restore
profitability, we recorded special charges of $3.6 million that included
severance costs of $1.1 million, impairment of an investment in and receivables
from Clintondale totaling $1.7 million and impairment of two helicopters of $0.8
million due to pending sales.
Interest Expense
Interest expense was $6.2 million for the year ended December 31, 2001 and
$5.8 million for the year ended December 31, 2000. The increase in interest
expenses was due to an increase in the interest rate charged by our lenders.
Income Taxes
Income tax expense for the year ended December 31, 2001 was $6.5 million
compared to an income tax benefit for the prior year of $5.5 million. The
effective tax rates were 37.0% and 30.9% for the years ended December 31, 2001
and 2000, respectively. The lower effective rate for the year ended December 31,
2000 was the result of permanent differences between book income and tax income
and the effect of state income taxes.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31,
1999
For the year ended December 31, 2000 and the twelve months ended December
31, 1999, we recorded significant and special charges that resulted from a
reduction in work force, asset writedowns and
34
decisions to exit certain operations. Where appropriate, the charges are
allocated to our business segments and are included in the respective discussion
of each segment.
Domestic Oil and Gas
Our Domestic Oil and Gas segment's revenues increased 8.7% to $149.1
million for 2000 compared to $137.1 million for 1999. Increased domestic
activity that resulted from increased oil and gas exploration and production
activities in the Gulf of Mexico, increased forest fire-fighting activity and
rate increases implemented in January 2000 contributed to the increase.
The segment had a $2.2 million operating loss in 2000 compared to a $3.1
million operating loss for 1999. The 2000 loss included a $2.4 million charge
for the write-down of inventory, $0.9 million for a retroactive pay adjustment
for pilots and $0.8 million for severance costs that were included in special
charges. The operating loss in 1999 included $1.3 million of special charges
(see "-- Special Charges" below), $1.5 million in charges for environmental
remediation and $1.7 million for the disposition of slow-moving inventory.
Operating margin was (1.5)% for 2000 compared to (2.2)% for 1999. The decrease
in operating loss was primarily due to increased revenues, lower aircraft
depreciation and rate increases in January 2000. Increases in aircraft repairs
and maintenance, fuel, insurance, helicopter rent and pilot training costs
partially offset the decrease in operating loss. The increased fuel costs were
the result of both increased flight activity and increased fuel prices.
International
Our International segment's revenues decreased 2.8% to $21.7 million for
2000 compared to $22.3 million for the same period in 1999. Decreased revenues
that resulted from the closure of certain operations in South America were
primarily responsible for the decrease. Increased revenues of certain other
foreign locations partially offset the decrease.
Our International segment had a $0.7 million operating loss for 2000
compared to a $2.0 million operating loss for the same period in 1999. Operating
margin of (3.3)% for 2000 compares to (9.0)% for the same period last year. The
operating loss in 2000 included a $0.3 million charge for the write-down of
inventory, $0.1 million for a retroactive pay adjustment for pilots, and $0.1
million for severance costs that were included in special charges. The operating
loss in 1999 included $3.5 million of special charges (see "-- Special Charges"
below). In 2000, increased repairs, maintenance and insurance and the decreased
revenues also negatively impacted operating profit.
Aeromedical
Our Aeromedical segment's revenues decreased 1.8% to $44.3 million for 2000
compared to $45.1 million during the same period in the prior year. The decrease
in revenues is primarily attributable to decreased revenue and activity in our
Air Evac operations in Arizona. In November 1999, we restructured our Arizona
operations and reduced the number of our aircraft in that operation.
The Aeromedical segment had an operating loss of $1.5 million for 2000
compared to operating income of $0.5 million for 1999. The operating loss in
2000 included a $0.7 million charge for the write-down of inventory and $0.2
million for a retroactive pay adjustment for pilots. Operating margin was (3.3)%
for the year ended December 31, 2000 compared to 1.1% for 1999. In addition to
the inventory write-down and the increased pilot pay, increased repairs and
maintenance, fuel, helicopter rent and pilot training costs and the decreased
revenues contributed to the lower operating profit. Lower labor costs that were
primarily attributable to AirEvac's restructuring partially offset the decrease
in operating profit.
Technical Services
Our Technical Services segment's revenues for 2000 were $17.0 million
compared to $18.6 million in 1999, a decrease of 8.4%. The decrease in operating
revenues was primarily attributable to work performed on two large contracts for
the refurbishment and overhaul of two helicopters and a large parts sale, all
35
occurring during the twelve months ended December 31, 1999. An ongoing contract
to provide maintenance to certain military aircraft commenced in the second
quarter of 2000, which partially offset the decrease.
Technical Services operating profit decreased to a $0.6 million operating
loss for the year compared to $3.0 million operating profit for 1999. The
operating loss in 2000 included a $0.9 million charge for the write-down of
inventory and $0.2 million for severance costs that were recorded in special
charges. The operating margin was (3.2)% for the year ended December 31, 2000
and 16.0% for the twelve months ended December 31, 1999.
Other Income and Losses
Gains on property and equipment dispositions were $4.0 million in 2000 as
compared to $8.7 million for the prior twelve months.
Equity in net losses from unconsolidated subsidiaries for 2000, excluding
an impairment charge for Clintondale that we recorded in special charges, was
$0.7 million. Equity in net losses from unconsolidated subsidiaries was $0.8
million for the twelve months ended December 31, 1999.
Direct Expenses
Direct expenses for 2000 increased by $15.8 million, or 7.5%, to $225.6
million compared to $209.8 million for 1999. The direct expenses in 2000
included a $4.3 million charge for the write-down of inventory and $1.2 million
for a retroactive pay adjustment for pilots. In 1999, there were $1.5 million in
charges for environmental remediation and a $1.7 million charge for the
disposition of slow-moving inventory. The increase in 2000 was also due to the
increase in flight activity and higher repairs and maintenance, fuel, insurance,
helicopter rental and pilot training costs.
Depreciation expense included in direct expenses for 2000 was $12.5 million
compared to $14.1 million for 1999. Total depreciation expense was $13.7 million
and $15.3 million for these periods, respectively. The decrease was attributable
to a reduction in the number of owned aircraft and to the change in estimated
useful lives and residual values implemented in May 1999.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December
31, 2000 decreased by 1.6% to $18.2 million compared to $18.5 million for 1999.
Selling, general and administrative expenses in 1999 included severance costs
totaling $1.1 million. Adjusting for such severance costs, selling, general and
administrative expenses increased $0.8 million in 2000, which was mostly the
result of higher bad debt provisions.
Special Charges
In the fourth quarter of 2000, in connection with our plan to restore
profitability, we recorded special charges of $3.6 million that included
severance costs of $1.1 million, impairment of an investment in and receivables
from Clintondale totaling $1.7 million and impairment of property and equipment
of $0.8 million.
In April 1999, in connection with expense reduction efforts and
management's decision to recognize the impairment of assets as a result of
decreased activity, we recorded special charges of $4.8 million. The special
charges included impairment of certain foreign based joint ventures amounting to
$2.5 million, severance costs of $1.3 million, impairment of property and
equipment of $0.4 million and other charges of $0.6 million.
36
Interest Expense
Interest expense was $5.8 million for the year ended December 31, 2000 and
$5.9 million for the twelve months ended December 31, 1999. Lower debt levels
during 2000, compared to the debt levels in 1999, offset the effect of increased
interest rates in 2000.
Income Taxes
Income tax benefit for the year ended December 31, 2000 increased $2.6
million to $5.5 million. The effective tax rates were 30.9% and 36.6% for 2000
and 1999, respectively. The lower effective rate for the year ended December 31,
2000 was the result of permanent differences between book income and tax income
and the effect of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our cash position on December 31, 2001 was $5.4 million compared to $0.9
million at December 31, 2000. Working capital increased $5.5 million to $47.0
million at December 31, 2001 from $41.5 million at December 31, 2000. Net cash
of $18.7 million provided by operating activities during 2001 and $24.3 million
of asset sales funded our debt service requirements and capital expenditures.
Total long-term debt, including capital lease commitments and the current
portion of debt and lease commitments, decreased $8.2 million from December 31,
2000 to $66.6 million at December 31, 2001. In July 2001, we executed a revised
credit agreement with our bank lending group, which originally provided for a
$45.0 million revolving credit facility and a $25.5 million term-loan credit
facility, secured by substantially all of our assets. At December 31, 2001,
$19.0 million was outstanding on the term-loan credit facility, and $44.5
million was outstanding on the revolving credit facility. We repaid all
outstanding borrowings under such bank credit facilities with a portion of the
net proceeds from the offering of the Series A notes and terminated these bank
credit facilities and related interest swap agreements and entered into a new
two-year $50.0 million senior secured revolving credit facility. Borrowings
under this new facility will accrue interest at a floating rate equal to the
bank's prime rate, although we may fix the interest rate at LIBOR plus 2% to 3%,
depending on certain financial ratios, for up to six months at a time.
Borrowings under this facility are secured by our receivables and inventory.
Capital expenditures in 2001 totaled $29.5 million and primarily consisted
of purchase and completion of aircraft improvements and engines. Also included
in capital expenditures were the exercise of purchase options on certain leased
aircraft ($5.4 million), purchase of a number of aircraft under operating leases
for resale ($5.2 million), equipment and leasehold improvements related to our
new Lafayette facility ($2.0 million) and purchase of customer-specified new
aircraft ($3.0 million).
In addition to debt service and capital expenditures, we funded $4.0
million of construction costs in 2001 for our new Lafayette facility, pursuant
to the terms of a 20-year lease of the facility that became effective September
2001. The funding is treated under the lease as prepaid rent and amortized over
ten years at 7% per annum, thus reducing our monthly cash lease payments for the
first ten years of the lease. We have no additional funding commitments under
the lease, other than rent payments.
In 2001, our cash flow was substantially augmented from the proceeds of the
sale of aircraft. We expect our fleet size to remain substantially unchanged in
2002, but we may sell some aircraft to strategically adjust our fleet.
Nonetheless, we believe that cash flow from operations will be sufficient to
fund required debt service and the reduced level of capital expenditures during
2002.
The table below sets out our cash contractual obligations as of December
31, 2001. The operating leases are not recorded as liabilities on the balance
sheet, but payments are treated as an expense as
37
incurred. Each contractual obligation included in the table contains various
terms, conditions, and covenants which, if violated, accelerate the payment of
that obligation.
PAYMENT DUE BY YEAR
---------------------------------------------------------
BEYOND
TOTAL 2002 2003 2004 2005 2006 2006
-------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
Operating lease obligations........ $102,789 $16,286 $15,018 $14,590 $13,489 $11,933 $31,473
Long-term debt
Term............................. 19,000 7,500 7,500 4,000 -- -- --
Revolver......................... 44,500 -- 8,900 35,600 -- -- --
Other............................ 39 5 6 7 7 9 5
Capital lease obligations.......... 3,077 439 475 174 190 206 1,593
-------- ------- ------- ------- ------- ------- -------
$169,405 $24,230 $31,899 $54,371 $13,686 $12,148 $33,071
======== ======= ======= ======= ======= ======= =======
Our borrowing capacity and cash flows from operations have not historically
provided sufficient capital to acquire additional aircraft needed to support our
customers. To meet these needs, we obtained aircraft under operating and capital
lease arrangements, which are more expensive to us than compared to the purchase
of aircraft, and we currently have 102 aircraft under such lease arrangements.
We intend to acquire substantially all of such aircraft with a portion of the
net proceeds of the Series A notes offering. Accordingly, we do not intend to
utilize operating leases as a principal means of financing our aircraft for the
foreseeable future.
MARKET RISK
We are exposed to market risks associated with interest rates and make
limited use of derivative financial instruments to manage that risk. All
derivatives used for risk management are closely monitored by our senior
management. We do not hold derivatives for trading purposes and do not use
derivatives with leveraged or complex features. Derivative instruments are
transacted either with creditworthy major financial institutions or over
national exchanges.
At December 31, 2001, we were party to interest rate swaps with notional
amounts totaling $40.0 million that were designed to convert a similar amount of
variable-rate debt to fixed rates. The swaps mature in 2003 and require us to
pay an average interest rate of 5.78% on the notional amount and, in turn,
receive LIBOR interest rates. The variable interest rate received by us under
each swap contract is repriced quarterly. We consider these swaps to be a hedge
against potentially higher future interest rates. The estimated fair value of
these interest rate swaps was a $2.0 million liability at December 31, 2001. In
connection with the termination of our existing bank credit facilities, we
terminated these interest rate swap agreements at a cost of approximately $1.6
million.
At December 31, 2001, $63.5 million of our long-term debt had variable
interest rates of which $40.0 million was effectively converted to fixed
interest rates through the interest rate swaps. Based on debt outstanding and
interest rate swap agreements in place at December 31, 2001, a 1.0% per annum
increase in variable interest rates would increase our interest expense in the
year ending 2002 by $0.2 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to allowances for doubtful accounts,
inventory valuation, long-lived assets and self-insurance liabilities. We base
our estimates on historical experience
38
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our more significant judgments and estimates used in preparation of our
consolidated financial statements.
We estimate our allowance for doubtful accounts receivable based on an
evaluation of individual customer financial strength, current market conditions
and other information. If our evaluation of our significant customers' and
debtors' creditworthiness should change or prove incorrect, then we may have to
recognize additional allowances in the period that we identify the risk of loss.
We maintain inventory to service our own aircraft and the aircraft and
components of customers. Portions of that inventory are used parts that are
often exchanged with parts removed from aircraft or components and reworked to a
useable condition. We use systematic procedures to estimate the valuation of the
used parts, which includes consideration of their condition and continuing
utility. If our valuation of these parts should be significantly different from
amounts ultimately realizable or if we discontinue using or servicing certain
aircraft models, then we may have to record a write-down of our inventory. We
also record provisions against inventory for obsolete and slow-moving parts,
relying principally on specific identification of such inventory. If we fail to
identify such parts, additional provisions may be necessary.
We review our long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. We measure recoverability of assets to be held and used by
comparing the carrying amount of an asset to future undiscounted net cash flows
that we expect the asset to generate. When an asset is determined to be
impaired, we recognize the impairment amount, which is measured by the amount by
which the carrying value of the asset exceeds fair value. Similarly, we report
assets that we expect to sell at the lower of the carrying amount or fair value
less costs to sell. Future adverse market conditions or poor operating results
could result in the inability to recover the current carrying value of the
long-lived asset, thereby possibly requiring an impairment charge in the future.
We must make estimates for certain of our liabilities and expenses, losses,
and gains related to self-insured programs, insurance deductibles and
good-experience premium returns. Our group medical insurance program is largely
self-insured, and we use estimates to record our periodic expenses related to
the program. We also carry deductibles on our aircraft hull and liability
insurance and estimate periodic expenses related to the retained portion of hull
and liability risk. For our workers' compensation and certain other insurance,
we receive a return premium if our accident experience is favorable, and we
recognize reductions in insurance expense when we believe return premiums are
likely based on accident rates and actual accident experiences. If actual
experience under any of our insurance programs is significantly different from
estimated, then we may have to record losses when we identify the risk of
additional loss. Conversely, if return premiums are larger than originally
projected, then we may have to record gains when we identify the excess return
premiums.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133. SFAS No. 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS No. 133 requires us to measure all
derivatives at fair value and to recognize them in the balance sheet as an asset
or liability, depending on our rights or obligations under the applicable
derivative contract.
We use interest rate swaps to hedge our cash flow related to interest.
Effective January 1, 2001, we began accounting for our interest rate swaps in
accordance with SFAS No. 133, as amended and have designated the interest rate
swaps as cash flow hedges. The cumulative effect of adopting SFAS No. 133, as
amended on January 1, 2001 resulted in an increase of $38,000 to other
comprehensive income. As of December 31, 2001, the fair market value of these
interest rate swaps was a $2.0 million liability and it is included in other
long-term liabilities on the balance sheet.
39
On June 29, 2001, SFAS No. 141, Business Combinations, was approved by the
FASB. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Goodwill and certain
intangible assets will remain on the balance sheet and not be amortized. On an
annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. We implemented SFAS No. 141 on July 1, 2001 and we
have determined that this statement did not have a material impact on our
consolidated financial position or results of operations.
On June 29, 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. We are required to implement SFAS No. 142 on January
1, 2002 and we have determined that this statement will have no material impact
on our consolidated financial position or results of operations.
SFAS No. 143, Accounting for Asset Retirement Obligations, requires the
recording of liabilities for all legal obligations associated with the
retirement of long-lived assets that result from the normal operation of those
assets. These liabilities are required to be recorded at their fair values
(which are likely to be the present values of the estimated future cash flows)
in the period in which they are incurred. SFAS No. 143 requires the associated
asset retirement costs to be capitalized as part of the carrying amount of the
long-lived asset. The asset retirement obligation will be accreted each year
through a charge to expense. The amounts added to the carrying amounts of the
assets will be depreciated over the useful lives of the assets. We are required
to implement SFAS No. 143 on January 1, 2003, and we have not determined the
impact that this statement will have on our consolidated financial position or
results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets, promulgates standards for measuring and recording impairments of
long-lived assets. Additionally, this standard establishes requirements for
classifying an asset as held for sale, and changes existing accounting and
reporting standards for discontinued operations and exchanges for long-lived
assets. We are required to implement SFAS No. 144 on January 1, 2002, and we do
not expect the implementation of this standard to have a material effect on our
financial position or results of operations.
ENVIRONMENTAL MATTERS
We have an aggregate reserve for environmental matters of $1.8 million as
of December 31, 2001, which relates to estimated environmental remediation costs
at our operating facilities. In the fourth quarter of 2001, we reduced our
recorded estimated liability by $1.2 million as the result of a comprehensive
re-evaluation of environmental exposure at all of our operating sites and
decreased remediation cost estimates, primarily at our Morgan City, Louisiana
facility. We have conducted environmental surveys of the Lafayette facility that
we recently vacated, and have determined that contamination exists at that
facility. To date, monitoring wells have been installed to determine the type
and extent of contamination. Preliminary results indicate limited soil and
groundwater impact. Once the extent and type of contamination are fully defined,
a risk evaluation in accordance with the Louisiana Risk Evaluation/ Correction
Action Plan, or RECAP, standard will be submitted to and evaluated by the
Louisiana Department of Environmental Quality, or LDEQ. At that point, LDEQ will
establish clean-up standards that must be met at the site. When the process is
complete, we will be in a position to develop the appropriate remediation plan
and the resulting cost of remediation. However, we have not recorded any
estimated liability for remediation of contamination and, based on preliminary
surveys and ongoing monitoring, we believe that the ultimate remediation costs
for the vacated Lafayette facility will not be material. To date, we have
expended $0.1 million on conducting facility environmental surveys and expect to
spend an additional $0.1 million performing follow-up work in 2002.
40
BUSINESS
OUR COMPANY
Petroleum Helicopters, Inc., founded in 1949, is one of the world's largest
and most experienced providers of commercial helicopter services. We are a
leading provider of safe and reliable helicopter transportation services to the
oil and gas industry in the Gulf of Mexico, where we operate approximately 175
aircraft. We also provide helicopter services to energy companies operating
offshore California, West Africa and Taiwan. In addition, we provide helicopter
and support services to the healthcare industry and helicopter repair and
refurbishment services to customers.
We provide helicopter services to a broad base of major integrated energy
companies and independent oil and gas producers to transport personnel and, to a
lesser extent, parts and equipment, to, from and among offshore production
platforms, drilling rigs and pipeline and other facilities. For the year ended
December 31, 2001, approximately 72% of our operating revenues came from the oil
and gas industry -- 67% from our U.S. operations and 5% from overseas
operations. We are the principal provider of helicopter services in the Gulf of
Mexico to Shell Oil Company and its affiliates, the largest producer of oil and
gas in the Gulf, and to Unocal, BP, Kerr-McGee and Exxon Mobil. We estimate that
approximately 70% of our 2001 oil and gas-related revenues was attributable to
production and pipeline activity, which represents a more stable revenue source
than exploration and development activity.
We also provide helicopter and support services to the healthcare industry
and technical services representing 17% and 8%, respectively, of our 2001
revenues. Our services to the healthcare industry consist principally of
providing air medical transportation services to hospitals and medical
facilities in 13 U.S. states. Our 39 dedicated air medical helicopters are
specially outfitted to accommodate emergency medical patients, personnel and
equipment. Our technical services business consists principally of providing
helicopter repair and refurbishment services to our customers.
In September 2001, Al A. Gonsoulin, our Chairman of the Board, purchased in
privately negotiated transactions an aggregate of 1,482,266 shares of our voting
common stock from Carroll W. Suggs, our former Chairman and Chief Executive
Officer, and the Suggs Family Fund, LLC. The common stock acquired by Mr.
Gonsoulin in these transactions represents approximately 28% of our total
outstanding equity and approximately 52% of our outstanding voting stock. Mr.
Gonsoulin has nearly 35 years of experience in the oil and gas service industry.
He founded Sea Mar, Inc. in 1977 and sold it to Pool Energy Services Co. in
1998. Until December 31, 2001, Mr. Gonsoulin continued to serve as President of
Sea Mar, now a division of Nabors Industries, Inc. Sea Mar provides marine
transportation and support services to the oil and gas industry in the Gulf of
Mexico. In September 2000, Lance F. Bospflug joined Petroleum Helicopters as
President. In August 2001, Mr. Bospflug became our Chief Executive Officer, and
in November 2001, he was elected to our Board of Directors.
Beginning with Mr. Bospflug joining us and continuing after the acquisition
by Mr. Gonsoulin of a controlling interest in us and the election of Mr.
Gonsoulin as our Chairman of the Board, we implemented a number of measures to
improve our profitability and cost efficiency. In early 2001, we began to
implement a market-based rate structure that resulted in a substantial increase
in our flight rates for our Gulf of Mexico operations. In addition, in 2001, we
reduced our workforce by approximately 161 employees, and in 2002, we continued
to reduce our work force and implemented an early retirement program. In 2001,
we also divested or ceased certain non-core or unprofitable operations. We
ceased our operations in Brazil and Mexico and our domestic oil and gas
fixed-wing operations and sold our interest in operations in Kazakhstan. In
2001, we also sold or terminated leases on 40 aircraft that we considered
obsolete or non-core or that were related to our discontinued operations and
closed our former executive offices in Metairie, Louisiana. As a result of such
measures, we increased our net earnings to $11.0 million in 2001 from a net loss
in the prior year.
41
INDUSTRY OVERVIEW
In the 1950s, helicopters first came into widespread commercial use among
companies in the oil and gas industry for transporting personnel and supplies to
remote onshore areas and to offshore exploration and production facilities. The
Gulf of Mexico, where we derived 67% of our operating revenues in 2001, is the
single most prolific producing region in North America and a major global
producing basin. In 2001, 26.7% of the total U.S. supply of natural gas and
27.1% of the total U.S. supply of crude oil came from the Gulf of Mexico.
Industry success in the offshore environment has been a result of achievements
in cost management, reductions in project cycle times and increases in well
productivity. Furthermore, technological advances such as 3-D seismic and subsea
completion technology have increased the industry's ability to successfully
explore and produce from previously inaccessible areas such as ultra deepwater
reservoirs and subsalt deposits.
In its Annual Energy Outlook for 2002, the EIA estimates that in 2010 the
Gulf of Mexico will still be the primary producing region in North America. The
EIA projects that over 27% and 31% of U.S. natural gas production and U.S. crude
oil production, respectively, will come from the Gulf of Mexico at that time.
Demand in the United States for natural gas is expected to increase from 60
billion cubic feet per day in 2001 to 77 billion cubic feet per day in 2010
according to the EIA. Demand in the United States for crude oil is expected to
grow from 20 million barrels per day in 2001 to 23 million barrels per day in
2010 according to the EIA.
Helicopters are an important logistical means to transport personnel to,
from and among offshore production platforms, drilling rigs and pipeline and
other facilities located in the Gulf of Mexico. According to the U.S. Minerals
Management Service, there are currently approximately 4,000 production platforms
in the Gulf of Mexico. The Baker Hughes Rig Count for the week ended March 29,
2002 indicates that there were 109 offshore drilling rigs operating in the Gulf
of Mexico at that time. Generally, these platforms and rigs require aircraft to
transport crew members who typically work in staggered seven-day shifts. In
addition, the ongoing trend toward deeper water activity in the oil and gas
industry will translate into an increasing number of deepwater production
platforms, pipeline systems and drilling rigs in the Gulf of Mexico, which will
need to be serviced by helicopters.
In addition, over the years the use of helicopters has expanded into many
other markets where urgency or difficulty of access justifies the cost of
helicopter transportation. The existence of these markets, such as aeromedical
transportation, distinguishes helicopter services from many other oil and gas
service industry sectors. By operating in certain other markets, we have
expanded our overall business and developed a more diversified revenue base
while maintaining and growing our core oil and gas service operations.
Historically, we employed a defensive pricing strategy around market share
to discourage competition. From 1990 to 1997, there were no increases in
helicopter rates in the Gulf of Mexico due to the pricing philosophy of our
previous management. In 1998, 1999 and 2000, rates in the Gulf of Mexico
increased modestly, by approximately 10%, 6% and 4%, respectively. In January
and May 2001, there were rate increases of approximately 10% and 30%,
respectively. To date, these rate increases have been widely accepted by
customers. We anticipate that the 2001 rate increases will be fully implemented
in 2002. We intend to continue to implement a market-based pricing strategy.
COMPETITIVE STRENGTHS
Our strong competitive position in the Gulf of Mexico is attributable to a
number of factors, including the following:
LEADING MARKET POSITION
We are the oldest provider of commercial helicopter services in the oil and
gas industry in the Gulf of Mexico. We began operations in 1949 by deploying the
first commercial helicopter used for the oil and gas industry in the Gulf of
Mexico. Today, we are a leading provider of helicopter transportation and
support
42
services to the oil and gas industry in the Gulf of Mexico, with approximately
175 aircraft in service. Our operating scale and fleet size allow us to offer
greater flexibility in scheduling helicopter services on a timely basis and over
a large geographic area. We believe that these capabilities give us a
competitive advantage and will enable us to continue to compete successfully in
the Gulf of Mexico market.
STRONG RECORD OF SAFETY AND PERFORMANCE
Customers consistently cite safety and reliability as key determinants in
selecting a provider of air transportation services. In over 50 years of
operations, we have logged more that 9.0 million flight hours. During that time,
we have developed and refined safety and training programs and practices that
have given us one of the strongest safety records in the commercial helicopter
industry. A key factor in enhancing our leadership position in helicopter safety
is a company-wide safety and training program that rewards employees who
contribute to the safety goals by working accident free. From 1995 to 2000, we
averaged an NTSB accident rate per 100,000 flight hours of 1.04 for our Gulf of
Mexico operations compared to our Gulf of Mexico competitors' average accident
rate of 1.8. For the same period, our company-wide NTSB accident rate per
100,000 flight hours was 1.22 compared to the U.S. national average rate of 8.2.
LONG-TERM CUSTOMER RELATIONSHIPS
We have worked successfully for many years with a number of major
integrated energy companies and independent oil and gas companies. For example,
Shell Oil has been our customer for over 40 years. Our largest customers by
operating revenues include operating subsidiaries of Shell Oil, Unocal, BP,
Kerr-McGee, ChevronTexaco and Exxon Mobil. These customers demand that their
helicopter service providers meet a number of very stringent criteria, including
a strong safety and performance record, a well-maintained, highly capable fleet
with specific aircraft dedicated to them, and a staff of well-trained,
experienced pilots and mechanics. We believe that our qualifications meet or
exceed each of these criteria, giving us a competitive advantage. In 2001,
approximately 70% of our oil and gas-related revenues was from customer
contracts. Our customer contracts provide for a fixed monthly fee for dedicating
specific aircraft to customers and a variable fee based on flight hours. For
2001, we estimate that revenues from these contracts were approximately 48% from
the fixed fee component and 52% from the variable fee component.
WELL-POSITIONED FLEET AND STABLE REVENUE BASE
From a number of strategically located bases, we provide helicopter
transportation services to all areas of the Gulf of Mexico -- the continental
shelf, the transition zone to deepwater and the deepwater -- in which the oil
and gas industry conducts exploration, development and production activity. We
believe that our diverse fleet is well-positioned to service the needs of our
customers. Our fleet includes a range of aircraft, from light, lower capacity
helicopters that primarily service the producing areas in the continental shelf
to the heavier, higher capacity helicopters capable of servicing the further
offshore deepwater areas of the Gulf of Mexico. We estimate that approximately
70% of our 2001 oil and gas-related revenues was attributable to production and
pipeline activity, which represents a more stable revenue source than
exploration and development activity. However, incremental demand for helicopter
services is primarily driven by the level of offshore oil and gas exploration
and development activity. Accordingly, in 2001 we began a process to upgrade
certain of our aircraft in order to capitalize on anticipated increased
exploration activity, especially in the deepwater areas of the Gulf of Mexico.
INTEGRATED OPERATION AND MAINTENANCE FUNCTIONS
We believe that we are an industry leader in helicopter maintenance, repair
and refurbishment operations. In 2001, we opened our new repair and
refurbishment facility in Lafayette, Louisiana. This facility is considered by
many in the industry to be the premier facility of its kind in the world because
of its technology and experienced staff. At this facility, our employees conduct
maintenance and repair work, completely refurbish engines and airframes, operate
a state-of-the-art painting facility, study and engineer
43
new parts and lubricants, research new procedures and develop new maintenance
and repair techniques. In addition, each of our helicopter bases contains a
maintenance and repair facility that we utilize for more routine maintenance and
repair service. We believe that having the in-house capability to service and
refurbish our aircraft reduces the time our aircraft are out of service for
maintenance, repair and refurbishment, and allows us to control these costs.
Although we principally service our own aircraft, we also provide maintenance,
repair and refurbishment services to customers under contracts or other
arrangements where such services are profitable to us.
SIGNIFICANT ASSET VALUE
Based on recent appraisals by HeliValue$, Inc., an independent helicopter
valuation company, the aggregate estimated resale value of the 216 aircraft we
would have owned on an as adjusted basis as of March 31, 2002 was approximately
$231.6 million representing approximately 1.16 times our as adjusted debt at
December 31, 2001. Since a substantial portion of a helicopter's value resides
in its dynamic components, which are replaced or upgraded on a periodic basis,
older models of helicopters that have been upgraded are capable of meeting many
of the same performance standards as newer models of these helicopters. As a
result, as the price of new helicopters rises, older models of helicopters that
have been properly maintained and upgraded generally retain their value.
EXPERIENCED MANAGEMENT AND OPERATIONS TEAM
Our senior management and operations team has significant experience in the
oil and gas service industry and in the commercial helicopter service industry.
Al A. Gonsoulin, our Chairman of the Board, has over 35 years of experience in
the oil and gas service industry. The nine members of our senior management team
have an aggregate of approximately 145 years of service with us.
BUSINESS STRATEGY
Our objective is to maximize the profitability and cash flow of our
operations. To achieve this objective, we intend to:
- Focus on serving the oil and gas industry in the Gulf of Mexico where we
have a leading position and a reputation as one of the safest and most
reliable providers of helicopter transportation services;
- Maintain a market-based rate structure in the Gulf of Mexico;
- Leverage our long-term customer relationships with major integrated
energy companies and independent oil and gas producers to pursue
opportunities in the growing deepwater Gulf of Mexico market;
- Identify and pursue selected international markets that provide
attractive opportunities to service our existing customer base of major
integrated energy companies and independent oil and gas producers; and
- Continue to operate in the aeromedical transportation market with a focus
on structuring appropriate rates for our services.
To continue to improve our operating efficiency and control our costs, we
will:
- Assess the profitability of our contracts by regularly monitoring the
market value of our services and our cost to provide them;
- Adjust the composition of our fleet to achieve the optimum mix of
aircraft relative to market demand for helicopter services;
- Upgrade and refurbish certain of our aircraft to increase our service
capabilities; and
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- Standardize the models of aircraft in our fleet to achieve synergies and
increase the efficiency with which our new maintenance and operations
facility repairs and refurbishes our helicopters.
DESCRIPTION OF OPERATIONS
We operate in four business segments, which we refer to as:
- Domestic Oil and Gas;
- International;
- Aeromedical; and
- Technical Services.
DOMESTIC OIL AND GAS
We operate approximately 175 aircraft in our domestic oil and gas
operations from several bases and heliports in the Gulf of Mexico region and one
base in California. Our operations in the Gulf of Mexico provide services to our
customers' facilities located offshore Louisiana, Texas, Alabama and
Mississippi. Operating revenues from the domestic oil and gas segment accounted
for 67%, 64%, 62% and 64% of our operating revenues during the years ended
December 31, 2001 and December 31, 2000, the eight months ended December 31,
1999 and the year ended April 30, 1999, respectively.
Oil and gas exploration and production companies and other offshore oil
service companies use our services primarily for routine offshore
transportation, to attend to personnel during medical and safety emergencies,
and to evacuate their personnel during the threat of hurricanes and other
adverse weather conditions. Most of our customers have entered into long-term
contracts for transportation services, although some do engage us on an "ad hoc"
or "spot" basis.
Most of our aircraft are available for hire by any customer, but some are
dedicated to specific customers. We operate helicopters that have flying ranges
of up to 450 miles, allowing for a 30 minute fuel reserve, and thus are capable
of servicing many of the deepwater Gulf of Mexico areas that are 50 to 250 miles
offshore.
INTERNATIONAL
Outside the United States, we provide helicopter services in Angola,
Antarctica, Democratic Republic of Congo and Taiwan. We currently operate
approximately 21 aircraft in our international operations. Each aircraft
operating internationally is typically dedicated to a specific customer. Our
international customers are mostly oil and gas producers, including foreign
state-owned oil companies, major integrated energy companies and independent oil
and gas companies operating internationally. We also provide services to certain
U.S. governmental agencies operating internationally, such as the National
Science Foundation in Antarctica. Operating revenues from our international
segment accounted for 8% of our operating revenues for the year ended December
31, 2001, and 10% for each of the year ended December 31, 2000, the eight months
ended December 31, 1999 and the year ended April 30, 1999.
AEROMEDICAL
We, both directly and through our subsidiary, Air Evac Services, Inc., or
Air Evac, provide air medical transportation services to hospitals and medical
facilities in 13 U.S. states -- Arizona, Arkansas, California, Colorado,
Illinois, Kentucky, Louisiana, Michigan, Mississippi, North Dakota, Ohio, South
Carolina and Wisconsin. Approximately 39 aircraft are dedicated to our
aeromedical operations. The aircraft dedicated to these operations are specially
outfitted to accommodate emergency medical patients, personnel and equipment.
Our Aeromedical segment revenues accounted for 17%, 19%, 21% and 19% of our
operating revenues for the years ended December 31, 2001 and December 31, 2000,
the eight months ended December 31, 1999 and the year ended April 30, 1999,
respectively.
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In Arizona, Air Evac operates 10 of the 39 dedicated aeromedical aircraft
and offers its services to many hospitals and medical facilities. Each of the
other aircraft operated by our aeromedical segment is typically dedicated to a
specific hospital or medical facility.
TECHNICAL SERVICES
We perform maintenance, repair and refurbishment services at our Lafayette
facility pursuant to an FAA -- approved repair station license, primarily for
our existing customers. The license includes authority to repair airframes,
powerplants, accessories, radios and instruments and to perform specialized
services. During 2001, we changed the strategic focus of Technical Services from
providing maintenance, repair and refurbishment services to customers,
competitors and other third parties to customers that are currently serviced by
our helicopter operations. This change was implemented in order to allow
resources in the Technical Services segment to focus on our aircraft and
components.
Our maintenance, repair and refurbishment facility includes a staff of
highly skilled mechanics and engineers. Services provided by our facility
include:
- airframe inspections, designs and modifications;
- engine refurbishments;
- dynamic, hydraulic, mechanical and other component refurbishments,
repairs and testing;
- avionics refurbishment and repair;
- other miscellaneous equipment repair and maintenance; and
- logistical and technical support to helicopter operations.
Operating revenues from our Technical Services segment accounted for 8% of
our operating revenues during the year ended December 31, 2001 and 7% for each
of the year ended December 31, 2000, the eight months ended December 31, 1999
and the year ended April 30, 1999.
SAFETY RECORD
Customers consistently cite safety and reliability as key determinants in
selecting a provider of air transportation services. Since our inception in
1949, safety has been a top priority. In over 50 years of operations, we have
logged more that 9.0 million flight hours. During that time, we have developed
and refined safety programs and practices that have given us one of the
strongest safety records in the commercial helicopter industry.
Our safety record has been achieved through awareness, training and
incentives. In recent years, operational control has been enhanced which has
improved systems and processes by developing programs for viewing safety from a
risk assessment/risk management/accident avoidance context.
A key factor in enhancing our leadership position in helicopter safety is a
company-wide safety program that rewards employees who contribute to the safety
goals by working accident free. From 1995 to 2000, we averaged an NTSB accident
rate per 100,000 flight hours of 1.04 for our Gulf of Mexico operations compared
to our Gulf of Mexico competitors' average accident rate of 1.8. For the same
period, our company-wide NTSB accident rate per 100,000 flight hours was 1.22
compared to the U.S. national average rate of 8.2.
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AIRCRAFT
Certain information regarding our aircraft fleet as of March 31, 2002 is
set forth in the following table:
APPROXIMATE
NUMBER PASSENGER CRUISE SPEED RANGE(2)
MANUFACTURER MODEL IN FLEET ENGINE CAPACITY (MPH) (MILES)
------------ ---------------- -------- ------------ --------- ------------ -----------
HELICOPTERS:
Bell................. 206B-III 9 Turbine 4 120 300
Bell................. 206L-I, III, IV 80 Turbine 6 130 310
Bell................. 407 33 Turbine 6 144 420
Bell................. 212(1) 7 Twin Turbine 13 115 300
Bell................. 214ST(1) 4 Twin Turbine 18 155 450
Bell................. 222 1 Twin Turbine 8 160 370
Bell................. 412(1) 24 Twin Turbine 13 135 335
Boelkow.............. BK-117 4 Twin Turbine 6 135 255
Boelkow.............. BO-105 20 Twin Turbine 4 135 270
Aerospatiale......... AS350B2 9 Turbine 5 140 385
Aerospatiale......... AS350B3 4 Turbine 5 140 337
Sikorsky............. S-76(1) 16 Twin Turbine 12 150 400
Kaman................ K-Max K-1200 1 Turbine 1 100 225
---
Total Helicopters.................... 212
---
FIXED-WING AIRCRAFT:
Beechcraft........... King Air 200(1) 1 Turboprop 8 300 1,380
Conquest............. Cessna 441(1) 3 Turboprop 3 330 1,000
---
Total Fixed-Wing Aircraft............ 4
---
Total Aircraft....................... 216
---
---------------
(1) Equipped to fly under instrument flight rules, or IFR. All other types
listed can only fly under visual flight rules, or VFR.
(2) Based on maintaining a 30-minute fuel reserve.
Of the 216 aircraft set forth in the above table, we own 114 and lease 102.
We intend to acquire substantially all of our 102 leased aircraft with a portion
of the net proceeds of the offering of our Series A notes. In addition, we
operate 19 aircraft that are owned or leased by customers that are not reflected
in the above table.
Based on recent appraisals by HeliValue$, Inc., an independent helicopter
valuation company, the aggregate estimated resale value of the 216 aircraft that
we would have owned on an as adjusted basis as of March 31, 2002 was
approximately $231.6 million. The appraisals by HeliValue$, Inc. were conducted
using a "desktop" evaluation method in which the appraisers did not perform any
physical inspections of our fleet but instead reviewed data that we provided on
each aircraft. In addition, there were a number of assumptions underlying the
appraised resale fleet value, including, among others, (1) a willing buyer and
willing seller in an arm's-length transaction, (2) adequate time for a resale
transaction to occur, (3) more than ten years of economic and mechanical useful
life remaining for each aircraft and (4) a single aircraft resale scenario,
without a number of similar aircraft on the market at any one time.
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FACILITIES
Our principal executive offices and repair and refurbishment facility are
located on property leased from The Lafayette Airport Commission at the
Lafayette Regional Airport in Lafayette, Louisiana. The lease covers
approximately 28 acres and two buildings, with an aggregate of approximately
256,000 square feet, housing our main executive and administrative offices and
the main repair and refurbishment facility. The initial lease term for this new
facility expires in 2021. The lease includes three five-year renewal options.
We also own an operating facility in Boothville, Louisiana. The Boothville
property has a 23,000 square-foot building, a 7,000 square-foot hanger and
landing pads for 35 helicopters.
We also lease 11 additional bases to service the oil and gas industry
throughout the Gulf of Mexico and one base in California. Our principal leased
operating bases include:
- Morgan City Base, Louisiana. This base covers approximately 53 acres
under a lease that expires in June 2003, with options to extend through
June 30, 2013. We have built a variety of operating and maintenance
facilities on this property, including landing pads for 46 helicopters.
We believe that this facility is the largest commercial heliport in the
world.
- Intracoastal City Base, Louisiana. This base covers approximately 18
acres in Vermilion Parish under a lease that expires in December 2006,
with options to extend through December 2010. We have built a variety of
operating and maintenance facilities on this property, including landing
pads for 45 helicopters.
- Houma-Terrebonne Airport, Louisiana. This base covers approximately 14
acres and certain buildings under four leases from the Houma-Terrebonne
Airport Commission, which will expire in August 2002. There are seven
remaining one-year renewal options. This property has landing pads for 30
helicopters.
- Galveston, Texas. This base covers approximately four acres under a
lease that expires in 2021. This base has operating and maintenance
facilities totaling 7,200 square feet and landing pads for 30 helicopters
on the property.
- Fourchon, Louisiana. This base covers approximately eight acres under a
lease expiring in April 2006. This property has landing pads for ten
helicopters.
Our other leased operating facilities in the United States are located
along the Gulf of Mexico in Louisiana at Lafayette, New Orleans, Cameron and
Lake Charles; Port O'Connor, Texas; Theodore, Alabama; and Santa Barbara,
California.
We also operate from offshore platforms that are provided without charge by
the owners of the platforms, although in certain instances we are required to
indemnify the owners against loss in connection with our use of such facilities.
Bases for our international and air medical operations are generally
furnished by the customers.
CUSTOMERS
We derive a significant amount of our revenues from a small number of major
and independent oil and gas companies. Our largest customer, Shell Oil Company
and its affiliates, accounted for 15%, 12%, 13% and 17%, of our operating
revenues for the years ended December 31, 2001 and December 31, 2000, the eight
months ended December 31, 1999 and the year ended April 30, 1999, respectively.
Our largest ten customers represented approximately 54%, 47%, 47% and 46% of our
operating revenues for the same periods.
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Our global customer base includes operating subsidiaries and affiliates of
major integrated energy companies and independent oil and gas companies such as:
- Shell Oil - Exxon Mobil
- Unocal - Noble Affiliates
- BP - Dominion Resources
- Kerr-McGee - Newfield Exploration
- ChevronTexaco
CONTRACTS
We typically operate under fixed-term contracts with our customers,
including many oil and gas companies. These contracts have terms of between one
and five years. These contracts provide for payment in U.S. dollars and for a
fixed monthly payment per aircraft and additional variable payments based on the
number of revenue flight hours. In 2001, we estimate that approximately 70% of
our oil and gas-related revenues was from customer contracts. We estimate that
revenues from these contracts were approximately 48% from the fixed fee
component and 52% from the variable fee component. A substantial number of our
fixed-term contracts contain provisions permitting early termination by the
customer, although customers have rarely exercised that right historically. When
these contracts expire, we believe that we have a significant advantage in
retaining the contract based on the existing relationship with the customer,
detailed knowledge of the specific operating environment and an established base
of equipment and personnel on site.
GOVERNMENT REGULATION
We are subject to government regulation by a number of different federal
and state agencies. Our flight operations are regulated by the FAA. Aircraft
accidents are subject to the jurisdiction of the NTSB. Standards relating to the
workplace health and safety of our employees are created and monitored through
the Occupational Safety and Health Act, or OSHA. There are a number of statutes
and regulations that govern offshore operations. We are also subject to various
federal and state environmental laws and regulations.
FAA
As a commercial operator of helicopters, our flight and maintenance
operations are subject to regulation by the FAA pursuant to the Federal Aviation
Act of 1958. The FAA has authority to exercise jurisdiction over many aspects of
our business, including personnel, aircraft and ground facilities.
We require an Air Taxi Certificate, granted by the FAA, to transport
personnel and property in our aircraft. This certificate contains operating
specifications that allow us to conduct our operations, but is subject to
amendment, suspension or revocation in accordance with procedures set forth in
the Federal Aviation Act. We are not required to file tariffs showing rates,
fares or other charges with the FAA.
The FAA's regulations, as currently in effect, require that at least 75% of
our outstanding voting securities be owned or controlled by citizens of the
United States or one of its possessions, and that the president and at least
two-thirds of the members of our board of directors be United States citizens.
Our president and all of our directors are United States citizens, and our
organizational documents provide for the automatic reduction in voting power of
each share of voting common stock owned or controlled by a non-United States
citizen if necessary to comply with these regulations.
OSHA
We are subject to OSHA and similar state statutes and regulations. We
maintain extensive safety and health policies and procedures and staff that
monitor and implement these policies and procedures. The primary functions of
our safety staff are to develop policies that meet or exceed the safety
standards set by
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OSHA, train our personnel and make daily inspections to ensure compliance with
our safety policies and procedures. Personnel are required to attend
safety-training meetings at which the importance of full compliance with safety
procedures is emphasized. We believe that we meet or exceed all OSHA
requirements and that our operations do not expose our employees to unusual
health hazards.
OTHER REGULATIONS
We are also subject to the Communications Act of 1934 because of our
ownership and operation of a radio communications flight-following network in
the Gulf of Mexico and offshore California.
Numerous other federal statutes and rules regulate our offshore operations
and those of our customers pursuant to which the federal government has the
ability to suspend, curtail or modify our offshore operations.
ENVIRONMENTAL MATTERS
We are subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage, recycling, and
disposal of toxic and hazardous wastes. The nature of the business of operating
and maintaining helicopters requires that we use, store, and dispose of
materials that are subject to federal and state environmental regulation. Laws
protecting the environment have become more stringent in the United States and
certain other countries in recent years and may, in certain circumstances,
impose liability for environmental damage without regard to negligence or fault.
These laws also may expose us to liability for the conduct of, or condition
caused by, others or for our acts that were in compliance with all applicable
laws at the time these acts were performed. We periodically conduct
environmental site surveys at our facilities, and determine whether there is a
need for environmental remediation based on these surveys.
COMPETITION
Our business is highly competitive in each of our markets. Many of our
contracts are awarded after competitive bidding. Factors that impact competition
include safety, reliability, price, availability and quality of service.
We are a leading operator of helicopters in the Gulf of Mexico. There are
two major and several small competitors operating in the Gulf of Mexico market.
Certain of our customers and potential customers in the oil industry operate
their own helicopter fleets; however, oil companies traditionally contract for
most specialty services associated with offshore operations, including
helicopter services.
In the air medical market, we compete against national firms, and there is
usually more than one competitor in each local market. Most of our customers are
independent hospitals who serve only their region. Competition in the air
medical market continues to increase.
Our Technical Services segment competes regionally and nationally against
various small and large repair centers in the United States and Canada.
Competition has intensified with aggressive pricing and acquisition moves by
several service providers and original equipment manufacturers and their
subsidiaries.
Our international operations primarily serve customers in the oil and gas
industry, although we do service some U.S. governmental agencies, such as the
National Science Foundation. Most of our international contracts are subject to
competitive bidding, and our primary competitors are largely the same as those
in the domestic oil and gas field.
INDUSTRY HAZARDS AND INSURANCE
The operation of helicopters inherently involves a degree of risk. Hazards
such as aircraft accidents, collisions, fire, and adverse weather are part of
the business of providing helicopter services and may result in losses of life,
equipment and revenues. Although our safety record compares favorably to the
safety of
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our competitors in the Gulf of Mexico and in comparison to the record for all
U.S. operators as reflected in industry publications, from time to time we do
have accidents that result in loss of life and equipment. Most recently, on
March 23, 2002, we suffered an accident on an offshore platform in the Gulf of
Mexico that resulted in the death of one of our pilots and the loss of one of
our helicopters. The cause of this accident has not been determined. We do not
believe that there will be any material adverse effect on our operations or
financial condition as a result of this accident.
We maintain hull and liability insurance on our aircraft that insures us
against physical loss of, or damage to, our aircraft and against certain legal
liabilities to others. In addition, we carry war risk, expropriation,
confiscation, and nationalization insurance for our aircraft involved in
international operations. In some instances, we are covered by indemnity
agreements from our customers in lieu of, or in addition to, our insurance. Our
aircraft are not insured for loss of use. While we believe we are adequately
covered by insurance and indemnification arrangements, the loss, expropriation
or confiscation of, or severe damage to, a material number of our helicopters
could adversely affect revenues and profits.
Customers consistently cite safety and reliability as key determinants in
selecting a provider of air transportation services. If we failed to maintain
our safety and reliability record, this failure would materially impact our
ability to attract new customers and retain current ones.
EMPLOYEES
As of December 31, 2001, we employed a total of 1,778 persons, including
approximately 595 licensed pilots and approximately 704 aircraft maintenance and
support personnel. All pilots and aircraft maintenance personnel are required to
be licensed by regulatory authorities in the country in which they work. To
obtain a pilot's license, each pilot must complete and pass practical flight and
written examinations. In addition, IFR pilots must have passed IFR practical
flight and written examinations.
In June 2001, our domestic pilots ratified a three-year collective
bargaining agreement between us and the Office & Professional Employees
International Union, or OPEIU. The agreement expires on May 31, 2004.
The agreement includes provisions for automatic pilot base pay increases
and strike protection for us. Union membership for pilots hired prior to May 31,
2004 is voluntary. Currently, approximately 60% of our pilots are members of the
OPEIU.
LEGAL PROCEEDINGS
We are involved from time to time in various claims, actions, lawsuits and
regulatory matters that have arisen in the ordinary course of our business. We
do not expect that the ultimate resolution of any pending matters will have a
material adverse effect on our financial condition or profitability.
DESCRIPTION OF THE NOTES
As used below in this "Description of the notes" section, the term "Notes"
means the Series B notes and the term "ISSUER" means Petroleum Helicopters,
Inc., a Louisiana corporation, and its successors, but not any of its
subsidiaries. The Series A notes were issued and the Notes will be issued under
an Indenture, dated as of April 23, 2002 (the "INDENTURE"), among the Issuer,
the Guarantors and The Bank of New York, as trustee (the "TRUSTEE"). The terms
of the Notes include those set forth in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. You may obtain a copy of the
Indenture from the Issuer at its address set forth elsewhere in this prospectus.
The following is a summary of the material terms and provisions of the
Notes. The following summary does not purport to be a complete description of
the Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Indenture. You can find definitions of certain
terms used in this description under the heading "-- Certain definitions."
51
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on May 1, 2009. The Notes will bear interest at the
rate 9 3/8% per year, payable on May 1 and November 1 of each year, commencing
on November 1, 2002, to Holders of record at the close of business on April 15
or October 15, as the case may be, immediately preceding the relevant interest
payment date. Interest on the Notes will be computed on the basis of a 360-day
year of twelve 30-day months.
The Notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000.
An aggregate principal amount of Notes equal to $200.0 million is being
offered in exchange for the old notes. The Issuer may issue additional Notes of
up to $275.0 million aggregate principal amount having identical terms and
conditions to the Notes being issued in the exchange offer (the "ADDITIONAL
NOTES"), subject to compliance with the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness." Any Additional Notes will
be part of the same issue as the Notes being issued in the exchange offer and
will vote on all matters as one class with the Notes being issued in the
exchange offer. For purposes of this "Description of the notes," except for the
covenant described under "-- Certain Covenants -- Limitations on Additional
Indebtedness," references to the Notes include Additional Notes, if any.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Issuer at least ten
Business Days prior to the applicable payment date, the Issuer will make all
payments on such Holder's Notes by wire transfer of immediately available funds
to the account specified in those instructions. Otherwise, payments on the Notes
will be made at the office or agency of the paying agent (the "PAYING AGENT")
and registrar (the "REGISTRAR") for the Notes within the City and State of New
York unless the Issuer elects to make interest payments by check mailed to the
Holders at their addresses set forth in the register of Holders.
GENERAL
The Series A notes and the Series B notes will constitute a single class of
debt securities under the Indenture. If the exchange offer is completed, holders
of Series A notes who do not exchange their Series A notes for Series B notes
will vote together with holders of the Series B notes for all relevant purposes
under the Indenture. In that regard, the Indenture requires that certain actions
by holders, including acceleration following an event of default, must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether the required holders have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Series A notes that remain outstanding after the exchange offer will be
aggregated with the Series B notes, and the holders of the Series A notes and
the Series B notes will vote together as a single series. All references in this
prospectus to specified percentages in aggregate principal amount of the notes
means, at any time after the exchange offer is completed, the percentages in
aggregate principal amount of the Series A notes and the Series B notes
collectively then outstanding.
RANKING
The Notes will be general unsecured obligations of the Issuer. The Notes
will rank senior in right of payment to all future obligations of the Issuer
that are, by their terms, expressly subordinated in right of payment to the
Notes and pari passu in right of payment with all existing and future unsecured
obligations of the Issuer that are not so subordinated. Each Note Guarantee (as
defined below) will be a general unsecured obligation of the Guarantor thereof
and will rank senior in right of payment to all future obligations of such
Guarantor that are, by their terms, expressly subordinated in right of payment
to such Note Guarantee and pari passu in right of payment with all existing and
future unsecured obligations of such Guarantor that are not so subordinated.
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The Notes and each Note Guarantee will be effectively subordinated to
secured Indebtedness of the Issuer and the applicable Guarantor to the extent of
the value of the assets securing such Indebtedness. As of the Issue Date, the
Credit Agreement will be secured by all of the accounts receivable and inventory
(and related assets) of the Issuer and the Guarantors.
The Notes will also be effectively subordinated to all existing and future
obligations, including Indebtedness, of any Subsidiaries that are not
Guarantors. Claims of creditors of these Subsidiaries, including trade
creditors, will generally have priority as to the assets of these Subsidiaries
over the claims of the Issuer and the holders of the Issuer's Indebtedness,
including the Notes.
On an as adjusted basis as of December 31, 2001, the Issuer would have had
$50.0 million of undrawn borrowings available under the Credit Agreement.
Although the Indenture contains limitations on the amount of additional secured
Indebtedness that the Issuer and the Restricted Subsidiaries may incur, under
certain circumstances, the amount of this Indebtedness could be substantial. See
"-- Certain Covenants -- Limitations on Additional Indebtedness" and
"-- Limitations on Liens."
NOTE GUARANTEES
The Issuer's obligations under the Notes and the Indenture will be jointly
and severally guaranteed (the "NOTE GUARANTEES") by each Restricted Subsidiary
(other than any Foreign Subsidiary).
Not all of our Subsidiaries will guarantee the Notes. Unrestricted
Subsidiaries and Foreign Subsidiaries will not be Guarantors. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
Subsidiaries, these non-guarantor Subsidiaries will pay the holders of their
debts and their trade creditors before they will be able to distribute any of
their assets to us.
As of the date of the Indenture, all of our operating Subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries," the Issuer will be permitted to designate some of our
Subsidiaries as "Unrestricted Subsidiaries." The effect of designating a
Subsidiary as an "Unrestricted Subsidiary" will be:
- an Unrestricted Subsidiary will not be subject to many of the restrictive
covenants in the Indenture;
- a Subsidiary that has previously been a Guarantor and that is designated
an Unrestricted Subsidiary will be released from its Note Guarantee; and
- the assets, income, cash flow and other financial results of an
Unrestricted Subsidiary will not be consolidated with those of the Issuer
for purposes of calculating compliance with the restrictive covenants
contained in the Indenture.
The obligations of each Subsidiary Guarantor under its Note Guarantee will
be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (including,
without limitation, any guarantees under the Credit Agreement permitted under
clause (1) of "-- Certain Covenants -- Limitations on Additional Indebtedness")
and after giving effect to any collections from or payments made by or on behalf
of any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Note Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Subsidiary
Guarantor under its Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under applicable federal, state or foreign law. Each
Subsidiary Guarantor that makes a payment for distribution under its Note
Guarantee is entitled to a contribution from each other Subsidiary Guarantor in
a pro rata amount based on adjusted net assets of each Subsidiary Guarantor.
In the event of a sale or other disposition of all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or
other disposition of all of the Equity Interests of any Subsidiary Guarantor
then held by the Issuer and the Restricted Subsidiaries, then that Subsidiary
Guarantor will be released and relieved of any obligations under its Note
Guarantee; provided that the Net Available Proceeds of such sale or other
disposition are applied in accordance with the applicable
53
provisions of the Indenture, to the extent required thereby. See "-- Certain
Covenants -- Limitations on Asset Sales" and "-- Limitation on Mergers,
Consolidations, Etc." In addition, the Indenture provides that any Subsidiary
Guarantor that is designated as an Unrestricted Subsidiary or that otherwise
ceases to be a Subsidiary Guarantor, in each case in accordance with the
provisions of the Indenture, will be released from its Note Guarantee upon
effectiveness of such designation or when it first ceases to be a Restricted
Subsidiary, as the case may be.
OPTIONAL REDEMPTION
Except as set forth below, the Notes may not be redeemed prior to May 1,
2006. At any time on or after May 1, 2006, the Issuer, at its option, may redeem
the Notes, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below, together with accrued and
unpaid interest thereon, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
beginning May 1 of the years indicated:
OPTIONAL
YEAR REDEMPTION PRICE
---- ----------------
2006........................................................ 104.688%
2007........................................................ 102.344%
2008........................................................ 100.000%
REDEMPTION WITH PROCEEDS FROM EQUITY OFFERINGS
At any time prior to May 1, 2005, the Issuer may redeem up to 35% of the
aggregate principal amount of the Notes with the net cash proceeds of one or
more Qualified Equity Offerings at a redemption price equal to 109.375% of the
principal amount of the Notes to be redeemed, plus accrued and unpaid interest
thereon, if any, to the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided that (1) at least 65% of the aggregate
principal amount of Notes issued under the Indenture remains outstanding
immediately after the occurrence of such redemption and (2) the redemption
occurs within 90 days of the date of the closing of any such Qualified Equity
Offering.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of the Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national security exchange, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part. In addition, if a partial redemption is made pursuant to
the provisions described in the second paragraph under "-- Optional
Redemption -- Redemption with Proceeds from Equity Offerings," selection of the
Notes or portions thereof for redemption shall be made by the Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable (subject to
the procedures of The Depository Trust Company), unless that method is otherwise
prohibited.
Notice of redemption will be mailed by first-class mail at least 30 but not
more than 60 days before the date of redemption to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to that Note will state the portion of the
principal amount of the Note to be redeemed. A new Note in a principal amount
equal to the unredeemed portion of the Note will be issued in the name of the
Holder of the Note upon cancellation of the original Note. On and after the date
of redemption, interest will cease to accrue on Notes or portions thereof called
for redemption so long as the Issuer has deposited with the paying agent for the
Notes funds in satisfaction of the redemption price (including accrued and
unpaid interest on the Notes to be redeemed) pursuant to the Indenture unless
the Issuer defaults in making such redemption payment.
54
CHANGE OF CONTROL
Upon the occurrence of any Change of Control, each Holder will have the
right to require that the Issuer purchase that Holder's Notes for a cash price
(the "CHANGE OF CONTROL PURCHASE PRICE") equal to 101% of the principal amount
of the Notes to be purchased, plus accrued and unpaid interest thereon, if any,
to the date of purchase.
Within 30 days following any Change of Control, the Issuer will mail, or
caused to be mailed, to the Holders a notice:
(1) describing the transaction or transactions that constitute the
Change of Control;
(2) offering to purchase, pursuant to the procedures required by the
Indenture and described in the notice (a "Change of Control Offer"), on a
date specified in the notice (which shall be a Business Day not earlier
than 30 days nor later than 60 days from the date the notice is mailed) and
for the Change of Control Purchase Price, all Notes properly tendered by
such Holder pursuant to such Change of Control Offer; and
(3) describing the procedures that Holders must follow to accept the
Change of Control Offer. The Change of Control Offer is required to remain
open for at least 20 Business Days or for such longer period as is required
by law.
The Issuer will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the date of purchase.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay for all or any of the Notes
that might be delivered by Holders seeking to accept the Change of Control
Offer. Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the Holders of their right to require us to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. In
addition, we cannot assure you that in the event of a Change of Control the
Issuer will be able to obtain the consents necessary to consummate a Change of
Control Offer from the lenders under agreements governing outstanding
Indebtedness which may prohibit the offer. Finally, our ability to pay cash to
the holders of Notes following the occurrence of a Change of Control may be
limited by our then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether any
other provisions of the Indenture are applicable.
The Issuer's obligation to make a Change of Control Offer will be satisfied
if a third party makes the Change of Control Offer in the manner and at the
times and otherwise in compliance in all material respects with the requirements
applicable to a Change of Control Offer made by the Issuer and purchases all
Notes properly tendered and not withdrawn under the Change of Control Offer.
With respect to any disposition of assets, the phrase "all or substantially
all" as used in the Indenture (including as set forth under "-- Certain
Covenants -- Limitations on Mergers, Consolidations, Etc." below) varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which governs the Indenture) and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of the Issuer, and therefore it may be unclear as to whether a Change of
Control has occurred and whether the Holders have the right to require the
Issuer to purchase Notes.
The Issuer will comply with applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of
55
Notes pursuant to a Change of Control Offer. To the extent that the provisions
of any securities laws or regulations conflict with the "Change of Control"
provisions of the Indenture, the Issuer shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the "Change of Control" provisions of the Indenture by virtue
of this compliance.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, incur any Indebtedness; provided that the Issuer or any
Guarantor may incur additional Indebtedness if, after giving effect thereto, the
Consolidated Interest Coverage Ratio would be at least 2.25 to 1.00 (the
"COVERAGE RATIO EXCEPTION").
Notwithstanding the above, each of the following shall be permitted (the
"PERMITTED INDEBTEDNESS"):
(1) Indebtedness of the Issuer and any Guarantor under the Credit
Agreement in an aggregate amount at any time outstanding not to exceed the
greater of (x) $50.0 million, less the aggregate amount of Net Available
Proceeds applied to repayments under the Credit Agreement in accordance
with the covenant described under "-- Limitations on Asset Sales," and (y)
80% of the book value of the accounts receivable plus 50% of the book value
of inventory of the Issuer and the Restricted Subsidiaries, calculated on a
consolidated basis and in accordance with GAAP;
(2) the Notes issued on the Issue Date and the Note Guarantees;
(3) Indebtedness of the Issuer and the Restricted Subsidiaries to the
extent outstanding on the Issue Date (other than Indebtedness referred to
in clauses (1) and (2) above, and after giving effect to the intended use
of proceeds of the old notes);
(4) Indebtedness under Hedging Obligations; provided that (a) such
Hedging Obligations relate to payment obligations on Indebtedness otherwise
permitted to be incurred by this covenant, and (b) the notional principal
amount of such Hedging Obligations at the time incurred does not exceed the
principal amount of the Indebtedness to which such Hedging Obligations
relate;
(5) Indebtedness of the Issuer owed to a Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary owed to the Issuer or any other
Restricted Subsidiary; provided, however, that upon any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or such Indebtedness being
owed to any Person other than the Issuer or a Restricted Subsidiary, the
Issuer or such Restricted Subsidiary, as applicable, shall be deemed to
have incurred Indebtedness not permitted by this clause (5);
(6) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Issuer or any Restricted Subsidiary in the ordinary
course of business, including guarantees or obligations of the Issuer or
any Restricted Subsidiary with respect to letters of credit supporting such
bid, performance or surety obligations (in each case other than for an
obligation for money borrowed);
(7) Purchase Money Indebtedness incurred by the Issuer or any
Restricted Subsidiary, and Refinancing Indebtedness thereof, in an
aggregate amount not to exceed at any time outstanding the greater of (a)
$20.0 million and (b) 15% of the net book value of the aircraft owned by
the Issuer and the Restricted Subsidiaries;
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however,that such
Indebtedness is extinguished within five Business Days of incurrence;
56
(9) Indebtedness arising in connection with endorsement of instruments
for deposit in the ordinary course of business;
(10) Refinancing Indebtedness with respect to Indebtedness incurred
pursuant to the Coverage Ratio Exception or clause (2) or (3) above; and
(11) Indebtedness of the Issuer or any Restricted Subsidiary in an
aggregate amount not to exceed $15.0 million at any time outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (11) above
or is entitled to be incurred pursuant to the Coverage Ratio Exception, the
Issuer shall, in its sole discretion, classify or later reclassify such item of
Indebtedness and may divide and classify or later reclassify such Indebtedness
in more than one of the types of Indebtedness described, except that
Indebtedness incurred under the Credit Agreement on the Issue Date shall be
deemed to have been incurred under clause (1) above.
LIMITATIONS ON LAYERING INDEBTEDNESS
The Issuer will not, and will not permit any Guarantor to, directly or
indirectly, incur any Indebtedness that is or purports to be by its terms (or by
the terms of any agreement governing such Indebtedness) subordinated to any
other Indebtedness of the Issuer or of such Guarantor, as the case may be,
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Notes or the Note
Guarantee of such Guarantor, to the same extent and in the same manner as such
Indebtedness is subordinated to such other Indebtedness of the Issuer or such
Guarantor, as the case may be.
LIMITATIONS ON RESTRICTED PAYMENTS
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, make any Restricted Payment if at the time of such
Restricted Payment:
(1) a Default shall have occurred and be continuing or shall occur as
a consequence thereof;
(2) the Issuer cannot incur $1.00 of additional Indebtedness pursuant
to the Coverage Ratio Exception; or
(3) the amount of such Restricted Payment, when added to the aggregate
amount of all other Restricted Payments made after the Issue Date (other
than Restricted Payments made pursuant to clause (2), (3), (4) or (5) of
the next paragraph), exceeds the sum (the "Restricted Payments Basket") of
(without duplication):
(a) 50% of Consolidated Net Income for the period (taken as one
accounting period) commencing on the first day of the first full fiscal
quarter commencing after the Issue Date to and including the last day of
the fiscal quarter ended immediately prior to the date of such
calculation for which consolidated financial statements are available
(or, if such Consolidated Net Income shall be a deficit, minus 100% of
such aggregate deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Issuer
either (x) as contributions to the common equity of the Issuer after the
Issue Date or (y) from the issuance and sale of Qualified Equity
Interests after the Issue Date, other than any such proceeds which are
used to redeem Notes in accordance with "-- Optional
Redemption -- Redemption with Proceeds from Equity Offerings," plus
(c) the aggregate amount by which Indebtedness incurred by the
Issuer or any Restricted Subsidiary subsequent to the Issue Date is
reduced on the Issuer's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Issuer) into Qualified Equity
Interests
57
(less the amount of any cash, or the fair value of assets, distributed
by the Issuer or any Restricted Subsidiary upon such conversion or
exchange), plus
(d) in the case of the disposition or repayment of or return on any
Investment that was treated as a Restricted Payment made after the Issue
Date, an amount (to the extent not included in the computation of
Consolidated Net Income) equal to the lesser of (i) the return of
capital with respect to such Investment and (ii) the amount of such
Investment that was treated as a Restricted Payment, in either case,
less the cost of the disposition of such Investment and net of taxes,
plus
(e) upon a Redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the lesser of (i) the Fair Market Value of the
Issuer's proportionate interest in such Subsidiary immediately following
such Redesignation, and (ii) the aggregate amount of the Issuer's
Investments in such Subsidiary to the extent such Investments reduced
the Restricted Payments Basket and were not previously repaid or
otherwise reduced.
The foregoing provisions will not prohibit:
(1) the payment by the Issuer or any Restricted Subsidiary of any
dividend within 60 days after the date of declaration thereof, if on the
date of declaration the payment would have complied with the provisions of
the Indenture;
(2) the redemption of any Equity Interests of the Issuer or any
Restricted Subsidiary in exchange for, or out of the proceeds of the
substantially concurrent issuance and sale of, Qualified Equity Interests;
(3) the redemption of Subordinated Indebtedness of the Issuer or any
Restricted Subsidiary (a) in exchange for, or out of the proceeds of the
substantially concurrent issuance and sale of, Qualified Equity Interests
or (b) in exchange for, or out of the proceeds of the substantially
concurrent incurrence of, Refinancing Indebtedness permitted to be incurred
under the "Limitations on Additional Indebtedness" covenant and the other
terms of the Indenture;
(4) the redemption of Equity Interests of the Issuer held by officers,
directors or employees or former officers, directors or employees (or their
transferees, estates or beneficiaries under their estates), upon their
death, disability, retirement, severance or termination of employment or
service; provided that the aggregate cash consideration paid for all such
redemptions shall not exceed $1.0 million during any calendar year; or
(5) repurchases of Equity Interests deemed to occur upon the exercise
of stock options if the Equity Interests represents a portion of the
exercise price thereof;
provided that (a) in the case of any Restricted Payment pursuant to clause (3)
above, no Default shall have occurred and be continuing or occur as a
consequence thereof and (b) no issuance and sale of Qualified Equity Interests
pursuant to clause (2) or (3) above shall increase the Restricted Payments
Basket.
LIMITATIONS ON DIVIDEND AND OTHER RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability of
any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of
its Equity Interests;
(b) make loans or advances or pay any Indebtedness or other obligation
owed to the Issuer or any other Restricted Subsidiary; or
(c) transfer any of its assets to the Issuer or any other Restricted
Subsidiary;
58
except for:
(1) encumbrances or restrictions existing under or by reason of
applicable law;
(2) encumbrances or restrictions existing under the Indenture, the
Notes and the Note Guarantees;
(3) non-assignment provisions of any contract, license or any lease
entered into in the ordinary course of business;
(4) encumbrances or restrictions existing under agreements existing on
the date of the Indenture (including, without limitation, the Credit
Agreement) as in effect on that date;
(5) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien;
(6) restrictions on the transfer of assets imposed under any agreement
to sell such assets permitted under the Indenture to any Person pending the
closing of such sale;
(7) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person or the properties or assets of the
Person so acquired;
(8) any other agreement governing Indebtedness entered into after the
Issue Date that contains encumbrances and restrictions taken as a whole
that are not materially more restrictive with respect to any Restricted
Subsidiary than those in effect on the Issue Date with respect to that
Restricted Subsidiary pursuant to agreements in effect on the Issue Date
(including the Indenture and the Credit Agreement);
(9) customary provisions in partnership agreements, limited liability
company organizational governance documents, joint venture agreements and
other similar agreements entered into in the ordinary course of business
that restrict the transfer of ownership interests in such partnership,
limited liability company, joint venture or similar Person;
(10) Purchase Money Indebtedness incurred in compliance with the
covenant described under "-- Limitations on Additional Indebtedness" that
impose restrictions of the nature described in clause (c) above on the
assets acquired;
(11) encumbrances or restrictions applicable only to a Foreign
Subsidiary;
(12) any encumbrances or restrictions imposed by any amendments,
refinancings and replacements of the contracts, instruments or obligations
referred to in clauses (1) through (10) above; provided that such
amendments or refinancings are, in the good faith judgment of the Issuer's
Board of Directors, no more materially restrictive with respect to such
encumbrances and restrictions than those prior to such amendment or
refinancing; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, in one transaction or a series of related transactions,
sell, lease, transfer or otherwise dispose of any of its assets to, or purchase
any assets from, or enter into any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (an "AFFILIATE
TRANSACTION"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Issuer or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction at such time on an
arm's-length basis by the Issuer or that Restricted Subsidiary from a
Person that is not an Affiliate of the Issuer or that Restricted
Subsidiary; and
59
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
value in excess of $5.0 million, an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (1) above and a
Secretary's Certificate which sets forth and authenticates a resolution
that has been adopted by the Independent Directors approving such
Affiliate Transaction; and
(b) with respect to any Affiliate Transaction involving aggregate
value of $10.0 million or more, the certificates described in the
preceding clause (a) and a written opinion as to the fairness of such
Affiliate Transaction to the Issuer or such Restricted Subsidiary from a
financial point of view issued by an Independent Financial Advisor.
The foregoing restrictions shall not apply to:
(1) transactions exclusively between or among (a) the Issuer and one
or more Restricted Subsidiaries or (b) Restricted Subsidiaries; provided,
in each case, that no Affiliate of the Issuer (other than another
Restricted Subsidiary) owns Equity Interests of any such Restricted
Subsidiary;
(2) reasonable director, officer and employee compensation (including
bonuses) and other benefits (including retirement, health, stock option and
other benefit plans) and indemnification arrangements;
(3) the entering into of a tax sharing agreement, or payments pursuant
thereto, between the Issuer and/or one or more Subsidiaries, on the one
hand, and any other Person with which the Issuer or such Subsidiaries are
required or permitted to file a consolidated tax return or with which the
Issuer or such Subsidiaries are part of a consolidated group for tax
purposes, on the other hand, which payments by the Issuer and the
Restricted Subsidiaries are not in excess of the tax liabilities that would
have been payable by them on a stand-alone basis;
(4) loans and advances permitted by clause (3) of the definition of
"Permitted Investments";
(5) Restricted Payments which are made in accordance with the covenant
described under "-- Limitations on Restricted Payments"; or
(6) any transaction with an Affiliate where the only consideration
paid by the Issuer or any Restricted Subsidiary is Qualified Equity
Interests.
LIMITATIONS ON LIENS
The Issuer shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or permit or suffer to exist any
Lien of any nature whatsoever against (other than Permitted Liens) any assets of
the Issuer or any Guarantor (including Equity Interests of a Restricted
Subsidiary), whether owned at the Issue Date or thereafter acquired, or any
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits therefrom, unless contemporaneously therewith:
(1) in the case of any Lien securing an obligation that ranks pari
passu with the Notes or a Note Guarantee, effective provision is made to
secure the Notes or such Note Guarantee, as the case may be, at least
equally and ratably with or prior to such obligation with a Lien on the
same collateral; and
(2) in the case of any Lien securing an obligation that is
subordinated in right of payment to the Notes or a Note Guarantee,
effective provision is made to secure the Notes or such Note Guarantee, as
the case may be, with a Lien on the same collateral that is prior to the
Lien securing such subordinated obligation,
in each case, for so long as such obligation is secured by such Lien.
60
LIMITATIONS ON ASSET SALES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Sale unless:
(1) the Issuer or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
assets included in such Asset Sale; and
(2) at least 75% of the total consideration received in such Asset
Sale consists of cash or Cash Equivalents.
For purposes of clause (2), the following shall be deemed to be cash:
(a) the amount (without duplication) of any Indebtedness (other than
Subordinated Indebtedness) of the Issuer or such Restricted Subsidiary that
is expressly assumed by the transferee in such Asset Sale and with respect
to which the Issuer or such Restricted Subsidiary, as the case may be, is
unconditionally released by the holder of such Indebtedness,
(b) the amount of any obligations received from such transferee that
are within 30 days converted by the Issuer or such Restricted Subsidiary to
cash (to the extent of the cash actually so received), and
(c) the Fair Market Value of any assets (other than securities)
received by the Issuer or any Restricted Subsidiary to be used by it in the
Permitted Business.
If at any time any non-cash consideration received by the Issuer or any
Restricted Subsidiary of the Issuer, as the case may be, in connection with any
Asset Sale is repaid or converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then the date of such repayment, conversion or disposition shall be deemed to
constitute the date of an Asset Sale hereunder and the Net Available Proceeds
thereof shall be applied in accordance with this covenant.
If the Issuer or any Restricted Subsidiary engages in an Asset Sale, the
Issuer or such Restricted Subsidiary shall, no later than 365 days following the
consummation thereof, apply all or any of the Net Available Proceeds therefrom
(or enter into a definitive agreement for such application within such 365-day
period, provided that such capital expenditure or purchase is closed within 90
days after the end of such 365-day period) to:
(1) satisfy all mandatory repayment obligations under the Credit
Agreement arising by reason of such Asset Sale;
(2) repay any Indebtedness which was secured by assets of the Company
or a Restricted Subsidiary;
(3) invest all or any part of the Net Available Proceeds thereof in
the purchase of assets (other than securities) to be used by the Issuer or
any Restricted Subsidiary in the Permitted Business; and/or
(4) if such Asset Sale was consummated by a Foreign Subsidiary, repay
any Indebtedness of such Foreign Subsidiary.
Pending the final application of any such Net Available Proceeds, the
Issuer or a Restricted Subsidiary may temporarily reduce revolving credit
borrowings or otherwise invest such Net Available Proceeds in any manner that is
not prohibited by the Indenture.
The amount of Net Available Proceeds not applied or invested as provided in
the second preceding paragraph will constitute "EXCESS PROCEEDS."
When the aggregate amount of Excess Proceeds equals or exceeds $10.0
million, the Issuer will be required to make an offer to purchase from all
Holders and, if applicable, redeem (or make an offer to do so) any Pari Passu
Indebtedness of the Issuer the provisions of which require the Issuer to redeem
such
61
Indebtedness with the proceeds from any Asset Sales (or offer to do so), in an
aggregate principal amount of Notes and such Pari Passu Indebtedness equal to
the amount of such Excess Proceeds as follows:
(1) the Issuer will (a) make an offer to purchase (a "NET PROCEEDS
OFFER") to all Holders in accordance with the procedures set forth in the
Indenture, and (b) redeem (or make an offer to do so) any such other Pari
Passu Indebtedness, pro rata in proportion to the respective principal
amounts of the Notes and such other Indebtedness required to be redeemed,
the maximum principal amount of Notes and Pari Passu Indebtedness that may
be redeemed out of the amount (the "PAYMENT AMOUNT") of such Excess
Proceeds;
(2) the offer price for the Notes will be payable in cash in an amount
equal to 100% of the principal amount of the Notes tendered pursuant to a
Net Proceeds Offer, plus accrued and unpaid interest thereon, if any, to
the date such Net Proceeds Offer is consummated (the "OFFERED PRICE"), in
accordance with the procedures set forth in the Indenture and the
redemption price for such Pari Passu Indebtedness (the "PARI PASSU
INDEBTEDNESS PRICE") shall be as set forth in the related documentation
governing such Indebtedness;
(3) if the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the pro rata portion of the Payment
Amount allocable to the Notes, Notes to be purchased will be selected on a
pro rata basis; and
(4) upon completion of such Net Proceeds Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to which
such Net Proceeds Offer was made shall be deemed to be zero.
To the extent that the sum of the aggregate Offered Price of Notes tendered
pursuant to a Net Proceeds Offer and the aggregate Pari Passu Indebtedness Price
paid to the holders of such Pari Passu Indebtedness is less than the Payment
Amount relating thereto (such shortfall constituting a "NET PROCEEDS
DEFICIENCY"), the Issuer may use the Net Proceeds Deficiency, or a portion
thereof, for general corporate purposes, subject to the provisions of the
Indenture.
In the event of the transfer of substantially all (but not all) of the
assets of the Issuer and the Restricted Subsidiaries as an entirety to a Person
in a transaction covered by and effected in accordance with the covenant
described under "-- Limitations on Mergers, Consolidations, Etc.," the successor
corporation shall be deemed to have sold for cash at Fair Market Value the
assets of the Issuer and the Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale (with such Fair
Market Value being deemed to be Net Available Proceeds for such purpose).
The Issuer will comply with applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of Notes pursuant to a Net
Proceeds Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Limitations on Asset Sales" provisions of the
Indenture, the Issuer shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Limitations on Asset Sales" provisions of the Indenture by virtue of this
compliance.
LIMITATIONS ON DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Issuer may designate any Subsidiary of the Issuer as an "Unrestricted
Subsidiary" under the Indenture (a "DESIGNATION") only if:
(1) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(2) the Issuer would be permitted to make, at the time of such
Designation, (a) a Permitted Investment or (b) an Investment pursuant to
the first paragraph of "-- Limitations on Restricted
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Payments" above, in either case, in an amount (the "DESIGNATION AMOUNT")
equal to the Fair Market Value of the Issuer's proportionate interest in
such Subsidiary on such date.
No Subsidiary shall be Designated as an "Unrestricted Subsidiary" unless
such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Issuer or any Restricted Subsidiary unless the terms
of the agreement, contract, arrangement or understanding are no less
favorable to the Issuer or the Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates;
(3) is a Person with respect to which neither the Issuer nor any
Restricted Subsidiary has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
the Person's financial condition or to cause the Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Issuer or any Restricted
Subsidiary, except for any guarantee given solely to support the pledge by
the Issuer or any Restricted Subsidiary of the Equity Interests of such
Unrestricted Subsidiary, which guarantee is not recourse to the Issuer or
any Restricted Subsidiary, and except to the extent the amount thereof
constitutes a Restricted Payment permitted pursuant to the covenant
described under "-- Limitations on Restricted Payments."
If, at any time, any Unrestricted Subsidiary fails to meet the preceding
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
the Subsidiary and any Liens on assets of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary as of the date and, if the Indebtedness is
not permitted to be incurred under the covenant described under "-- Limitations
on Additional Indebtedness" or the Lien is not permitted under the covenant
described under "-- Limitations on Liens," the Issuer shall be in default of the
applicable covenant.
The Issuer may redesignate an Unrestricted Subsidiary as a Restricted
Subsidiary (a "REDESIGNATION") only if:
(1) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(2) all Liens, Indebtedness and Investments of such Unrestricted
Subsidiary outstanding immediately following such Redesignation would, if
incurred or made at such time, have been permitted to be incurred or made
for all purposes of the Indenture.
All Designations and Redesignations must be evidenced by resolutions of the
Board of Directors of the Issuer, delivered to the Trustee certifying compliance
with the foregoing provisions.
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any Sale and Leaseback Transaction; provided
that the Issuer or any Restricted Subsidiary may enter into a Sale and Leaseback
Transaction if:
(1) the Issuer or such Restricted Subsidiary could have (a) incurred
the Indebtedness attributable to such Sale and Leaseback Transaction
pursuant to the covenant described under "-- Limitations on Additional
Indebtedness" and (b) incurred a Lien to secure such Indebtedness without
equally and ratably securing the Notes pursuant to the covenant described
under "-- Limitations on Liens";
(2) the gross cash proceeds of such Sale and Leaseback Transaction are
at least equal to the Fair Market Value of the asset that is the subject of
such Sale and Leaseback Transaction; and
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(3) the transfer of assets in such Sale and Leaseback Transaction is
permitted by, and the Issuer or the applicable Restricted Subsidiary
applies the proceeds of such transaction in accordance with, the covenant
described under "-- Limitations on Asset Sales."
LIMITATIONS ON THE ISSUANCE OR SALE OF EQUITY INTERESTS OF RESTRICTED
SUBSIDIARIES
The Issuer will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, sell or issue any shares of Equity Interests of any
Restricted Subsidiary except (1) to the Issuer, a Restricted Subsidiary or the
minority stockholders of any Restricted Subsidiary, on a pro rata basis, at Fair
Market Value, or (2) to the extent such shares represent directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Issuer or a Wholly-Owned Restricted Subsidiary. The sale of all the Equity
Interests of any Restricted Subsidiary is permitted by this covenant but is
subject to the covenant described under "-- Limitations on Asset Sales."
LIMITATIONS ON MERGERS, CONSOLIDATIONS, ETC.
The Issuer will not, directly or indirectly, in a single transaction or a
series of related transactions, (a) consolidate or merge with or into (other
than a merger with a Wholly-Owned Restricted Subsidiary solely for the purpose
of changing the Issuer's jurisdiction of incorporation to another State of the
United States), or sell, lease, transfer, convey or otherwise dispose of or
assign all or substantially all of the assets of the Issuer or the Issuer and
the Restricted Subsidiaries (taken as a whole) or (b) consummate a Plan of
Liquidation unless, in either case:
(1) either:
(a) the Issuer will be the surviving or continuing Person; or
(b) the Person formed by or surviving such consolidation or merger
or to which such sale, lease, conveyance or other disposition shall be
made (or, in the case of a Plan of Liquidation, any Person to which
assets are transferred) (collectively, the "SUCCESSOR") is a corporation
organized and existing under the laws of any State of the United States
of America or the District of Columbia, and the Successor expressly
assumes, by supplemental indenture in form and substance satisfactory to
the Trustee, all of the obligations of the Issuer under the Notes, the
Indenture and the Registration Rights Agreement;
(2) immediately prior to and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in clause
(1)(b) above and the incurrence of any Indebtedness to be incurred in
connection therewith, no Default shall have occurred and be continuing; and
(3) immediately after and giving effect to such transaction and the
assumption of the obligations set forth in clause (1)(b) above and the
incurrence of any Indebtedness to be incurred in connection therewith, and
the use of any net proceeds therefrom on a pro forma basis, (a) the
Consolidated Net Worth of the Issuer or the Successor, as the case may be,
would be at least equal to the Consolidated Net Worth of the Issuer
immediately prior to such transaction and (b) the Issuer or the Successor,
as the case may be, could incur $1.00 of additional Indebtedness pursuant
to the Coverage Ratio Exception.
For purposes of this covenant, any Indebtedness of the Successor which was
not Indebtedness of the Issuer immediately prior to the transaction shall be
deemed to have been incurred in connection with such transaction.
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Except as provided in the fifth paragraph under the caption "-- Note
Guarantees," no Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person) another Person, whether or not
affiliated with such Guarantor, unless:
(1) either:
(a) such Guarantor will be the surviving or continuing Person; or
(b) the Person formed by or surviving any such consolidation or
merger assumes, by supplemental indenture in form and substance
satisfactory to the Trustee, all of the obligations of such Guarantor
under the Note Guarantee of such Guarantor, the Indenture and the
Registration Rights Agreement; and
(2) immediately after giving effect to such transaction, no Default
shall have occurred and be continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Equity Interests of which constitute all or substantially all
of the properties and assets of the Issuer, will be deemed to be the transfer of
all or substantially all of the properties and assets of the Issuer.
Upon any consolidation, combination or merger of the Issuer or a Guarantor,
or any transfer of all or substantially all of the assets of the Issuer in
accordance with the foregoing, in which the Issuer or such Guarantor is not the
continuing obligor under the Notes or its Note Guarantee, the surviving entity
formed by such consolidation or into which the Issuer or such Guarantor is
merged or to which the conveyance, lease or transfer is made will succeed to,
and be substituted for, and may exercise every right and power of, the Issuer or
such Guarantor under the Indenture, the Notes and the Note Guarantees with the
same effect as if such surviving entity had been named therein as the Issuer or
such Guarantor and, except in the case of a conveyance, transfer or lease, the
Issuer or such Guarantor, as the case may be, will be released from the
obligation to pay the principal of and interest on the Notes or in respect of
its Note Guarantee, as the case may be, and all of the Issuer's or such
Guarantor's other obligations and covenants under the Notes, the Indenture and
its Note Guarantee, if applicable.
Notwithstanding the foregoing, any Restricted Subsidiary may merge into the
Issuer or another Restricted Subsidiary.
ADDITIONAL NOTE GUARANTEES
If, after the Issue Date, (a) the Issuer or any Restricted Subsidiary shall
acquire or create another Subsidiary (other than in any case a Foreign
Subsidiary or Subsidiary that has been designated an Unrestricted Subsidiary) or
(b) any Unrestricted Subsidiary that is not a Foreign Subsidiary is redesignated
a Restricted Subsidiary, then, in each such case, the Issuer shall cause such
Restricted Subsidiary to:
(1) execute and deliver to the Trustee (a) a supplemental indenture in
form and substance satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall unconditionally guarantee all of the Issuer's
obligations under the Notes and the Indenture and (b) a notation of
guarantee in respect of its Note Guarantee; and
(2) deliver to the Trustee one or more opinions of counsel that such
supplemental indenture (a) has been duly authorized, executed and delivered
by such Restricted Subsidiary and (b) constitutes a valid and legally
binding obligation of such Restricted Subsidiary in accordance with its
terms.
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CONDUCT OF BUSINESS
The Issuer will not, and will not permit any Restricted Subsidiary to,
engage in any business other than the Permitted Business.
REPORTS
Whether or not required by the SEC, so long as any Notes are outstanding,
the Issuer will furnish (without exhibits) to the Holders of Notes, within the
time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Issuer were required to file these Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Issuer's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Issuer were required to file these reports.
In addition, whether or not required by the SEC, the Issuer will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC's rules and regulations (unless the SEC will not accept the filing) and
make the information available to securities analysts and prospective investors
upon request. The Issuer and the Guarantors have agreed that, for so long as any
Notes remain outstanding, the Issuer will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT
Each of the following is an "EVENT OF DEFAULT":
(1) failure by the Issuer to pay interest on any of the Notes when it
becomes due and payable and the continuance of any such failure for 30
days;
(2) failure by the Issuer to pay the principal of or premium, if any,
on any of the Notes when it becomes due and payable, whether at stated
maturity, upon redemption, upon purchase, upon acceleration or otherwise;
(3) failure by the Issuer to comply with any of its agreements or
covenants described above under "-- Certain Covenants -- Limitations on
Mergers, Consolidations, Etc.," or in respect of its obligations to make a
Change of Control Offer as described above under "-- Change of Control";
(4) failure by the Issuer to comply with any other agreement or
covenant in the Indenture and continuance of this failure for 60 days after
notice of the failure has been given to the Issuer by the Trustee or by the
Holders of at least 25% of the aggregate principal amount of the Notes then
outstanding;
(5) default under any mortgage, indenture or other instrument or
agreement under which there may be issued or by which there may be secured
or evidenced Indebtedness of the Issuer or any Restricted Subsidiary,
whether such Indebtedness now exists or is incurred after the Issue Date,
which default:
(a) is caused by a failure to pay when due principal on such
Indebtedness within the applicable express grace period,
(b) results in the acceleration of such Indebtedness prior to its
express final maturity or
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(c) results in the commencement of judicial proceedings to
foreclose upon, or to exercise remedies under applicable law or
applicable security documents to take ownership of, the assets securing
such Indebtedness, and
in each case, the principal amount of such Indebtedness, together with any other
Indebtedness with respect to which an event described in clause (a), (b) or (c)
has occurred and is continuing, aggregates $10.0 million or more;
(6) one or more judgments or orders that exceed $10.0 million in the
aggregate (net of amounts covered by insurance or bonded) for the payment
of money have been entered by a court or courts of competent jurisdiction
against the Issuer or any Restricted Subsidiary and such judgment or
judgments have not been satisfied, stayed, annulled or rescinded within 60
days of being entered;
(7) the Issuer or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its assets, or
(d) makes a general assignment for the benefit of its creditors;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Issuer or any Significant Subsidiary
as debtor in an involuntary case,
(b) appoints a Custodian of the Issuer or any Significant
Subsidiary or a Custodian for all or substantially all of the assets of
the Issuer or any Significant Subsidiary, or
(c) orders the liquidation of the Issuer or any Significant
Subsidiary,
and the order or decree remains unstayed and in effect for 60 days; or
(9) any Note Guarantee of any Significant Subsidiary ceases to be in
full force and effect (other than in accordance with the terms of such Note
Guarantee and the Indenture) or is declared null and void and unenforceable
or found to be invalid or any Guarantor denies its liability under its Note
Guarantee (other than by reason of release of a Guarantor from its Note
Guarantee in accordance with the terms of the Indenture and the Note
Guarantee).
If an Event of Default (other than an Event of Default specified in clause
(7) or (8) above with respect to the Issuer), shall have occurred and be
continuing under the Indenture, the Trustee, by written notice to the Issuer, or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding by written notice to the Issuer and the Trustee, may declare all
amounts owing under the Notes to be due and payable immediately. Upon such
declaration of acceleration, the aggregate principal of, premium, if any, and
accrued and unpaid interest on the outstanding Notes shall immediately become
due and payable; provided, however, that after such acceleration, but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of such outstanding Notes may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal and interest, have been cured or waived as
provided in the Indenture. If an Event of Default specified in clause (7) or (8)
with respect to the Issuer occurs, all outstanding Notes shall become due and
payable without any further action or notice.
The Trustee shall, within 30 days after the occurrence of any Default with
respect to the Notes, give the Holders notice of all uncured Defaults thereunder
known to it; provided, however, that, except in the case of an Event of Default
in payment with respect to the Notes or a Default in complying with "-- Certain
Covenants -- Limitations on Mergers, Consolidations, Etc.," the Trustee shall be
protected in
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withholding such notice if and so long as a committee of its trust officers in
good faith determines that the withholding of such notice is in the interest of
the Holders.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless the Trustee:
(1) has failed to act for a period of 60 days after receiving written
notice of a continuing Event of Default by such Holder and a request to act
by Holders of at least 25% in aggregate principal amount of Notes
outstanding;
(2) has been offered indemnity satisfactory to it in its reasonable
judgment; and
(3) has not received from the Holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with
such request within such 60-day period.
However, such limitations do not apply to a suit instituted by a Holder of
any Note for enforcement of payment of the principal of or interest on such Note
on or after the due date therefor (after giving effect to the grace period
specified in clause (1) of the first paragraph of this "-- Events of Default"
section).
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any Officer of the Issuer
becoming aware of any Default, a statement specifying such Default and what
action the Issuer is taking or proposes to take with respect thereto.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("LEGAL DEFEASANCE"). Legal Defeasance means that the Issuer
and the Guarantors shall be deemed to have paid and discharged the entire
indebtedness represented by the Notes and the Note Guarantees, and the Indenture
shall cease to be of further effect as to all outstanding Notes and Note
Guarantees, except as to
(1) rights of Holders to receive payments in respect of the principal
of, premium, if any, on and interest on the Notes when such payments are
due from the trust funds referred to below,
(2) the Issuer's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust,
(3) the rights, powers, trust, duties, and immunities of the Trustee,
and the Issuer's obligation in connection therewith,
(4) the Issuer's rights of optional redemption, and
(5) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have
its obligations and the obligations of the Guarantors released with respect to
most of the covenants under the Indenture, except as described otherwise in the
Indenture ("COVENANT DEFEASANCE"), and thereafter any omission to comply with
such obligations shall not constitute a Default. In the event Covenant
Defeasance occurs, certain Events of Default (not including non-payment and,
solely for a period of 91 days following the deposit referred to in clause (1)
of the next paragraph, bankruptcy, receivership, rehabilitation and insolvency
events) will no longer apply. Covenant Defeasance will not be effective until
such bankruptcy, receivership, rehabilitation and insolvency events no longer
apply. The Issuer may exercise its Legal Defeasance option regardless of whether
it previously exercised Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be
68
sufficient (without reinvestment) in the opinion of a nationally recognized
firm of independent public accountants selected by the Issuer, to pay the
principal of, premium, if any, on and interest on the Notes on the stated
date for payment or on the redemption date of the principal or installment
of principal of or interest on the Notes, and the Holders must have a
valid, perfected, exclusive security interest in such trust,
(2) in the case of Legal Defeasance, the Issuer shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Issuer has received from, or there has been published by
the Internal Revenue Service, a ruling, or
(b) since the date of the Indenture, there has been a change in the
applicable U.S. federal income tax law,
in either case to the effect that, and based thereon this opinion of counsel
shall confirm that, the Holders will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of the Legal Defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had not
occurred,
(3) in the case of Covenant Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if the Covenant Defeasance had not occurred,
(4) no Default shall have occurred and be continuing on the date of
such deposit (other than a Default resulting from the borrowing of funds to
be applied to such deposit and the grant of any Lien securing such
borrowing),
(5) the Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its Subsidiaries
is bound,
(6) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by it with the intent of
preferring the Holders over any other of its creditors or with the intent
of defeating, hindering, delaying or defrauding any other of its creditors
or others, and
(7) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
provided for in, in the case of the Officers' Certificate, clauses (1)
through (6) and, in the case of the opinion of counsel, clauses (1) (with
respect to the validity and perfection of the security interest), (2)
and/or (3) and (5) of this paragraph have been complied with.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of and interest on the Notes when due, then
the Issuer's obligations and the obligations of Guarantors under the Indenture
will be revived and no such defeasance will be deemed to have occurred.
SATISFACTION AND DISCHARGE
The Indenture [and the Notes] will be discharged and will cease to be of
further effect (except as to rights of registration of transfer or exchange of
Notes which [that expressly provide that such rights] shall survive until all
Notes have been canceled) as to all outstanding Notes when either
(1) all the Notes that have been authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and Notes
for whose payment money has been deposited in trust or segregated and held
in trust by the Issuer and thereafter repaid to the Issuer or discharged
from this trust) have been delivered to the Trustee for cancellation, or
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(2) (a) all Notes not delivered to the Trustee for cancellation
otherwise have become due and payable or have been called for redemption
pursuant to the provisions described under "-- Optional Redemption," and
the Issuer has irrevocably deposited or caused to be deposited with the
Trustee funds in trust in an amount of money sufficient to pay and
discharge the entire Indebtedness (including all principal, premium, if
any, and accrued and unpaid interest) on the Notes not theretofore
delivered to the Trustee for cancellation,
(b) the Issuer has paid all sums payable by it under the Indenture,
and
(c) the Issuer has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at
maturity or on the date of redemption, as the case may be.
In addition, the Issuer must deliver an Officers' Certificate and an
opinion of counsel stating that all conditions precedent to satisfaction and
discharge have been complied with.
TRANSFER AND EXCHANGE
A Holder will be able to register the transfer of or exchange Notes only in
accordance with the provisions of the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. Without the prior consent of the Issuer, the Registrar is not
required (1) to register the transfer of or exchange any Note selected for
redemption, (2) to register the transfer of or exchange any Note for a period of
15 days before a selection of Notes to be redeemed or (3) to register the
transfer or exchange of a Note between a record date and the next succeeding
interest payment date.
The Notes will be issued in registered form and the registered Holder will
be treated as the owner of such Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended
with the consent (which may include consents obtained in connection with a
tender offer or exchange offer for Notes) of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing Default
under, or compliance with any provision of, the Indenture may be waived (other
than any continuing Default in the payment of the principal of, premium, if any,
on or interest on the Notes) with the consent (which may include consents
obtained in connection with a tender offer or exchange offer for Notes) of the
Holders of a majority in principal amount of the Notes then outstanding;
provided that:
(a) no such amendment may, without the consent of the Holders of
two-thirds in aggregate principal amount of Notes then outstanding, amend
the obligation of the Issuer under the heading "-- Change of Control" or
the related definitions that could adversely affect the rights of any
Holder; and
(b) without the consent of each Holder affected, the Issuer and the
Trustee may not:
(1) change the maturity of any Note;
(2) reduce the amount, extend the due date or otherwise affect the
terms of any scheduled payment of interest on or principal of the Notes;
(3) reduce any premium payable upon optional redemption of the
Notes, change the date on which any Notes are subject to redemption or
otherwise alter the provisions with respect to the redemption of the
Notes;
(4) make any Note payable in money or currency other than that
stated in the Notes;
(5) modify or change any provision of the Indenture or the related
definitions to affect the ranking of the Notes or any Note Guarantee in
a manner that adversely affects the Holders;
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(6) reduce the percentage of Holders necessary to consent to an
amendment or waiver to the Indenture or the Notes;
(7) impair the right of any Holder of the Notes to receive payment
of principal of and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes;
(8) release any Guarantor from any of its obligations under its
Note Guarantee or the Indenture, except as permitted by the Indenture;
or
(9) make any change in these amendment and waiver provisions.
Notwithstanding the foregoing, the Issuer and the Trustee may amend the
Indenture, the Note Guarantees or the Notes without the consent of any Holder;
to cure any ambiguity, defect or inconsistency; to provide for uncertificated
Notes in addition to or in place of certificated Notes; to provide for the
assumption of the Issuer's obligations to the Holders in the case of a merger or
acquisition; to add Guarantors or to release any Guarantor from any of its
obligations under its Note Guarantee or the Indenture (to the extent permitted
by the Indenture); to make any change that does not materially adversely affect
the rights of any Holder; in the case of the Indenture, to comply with the
requirements of the SEC to qualify or maintain the qualification of the
Indenture under the Trust Indenture Act; to evidence or provide for the
acceptance of appointment under the Indenture of a successor Trustee; to add any
additional Events of Default; or to secure the Notes and/or the Guarantees.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder, as such, of
the Issuer or any Guarantor will have any liability for any obligations of the
Issuer under the Notes or the Indenture or of any Guarantor under its Note
Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Note Guarantees. The waiver may
not be effective to waive liabilities under the federal securities laws. It is
the view of the SEC that this type of waiver is against public policy.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Issuer as Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee, should
it become a creditor of the Issuer, to obtain payment of claims in certain
cases, or to realize on certain assets received in respect of any such claim as
security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Indenture), it must eliminate such conflict or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in
the conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture, the Notes and the Note Guarantees will be governed by, and
construed in accordance with, the laws of the State of New York.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
"ACQUIRED INDEBTEDNESS" means (1) with respect to any Person that becomes a
Restricted Subsidiary after the Issue Date, Indebtedness of such Person and its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
that was not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and (2) with respect to the Issuer or any
Restricted Subsidiary, any Indebtedness of a Person (other than the Issuer or a
Restricted Subsidiary) existing at the time such Person is merged with or into
the Issuer or a Restricted Subsidiary, or Indebtedness expressly assumed by the
Issuer or any Restricted Subsidiary in connection with the acquisition of an
asset or assets from another Person, which Indebtedness was not, in any case,
incurred by such other Person in connection with, or in contemplation of, such
merger or acquisition.
"AFFILIATE" of any Person means any other Person which directly or
indirectly controls or is controlled by, or is under direct or indirect common
control with, the referent Person. For purposes of the covenant described under
"-- Certain Covenants -- Limitations on Transactions with Affiliates,"
Affiliates shall be deemed to include, with respect to any Person, any other
Person (1) which beneficially owns or holds, directly or indirectly, 10% or more
of any class of the Voting Stock of the referent Person, (2) of which 10% or
more of the Voting Stock is beneficially owned or held, directly or indirectly,
by the referent Person or (3) with respect to an individual, any immediate
family member of such Person. For purposes of this definition, "CONTROL" of a
Person shall mean the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"AMEND" means to amend, supplement, restate, amend and restate or otherwise
modify; and "AMENDMENT" shall have a correlative meaning.
"ASSET" means any asset or property.
"ASSET ACQUISITION" means
(1) an Investment by the Issuer or any Restricted Subsidiary of the
Issuer in any other Person if, as a result of such Investment, such Person
shall become a Restricted Subsidiary of the Issuer, or shall be merged or
consolidated with or into the Issuer or any Restricted Subsidiary of the
Issuer,
(2) the acquisition by the Issuer or any Restricted Subsidiary of the
Issuer of all or substantially all of the assets of any other Person or any
division or line of business of any other Person, or
(3) the acquisition by the Issuer or any Restricted Subsidiary of an
asset.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition by the Issuer or any Restricted Subsidiary to
any Person other than the Issuer or any Restricted Subsidiary (including by
means of a Sale and Leaseback Transaction or a merger or consolidation)
(collectively, for purposes of this definition, a "TRANSFER"), in one
transaction or a series of related transactions, of any assets of the Issuer or
any of its Restricted Subsidiaries other than in the ordinary course of
business. For purposes of this definition, the term "Asset Sale" shall not
include:
(1) transfers of cash or Cash Equivalents;
(2) transfers of assets (including Equity Interests) that are governed
by, and made in accordance with, the covenant described under "-- Certain
Covenants -- Limitations on Mergers, Consolidations, Etc.";
(3) Permitted Investments and Restricted Payments permitted under the
covenant described under "-- Certain Covenants -- Limitations on Restricted
Payments";
(4) the creation or realization of any Permitted Lien;
72
(5) transfers of damaged, worn-out or obsolete equipment or assets
that, in the Issuer's reasonable judgment, are no longer used or useful in
the business of the Issuer or its Restricted Subsidiaries;
(6) any transfer that, but for this clause, would be an Asset Sale, if
after giving effect to all such transfers, the aggregate Fair Market Value
of the assets transferred in such transactions does not exceed $5.0 million
in the aggregate during the preceding 12 month period; and
(7) any transfer of assets acquired substantially contemporaneously
with such transfer.
"ATTRIBUTABLE INDEBTEDNESS", when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, the present value
(discounted at a rate equivalent to the Issuer's then-current weighted average
cost of funds for borrowed money as at the time of determination, compounded on
a semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in any such Sale and Leaseback
Transaction.
"BANKRUPTCY LAW" means Title 11 of the United States Code, as amended, or
any similar federal, state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any Person, the board of
directors or comparable governing body of such Person.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York are authorized or required by law to
close.
"CAPITALIZED LEASE" means a lease required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" of any Person means the obligations of such
Person to pay rent or other amounts under a Capitalized Lease, and the amount of
such obligation shall be the capitalized amount thereof determined in accordance
with GAAP.
"CASH EQUIVALENTS" means:
(1) marketable obligations with a maturity of not more than one year
from the date of acquisition and directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof);
(2) demand and time deposits and certificates of deposit or
acceptances with a maturity of 365 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million and
is assigned at least a "B" rating by Thomson Financial BankWatch;
(3) commercial paper maturing no more than 270 days from the date of
creation thereof issued by a corporation that is not the Issuer or an
Affiliate of the Issuer, and is organized under the laws of any State of
the United States of America or the District of Columbia and rated at least
A-1 by S&P or at least P-1 by Moody's;
(4) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clause (1) above entered
into with any commercial bank meeting the specifications of clause (2)
above;
(5) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses
(1) through (4) above;
(6) overnight bank deposits and bankers' acceptances at any commercial
bank meeting the qualifications specified in clause (2) above; and
(7) deposits available for withdrawal on demand with any commercial
bank not meeting the qualifications specified in clause (2) above but which
is organized under the laws of (a) any country
73
that is a member of the Organization for Economic Cooperation and
Development ("OECD") and has total assets in excess of $500.0 million or
(b) any other country in which the Issuer or any Restricted Subsidiary
maintains an office or is engaged in the Permitted Business, provided that,
in either case (A) all such deposits are required to be made in such
accounts in the ordinary course of business, (B) such deposits do not at
any one time exceed $5.0 million in the aggregate and (C) no funds so
deposited remain on deposit in such bank for more than 30 days.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of Voting Stock
representing more than 50% of the voting power of the total outstanding
Voting Stock of the Issuer; provided, however, that such event shall not be
deemed to be a Change of Control so long as the Permitted Holders own
Voting Stock representing in the aggregate a greater percentage of the
total voting power of the Voting Stock of the Issuer than such other person
or group;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election to such Board of Directors or whose
nomination for election by the stockholders of the Issuer was approved by a
vote of the majority of the directors of the Issuer then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors of the Issuer;
(3) (a) all or substantially all of the assets of the Issuer and the
Restricted Subsidiaries on a consolidated basis are sold or otherwise
transferred to any Person other than a Wholly-Owned Restricted Subsidiary
or one or more Permitted Holders or (b) the Issuer consolidates or merges
with or into another Person or any Person consolidates or merges with or
into the Issuer, in either case under this clause (3), in one transaction
or a series of related transactions in which immediately after the
consummation thereof Persons owning Voting Stock representing in the
aggregate a majority of the total voting power of the Voting Stock of the
Issuer immediately prior to such consummation do not own Voting Stock
representing a majority of the total voting power of the Voting Stock of
the Issuer or the surviving or transferee Person; or
(4) the Issuer shall adopt a plan of liquidation or dissolution or any
such plan shall be approved by the stockholders of the Issuer.
"CONSOLIDATED AMORTIZATION EXPENSE" for any period means the amortization
expense of the Issuer and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED CASH FLOW" for any period means, without duplication, the sum
of the amounts for such period of
(1) Consolidated Net Income, plus
(2) in each case only to the extent (and in the same proportion)
deducted in determining Consolidated Net Income,
(a) Consolidated Income Tax Expense,
(b) Consolidated Amortization Expense (but only to the extent not
included in Consolidated Interest Expense),
(c) Consolidated Depreciation Expense,
(d) Consolidated Interest Expense, and
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(e) all other non-cash items reducing the Consolidated Net Income
(excluding any non-cash charge that results in an accrual of a reserve
for cash charges in any future period) for such period,
in each case determined on a consolidated basis in accordance with GAAP, minus
(3) the aggregate amount of all non-cash items, determined on a
consolidated basis, to the extent such items increased Consolidated Net
Income for such period,
provided that there shall be excluded from Consolidated Cash Flow (to the extent
otherwise included therein) any positive Consolidated Cash Flow derived from any
Restricted Subsidiary during such period to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary of
that Consolidated Cash Flow is not permitted directly or indirectly by any
means, by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary during such period.
"CONSOLIDATED DEPRECIATION EXPENSE" for any period means the depreciation
expense of the Issuer and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" for any period means the provision for
taxes of the Issuer and the Restricted Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST COVERAGE RATIO" means the ratio of Consolidated Cash
Flow during the most recent four consecutive full fiscal quarters for which
financial statements are available (the "FOUR-QUARTER PERIOD") ending on or
prior to the date of the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio (the "TRANSACTION DATE") to Consolidated
Interest Expense for the Four-Quarter Period. For purposes of this definition,
Consolidated Cash Flow and Consolidated Interest Expense shall be calculated
after giving effect on a pro forma basis for the period of such calculation to:
(1) the incurrence of any Indebtedness or the issuance of any
Disqualified Equity Interests of the Issuer or any Preferred Stock of any
Restricted Subsidiary (and the application of the proceeds thereof) and any
repayment of other Indebtedness or redemption of other Preferred Stock (and
the application of the proceeds therefrom) (other than the incurrence or
repayment of Indebtedness in the ordinary course of business for working
capital purposes pursuant to any revolving credit arrangement) occurring
during the Four-Quarter Period or at any time subsequent to the last day of
the Four-Quarter Period and on or prior to the Transaction Date, as if such
incurrence, repayment, issuance or redemption, as the case may be, (and the
application of the proceeds thereof) occurred on the first day of the
Four-Quarter Period; and
(2) any Asset Sale or other disposition or Asset Acquisition
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of the Issuer or any Restricted
Subsidiary (including any Person who becomes a Restricted Subsidiary as a
result of such Asset Acquisition) incurring Acquired Indebtedness and also
including any Consolidated Cash Flow (including any pro forma expense and
cost reductions calculated on a basis consistent with Regulation S-X under
the Exchange Act) associated with any such Asset Acquisition) occurring
during the Four-Quarter Period or at any time subsequent to the last day of
the Four-Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition or other disposition (including the
incurrence of, or assumption or liability for, any such Indebtedness or
Acquired Indebtedness) occurred on the first day of the Four-Quarter
Period.
If the Issuer or any Restricted Subsidiary directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if the Issuer or
such Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
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In calculating Consolidated Interest Expense for purposes of determining
the denominator (but not the numerator) of this Consolidated Interest Coverage
Ratio:
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the average of (a) the rate of interest on this Indebtedness
in effect on the Transaction Date after giving effect to any Hedging
Obligations then in effect and (b) the average of what the applicable rates
were (or would have been) as of the last day of each of the six months
immediately preceding the Transaction Date; and
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate or other rates, then the interest rate deemed to have been in effect
during the Four-Quarter Period will be the average of (a) the rate of
interest on this Indebtedness in effect on the Transaction Date after
giving effect to any Hedging Obligations then in effect and (b) the average
of what the applicable rates would have been as of the last day of each of
the six months immediately preceding the Transaction Date.
"CONSOLIDATED INTEREST EXPENSE" for any period means the sum, without
duplication, of the total interest expense of the Issuer and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP and including without duplication,
(1) interest components of all payments associated with Capitalized
Lease Obligations and imputed interest with respect to Attributable
Indebtedness,
(2) commissions, discounts and other fees and charges owed with
respect to letters of credit securing financial obligations, bankers'
acceptance financing and receivables financings,
(3) the net payments associated with Hedging Obligations,
(4) amortization of debt issuance costs, debt discount or premium and
other financing fees and expenses,
(5) the interest component of any deferred payment obligations,
(6) all other non-cash interest expense,
(7) capitalized interest,
(8) the product of (a) all dividend payments on any series of
Disqualified Equity Interests of the Issuer or any Preferred Stock of any
Restricted Subsidiary (other than any such Disqualified Equity Interests or
any Preferred Stock held by the Issuer or a Wholly-Owned Restricted
Subsidiary), multiplied by (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of the Issuer and the
Restricted Subsidiaries, expressed as a decimal,
(9) all interest payable with respect to discontinued operations, and
(10) all interest on any Indebtedness of any other Person guaranteed
by the Issuer or any Restricted Subsidiary.
"CONSOLIDATED NET INCOME" for any period means the net income (or loss) of
the Issuer and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein),
without duplication:
(1) the net income (or loss) of any Person (other than a Restricted
Subsidiary) in which any Person other than the Issuer and the Restricted
Subsidiaries has an ownership interest, except to the extent that cash in
an amount equal to any such income has actually been received by the Issuer
or any of its Restricted Subsidiaries during such period;
76
(2) except to the extent includible in the consolidated net income of
the Issuer pursuant to the foregoing clause (1), the net income (or loss)
of any Person that accrued prior to the date that (a) such Person becomes a
Restricted Subsidiary or is merged into or consolidated with the Issuer or
any Restricted Subsidiary or (b) the assets of such Person are acquired by
the Issuer or any Restricted Subsidiary;
(3) the net income of any Restricted Subsidiary during such period to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of that income is not
permitted, directly or indirectly by any means, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary
during such period, except that the Issuer's equity in a net loss of any
such Restricted Subsidiary for such period shall be included in determining
Consolidated Net Income;
(4) for the purposes of calculating the Restricted Payments Basket
only, in the case of a successor to the Issuer by consolidation, merger or
transfer of its assets, any income (or loss) of the successor prior to such
merger, consolidation or transfer of assets;
(5) other than for purposes of calculating the Restricted Payments
Basket, any gain (or loss), together with any related provisions for taxes
on any such gain (or the tax effect of any such loss), realized during such
period by the Issuer or any Restricted Subsidiary upon (a) the acquisition
of any securities, or the extinguishment of any Indebtedness, of the Issuer
or any Restricted Subsidiary or (b) any Asset Sale by the Issuer or any
Restricted Subsidiary; and
(6) other than for purposes of calculating the Restricted Payments
Basket, any extraordinary gain (or extraordinary loss), together with any
related provision for taxes on any such extraordinary gain (or the tax
effect of any such extraordinary loss), realized by the Issuer or any
Restricted Subsidiary during such period.
In addition, any return of capital with respect to an Investment that
increased the Restricted Payments Basket pursuant to clause (3)(d) of the first
paragraph under "-- Certain Covenants -- Limitations on Restricted Payments" or
decreased the amount of Investments outstanding pursuant to clause (12) or (13)
of the definition of "Permitted Investments" shall be excluded from Consolidated
Net Income for purposes of calculating the Restricted Payments Basket.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of determination,
the total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property), shown on the
balance sheet of the Issuer and the Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person, determined on a
consolidated basis in accordance with GAAP, less (without duplication) (1) any
amounts thereof attributable to Disqualified Equity Interests of such Person or
its Subsidiaries or any amount attributable to Unrestricted Subsidiaries and (2)
all write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within twelve
months after the acquisition of such business) subsequent to the Issue Date in
the book value of any asset owned by such Person or a Subsidiary of such Person.
"COVERAGE RATIO EXCEPTION" has the meaning set forth in the proviso in the
first paragraph of the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness."
"CREDIT AGREEMENT" means the Credit Agreement to be entered into by and
among the Issuer, as Borrower, Whitney National Bank, as arranger and
syndication agent, and the other lenders named therein, including any notes,
guarantees, collateral and security documents, instruments and agreements
executed in connection therewith (other than Hedging Obligations related to the
Indebtedness incurred thereunder), and in each case as amended or refinanced
from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of
77
borrowings or other Indebtedness outstanding or available to be borrowed
thereunder) all or any portion of the Indebtedness under such agreement, and any
successor or replacement agreement or agreements with the same or any other
agents, creditor, lender or group of creditors or lenders.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"DEFAULT" means (1) any Event of Default or (2) any event, act or condition
that, after notice or the passage of time or both, would be an Event of Default.
"DESIGNATION" has the meaning given to this term in the covenant described
under "-- Certain Covenants -- Limitations on Designation of Unrestricted
Subsidiaries."
"DESIGNATION AMOUNT" has the meaning given to this term in the covenant
described under "-- Certain Covenants -- Limitations on Designation of
Unrestricted Subsidiaries."
"DISQUALIFIED EQUITY INTERESTS" of any Person means any Equity Interests of
such Person that, by their terms, or by the terms of any related agreement or of
any security into which they are convertible, puttable or exchangeable, are, or
upon the happening of any event or the passage of time would be, required to be
redeemed by such Person, whether or not at the option of the holder thereof, or
matures or are mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or prior to the date which is 91 days after
the final maturity date of the Notes; provided, however, that any class of
Equity Interests of such Person that, by its terms, authorizes such Person to
satisfy in full its obligations upon maturity, redemption (pursuant to a sinking
fund or otherwise) or repurchase thereof or otherwise by the delivery of Equity
Interests that are not Disqualified Equity Interests, and that are not
convertible, puttable or exchangeable for Disqualified Equity Interests or
Indebtedness, will not be deemed to be Disqualified Equity Interests so long as
such Person satisfies its obligations with respect thereto solely by the
delivery of Equity Interests that are not Disqualified Equity Interests;
provided, further, however, that any Equity Interests that would not constitute
Disqualified Equity Interests but for provisions thereof giving holders thereof
(or the holders of any security into or for which such Equity Interests are
convertible, exchangeable or exercisable) the right to require the Issuer to
redeem such Equity Interests upon the occurrence of a change in control
occurring prior to the final maturity date of the Notes shall not constitute
Disqualified Equity Interests if the change in control provisions applicable to
such Equity Interests are no more favorable to such holders than the provisions
described under "-- Change of Control" and such Equity Interests specifically
provide that the Issuer will not redeem any such Equity Interests pursuant to
such provisions prior to the Issuer's purchase of the Notes as required pursuant
to the provisions described under "-- Change of Control."
"EQUITY INTERESTS" of any Person means (1) any and all shares or other
equity interests (including common stock, preferred stock, limited liability
company interests and partnership interests) in such Person and (2) all rights
to purchase, warrants or options (whether or not currently exercisable),
participations or other equivalents of or interests in (however designated) such
shares or other interests in such Person.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that would be
negotiated in an arm's-length transaction for cash between a willing seller and
a willing and able buyer, neither of which is under any compulsion to complete
the transaction, as such price is determined in good faith by an officer of the
Issuer, if such price is less than $1.0 million, or the Board of Directors of
the Issuer or a duly authorized committee thereof, if larger, as evidenced by a
resolution of such Board or committee.
"FOREIGN SUBSIDIARY" means any Restricted Subsidiary of the Issuer which
(i) is not organized under the laws of (x) the United States or any state
thereof or (y) the District of Columbia and (ii) conducts substantially all of
its business operations outside the United States of America.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
"GUARANTEE" means a direct or indirect guarantee (other than by endorsement
of negotiable instruments in the ordinary course of business) by any Person of
any Indebtedness of any other Person and includes any obligation, direct or
indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or
advance or supply funds for the purchase or payment of) Indebtedness of such
other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise); or (2)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); "GUARANTEE," when used as a verb, and
"GUARANTEED" have correlative meanings.
"GUARANTORS" means each Restricted Subsidiary of the Issuer on the Issue
Date, and each other Person that is required to become a Guarantor by the terms
of the Indenture after the Issue Date, in each case, until such Person is
released from its Note Guarantee.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to (1) any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in interest rates, (2)
agreements or arrangements designed to protect such Person against fluctuations
in foreign currency exchange rates in the conduct of its operations, or (3) any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices, in each case entered into in the ordinary
course of business for bona fide hedging purposes and not for the purpose of
speculation.
"HOLDER" means any registered holder, from time to time, of the Notes.
"INCUR" means, with respect to any Indebtedness or Obligation, incur,
create, issue, assume, guarantee or otherwise become directly or, indirectly
liable, contingently or otherwise, with respect to such Indebtedness or
Obligation; provided that (1) the Indebtedness of a Person existing at the time
such Person became a Restricted Subsidiary shall be deemed to have been incurred
by such Restricted Subsidiary and (2) neither the accrual of interest nor the
accretion of original issue discount shall be deemed to be an incurrence of
Indebtedness.
"INDEBTEDNESS" of any Person at any date means, without duplication:
(1) all liabilities, contingent or otherwise, of such Person for
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof);
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments excluding trade payables and accrued
expenses incurred by such Person in the ordinary course of business that
are not more than 90 days overdue;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and accrued
expenses incurred by such Person in the ordinary course of business;
(5) the maximum fixed redemption or repurchase price of all
Disqualified Equity Interests of such Person;
(6) all Capitalized Lease Obligations of such Person;
79
(7) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
(8) all Indebtedness of others guaranteed by such Person to the extent
of such guarantee; provided that Indebtedness of the Issuer or its
Subsidiaries that is guaranteed by the Issuer or the Issuer's Subsidiaries
shall only be counted once in the calculation of the amount of Indebtedness
of the Issuer and its Subsidiaries on a consolidated basis;
(9) all Attributable Indebtedness;
(10) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and
(11) all obligations of such Person under conditional sale or other
title retention agreements relating to assets purchased by such Person.
For purposes of calculating the amount of any non-interest bearing or other
discount security, such Indebtedness shall be deemed to be the principal amount
thereof that would be shown on the balance sheet of the issuer thereof dated
such date prepared in accordance with GAAP, but such security shall be deemed to
have been incurred only on the date of the original issuance thereof. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above, the maximum
liability of such Person for any such contingent obligations at such date and,
in the case of clause (7), the lesser of (a) the Fair Market Value of any asset
subject to a Lien securing the Indebtedness of others on the date that the Lien
attaches and (b) the amount of the Indebtedness secured. For purposes of clause
(5), the "maximum fixed redemption or repurchase price" of any Disqualified
Equity Interests that do not have a fixed redemption or repurchase price shall
be calculated in accordance with the terms of such Disqualified Equity Interests
as if such Disqualified Equity Interests were redeemed or repurchased on any
date on which an amount of Indebtedness outstanding shall be required to be
determined pursuant to the Indenture.
"INDEPENDENT DIRECTOR" means a director of the Issuer who
(1) is independent with respect to the transaction at issue;
(2) does not have any material financial interest in the Issuer or any
of its Affiliates (other than as a result of holding securities of the
Issuer); and
(3) has not and whose Affiliates or affiliated firm has not, at any
time during the twelve months prior to the taking of any action hereunder,
directly or indirectly, received, or entered into any understanding or
agreement to receive, any compensation, payment or other benefit, of any
type or form, from the Issuer or any of its Affiliates, other than
customary directors' fees for serving on the Board of Directors of the
Issuer or any Affiliate and reimbursement of out-of-pocket expenses for
attendance at the Issuer's or Affiliate's board and board committee
meetings.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Issuer's Board of Directors, qualified to perform the
task for which it has been engaged and disinterested and independent with
respect to the Issuer and its Affiliates.
"INTEREST" means, with respect to the Notes, interest and Liquidated
Damages, if any, on the Notes.
"INVESTMENTS" of any Person means:
(1) all direct or indirect investments by such Person in any other
Person in the form of loans, advances or capital contributions or other
credit extensions constituting Indebtedness of such other Person, and any
guarantee of Indebtedness of any other Person;
(2) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Equity Interests or other securities of any other
Person;
80
(3) all other items that would be classified as investments on a
balance sheet of such Person prepared in accordance with GAAP; and
(4) the Designation of any Subsidiary as an Unrestricted Subsidiary.
Except as otherwise expressly specified in this definition, the amount of
any Investment (other than an Investment made in cash) shall be the fair market
value thereof on the date such Investment is made. The amount of Investment
pursuant to clause (4) shall be the Designation Amount determined in accordance
with the covenant described under "-- Certain Covenants -- Limitations on
Designation of Unrestricted Subsidiaries." If the Issuer or any Subsidiary sells
or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary, the Issuer shall be deemed to have made an
Investment on the date of any such sale or other disposition equal to the fair
market value of the Equity Interests of and all other Investments in such
Subsidiary not sold or disposed of, which amount shall be determined by the
Board of Directors. The acquisition by the Issuer or any Restricted Subsidiary
of a Person that becomes a Restricted Subsidiary and that holds an Investment in
a third Person shall be deemed to be an Investment by the Issuer or such
Restricted Subsidiary in the third Person in an amount equal to the Fair Market
Value of the Investment held by the acquired Person in the third Person.
Notwithstanding the foregoing, purchases or redemptions of Equity Interests of
the Issuer shall be deemed not to be Investments.
"ISSUE DATE" means the date on which the Notes are originally issued.
"LIEN" means, with respect to any asset, any mortgage, deed of trust, lien
(statutory or other), pledge, lease, easement, restriction, covenant, charge,
security interest or other encumbrance of any kind or nature in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, and any
lease in the nature thereof, any option or other agreement to sell granted as
credit support for any Indebtedness and any filing of any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction
(other than cautionary filings in respect of operating leases).
"LIQUIDATED DAMAGES" has the meaning set forth in the Registration Rights
Agreement.
"MOODY'S" means Moody's Investors Service, Inc., and its successors.
"NET AVAILABLE PROCEEDS" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents, net of
(1) brokerage commissions and other fees and expenses (including fees
and expenses of legal counsel, accountants and investment banks) of such
Asset Sale;
(2) provisions for taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax
sharing arrangements);
(3) amounts required to be paid to any Person (other than the Issuer
or any Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale or having a Lien thereon;
(4) payments of unassumed liabilities (not constituting Indebtedness)
relating to the assets sold at the time of, or within 30 days after the
date of, such Asset Sale; and
(5) appropriate amounts to be provided by the Issuer or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such Asset Sale and retained
by the Issuer or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including pensions and other postemployment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all
as reflected in an Officers' Certificate delivered to the Trustee;
provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net
Available Proceeds.
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"NON-RECOURSE DEBT" means Indebtedness of an Unrestricted Subsidiary:
(1) as to which neither the Issuer nor any Restricted Subsidiary (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the Notes) of the Issuer or any
Restricted Subsidiary to declare a default on the other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the Equity Interests or assets of the Issuer
or any Restricted Subsidiary.
"OBLIGATION" means any principal, interest, penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
"OFFICER" means any of the following of the Issuer: the Chairman of the
Board of Directors, the Chief Executive Officer, the Chief Financial Officer,
the President, any Vice President, the Treasurer or the Secretary.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
"PARI PASSU INDEBTEDNESS" means any Indebtedness of the Issuer or any
Guarantor that ranks pari passu as to payment with the Notes or the Note
Guarantees, as applicable.
"PERMITTED BUSINESS" means the businesses engaged in by the Issuer and its
Subsidiaries on the Issue Date as described in this prospectus and businesses
that are reasonably related thereto or reasonable extensions thereof.
"PERMITTED HOLDER" means (i) Al Gonsoulin and his spouse and lineal
descendants, their respective estates or legal representatives, (ii) trusts
created for the benefit of such Persons, and (iii) entities 80% or more of the
Voting Stock of which is directly or indirectly owned by any of the preceding
Persons.
"PERMITTED INVESTMENT" means:
(1) Investments by the Issuer or any Restricted Subsidiary in (a) any
Restricted Subsidiary or (b) in any Person that is or will become
immediately after such Investment a Restricted Subsidiary or that will
merge or consolidate into the Issuer or a Restricted Subsidiary;
(2) Investments in the Issuer by any Restricted Subsidiary;
(3) loans and advances to directors, employees and officers of the
Issuer and the Restricted Subsidiaries for bona fide business purposes and
to purchase Equity Interests of the Issuer not in excess of $3.0 million at
any one time outstanding;
(4) Hedging Obligations incurred pursuant to clause (4) of the second
paragraph under the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness";
(5) Cash Equivalents;
(6) receivables owing to the Issuer or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Issuer or any such Restricted Subsidiary deems reasonable under the
circumstances;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
82
(8) Investments made by the Issuer or any Restricted Subsidiary as a
result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "-- Certain
Covenants -- Limitations on Asset Sales";
(9) Investments in prepaid expenses, negotiable instruments held for
collection or deposit and lease, utility and workers compensation,
performance and similar deposits entered into in the ordinary course of
business;
(10) Investments made by the Issuer or a Restricted Subsidiary for
consideration consisting only of Qualified Equity Interests of the Issuer;
(11) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Issuer or any
Restricted Subsidiary or in satisfaction of judgments;
(12) Investments in international joint ventures in an aggregate
amount not to exceed $15.0 million at any one time outstanding (with each
investment being valued as of the date made and without regard to
subsequent changes in value); and
(13) other Investments in an aggregate amount not to exceed $15.0
million at any one time outstanding (with each Investment being valued as
of the date made and without regard to subsequent changes in value).
The amount of Investments outstanding at any time pursuant to clause (12)
or (13) above shall be deemed to be reduced:
(a) upon the disposition or repayment of or return on any
Investment made pursuant to clause (12) or (13) above, by an amount
equal to the return of capital with respect to such Investment to the
Issuer or any Restricted Subsidiary (to the extent not included in the
computation of Consolidated Net Income), less the cost of the
disposition of such Investment and net of taxes; and
(b) upon a Redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, by an amount equal to the lesser of (x) the Fair
Market Value of the Issuer's proportionate interest in such Subsidiary
immediately following such Redesignation, and (y) the aggregate amount
of Investments in such Subsidiary that increased (and did not previously
decrease) the amount of Investments outstanding pursuant to clause (12)
or (13) above.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Issuer or the Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(4) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(5) judgment Liens not giving rise to a Default so long as such Liens
are adequately bonded and any appropriate legal proceedings which may have
been duly initiated for the review of such judgment
83
have not been finally terminated or the period within which the proceedings
may be initiated has not expired;
(6) easements, rights-of-way, zoning restrictions and other similar
charges, restrictions or encumbrances in respect of real property or
immaterial imperfections of title which do not, in the aggregate, impair in
any material respect the ordinary conduct of the business of the Issuer and
the Restricted Subsidiaries taken as a whole;
(7) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other assets
relating to such letters of credit and products and proceeds thereof;
(8) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Issuer
or any Restricted Subsidiary, including rights of offset and setoff;
(9) bankers' Liens, rights of setoff and other similar Liens existing
solely with respect to cash and Cash Equivalents on deposit in one or more
of accounts maintained by the Issuer or any Restricted Subsidiary, in each
case granted in the ordinary course of business in favor of the bank or
banks with which such accounts are maintained, securing amounts owing to
such bank with respect to cash management and operating account
arrangements, including those involving pooled accounts and netting
arrangements; provided that in no case shall any such Liens secure (either
directly or indirectly) the repayment of any Indebtedness;
(10) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Issuer or any
Restricted Subsidiary;
(11) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(12) Liens securing all of the Notes and Liens securing any Note
Guarantee;
(13) Liens existing on the Issue Date securing Indebtedness
outstanding on the Issue Date;
(14) Liens in favor of the Issuer or a Guarantor;
(15) Liens securing Indebtedness under a Credit Agreement in an
aggregate principal amount not to exceed the greater of (a) $50.0 million
and (b) 80% of the book value of accounts receivable plus 50% of the book
value of inventory of the Issuer and the Restricted Subsidiaries,
calculated on a consolidated basis and in accordance with GAAP;
(16) Liens securing Purchase Money Indebtedness;
(17) Liens securing Acquired Indebtedness permitted to be incurred
under the Indenture; provided that the Liens do not extend to assets not
subject to such Lien at the time of acquisition (other than improvements
and accessions thereto and proceeds thereof);
(18) Liens on assets of a Person existing at the time such Person is
acquired or merged with or into or consolidated with the Issuer or any such
Restricted Subsidiary (and not created in anticipation or contemplation
thereof);
(19) Liens securing Indebtedness of the Issuer and the Restricted
Subsidiaries in an aggregate principal amount that, together with
Indebtedness secured by Liens incurred pursuant to clause (15) of this
definition, does not exceed 15% of Consolidated Net Tangible Assets;
(20) Liens to secure Refinancing Indebtedness of Indebtedness secured
by Liens referred to in the foregoing clauses (13), (15), (16) and (17);
provided that in each case such Liens do not extend to any additional
assets (other than improvements or accessions thereto and replacements or
proceeds thereof);
(21) Liens to secure Attributable Indebtedness and/or that are
permitted to be incurred pursuant to the covenant described under
"-- Limitations on Sale and Leaseback Transactions";
84
provided that any such Lien shall not extend to or cover any assets of the
Issuer or any Restricted Subsidiary other than the assets which are the
subject of the Sale and Leaseback Transaction in which the Attributable
Indebtedness is incurred; and
(22) Liens incurred in the ordinary course of business of the Issuer
or any Restricted Subsidiary with respect to obligations (other than
Indebtedness) that do not in the aggregate exceed $10.0 million at any one
time outstanding.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"PLAN OF LIQUIDATION" with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise):
(1) the sale, lease, conveyance or other disposition of all or substantially all
of the assets of such Person otherwise than as an entirety or substantially as
an entirety; and (2) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition of all or
substantially all of the remaining assets of such Person to holders of Equity
Interests of such Person.
"PREFERRED STOCK" means, with respect to any Person, any and all preferred
or preference stock or other equity interests (however designated) of such
Person whether now outstanding or issued after the Issue Date.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness, including Capitalized
Lease Obligations, of the Issuer or any Restricted Subsidiary incurred for the
purpose of financing all or any part of the purchase price of property, plant or
equipment used in the business of the Issuer or any Restricted Subsidiary or the
cost of installation, construction or improvement thereof; provided, however,
that (1) the amount of such Indebtedness shall not exceed such purchase price or
cost, (2) such Indebtedness shall not be secured by any asset other than the
specified asset being financed or, in the case of real property, fixtures or
helicopters, additions and improvements thereto, the real property to which such
asset is attached and the proceeds thereof and (3) such Indebtedness shall be
incurred within 90 days after such acquisition of such asset by the Issuer or
such Restricted Subsidiary or such installation, construction or improvement.
"QUALIFIED EQUITY INTERESTS" means Equity Interests of the Issuer other
than Disqualified Equity Interests; provided that such Equity Interests shall
not be deemed Qualified Equity Interests to the extent sold or owed to a
Subsidiary of the Issuer or financed, directly or indirectly, using funds (1)
borrowed from the Issuer or any Subsidiary of the Issuer until and to the extent
such borrowing is repaid or (2) contributed, extended, guaranteed or advanced by
the Issuer or any Subsidiary of the Issuer (including, without limitation, in
respect of any employee stock ownership or benefit plan).
"QUALIFIED EQUITY OFFERING" means the issuance and sale of Qualified Equity
Interests of the Issuer to Persons other than any Permitted Holder or any other
Person who is not, prior to such issuance and sale, an Affiliate of the Issuer.
"REDEEM" means to redeem, repurchase, purchase, defease, retire, discharge
or otherwise acquire or retire for value; and "REDEMPTION" shall have a
correlative meaning; provided that this definition shall not apply for purposes
of "-- Optional Redemption."
"REDESIGNATION" has the meaning given to such term in the covenant
described under "-- Certain Covenants -- Limitations on Designation of
Unrestricted Subsidiaries."
"REFINANCE" means to refinance, repay, prepay, replace, renew or refund.
"REFINANCING INDEBTEDNESS" means Indebtedness of the Issuer or a Restricted
Subsidiary issued in exchange for, or the proceeds from the issuance and sale or
disbursement of which are used substantially concurrently to redeem or refinance
in whole or in part, any Indebtedness of the Issuer or any Restricted Subsidiary
(the "REFINANCED INDEBTEDNESS") in a principal amount not in excess of the
principal amount
85
(or accreted value, if applicable) of the Refinanced Indebtedness so repaid or
refinanced (or, if such Refinancing Indebtedness refinances Indebtedness under a
revolving credit facility or other agreement providing a commitment for
subsequent borrowings, with a maximum commitment not to exceed the maximum
commitment under such revolving credit facility or other agreement) (plus the
amount of necessary fees and expenses incurred in connection therewith and any
premiums paid on the Indebtedness so refinanced or refunded); provided that:
(1) the Refinancing Indebtedness is the obligation of the Issuer or
same Restricted Subsidiary as that of the Refinanced Indebtedness;
(2) if the Refinanced Indebtedness was subordinated to or pari passu
with the Notes or the Note Guarantees, as the case may be, then such
Refinancing Indebtedness, by its terms, is expressly pari passu with (in
the case of Refinanced Indebtedness that was pari passu with) or
subordinate in right of payment to (in the case of Refinanced Indebtedness
that was subordinated to) the Notes or the Note Guarantees, as the case may
be, at least to the same extent as the Refinanced Indebtedness;
(3) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Refinanced Indebtedness being repaid or amended or (b)
after the maturity date of the Notes; and
(4) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Refinanced Indebtedness being repaid that is
scheduled to mature on or prior to the maturity date of the Notes.
"RESTRICTED PAYMENT" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution on Equity Interests of the Issuer or any Restricted Subsidiary
or any payment made to the direct or indirect holders (in their capacities
as such) of Equity Interests of the Issuer or any Restricted Subsidiary,
including, without limitation, any payment in connection with any merger or
consolidation involving the Issuer but excluding (a) dividends or
distributions payable solely in Qualified Equity Interests and (b) in the
case of Restricted Subsidiaries, dividends or distributions payable to the
Issuer or to a Restricted Subsidiary and pro rata dividends or
distributions payable to minority stockholders of any Restricted
Subsidiary;
(2) the redemption of any Equity Interests of the Issuer or any
Restricted Subsidiary, including, without limitation, any payment in
connection with any merger or consolidation involving the Issuer but
excluding any such Equity Interests held by the Issuer or any Restricted
Subsidiary;
(3) any Investment other than a Permitted Investment; or
(4) any redemption prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may
be, in respect of Subordinated Indebtedness.
"RESTRICTED PAYMENTS BASKET" has the meaning given to such term in the
first paragraph of the covenant described under "-- Certain
Covenants -- Limitations on Restricted Payments."
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of the McGraw-Hill
Companies, Inc., and its successors.
"SALE AND LEASEBACK TRANSACTIONS" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person of any asset of such Person which has been or is being sold or
transferred by such Person to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the security
of such asset.
"SEC" means the U.S. Securities and Exchange Commission.
86
"SECRETARY'S CERTIFICATE" means a certificate signed by the Secretary or an
Assistant Secretary of the Issuer.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended.
"SIGNIFICANT SUBSIDIARY" means (1) any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Regulation S-X promulgated pursuant to
the Securities Act as such Regulation is in effect on the Issue Date and (2) any
Restricted Subsidiary that, when aggregated with all other Restricted
Subsidiaries that are not otherwise Significant Subsidiaries and as to which any
event described in clause (7) or (8) under "-- Events of Default" has occurred
and is continuing, would constitute a Significant Subsidiary under clause (1) of
this definition.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Issuer or any
Restricted Subsidiary that is subordinated in right of payment to the Notes or
the Note Guarantees, respectively.
"SUBSIDIARY" means, with respect to any Person:
(1) any corporation, limited liability company, association or other
business entity of which more than 50% of the total voting power of the
Equity Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Board of Directors thereof are
at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
Unless otherwise specified, "Subsidiary" refers to a Subsidiary of the
Issuer.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"UNRESTRICTED SUBSIDIARY" means (1) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Issuer in accordance with the covenant described under
"-- Certain Covenants -- Limitations on Designation of Unrestricted
Subsidiaries" and (2) any Subsidiary of an Unrestricted Subsidiary.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"VOTING STOCK" with respect to any Person, means securities of any class of
Equity Interests of such Person entitling the holders thereof (whether at all
times or only so long as no senior class of stock or other relevant equity
interest has voting power by reason of any contingency) to vote in the election
of members of the Board of Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" when applied to any Indebtedness at any
date, means the number of years obtained by dividing (1) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment by (2) the then outstanding principal amount of such
Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary of which
100% of the Equity Interests (except for directors' qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) are owned directly by the Issuer or through
one or more Wholly-Owned Restricted Subsidiaries.
87
BOOK-ENTRY, DELIVERY AND FORM OF SECURITIES
The Notes are represented by one or more global notes (the "GLOBAL NOTES")
in definitive form. The Global Notes will be deposited on the Issue Date with,
or on behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC
(such nominee being referred to herein as the "GLOBAL NOTE HOLDER"). DTC will
maintain the Notes in denominations of $1,000 and integral multiples thereof
through its book-entry facilities.
DTC has advised the Issuer as follows:
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations, including Euroclear and Clearstream
(collectively, the "PARTICIPANTS" or the "DEPOSITARY'S PARTICIPANTS"), and to
facilitate the clearance and settlement of transactions in these securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "INDIRECT PARTICIPANTS" or the "DEPOSITARY'S INDIRECT
PARTICIPANTS") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Depositary's Participants or the Depositary's Indirect Participants. Pursuant to
procedures established by DTC, ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of the Depositary's Participants) and the
records of the Depositary's Participants (with respect to the interests of the
Depositary's Indirect Participants).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer the Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder of outstanding Notes
represented by such Global Notes under the Indenture. Except as provided below,
owners of Notes will not be entitled to have Notes registered in their names and
will not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions,
or approvals to the Trustee thereunder. None of the Issuer, the Guarantors or
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Issuer and the Trustee may treat the persons in
whose names any Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Issuer or the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes (including principal, premium, if any, and interest).
The Issuer believes, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective beneficial interests in the
relevant security as shown on the records of DTC. Payments by the Depositary's
Participants and the Depositary's Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
If (1) the Depositary notifies the Issuer in writing that DTC is no longer
willing or able to act as a depositary and the Issuer is unable to locate a
qualified successor within 90 days or (2) the Issuer, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the relevant Global
Note Holder of its Global Note, Notes in such
88
form will be issued to each person that such Global Note Holder and DTC
identifies as being the beneficial owner of the related Notes. Upon any such
issuance, the Trustee is required to register such Notes in the name of and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). Such Notes would be issued in fully registered form and would be
subject to certain legal requirements.
Neither the Issuer nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Notes and the
Issuer and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or DTC for all purposes.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax consequences of the acquisition, ownership and disposition of notes. This
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended, or the Code, U.S. Department of Treasury regulations promulgated
under the Code, and administrative and judicial interpretations thereof, all as
in effect on the date hereof and all of which are subject to change, possibly on
a retroactive basis.
This discussion applies only to initial holders that purchase notes upon
original issuance at the initial offering price and that hold notes as capital
assets. This discussion is for general information only and does not address all
of the U.S. federal income tax consequences that may be important to particular
holders in light of their individual circumstances. Such holders may include
banks and other financial institutions, insurance companies, tax-exempt
entities, dealers in securities, certain former citizens or former long-term
residents of the United States, hybrid entities, persons holding the notes as
part of a hedging or conversion transaction or a straddle or holders that have a
functional currency other than the U.S. dollar. This discussion does not include
any description of the tax laws of any state, local or foreign government that
may be applicable to a particular beneficial owner.
As used herein, the term "U.S. Holder" means a beneficial owner of a note
that is, for U.S. federal income tax purposes, a citizen or resident of the
United States, a corporation organized under the laws of the United States or
any State thereof, including the District of Columbia, or an estate or trust
that is a United States person as defined in the Code. The term "Non-U.S.
Holder" means a beneficial owner of a note that is not a U.S. Holder. This
discussion does not address the tax consequences to Non-U.S. Holders that are
subject to U.S. federal income tax on a net basis on income realized with
respect to a Note because such income is effectively connected with the conduct
of a United States trade or business. Such holders generally are taxed in a
manner similar to the taxation of U.S. Holders.
You are urged to consult your own tax advisors as to the particular U.S.
federal income and other tax consequences to you of the acquisition, ownership
and disposition of the notes as well as any tax consequences under state, local
and foreign tax laws, and the possible effects of changes in tax laws.
FEDERAL INCOME TAXATION OF U.S. HOLDERS
In general, interest on notes will be taxable to a U.S. Holder as ordinary
income at the time it accrues or is actually or constructively received in
accordance with the U.S. Holder's method of accounting for federal income tax
purposes. It is expected that the notes will be issued without original issue
discount and the following discussion so assumes. If, however, the notes are
purchased at original issuance for a purchase price that is less than their face
amount by more than one quarter of one percent times the number of complete
years to maturity, they could be treated as issued with original issue discount
and such discount would be accrued and included in the U.S. Holder's income over
the term of the notes.
Upon the sale, exchange, redemption, retirement at maturity or other
taxable disposition of a note, a U.S. Holder generally will recognize taxable
gain or loss equal to the difference between (1) the sum of cash and the fair
market value of other property received on such disposition, except to the
extent such cash or property is attributable to accrued but unpaid interest
which will be taxable as ordinary income,
89
and (2) such U.S. Holder's adjusted tax basis in the note. Such gain or loss
generally will be capital gain or loss, and will be long-term capital gain or
loss if the notes were held for more than one year on the date of disposition.
We may be required to pay additional interest to U.S. Holders of the notes
in certain circumstances. Although the matter is not entirely free from doubt,
we intend to take the position that a U.S. Holder of a note should treat any
such additional interest as ordinary interest income for United States federal
income tax purposes at the time it accrues or is received in accordance with
such U.S. Holder's method of tax accounting. The exchange of notes for exchange
notes pursuant to the exchange offer will not constitute a taxable exchange for
U.S. federal income tax purposes, and the tax basis in the exchange notes will
be the same as the U.S. Holder's tax basis in the notes immediately before such
exchange.
U.S. Holders will generally be required to supply a social security number
or other taxpayer identification number in order to avoid backup withholding
(currently at the rate of 30% but subject to periodic adjustment) on amounts
paid on a note, and the proceeds of a sale of a note. In addition, such payments
will generally be subject to information reporting. The amount of any backup
withholding from a payment will be allowed as a credit against the U.S. Holder's
federal income tax liability and may entitle such U.S. Holder to a refund,
provided that the required information is furnished to the United States
Internal Revenue Service, or IRS.
FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
General. Payments of interest on notes to a Non-U.S. Holder will not be
subject to federal income or withholding tax, except as described below under
"-- Backup withholding and information reporting," provided that (a) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote, (b) the
Non-U.S. Holder is not a controlled foreign corporation that is related to us,
through stock ownership, (c) the Non-U.S. Holder is not a bank described in
Section 881(c)(3)(A) of the Code, and (d) either (i) the Non-U.S. Holder
certifies under penalties of perjury on IRS Form W-8BEN or a suitable substitute
form that it is not a "U.S. person," as defined in the Code, and provides the
name and address of the beneficial owner, or (ii) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and holds the notes
on behalf of the Non-U.S. Holder certifies under penalties of perjury that such
a statement has been received from the Non-U.S. Holder and furnishes a copy
thereof. In the case of notes held by a foreign partnership, the certification
must be provided by the partners rather than the partnership. A Non-U.S. Holder
may also be entitled to the benefits of an income tax treaty under which
interest on notes would be subject to a reduced rate of or exemption from
withholding tax, provided a properly executed IRS Form W-8BEN is furnished to
the withholding agent.
A Non-U.S. Holder generally will not be subject to United States income or
withholding tax, except as described below under "-- Backup withholding and
information reporting," on gain realized on the sale, exchange, redemption,
retirement at maturity or other disposition of a note unless the Non-U.S. Holder
is an individual who is present in the United States for a period or periods
aggregating 183 or more days in the taxable year of disposition and certain
other conditions are met.
Notes held at the time of death, or previously transferred subject to
certain retained rights or powers, by an individual who at the time of death is
not a citizen or resident of the United States will not be included in such
holder's gross estate for United States federal estate tax purposes, provided
that the individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to vote and the
income on the notes is not effectively connected with the conduct of a United
States trade or business by the individual.
Backup withholding and information reporting. Backup withholding will not
apply to payments made by us or a paying agent to Non-U.S. Holders if the
certification described above is received, provided that the payor does not have
actual knowledge that the holder is a United States person. Backup withholding
and information reporting generally will not apply if payments on a Note are
made to a Non-U.S. Holder
90
by or through the foreign office of a custodian, nominee or other agent of such
Non-U.S. Holder, or if the foreign office of a broker pays the proceeds of the
sale of a Note. Information reporting requirements, but not backup withholding,
will apply however to a payment by or through a foreign office of a custodian,
nominee, agent or broker that is, for United States federal income tax purposes,
a United States person, a controlled foreign corporation, a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States or a foreign partnership that at any
time during its taxable year is 50% or more owned by United States persons,
unless such custodian, nominee, agent or broker has documentary evidence in its
records that the holder is a non-United States person and certain other
conditions are met, or the holder otherwise establishes an exemption. Payment by
a United States office of a custodian, nominee, agent or broker is subject to
both backup withholding (currently at a rate of 30% but subject to future
adjustment) and information reporting unless the holder certifies, under
penalties of perjury, that it is not a United States person and the payor does
not have actual knowledge to the contrary, or the holder otherwise establishes
an exemption. A Non-U.S. Holder may obtain a refund or a credit against such
Non-U.S. Holder's United States federal income tax liability of any amounts
withheld under the backup withholding rules, provided the required information
is furnished to the IRS.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that you may freely transfer Series
B notes issued under the exchange offer in exchange for Series A notes, unless
you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer or an initial purchaser that acquired Series A notes
directly from us; or
- a broker-dealer that acquired Series A notes as a result of market-making
or other trading activities without compliance with the registration and
prospectus delivery provisions of the Securities Act;
provided that you acquire the Series B notes in the ordinary course of your
business and you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of the Series B notes. Broker-dealers receiving Series B notes in the exchange
offer in exchange for Series A notes that were acquired in market-making or
other trading activities will be subject to a prospectus delivery requirement
with respect to resales of the Series B notes.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange offer,
other than a resale of an unsold allotment from the original sale of the Series
A notes, with the prospectus contained in the exchange offer registration
statement. Pursuant to the registration agreement, we have agreed to permit such
participating broker-dealers to use this prospectus in connection with the
resale of Series B notes.
If you wish to exchange your Series A notes for Series B notes in the
exchange offer, you will be required to make certain representations to us as
set forth in "The exchange offer -- Registration rights" and "-- Procedures for
tendering Series A notes -- Determination of validity" of this prospectus
beginning on pages 15 and 21, and in the letter of transmittal. In addition, if
you are a broker-dealer who receives Series B notes for your own account in
exchange for Series A notes that were acquired by you as a result of
market-making activities or other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any resale by
you of those Series B notes. See "The exchange offer -- Resale of Series B
notes; Plan of distribution" beginning on page 25.
91
We will not receive any proceeds from any sale of Series B notes by
broker-dealers. Broker-dealers who receive Series B notes for their own account
in the exchange offer may sell them from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the Series B notes or a combination of
such methods of resale;
- at market prices prevailing at the time of resale; or
- at prices related to the prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any Series B notes. Any
broker-dealer that resells Series B notes it received for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of Series B notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of Series B notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. Although the letter of
transmittal requires a broker-dealer to deliver a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act as a result of such delivery.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Series A notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act, as set forth in the
registration rights agreement.
LEGAL MATTERS
The validity of the Series B notes being offered hereby will be passed upon
for us by Akin Gump Strauss Hauer & Feld LLP, Houston, Texas.
EXPERTS
The financial statements and the related financial statement schedule as of
December 31, 2000 and 2001, and for the eight months ended December 31, 1999 and
each of the two years in the period ended December 31, 2001, included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the adoption of Statement of
Financial Accounting Standards No. 133, as amended, described in Note 1)
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedule of Petroleum
Helicopters, Inc. for the year ended April 30, 1999, have been included herein
in reliance upon the reports of KPMG LLP, independent accountants, included
herein, and upon the authority of said firm as experts in accounting and
auditing. The audit report covering the April 30, 1999, financial statements
refers to a change in accounting for computer software costs.
AVAILABLE INFORMATION
We are incorporating by reference our Annual Report on Form 10-K for the
year ended December 31, 2001 (excluding Items 7, 7A and 8) into this prospectus
and our Information Statement relating to our 2002 Annual Meeting of
Shareholders. The information in such filing is considered a part of this
prospectus, and documents filed later with the SEC will update and supersede
this information.
We are also incorporating by reference any additional reports that we file
with the SEC between the date of the filing of this prospectus and the date of
the registration statement's effectiveness.
92
You may request a copy of our filings without charge by writing or
telephoning us at the following address:
Petroleum Helicopters, Inc.
Post Office Box 90808
Municipal Airport
Lafayette, Louisiana 70509
(337) 235-2452
Descriptions in this prospectus, including those contained in the documents
incorporated by reference, of contracts and other documents are not necessarily
complete and, in each instance, reference is made to the copies of these
contracts and documents filed as exhibits to the documents incorporated by
reference in this prospectus.
TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN
, 2002.
WHERE YOU CAN FIND MORE INFORMATION
We file with the SEC annual, quarterly and special reports, proxy
statements and other information required by the Securities Exchange Act of
1934. You may read and copy any materials we file with the SEC at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available from the SEC's web site at:
http://www.sec.gov. Copies of these reports, proxy statements and other
information also can be inspected at the following address:
The Nasdaq Stock Market
Reports Section
1735 K Street
Washington, D.C. 20006
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference contain
forward-looking statements within the meaning of the U.S. federal securities
laws including:
- certain statements, including possible or assumed future results of
operations, in "Management's Discussion and Analysis of Financial
Condition and Results of Operations;"
- any statements contained herein or therein regarding the prospects for
our business or any of our services;
- any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "estimates," "plans" or
similar expressions; and
- other statements contained herein or therein regarding matters that are
not historical facts.
Our business and results of operations are subject to risks and
uncertainties, including the specific risk factors described in "Risk Factors,"
many of which are beyond our ability to control or predict. Because of these
risks and uncertainties, actual results may differ materially from those
expressed or implied by forward-looking statements, and investors are cautioned
not to place undue reliance on such statements, which speak only as of the date
thereof.
93
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent auditors' reports............................... F-2
Consolidated balance sheets as of December 31, 2000 and
2001...................................................... F-4
Consolidated statements of operations for the year ended
April 30, 1999, for the eight months ended December 31,
1999 and for the years ended December 31, 2000 and 2001... F-5
Consolidated statements of changes in shareholder's equity
for the year ended April 30, 1999, for the eight months
ended December 31, 1999 and for the years ended December
31, 2000 and 2001......................................... F-6
Consolidated statements of comprehensive income (loss) for
the year ended April 30, 1999, for the eight months ended
December 31, 1999 and for the years ended December 31,
2000 and 2001............................................. F-6
Consolidated statements of cash flows for the year ended
April 30, 1999, for the eight months ended December 31,
1999 and for the years ended December 31, 2000 and 2001... F-7
Notes to consolidated financial statements.................. F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Petroleum Helicopters, Inc.
We have audited the accompanying consolidated balance sheets of Petroleum
Helicopters, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for the years ended December 31, 2001
and 2000, and the eight months ended December 31, 1999. Our audits also included
the accompanying financial statement schedule, "Valuation and Qualifying
Accounts," for the years ended December 31, 2001 and 2000, and the eight months
ended December 31, 1999. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Petroleum Helicopters, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for the years ended December 31, 2001 and 2000, and the eight
months ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule for the years ended December 31, 2001 and
2000, and the eight months ended December 31, 1999, 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.
As discussed in Note 1 to the consolidated financial statements, in 2001
the Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives Instruments and Hedging Activities," as amended.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 22, 2002
(April 17, 2002 as to Note 12)
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Petroleum Helicopters, Inc.
We have audited the consolidated statements of operations, shareholders'
equity, and cash flows of Petroleum Helicopters, Inc. and subsidiaries for the
year ended April 30, 1999. In connection with our audit of the consolidated
financial statements, we also have audited the accompanying financial statement
schedule, "Valuation and Qualifying Accounts," for the year ended April 30,
1999. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 Petroleum Helicopters,
Inc. and subsidiaries' operations and their cash flows for the year ended April
30, 1999, in conformity with accounting principles generally accepted in the
United States of America. 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.
As discussed in Note 1 to the consolidated financial statements, in fiscal
1999 the Company adopted the method of accounting for computer software costs
prescribed by Statement of Position 98-1.
/s/ KPMG LLP
KPMG LLP
New Orleans, Louisiana
June 11, 1999
F-3
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(THOUSANDS OF DOLLARS)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 5,435 $ 863
Accounts receivable -- net of allowance:
Trade.................................................. 45,361 39,399
Other.................................................. 1,649 3,490
Inventory................................................. 34,382 35,175
Other current assets...................................... 5,799 5,112
Refundable income taxes................................... -- 3,852
-------- --------
Total current assets.............................. 92,626 87,891
-------- --------
Other....................................................... 10,851 3,008
Property and equipment, net................................. 122,168 131,856
-------- --------
Total Assets...................................... $225,645 $222,755
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.................. $ 28,247 $ 30,047
Accrued vacation payable.................................. 7,020 6,553
Income taxes payable...................................... 2,428 --
Current maturities of long-term debt and capital lease
obligations............................................ 7,944 9,744
-------- --------
Total current liabilities......................... 45,639 46,344
-------- --------
Long-term debt and capital lease obligations, net of current
maturities................................................ 58,672 65,075
Deferred income taxes....................................... 17,612 17,600
Other long-term liabilities................................. 11,850 12,114
Commitments and contingencies (Note 9)
Shareholders' Equity:
Voting common stock--par value of $0.10; authorized shares
of 12,500,000.......................................... 285 279
Non-voting common stock--par value of $0.10; authorized
shares of 12,500,000................................... 241 237
Additional paid-in capital................................ 13,327 12,045
Accumulated other comprehensive income (loss)............. (2,030) --
Retained earnings......................................... 80,049 69,061
-------- --------
Total shareholders' equity........................ 91,872 81,622
-------- --------
Total Liabilities and Shareholders' Equity............. $225,645 $222,755
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------- ------------- ------------- -----------
(THOUSANDS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)
Operating revenues.......................... $277,052 $232,074 $146,380 $247,339
Gain (loss) on disposition of property and
equipment................................. 1,351 3,963 6,595 3,583
Other....................................... 1,461 -- -- --
-------- -------- -------- --------
279,864 236,037 152,975 250,922
-------- -------- -------- --------
Expenses:
Direct expenses........................... 238,153 225,567 139,902 214,516
Selling, general and administrative....... 18,029 18,165 12,359 18,017
Equity in net loss of unconsolidated
subsidiaries........................... -- 716 686 40
Special charges........................... -- 3,571 -- 7,298
Interest expense.......................... 6,190 5,813 3,978 6,017
-------- -------- -------- --------
262,372 253,832 156,925 245,888
-------- -------- -------- --------
Earnings (loss) before income taxes......... 17,492 (17,795) (3,950) 5,034
Income taxes................................ 6,472 (5,501) (1,251) 2,046
-------- -------- -------- --------
Net earnings (loss)......................... $ 11,020 $(12,294) $ (2,699) $ 2,988
======== ======== ======== ========
Earnings (loss) per common share:
Basic..................................... $ 2.12 $ (2.38) $ (0.52) $ 0.58
Diluted................................... $ 2.08 $ (2.38) $ (0.52) $ 0.57
Weighted average common shares
outstanding............................... 5,199 5,164 5,160 5,167
Incremental common shares................... 106 -- -- 60
-------- -------- -------- --------
Weighted average common shares and common
share equivalents......................... 5,305 5,164 5,160 5,227
======== ======== ======== ========
Dividends declared per common share......... $ -- $ -- $ 0.05 $ 0.20
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
VOTING NON-VOTING OTHER
COMMON STOCK COMMON STOCK ADDITIONAL COMPREHENSIVE
--------------- --------------- PAID-IN INCOME RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) EARNINGS
------ ------ ------ ------ ---------- ------------- --------
(THOUSANDS OF DOLLARS AND SHARES)
Balance at April 30, 1998........ 2,801 $280 2,359 $236 $11,706 $ -- $ 82,483
Stock Options Exercised........ -- -- 9 1 78 -- --
Other.......................... (8) (1) (2) -- (67) -- (67)
Net Earnings................... -- -- -- -- -- -- 2,988
Dividends...................... -- -- -- -- -- -- (1,056)
----- ---- ----- ---- ------- ------- --------
Balance at April 30, 1999........ 2,793 279 2,366 237 11,717 -- 84,348
Other.......................... -- -- 1 -- 12 -- --
Net Loss....................... -- -- -- -- -- -- (2,699)
Dividends...................... -- -- -- -- -- -- (271)
----- ---- ----- ---- ------- ------- --------
Balance at Dec. 31, 1999......... 2,793 279 2,367 237 11,729 -- 81,378
Stock Issued to Employees...... -- -- 5 -- -- -- --
Other.......................... -- -- 1 -- 316 -- (23)
Net Loss....................... -- -- -- -- -- -- (12,294)
----- ---- ----- ---- ------- ------- --------
Balance at Dec. 31, 2000......... 2,793 279 2,373 237 12,045 -- 69,061
Stock Options Exercised........ 59 6 1 -- 820 -- --
Stock Issued to Employees...... -- -- 31 3 111 -- --
Other.......................... -- -- 8 1 351 -- (32)
Cumulative effect of adopting
SFAS No. 133................ -- -- -- -- -- 38 --
Unrecognized loss on interest
swaps....................... -- -- -- -- -- (2,068) --
Net Earnings................... -- -- -- -- -- -- 11,020
----- ---- ----- ---- ------- ------- --------
Balance at Dec. 31, 2001......... 2,852 $285 2,413 $241 $13,327 $(2,030) $ 80,049
===== ==== ===== ==== ======= ======= ========
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
EIGHT
MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Net earnings (loss).......................... $11,020 $(12,294) $(2,699) $2,988
Other comprehensive income (loss)
Cumulative effect of adopting SFAS No.
133..................................... 38 -- -- --
Unrecognized loss on interest rate swaps... (2,068) -- -- --
------- -------- ------- ------
Comprehensive income (loss).................. $ 8,990 $(12,294) $(2,699) $2,988
======= ======== ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Cash flows from operating activities:
Net earnings (loss).......................... $ 11,020 $(12,294) $ (2,699) $ 2,988
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation.............................. 15,082 13,713 9,655 16,193
Deferred income taxes..................... (385) (3,858) (1,635) 239
Gain on asset dispositions................ (1,351) (3,963) (6,595) (3,583)
Special charges........................... -- 2,464 -- 6,172
Equity in net losses of unconsolidated
subsidiaries............................ -- 716 806 40
Bad debt allowance related to notes
receivable.............................. 575 -- -- --
Other..................................... 218 651 -- --
Changes in operating assets and liabilities:
Accounts receivable....................... (4,121) (2,414) 1,516 3,633
Inventory................................. 793 2,102 (2,375) (859)
Refundable income taxes................... 3,852 70 (554) (3,368)
Other assets.............................. (6,753) 1,602 (875) (505)
Accounts payable, accrued liabilities and
vacation payable........................ (1,333) 10,567 (1,992) (4,326)
Income taxes payable...................... 2,428 -- -- (1,046)
Other long-term liabilities............... (1,345) (5) 933 917
-------- -------- -------- --------
Net cash provided by (used in) operating
activities................................ 18,680 9,351 (3,815) 16,495
-------- -------- -------- --------
Cash flows from investing activities:
Investments in and advances to
subsidiaries.............................. -- (1,266) (580) (424)
Proceeds from notes receivable............... 350 292 -- --
Purchase of property and equipment........... (29,502) (28,179) (10,047) (42,271)
Proceeds from asset dispositions............. 24,304 24,142 16,254 19,881
-------- -------- -------- --------
Net cash provided by (used in) investing
activities................................ (4,848) (5,011) 5,627 (22,814)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt................. 2,851 23,500 12,000 30,000
Payments on long-term debt................... (12,850) (28,640) (14,656) (22,324)
Proceeds from exercise of stock options and
other..................................... 739 -- -- (50)
Dividends paid............................... -- -- (518) (1,035)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities................................ (9,260) (5,140) (3,174) 6,591
-------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents.................................. 4,572 (800) (1,362) 272
Cash and cash equivalents, beginning of year... 863 1,663 3,025 2,753
-------- -------- -------- --------
Cash and cash equivalents, end of year......... $ 5,435 $ 863 $ 1,663 $ 3,025
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS, BASIS OF CONSOLIDATION, AND OTHER GENERAL PRINCIPLES
Since its inception, Petroleum Helicopters, Inc.'s primary business has
been to transport personnel and, to a lesser extent, parts and equipment, to,
from and among offshore platforms for customers engaged in the oil and gas
exploration, development, and production industry. The Company also provides
aircraft maintenance services to third parties and air medical transportation
services for hospitals and medical programs.
The consolidated financial statements include the accounts of Petroleum
Helicopters, Inc. and its majority-owned subsidiaries ("PHI" or the "Company")
after the elimination of all significant intercompany accounts and transactions.
For its investments of 20% to 50% in affiliates, which are primarily foreign
affiliates, the Company uses the equity method of accounting.
REVENUE RECOGNITION
The Company recognizes revenue related to aviation transportation services
after the services are performed or the contractual obligations are met.
Aircraft maintenance service revenues are generally recognized at the time the
repair or service work is completed. Revenues related to emergency flights
generated by the Company's subsidiary, Air Evac Services, Inc. ("AirEvac") are
recorded net of contractual allowances under agreements with third party payors
when the services are provided.
FISCAL YEAR CHANGE
Effective December 31, 1999, the Company changed its fiscal year-end to
December 31 of each year. The consolidated statements of operations,
shareholders' equity and cash flows for the period from May 1, 1999 to December
31, 1999 represent a transition period of eight months, which is referred to as
the eight months ended December 31, 1999.
F-8
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a comparative summary of the operating results for years
ended December 31, 2000 and December 31, 1999 and the eight-month periods ended
December 31, 1999 and December 31, 1998:
YEAR ENDED EIGHT MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1999 DECEMBER 31, 1998
2000 (UNAUDITED) 1999 (UNAUDITED)
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operating revenues................. $232,074 $223,112 $146,380 $170,607
Gain (loss) on disposition of
property and equipment........... 3,963 8,743 6,595 1,435
-------- -------- -------- --------
236,037 231,855 152,975 172,042
-------- -------- -------- --------
Expenses:
Direct expenses.................. 225,567 209,769 139,902 144,852
Selling, general and
administrative................ 18,165 18,461 12,359 11,915
Equity in net loss (earnings) of
unconsolidated subsidiaries... 716 812 686 (87)
Special charges.................. 3,571 4,846 -- 2,452
Interest expense................. 5,813 5,889 3,978 4,105
-------- -------- -------- --------
253,832 239,777 156,925 163,237
-------- -------- -------- --------
Earnings (loss) before income
taxes............................ (17,795) (7,922) (3,950) 8,805
Income taxes....................... (5,501) (2,903) (1,251) 3,611
-------- -------- -------- --------
Net earnings (loss)................ $(12,294) $ (5,019) $ (2,699) $ 5,194
======== ======== ======== ========
Earnings (loss) per common share:
Basic....................... $ (2.38) $ (0.97) $ (0.52) $ 1.01
Diluted..................... $ (2.38) $ (0.97) $ (0.52) $ 0.99
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers cash equivalents to include demand deposits and
investments with original maturity dates of three months or less.
INVENTORIES
The Company's inventories are stated at the lower of average cost or market
and consist primarily of spare parts. Portions of the Company's inventories are
used parts that are often exchanged with parts removed from aircraft, reworked
to a useable condition according to manufacturers' and FAA specifications, and
returned to inventory. The Company uses systematic procedures to estimate the
valuation of the used parts, which includes consideration of their condition and
continuing utility. The Company also records an allowance for obsolescent and
slow-moving parts, relying principally on specific
F-9
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
identification of such inventory. Valuation reserves related to obsolescence and
slow-moving inventory were $4.3 million and $3.7 million at December 31, 2001
and 2000, respectively.
CHANGE IN ACCOUNTING ESTIMATE
Effective May 1, 1999, the Company changed the estimated useful lives on
its aircraft from ten years to fifteen years and also increased the residual
values from 25% to 30%. The Company believes the revised estimated useful lives
and residual values more appropriately reflect its financial results by better
matching costs over the estimated useful lives of these assets. The effect of
this change on net income for the eight months ended December 31, 1999 was an
increase of approximately $1.1 million ($0.21 per diluted share).
PROPERTY AND EQUIPMENT
The Company records its property and equipment at cost less accumulated
depreciation. For financial reporting purposes, the Company uses the
straight-line method to compute depreciation based upon estimated useful lives
of fifteen years for flight equipment and three to ten years for other
equipment. The Company uses a 30% residual value in the calculation of
depreciation for its flight equipment. The Company uses accelerated depreciation
methods for tax purposes. Upon selling or otherwise disposing of property and
equipment, the Company removes the cost and accumulated depreciation from the
accounts and reflects any resulting gain or loss in earnings at the time of sale
or other disposition.
The Company defers any gains resulting from the sale and leaseback of
assets and amortizes the gain over the lease term. For the year ended December
31, 2001, there were no gains deferred on sale and leaseback transactions. For
the year ended December 31, 2000, the eight months ended December 31, 1999, and
the year ended April 30, 1999, the gains deferred on sale and leaseback
transactions were $2.9 million, $1.2 million, and $0.6 million, respectively.
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
measures recoverability of assets to be held and used by comparing the carrying
amount of an asset to future undiscounted net cash flows that it expects the
asset to generate. When an asset is determined to be impaired, the Company
recognizes the impairment amount, which is measured by the amount that the
carrying value of the asset exceeds its fair value. Similarly, the Company
reports assets that it expects to sell at the lower of the carrying amount or
fair value less costs to sell.
SELF-INSURANCE
The Company maintains a self-insurance program for a portion of its health
care costs. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and the estimated liability for claims incurred
but not reported.
The Company does not presently have any significant obligations for post
employment health care benefits.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its short-term invested cash in overnight
repurchase agreements with a bank. The Company does not believe significant
credit risk exists with respect to these securities at December 31, 2001.
PHI conducts a majority of its business with major and independent oil and
gas exploration and production companies with operations in the Gulf of Mexico.
The Company also provides services to
F-10
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
medical centers, ambulance services, and US governmental agencies. The Company
continually evaluates the financial strength of its customers but generally does
not require collateral to support the customer receivables. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, current market conditions, and other
information. The allowance for doubtful accounts was $0.4 million and $2.2
million at December 31, 2001 and December 31, 2000, respectively. The Company's
largest domestic oil and gas customer accounted for $40.3 million, $27.2
million, $19.7 million, and $41.1 million of consolidated operating revenues for
year ended December 31, 2001, December 31, 2000, the eight months ended December
31, 1999, and year ended April 30, 1999, respectively. The Company also carried
accounts receivable from this same customer totaling 19% and 12%, of net trade
accounts receivable on December 31, 2001 and December 31, 2000, respectively.
STOCK COMPENSATION
The Company uses the intrinsic value method of accounting for employee
stock-based compensation prescribed by Accounting Principles Board (APB) Opinion
No. 25 and, accordingly, follows the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". See Note 6.
ACCOUNTING FOR COMPUTER SOFTWARE
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
criteria for when these types of costs should be expensed as incurred or
capitalized. The Company has implemented SOP 98-1 on a prospective basis as of
May 1, 1998 resulting in approximately $1.2 million of costs being capitalized
during the year ended April 30, 1999 that would have been expensed under the
Company's previous accounting method for such costs. This increased net earnings
by $0.7 million or $0.13 per diluted share for the year ended April 30, 1999.
Post-implementation costs are being expensed in accordance with the SOP and
capitalized costs are being amortized over their estimated useful life.
INCOME TAXES
The Company provides for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The deferred tax assets and liabilities measurement uses enacted tax
rates that are expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The Company
recognizes the effect of any tax rate changes in income of the period that
included the enactment date.
EARNINGS PER SHARE
The Company computes basic earnings (loss) per share by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. The diluted earnings (loss) per share computation
uses the weighted average number of shares outstanding adjusted for incremental
shares attributed to dilutive outstanding options to purchase common stock and
non-vested restricted stock awards. The diluted share base for the year ended
December 31, 2000 and the eight months ended December 31, 1999 excludes
incremental shares of 10,488 and 34,972, respectively, related to employee stock
options and restricted stock awards that are antidilutive as a result of the
Company's net loss for those periods.
F-11
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," on January 1, 2001. The
Company recorded a cumulative effect to Comprehensive Income (Loss) of $38,000
in the first quarter of 2001 in connection with the initial adoption of SFAS No.
133.
The Company uses interest rate swap agreements to manage its interest rate
exposure. The Company specifically designates these agreements as hedges of debt
instruments and recognizes interest differentials as adjustments to interest
expense in the period the differentials occur. Under interest rate swap
agreements, the Company agrees with other parties to exchange, at specific
intervals, the difference between fixed-rate and variable-rate interest amounts
calculated by reference to an agreed-upon notional principal amount. The Company
has estimated the fair value of the interest rate swap agreements using quotes
from counterparties. The fair value of the agreements represents the cash effect
if the Company had settled the existing agreements at December 31, 2001 and
2000. See Note 4 and Note 8 of these consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company
implemented SFAS No. 141 on July 1, 2001 and it has determined that this
statement did not have a material impact on its consolidated financial position
or results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002 and it has determined that this statement will have no material
impact on its consolidated financial position or results of operation.
SFAS No. 143, Accounting for Asset Retirement Obligations, requires the
recording of liabilities for all legal obligations associated with the
retirement of long-lived assets that result from the normal operation of those
assets. These liabilities are required to be recorded at their fair values
(which are likely to be the present values of the estimated future cash flows)
in the period in which they are incurred. SFAS No. 143 requires the associated
asset retirement costs to be capitalized as part of the carrying amount of the
long-lived asset. The asset retirement obligation will be accreted each year
through a charge to expense. The amounts added to the carrying amounts of the
assets will be depreciated over the useful lives of the assets. The Company is
required to implement SFAS No. 143 on January 1, 2003, and it has not determined
the impact that this statement will have on its consolidated financial position
or results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets, promulgates standards for measuring and recording impairments of
long-lived assets. Additionally, this standard establishes requirements for
classifying an asset as held for sale, and changes existing accounting and
reporting standards for discontinued operations and exchanges for long-lived
assets. The Company is
F-12
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required to implement SFAS No. 144 on January 1, 2002, and it does not expect
the implementation of this standard to have a material effect on the Company's
financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior period financial
statements in order to conform to the classifications adopted for reporting in
2001.
(2) SPECIAL CHARGES
Special Charges recorded in the years ended December 31, 2000 and April 30,
1999 consisted of the following:
YEAR ENDED
------------------------
DECEMBER 31, APRIL 30,
DESCRIPTION 2000 1999
----------- ------------ ---------
Severance and related costs (Approximately 120 and 37
employees, respectively).................................. $1,106 $1,345
Impairment of property and equipment........................ 782 1,548
Impairment of certain foreign based joint ventures.......... 1,683 3,801
Other....................................................... -- 604
------ ------
Total............................................. $3,571 $7,298
====== ======
During the year ended December 31, 2000, in connection with management's
decision to reduce costs and to recognize the impairment of certain assets, the
Company recorded Special Charges of $3.6 million ($2.5 million on an after tax
basis or $0.48 per diluted share). Additionally, the Company recorded a $4.3
million charge for the write-down of inventory, included in direct expenses, as
a result of an analysis of its overhaul and maintenance operations including
requirements for its fleet. At December 31, 2000, the Company carried a
liability for the $1.1 million of severance and related costs shown above. At
December 31, 2001, the remaining severance liability was $0.3 million, covering
two employees. The Company expects to pay the remaining severance liability over
the next 18 months.
During the year ended April 30, 1999, in connection with management's
decision to reduce costs and to recognize the impairment of assets as a result
of decreased activity, the Company recorded Special Charges of $7.3 million
($4.4 million on an after tax basis or $0.84 per diluted share). Additionally, a
charge of $1.7 million was recognized during the year-ended April 30, 1999 for
the disposition of slow moving inventories and is included in direct expenses.
(3) PROPERTY AND EQUIPMENT
The following table summarizes the Company's property and equipment at
December 31, 2001 and December 31, 2000.
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(THOUSANDS OF DOLLARS)
Flight equipment............................................ $ 190,425 $ 212,492
Other....................................................... 38,044 42,448
--------- ---------
228,469 254,940
Less accumulated depreciation............................... (106,301) (123,084)
--------- ---------
Property and equipment, net............................... $ 122,168 $ 131,856
========= =========
F-13
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment at December 31, 2001 and 2000 includes aircraft with
a net book value of $5.8 million and $3.1 million, respectively, that is held
for sale.
(4) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 31, 2001 and
December 31, 2000 consisted of the following:
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(THOUSANDS OF DOLLARS)
Secured term loan notes with principal lending group........ $19,000 $30,000
Secured notes under revolving credit facilities with
principal lending group................................... 44,500 42,500
Capitalized lease obligations............................... 3,077 2,319
Other....................................................... 39 --
------- -------
Total debt.................................................. 66,616 74,819
Less current maturities..................................... (7,944) (9,744)
------- -------
Long-term debt.............................................. $58,672 $65,075
======= =======
Maturities of long-term debt and capital lease obligations are as follows:
(THOUSANDS OF DOLLARS)
----------------------
2002........................................................ $ 7,944
2003........................................................ 16,881
2004........................................................ 39,781
2005........................................................ 197
2006........................................................ 215
Thereafter.................................................. 1,598
-------
Total............................................. $66,616
=======
At December 31, 2001, the following assets and their related net book
values are pledged as collateral on long-term debt and capital lease obligations
aggregating $66.6 million:
(THOUSANDS OF DOLLARS)
----------------------
Equipment, net of depreciation.............................. $ 58,502
Inventory................................................... 34,382
Accounts receivable, net.................................... 47,010
--------
Total............................................. $139,894
========
On July 3, 2001, the Company and its principal lending group entered into a
loan agreement that amended and restated its original loan agreement dated
January 1, 1986. This amended and restated agreement was further amended on
January 31, 2002. The agreement provides a $45.0 million revolving credit
facility and a $25.5 million term credit facility. The loan is secured by
substantially all of the Company's assets. The secured term and revolving loan
agreement permits both prime rate based borrowings and "LIBOR" borrowings plus a
spread. The spread for LIBOR borrowings is from 2.0% to 3.0% (2.5% at December
31, 2001). The interest rates on the secured term and revolving loans ranged
F-14
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from 4.43% to 4.77% at December 31, 2001. The term credit facility is payable in
quarterly principal payments of $1.9 million until maturity on September 30,
2004. The revolving credit facility converts to a term loan on January 31, 2003,
with quarterly installments due beginning March 31, 2003, equal to 5% of the
amount outstanding at the conversion date, with the final balance due on January
31, 2004. The Company paid a 0.50% commitment fee on the unused portion of the
revolving credit facility totaling less than $0.1 million for each of the years
ended December 31, 2001 and 2000, the eight months ended December 31, 1999, and
the year ended April 30, 1999.
The Company is subject to certain financial covenants under its loan
agreement with its principal lending group, and was in compliance with those
covenants on December 31, 2001. These covenants include maintaining certain
levels of cash flow, working capital and shareholders' equity and contain other
provisions, some of which restrict the purchases of the Company's stock, capital
expenditures, and payment of dividends. The declaration or payment of dividends
is restricted to 20% of net earnings for the previous four fiscal quarters. The
loan agreement also limits the creation, incurrence, or assumption of Funded
Debt (as defined, which includes long-term debt) and the acquisition of
investments in unconsolidated subsidiaries.
The Company has two capital lease obligations for two aircraft with imputed
interest rates of 9.36% and 7.96%, with monthly lease payments aggregating $0.1
million and $0.2 million per year, respectively, with final payments of $0.6
million in January 2007 and $0.9 million in January 2008, respectively. The
Company has recorded $2.2 million in property and equipment for the two aircraft
under the capital leases.
The Company also entered into a capital lease obligation for a new computer
system in December 2001. Under the terms of the lease, the Company made an
initial installment of $0.3 million and will make annual payments in 2002 and
2003 of $0.3 million each, including imputed interest at 7.77%. The Company has
recorded $0.9 million in property, plant, and equipment for the computer system
and a $0.6 million capital lease obligation for the remaining annual
installments.
The following table presents the non-cash investing and financing
activities for the years ended December 31, 2001 and 2000, the eight months
ended December 31, 1999, and the year ended April 30, 1999.
EIGHT
MONTHS YEAR
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Fair value of assets acquired under
capital leases, net of cash
received........................... $2,096 $2,319 $-- $--
Cash paid for assets................. -- -- -- --
------ ------ --- ---
Capital leases assumed............... $2,096 $2,319 $-- $--
====== ====== === ===
As discussed in Note 1, the Company uses derivative instruments on a
limited basis to manage risks related to interest rates. At each of December 31,
2001 and December 31, 2000, the Company had interest rate swap agreements with
notional amounts totaling $40.0 million that serve to convert an equal amount of
variable rate long-term debt to fixed rates. The swaps mature in 2003 and
require the Company to pay a weighted-average interest rate of 5.78% over their
composite lives and to receive a variable rate, which was 4.77% at December 31,
2001. Based upon the current spread, the effect of these agreements is to limit
interest rate exposure to 8.08% on $20.0 million of the Company's revolving
credit facility, 8.69% on $10.0 million and 8.27% on $10.0 million of the
Company's term loan. Using the accrual/settlement method of accounting, the
Company records the net amount to be received or paid under the swap agreements
as part of interest expense in the Consolidated Statements of Operations. The
interest rate
F-15
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
swap agreements had the effect of increasing interest expense by $0.6 million,
$0.3 million, $0.1 million and $0.2 million for years ended December 31, 2001
and December 31, 2000, the eight months ended December 31, 1999 and for the year
ended April 30, 1999, respectively.
Cash paid for interest, net of amounts paid or received in connection with
the interest rate swaps, was $6.6 million, $5.8 million, $3.0 million, and $5.7
million for the year ended December 31, 2001, year ended December 31, 2000, the
eight months ended December 31, 1999, and the year ended April 30, 1999,
respectively.
(5) INCOME TAXES
Income tax expense (benefit) is composed of the following:
EIGHT
MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Current:
Federal............................ $5,645 $(2,013) $ (185) $ 544
State.............................. 308 (447) (8) 271
Foreign............................ 904 817 577 992
Deferred -- principally Federal...... (385) (3,858) (1,635) 239
------ ------- ------- ------
Total.............................. $6,472 $(5,501) $(1,251) $2,046
====== ======= ======= ======
Income tax expense (benefit) as a percentage of pre-tax earnings varies
from the effective Federal statutory rate of 34% as a result of the following:
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------- ------------- ------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ --- ------- --- ------- --- ------ ---
(THOUSANDS OF DOLLARS, EXCEPT PERCENTAGE AMOUNTS)
Income taxes at statutory
rate..................... $5,947 34 $(6,050) (34) $(1,343) (34) $1,712 34
Increase (decrease) in
taxes resulting from:
Effect of state income
taxes................. 472 3 (356) (2) (158) (4) 179 4
Other items -- net....... 53 -- 905 5 250 6 155 3
------ -- ------- --- ------- --- ------ --
Total............ $6,472 37 $(5,501) (31) $(1,251) (32) $2,046 41
====== == ======= === ======= === ====== ==
F-16
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2001 and December 31, 2000 are presented below:
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(THOUSANDS OF DOLLARS)
Deferred tax assets:
Tax credits............................................... $ 1,751 $ 3,229
Vacation accrual.......................................... 2,541 2,276
Inventory valuation....................................... 2,089 907
Workman's compensation reserve............................ 100 243
Allowance for uncollectible accounts...................... 792 1,246
Deferred gains............................................ 1,917 2,349
Other..................................................... 2,084 2,878
Net operating loss........................................ -- 1,860
-------- --------
Total deferred tax assets.............................. 11,274 14,988
-------- --------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation........... (23,764) (28,159)
Other..................................................... (1,043) (747)
-------- --------
Total deferred tax liabilities......................... (24,807) (28,906)
-------- --------
Net deferred tax liabilities...................... $(13,533) $(13,918)
======== ========
No valuation allowance was recorded against the deferred tax assets because
management believes that the deferred tax assets will more than likely be
realized in full through future operating results and the reversal of taxable
temporary differences. At December 31, 2001 and 2000, other current assets
includes $4.1 million and $3.7 million, respectively, of deferred tax assets.
For Federal income tax purposes, the Company has foreign tax credits of
approximately $1.8 million, which expire in 2004 through 2006.
Income taxes paid were approximately $0.6 million and $4.9 million, for the
eight months ended December 31, 1999 and the year ended April 30, 1999,
respectively. The Company received net income tax refunds of approximately $0.2
million and $2.2 million during the years ended December 31, 2001 and 2000,
respectively.
(6) EMPLOYEE BENEFIT PLANS
SAVINGS AND RETIREMENT PLANS
The Company maintains an Employee Savings Plan under Section 401(k) of the
Internal Revenue Code. The Company matches 200% of up to 3% of employee
contributions. The Company's contributions were $4.5 million, $4.1 million, $2.4
million, and $2.1 million for the years ended December 31, 2001 and 2000, the
eight months ended December 31, 1999, and the year ended April 30, 1999,
respectively.
The Company maintains a Supplemental Executive Retirement Plan ("SERP").
The nonqualified and unfunded plan provides certain senior management with
supplemental retirement and death benefits at age 65. The SERP plan provides
supplemental retirement benefits that are based on each participant's salary at
the time of entrance into the plan. Occasionally, the Company's board of
directors may increase certain individuals' benefits. The benefit is one-third
of each participant's annual salary of $200,000 or less,
F-17
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus one-half of each participant's annual salary that is in excess of $200,000,
if applicable. The plan does not provide for automatic benefit increases. During
2000, the Company's board of directors amended the plan to provide for partial
vesting. The assumed discount rate was 6.15% for the year ended December 31,
2001, 6.85% for the year ended December 31, 2000, 7.50% for the eight months
ended December 31, 1999 and 7.50% for the year ended April 30, 1999. The Company
recorded plan costs of $0.4 million for each of the years ended December 31,
2001 and 2000 and $0.3 million for each of the eight months ended December 31,
1999 and the year ended April 30, 1999.
The SERP plan is an unfunded plan. However, the Company has purchased life
insurance contracts in anticipation of using the life insurance's cash values
and death benefits to help fulfill the obligations of the plan. The Company may
sell or redeem the contracts at any time without any obligation to the plan
participants.
The Company maintains an Officer Deferred Compensation Plan and a Director
Deferred Compensation Plan. The plans permit key officers and all directors to
defer a portion of their compensation. The plans are nonqualified and unfunded.
However, under the Officer Deferred Compensation Plan, the Company has
established a book reserve account for each participant, which is deemed to be
invested and reinvested from time to time in investments that the participant
selects from a list of eligible investment choices. Earnings and losses on the
book reserve accounts accrue to the plan participants. The Company has deposited
funds in a brokerage account equal to amounts deferred under the plan. The
Company may sell or redeem the investments at any time without any obligation to
the plan participants.
STOCK BASED COMPENSATION AND OTHER COMPENSATION PLANS
Under PHI's 1992 Non-Qualified Stock Option and Stock Appreciation Rights
Plan (the "Plan"), the Company may grant non-qualified stock options and stock
appreciation rights to selected employees for up to 100,000 shares of the
Company's non-voting common stock. Options issued under the plan may be
exercisable at a price of not less than 25% of the related stock's fair market
value at the date of grant. The options may be exercised any time after one year
from the date of grant until their expiration at five years from such date. At
December 31, 2001, there were no options or stock appreciation rights
outstanding under the Plan and grants were available for 34,000 shares. The
Company does not expect to issue any additional options or rights under the
Plan.
Under the PHI 1995 Incentive Plan (the "1995 Plan"), the Company is
authorized to issue up to 175,000 shares of voting common stock and 575,000
shares of non-voting common stock. The Compensation Committee of the Board of
Directors is authorized under the 1995 Plan to grant stock options, restricted
stock, stock appreciation rights, performance shares, stock awards, and cash
awards. The exercise price of the stock option grants is equal to the fair
market value of the underlying stock at the date of grant. The 1995 Plan also
allows awards under the plan to fully vest upon a change in control of the
Company. In September of 2001, the Company underwent a change of control as
defined in the 1995 plan and as a result, all awards issued prior to the change
of control became fully vested.
During the year ended December 31, 2001, the Company granted 20,000
non-voting restricted shares and 150,000 non-voting stock options under the 1995
Plan. The non-voting restricted shares had a fair value of $11.06 on the date of
issue and became unrestricted during 2001. The non-voting stock options are 100%
vested and expire on September 1, 2010. During the year ended December 31, 2000,
the Company did not issue any shares, options or rights under the 1995 Plan.
During the eight months ended December 31, 1999, the Company granted 30,000
voting stock options and 142,000 non-voting stock options under the 1995 Plan.
All of the outstanding stock options are 100% vested and expire on July 14,
2009. During the year ended April 30, 1999, the Company granted 11,691
non-voting restricted shares (net of forfeitures), 4,000 voting stock options,
and 15,000 non-voting stock options under the 1995 Plan. The
F-18
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restricted shares had a fair value of $20.00 per share on the date of issue and
became unrestricted during 2001. All of the outstanding stock options are 100%
vested and expire on October 31, 2008.
At December 31, 2001, there were 116,520 voting shares and 167,793
non-voting shares available for issuance under the 1995 Plan. The Company has
recorded $0.3 million of compensation expense related to the 1995 Plan for the
year ended December 31, 2001 and $0.1 million of compensation expense related to
the 1995 Plan in each of the year ended December 31, 2000, the eight months
ended December 31, 1999, and the year ended April 30, 1999. There was no
unearned stock compensation expense at December 31, 2001.
During 2001, the Company's Board of Directors repealed the Directors Stock
Compensation Plan (the "Director's Plan"). Previously, under the Directors Plan,
each non-employee director ("Director") received his or her annual retainer in
the form of PHI's non-voting common stock. Each Director could voluntarily defer
all or a portion of the stock awards or fees otherwise payable. The Directors
Plan also provided for the automatic annual grant of options to Directors to
purchase 2,000 shares of non-voting common stock. During 2001, The Company
issued no stock or deferred stock awards under the plan. The Company issued 547
shares and 2,388 deferred stock awards during the year ended December 31, 2000
and 1,277 shares and 4,908 deferred stock awards during the eight months ended
December 31, 1999. The Company issued no stock options under the plan during
2001. During the year ended December 31, 2000, the eight months ended December
31, 1999, and the year ended April 30, 1999, the Company issued 4,165, 10,000
and 6,000 options, respectively, to purchase non-voting common stock.
The following table summarizes employee and director stock option
activities for the years ended December 31, 2001 and 2000, the eight months
ended December 31, 1999, and the year ended April 30, 1999. All of the options
were issued with an exercise price equal to or greater than the market price of
the stock at the time of issue.
1995 PLAN OPTIONS
DIRECTOR --------------------------- WEIGHTED
PLAN -- NON- AVERAGE
NON-VOTING VOTING VOTING TOTAL EXERCISE PRICE
---------- ------- ------- ------- --------------
Balance outstanding at April 30,
1998........................... -- 24,480 75,450 99,930 9.01
Options granted.................. 6,000 4,000 15,000 25,000 16.38
Options lapsed/canceled.......... -- -- (5,493) (5,493) 8.50
Options exercised................ -- -- (9,240) (9,240) 8.50
------ ------- ------- -------
Balance outstanding at April 30,
1999........................... 6,000 28,480 75,717 110,197 10.75
Options granted.................. 10,000 30,000 142,000 182,000 12.67
------ ------- ------- -------
Balance outstanding at December
31, 1999....................... 16,000 58,480 217,717 292,197 11.95
Options granted.................. 4,165 -- -- 4,165 8.38
Options lapsed/canceled.......... -- -- (2,000) (2,000) 12.75
------ ------- ------- -------
December 31, 2000................ 20,165 58,480 215,717 294,362 11.89
Options granted or reinstated.... -- -- 154,853 154,853 10.98
Options lapsed/canceled.......... -- -- (9,250) (9,250) 12.75
Options exercised................ -- (58,480) (1,250) (59,730) 12.35
------ ------- ------- -------
Balance outstanding at December
31, 2001....................... 20,165 -- 360,070 380,235 11.43
====== ======= ======= =======
Shares exercisable at December
31, 2001....................... 20,165 -- 360,070 380,235 11.43
F-19
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
as of December 31, 2001:
OPTIONS OUTSTANDING
-----------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -----------------------
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
RANGE OF >NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- --------- ----------- ---------
$8.38 - $8.50.................. 69,735 3.7 $ 8.49 69,735 $ 8.49
$9.78.......................... 10,000 7.9 9.78 10,000 9.78
$11.06......................... 150,000 8.7 11.06 150,000 11.06
$12.75......................... 129,500 7.5 12.75 129,500 12.75
$16.25 - $16.75................ 21,000 6.8 16.39 21,000 16.39
------- -------
380,235 7.2 11.43 380,235 11.43
======= =======
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123), encourages the use of a fair value
based method of accounting for compensation expense associated with stock option
and similar plans. However, SFAS No. 123 permits the continued use of the
intrinsic value based method prescribed by Opinion No. 25 but requires
additional disclosures, including pro forma calculations of net earnings and
earnings per share as if the fair value method of accounting prescribed by SFAS
No. 123 had been applied.
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------- ------------- ------------- -----------
(THOUSANDS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)
Net earnings (loss) -- as reported..... $11,020 $(12,294) $(2,699) $2,988
Net earnings (loss) -- pro forma....... 10,452 (12,366) (2,868) 2,967
Diluted earnings (loss) per share -- as
reported............................. 2.08 (2.38) (0.52) 0.57
Diluted earnings (loss) per
share -- pro forma................... 1.97 (2.39) (0.56) 0.57
Average fair value of grants during the
year................................. 6.18 5.13 1.95 5.87
Black-Scholes option pricing model
assumptions:
Risk-free interest rate.............. 6.00% 6.50% 6.50% 6.50%
Expected life (years)................ 6.0 6.0 4.0 4.0
Volatility........................... 50.64% 58.07% 27.00% 27.00%
Dividend yield....................... -- -- 0.53% 1.39%
For the year ended December 31, 2001, the Company recorded $1.3 of
compensation expense for a discretionary incentive bonus it plans to pay in 2002
to certain non-executive employees. The Company recorded the related liability
in accrued liabilities. Future discretionary incentive compensation payments are
subject to the Company achieving desired profit levels.
(7) OTHER ASSETS
The following table summarizes the Company's other assets at December 31,
2001 and December 31, 2000.
F-20
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(THOUSANDS OF DOLLARS)
Receivable from Clintondale, net........................... $ 899 $ 399
Security deposits on aircraft leases....................... 3,543 1,996
Prepaid rent............................................... 3,996 --
Other...................................................... 2,413 613
------- ------
Total............................................ $10,851 $3,008
======= ======
During 2000, other assets included investments in and advances to
affiliates, including a 50% ownership interest in Clintondale Aviation, Inc.
("Clintondale"), a New York corporation that operates helicopters and fixed-wing
aircraft primarily in Kazakhstan. PHI also leased four aircraft to Clintondale.
In December 2000, the Company initiated discussions to exit its ownership
interest in Clintondale. In conjunction with the plan, the Company recorded an
impairment charge of $1.7 million to its investment in and advances to
Clintondale.
In June 2001, the Company continued its exit plan and executed an agreement
for the sale of its 50% equity interest and related assets in Clintondale. The
Company received a promissory note for $3.1 million from Clintondale in exchange
for the previously leased four aircraft, certain amounts receivable from
Clintondale, and the Company's 50% equity interest in Clintondale. The
promissory note is secured by a lien on the four aircraft and was recorded at
its estimated net realizable value of $1.8 million based on the fair value of
the collateral aircraft. No gain or loss was recognized during 2001 related to
this exchange as the impairment charge recorded during December 2000 was based
on the estimated fair value of the collateral aircraft.
As a result of the tragic events that occurred on September 11, 2001, the
Company reassessed Clintondale's financial ability to repay the note receivable
based on their reduced operations in Kazakhstan and therefore recorded an
additional provision of $0.6 million in the third quarter of 2001 against
amounts receivable from Clintondale.
During 2001, the Company funded $4.0 million toward the construction cost
of a new principal operating facility leased by the Company. The amounts funded
by PHI will amortize over 10 years at 7% per annum and the resulting monthly
amortization amounts will reduce PHI's monthly lease payments for the first 10
years of the lease.
(8) FINANCIAL INSTRUMENTS
Fair Value -- The following table presents the carrying amounts and
estimated fair values of financial instruments held by the Company at December
31, 2001 and December 2000. The table excludes cash and cash equivalents,
accounts receivable, accounts payable, and accrued liabilities, all of which had
fair values approximating carrying amounts.
DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
Long-term debt and capital lease obligations.... $66,616 $66,616 $74,819 $74,819
Interest rate swaps asset (liability)........... (2,030) (2,030) -- 38
F-21
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of long-term debt and capital lease obligations also
approximates its carrying amount. The fair value of the interest rate swaps is
an estimate based on quotes from counterparties and approximates the amount that
the Company would receive (pay) to cancel the contracts on the reporting date.
Effective January 1, 2001, the Company began accounting for its interest rate
swaps in accordance with SFAS No. 133, as amended, and has recorded the fair
market value of the swap in other long-term liabilities on the balance sheet at
December 31, 2001. See Note 4.
(9) COMMITMENTS AND CONTINGENCIES
Operating Leases --The Company leases certain aircraft, facilities, and
equipment used in its operations. The related lease agreements, which include
both non-cancelable and month-to-month terms, generally provide for fixed
monthly rentals and, for certain real estate leases, renewal options. The
Company generally pays all insurance, taxes, and maintenance expenses associated
with these aircraft and some of these leases contain renewal and purchase
options. Rental expense incurred under these leases consisted of the following:
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Aircraft............................ $16,994 $15,773 $ 8,902 $14,522
Other............................... 2,977 2,548 1,383 2,064
------- ------- ------- -------
Total..................... $19,971 $18,321 $10,285 $16,586
======= ======= ======= =======
The Company began leasing a new principal operating facility for twenty
years, effective September 2001. Under the terms of the new facility lease, PHI
funded $4.0 million of construction costs, which will amortize over 10 years at
7% per annum and the resulting monthly amortization amounts will reduce PHI's
monthly lease payments for the first 10 years of the lease. The lease expires in
2021 and has three five-year renewal options.
The following table presents the remaining aggregate lease commitments
under operating leases having initial non-cancelable terms in excess of one
year. The table includes renewal periods on the principal operation facility
lease.
AIRCRAFT OTHER
---------- ---------
(THOUSANDS OF DOLLARS)
2002........................................................ $14,974 $1,312
2003........................................................ 14,005 1,013
2004........................................................ 13,715 875
2005........................................................ 12,783 706
2006........................................................ 11,445 488
Thereafter.................................................. 22,043 9,430
------- -------
$88,965 $13,824
======= =======
Environmental Matters -- The Company has an aggregate estimated liability
of $1.8 million as of December 31, 2001 for environmental remediation costs that
are probable and estimable. In the fourth quarter of 2001, the Company reduced
its recorded estimated liability by $1.2 million as the result of a
comprehensive re-evaluation of environmental exposure at all of its operating
sites and lowered remediation cost estimates primarily at its Morgan City,
Louisiana facility. The Company has conducted environmental
F-22
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
surveys of the Lafayette facility which it recently vacated, and, has determined
that contamination exists at that facility. To date, borings have been installed
to determine the type and extent of contamination. Preliminary results indicate
limited soil and groundwater impacts. Once the extent and type of contamination
are fully defined, a risk evaluation in accordance with the Louisiana Risk
Evaluation/ Corrective Action Plan ("RECAP") standard will be submitted and
evaluated by Louisiana Department of Environmental Quality ("LDEQ"). At that
point, LDEQ will establish what cleanup standards must be met at the site. When
the process is complete, the Company will be in a position to develop the
appropriate remediation plan and the resulting cost of remediation. However the
Company has not recorded any estimated liability for remediation of
contamination and, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs for the Lafayette facility will
not be material.
To date, the Company has expended $0.1 million on conducting facility
environmental surveys and expects to spend an additional $0.1 million performing
follow-up work in 2002.
Legal Matters -- The Company is named as a defendant in various legal
actions that have arisen in the ordinary course of its business and have not
been finally adjudicated. The amount, if any, of ultimate liability with respect
to such matters cannot be determined. In the opinion of management, the amount
of the ultimate liability with respect to these actions will not have a material
adverse effect on results of operations, cash flow or financial position of the
Company.
Purchase Commitments -- At December 31, 2001, the Company had no
outstanding purchase commitments.
(10) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
PHI is primarily a provider of helicopter services, including helicopter
maintenance and repair services. The Company has used a combination of factors
to identify its reportable segments as required by Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). The overriding determination of the Company's
segments is based on how the chief operating decision-maker of the Company
evaluates the Company's results of operations. The underlying factors include
customer bases, types of service, operational management, physical locations,
and underlying economic characteristics of the types of work the Company
performs. The Company identifies four segments that meet the requirements of
SFAS 131 for disclosure. The reportable segments are Domestic Oil and Gas,
International, Aeromedical, and Technical Services.
The Domestic Oil and Gas segment provides helicopter services to oil and
gas customers operating in the Gulf of Mexico. Prior to 2001, the Domestic Oil
and Gas segment also provided helicopter services to certain domestic
governmental agencies involved with forest-fire fighting activities. The
International segment provides helicopters in various foreign countries to oil
and gas customers, including national oil companies, and certain US and foreign
governmental agencies. The Aeromedical segment provides helicopter services to
hospitals and medical programs in several U.S. states. The Company's AirEvac
subsidiary is included in the Aeromedical segment. The Technical Services
segment provides helicopter repair and overhaul services for a variety of
helicopter owners and operators. The Company has taken steps to curtail its
Technical Services Segment.
The following tables show information about the profit or loss and assets
of each of the Company's reportable segments for the years ended December 31,
2001, 2000, the eight months ended December 31, 1999, and the year ended April
30, 1999. The information contains certain allocations, including allocations of
depreciation, rents, insurance, interest, and overhead expenses that the Company
deems reasonable and appropriate for the evaluation of results of operations.
The Company does not allocate gains on dispositions of property and equipment,
equity in losses of unconsolidated subsidiaries, other income, and corporate
F-23
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
selling, general, and administrative costs to the segments. Where applicable,
the tables present the unallocated amounts to reconcile the totals to the
Company's consolidated financial statements. Segment assets are determined by
where they are situated at period-end. Corporate assets are principally cash and
cash equivalents, short-term investments, other current assets, and certain
property, plant, and equipment.
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Operating revenues:
Domestic Oil and Gas................... $185,606 $149,062 $ 91,004 $159,335
International.......................... 22,634 21,703 14,676 24,112
Aeromedical............................ 47,493 44,282 30,249 46,838
Technical Services..................... 21,319 17,027 10,451 17,054
-------- -------- -------- --------
Total.......................... $277,052 $232,074 $146,380 $247,339
======== ======== ======== ========
Operating profit(1):
Domestic Oil and Gas................... $ 24,661 $ (2,201) $ (2,285) $ 12,678
International.......................... 115 (714) 1,120 (3,983)
Aeromedical............................ 308 (1,454) (488) 2,864
Technical Services..................... 3,490 (550) 1,533 2,661
-------- -------- -------- --------
Net Segment operating profit
(loss)....................... 28,574 (4,919) (120) 14,220
Unallocated costs........................ (13,894) (16,123) (9,739) (12,729)
Other, net (2)........................... 2,812 3,247 5,909 3,543
-------- -------- -------- --------
Earnings (loss) before taxes............. $ 17,492 $(17,795) $ (3,950) $ 5,034
======== ======== ======== ========
Expenditures for long-lived Assets
Domestic Oil and Gas................... $ 24,201 $ 21,879 $ 7,725 $ 38,214
International.......................... 2,067 5,291 5 2,172
Aeromedical............................ 2,373 621 1,368 203
Technical Services..................... 462 190 246 135
Corporate.............................. 399 198 703 1,547
-------- -------- -------- --------
Total.......................... $ 29,502 $ 28,179 $ 10,047 $ 42,271
======== ======== ======== ========
Depreciation and Amortization
Domestic Oil and Gas................... $ 9,825 $ 8,537 $ 6,077 $ 10,547
International.......................... 1,250 1,262 1,117 1,801
Aeromedical............................ 2,487 2,483 1,505 2,806
Technical Services..................... 331 246 151 154
Corporate.............................. 1,189 1,185 805 885
-------- -------- -------- --------
Total.......................... $ 15,082 $ 13,713 $ 9,655 $ 16,193
======== ======== ======== ========
F-24
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Interest Expense
Domestic Oil and Gas...................... $ 4,398 $ 3,703 $ 2,565 $ 3,825
International............................. 597 603 524 697
Aeromedical............................... 1,195 1,299 821 1,266
Technical Services........................ -- -- -- --
Corporate................................. -- 208 68 229
-------- -------- -------- --------
Total............................. $ 6,190 $ 5,813 $ 3,978 $ 6,017
======== ======== ======== ========
Assets
Domestic Oil and Gas...................... $148,616 $151,820 $160,778 $155,478
International............................. 19,912 27,281 20,627 28,795
Aeromedical............................... 23,328 24,274 25,541 30,113
Technical Services........................ 13,704 12,443 10,475 10,188
Corporate................................. 20,085 6,937 5,635 7,001
-------- -------- -------- --------
Total............................. $225,645 $222,755 $223,056 $231,575
======== ======== ======== ========
---------------
(1) Includes special charges as discussed in Note 2 -- Special Charges of the
Consolidated Financial Statements
(2) Includes gains on disposition of property and equipment, equity in losses of
unconsolidated subsidiaries, and other income.
The following table presents the Company's revenues from external customers
attributed to operations in the United States and foreign areas and long-lived
assets in the United States and foreign areas.
EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
2001 2000 1999 1999
------------ ------------ ------------ ----------
(THOUSANDS OF DOLLARS)
Operating revenues:
United States............................. $254,418 $210,371 $131,704 $223,227
Foreign................................... 22,634 21,703 14,676 24,112
-------- -------- -------- --------
Total............................. $277,052 $232,074 $146,380 $247,339
======== ======== ======== ========
Long-lived assets:
United States............................. $105,703 $110,615 $121,583 $128,541
Foreign................................... 16,465 21,241 13,464 16,019
-------- -------- -------- --------
Total............................. $122,168 $131,856 $135,047 $144,560
======== ======== ======== ========
F-25
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
The summarized quarterly results of operations for the years ended December
31, 2001 and December 31, 2000, (in thousands of dollars, except per share data)
are as follows:
QUARTER ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2001 2001 2001 2001
--------- -------- ------------- ------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Operating revenues..................... $63,259 $68,534 $73,613 $71,646
Gross profit........................... 4,443 9,744 13,128 11,584
Net earnings........................... 46 2,760 4,758 3,456(1)
Net earnings per share
Basic................................ 0.01 0.53 0.92 0.66(1)
Diluted.............................. 0.01 0.52 0.90 0.65(1)
Operating revenues..................... $52,659 $55,105 $60,894 $63,416
Gross profit........................... 3,145 2,600 5,170 (4,408)
Net earnings (loss).................... (1,428) (326) (1,011) (9,529)(2)
Net earnings (loss) per share
Basic................................ (0.28) (0.06) (0.20) (1.85)(2)
Diluted.............................. (0.28) (0.06) (0.20) (1.85)(2)
---------------
(1) Includes the effect of (a) $1.3 million ($0.8 million after tax or $0.15 per
diluted share) of compensation expense recorded for a discretionary bonus
accrued for certain non-executive employees; (b) $0.8 million ($0.5 million
after tax or $0.09 per diluted share) of other income, recorded for the
reimbursement received from the United States Department of Transportation
under the Air Safety and System Stabilization Act; and (c) $1.2 million
($0.7 million after tax or $0.14 per diluted share) expense reduction for
lowered estimated environmental remediation costs.
(2) Includes the effect of $3.6 million ($2.5 million after tax or $0.48 per
diluted share) of special charges recognized in the fourth quarter ended
December 31, 2000. Also includes a charge of $4.3 million ($3.0 million
after tax or $0.58 per diluted share) for a write-down of inventory.
F-26
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On April 17, 2002, the Company entered into a debt offering, which provides
for $200.0 million of 9 3/8% Senior Notes due 2009 ("Senior Notes"). The Senior
Notes will be fully and unconditionally guaranteed on a senior basis, jointly
and severally, by all of the Company's existing operating subsidiaries
("Guarantor Subsidiaries").
The following supplemental condensed financial information sets forth, on a
consolidating basis, the balance sheet, statement of operations, and statement
of cash flows information for Petroleum Helicopters, Inc. ("Parent Company
Only") and the Guarantor Subsidiaries. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances, and intercompany
revenues and expenses.
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
--------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
(Thousands of dollars)
------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents................. $ 5,422 $ 13 $ -- $ 5,435
Accounts receivable -- net of allowance... 42,844 4,166 -- 47,010
Inventory................................. 34,382 -- -- 34,382
Other current assets...................... 5,764 35 -- 5,799
-------- ------- ------- --------
Total current assets................. 88,412 4,214 -- 92,626
Investment in subsidiaries and other........ 16,138 4,635 (9,922) 10,851
Property and equipment, net................. 118,401 3,767 -- 122,168
-------- ------- ------- --------
Total Assets...................... $222,951 $12,616 $(9,922) $225,645
======== ======= ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities............................ $ 25,986 $ 4,193 $(1,932) $ 28,247
Accrued vacation payable.................. 6,777 243 -- 7,020
Income taxes payable...................... 2,428 -- -- 2,428
Current maturities of long-term debt and
capital lease obligations.............. 7,944 -- -- 7,944
-------- ------- ------- --------
Total current liabilities............ 43,135 4,436 (1,932) 45,639
Long-term debt and capital lease
obligations, net of current maturities.... 58,672 -- -- 58,672
Deferred income taxes and other long-term
liabilities............................... 29,272 -- 190 29,462
Shareholders' Equity:
Paid-in capital........................... 13,853 4,403 (4,403) 13,853
Accumulated other comprehensive income
(loss)................................. (2,030) -- -- (2,030)
Retained earnings......................... 80,049 3,777 (3,777) 80,049
-------- ------- ------- --------
Total shareholders' equity............. 91,872 8,180 (8,180) 91,872
-------- ------- ------- --------
Total Liabilities and
Shareholders' Equity............ $222,951 $12,616 $(9,922) $225,645
======== ======= ======= ========
F-27
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
--------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
(Thousands of dollars)
------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents................. $ 844 $ 19 $ -- $ 863
Accounts receivable -- net of allowance... 38,601 4,288 -- 42,889
Inventory................................. 35,175 -- -- 35,175
Other current assets...................... 5,093 19 -- 5,112
Refundable income taxes................... 3,852 -- -- 3,852
-------- ------- ------- --------
Total current assets................. 83,565 4,326 -- 87,891
Investment in subsidiaries and other........ 7,237 4,433 (8,662) 3,008
Property and equipment, net................. 127,736 4,120 -- 131,856
-------- ------- ------- --------
Total Assets...................... $218,538 $12,879 $(8,662) $222,755
======== ======= ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities............................ $ 30,751 $ 1,322 $(2,026) $ 30,047
Accrued vacation payable.................. 6,322 231 -- 6,553
Current maturities of long-term debt and
capital lease obligations.............. 8,744 1,000 -- 9,744
-------- ------- ------- --------
Total current liabilities............ 45,817 2,553 (2,026) 46,344
Long-term debt and capital lease
obligations, net of current maturities.... 61,575 3,500 -- 65,075
Deferred income taxes and other long-term
liabilities............................... 29,524 -- 190 29,714
Shareholders' Equity:
Paid-in capital........................... 12,561 4,403 (4,403) 12,561
Retained earnings......................... 69,061 2,423 (2,423) 69,061
-------- ------- ------- --------
Total shareholders' equity............. 81,622 6,826 (6,826) 81,622
-------- ------- ------- --------
Total Liabilities and
Shareholders' Equity............ $218,538 $12,879 $(8,662) $222,755
======== ======= ======= ========
F-28
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
(Thousands of dollars)
------------------------------------------------------------------------------------------------------
Operating revenues.......................... $231,934 $45,118 $ -- $277,052
Management fees............................. 5,195 -- (5,195) --
Gain on dispositions of property and
equipment................................. 1,351 -- -- 1,351
Other....................................... 1,417 44 -- 1,461
-------- ------- ------- --------
239,897 45,162 (5,195) 279,864
Expenses:
Direct expenses........................... 202,143 36,010 -- 238,153
Management fees........................... -- 5,195 (5,195) --
Selling, general and administrative....... 16,434 1,595 -- 18,029
Equity in net (income) of consolidated
subsidiaries........................... (1,354) -- 1,354 --
Interest expense.......................... 5,951 239 -- 6,190
-------- ------- ------- --------
223,174 43,039 (3,841) 262,372
-------- ------- ------- --------
Earnings (loss) before income taxes......... 16,723 2,123 (1,354) 17,492
Income taxes................................ 5,703 769 -- 6,472
-------- ------- ------- --------
Net earnings (loss)......................... $ 11,020 $ 1,354 $(1,354) $ 11,020
======== ======= ======= ========
FOR THE YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------
Operating revenues.......................... $193,931 $38,143 $ -- $232,074
Management fees............................. 4,424 -- (4,424) --
Gain on dispositions of property and
equipment................................. 2,825 1,138 -- 3,963
-------- ------- ------- --------
201,180 39,281 (4,424) 236,037
Expenses:
Direct expenses........................... 195,382 30,185 -- 225,567
Management fees........................... -- 4,424 (4,424) --
Selling, general and administrative....... 16,627 1,538 -- 18,165
Equity in net loss of unconsolidated
subsidiaries........................... 716 -- -- 716
Equity in net (income) of consolidated
subsidiaries........................... (1,850) -- 1,850 --
Special charges........................... 3,571 -- -- 3,571
Interest expense.......................... 5,226 587 -- 5,813
-------- ------- ------- --------
219,672 36,734 (2,574) 253,832
-------- ------- ------- --------
Earnings (loss) before income taxes......... (18,492) 2,547 (1,850) (17,795)
Income taxes................................ (6,198) 697 -- (5,501)
-------- ------- ------- --------
Net earnings (loss)......................... $(12,294) $ 1,850 $(1,850) $(12,294)
======== ======= ======= ========
F-29
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1999
--------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
(Thousands of dollars)
------------------------------------------------------------------------------------------------------
Operating revenues.......................... $121,787 $24,593 $ -- $146,380
Management fees............................. 2,974 -- (2,974) --
Gain on dispositions of property and
equipment................................. 6,595 -- -- 6,595
-------- ------- ------- --------
131,356 24,593 (2,974) 152,975
Expenses:
Direct expenses........................... 119,687 20,215 -- 139,902
Management fees........................... -- 2,974 (2,974) --
Selling, general and administrative....... 10,964 1,395 -- 12,359
Equity in net loss of unconsolidated
subsidiaries........................... 686 -- -- 686
Equity in net loss of consolidated
subsidiaries........................... 269 -- (269) --
Interest expense.......................... 3,518 460 -- 3,978
-------- ------- ------- --------
135,124 25,044 (3,243) 156,925
-------- ------- ------- --------
Earnings (loss) before income taxes......... (3,768) (451) 269 (3,950)
Income taxes................................ (1,069) (182) -- (1,251)
-------- ------- ------- --------
Net earnings (loss)......................... $ (2,699) $ (269) $ 269 $ (2,699)
======== ======= ======= ========
FOR THE YEAR ENDED APRIL 30, 1999
--------------------------------------------------------
Operating revenues.......................... $212,104 $35,235 $ -- $247,339
Management fees............................. 1,913 -- (1,913) --
Gain on dispositions of property and
equipment................................. 3,583 -- -- 3,583
-------- ------- ------- --------
217,600 35,235 (1,913) 250,922
Expenses:
Direct expenses........................... 183,863 30,653 -- 214,516
Management fees........................... -- 1,913 (1,913) --
Selling, general and administrative....... 14,716 3,301 -- 18,017
Equity in net loss of unconsolidated
subsidiaries........................... 40 -- -- 40
Equity in net loss of consolidated
subsidiaries........................... 815 -- (815) --
Special charges........................... 7,298 -- -- 7,298
Interest expense.......................... 5,336 681 -- 6,017
-------- ------- ------- --------
212,068 36,548 (2,728) 245,888
-------- ------- ------- --------
Earnings (loss) before income taxes......... 5,532 (1,313) 815 5,034
Income taxes................................ 2,544 (498) -- 2,046
-------- ------- ------- --------
Net earnings (loss)......................... $ 2,988 $ (815) $ 815 $ 2,988
======== ======= ======= ========
F-30
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
(Thousands of dollars)
------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities................................ $ 18,178 $ 502 $ -- $ 18,680
Cash flows from investing activities:
Purchase of property and equipment........ (29,494) (8) -- (29,502)
Proceeds from asset dispositions.......... 24,304 -- -- 24,304
Other..................................... 350 -- -- 350
-------- ------- ------ --------
Net cash provided by (used in) investing
activities............................. (4,840) (8) -- (4,848)
-------- ------- ------ --------
Cash flows from financing activities:
Proceeds from long-term debt.............. 2,851 -- -- 2,851
Payments on long-term debt................ (12,350) (500) -- (12,850)
Other..................................... 739 -- -- 739
-------- ------- ------ --------
Net cash provided by (used in) financing
activities............................. (8,760) (500) -- (9,260)
-------- ------- ------ --------
Increase (decrease) in cash and cash
equivalents............................... 4,578 (6) -- 4,572
Cash and cash equivalents, beginning of
year...................................... 844 19 -- 863
-------- ------- ------ --------
Cash and cash equivalents, end of year...... $ 5,422 $ 13 $ -- $ 5,435
======== ======= ====== ========
FOR THE YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------
Net cash provided by (used in) operating
activities................................ $ 8,853 $ 498 $ -- $ 9,351
Cash flows from investing activities:
Purchase of property and equipment........ (27,903) (276) -- (28,179)
Proceeds from asset dispositions.......... 19,394 4,748 -- 24,142
Other..................................... (974) -- -- (974)
-------- ------- ------ --------
Net cash provided by (used in) investing
activities............................. (9,483) 4,472 -- (5,011)
-------- ------- ------ --------
Cash flows from financing activities:
Proceeds from long-term debt.............. 23,500 -- -- 23,500
Payments on long-term debt................ (23,676) (4,964) -- (28,640)
-------- ------- ------ --------
Net cash provided by (used in) financing
activities............................. (176) (4,964) -- (5,140)
-------- ------- ------ --------
Increase (decrease) in cash and cash
equivalents............................... (806) 6 -- (800)
Cash and cash equivalents, beginning of
year...................................... 1,650 13 -- 1,663
-------- ------- ------ --------
Cash and cash equivalents, end of year...... $ 844 $ 19 $ -- $ 863
======== ======= ====== ========
F-31
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1999
--------------------------------------------------------
PARENT
COMPANY GUARANTOR
ONLY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
(Thousands of dollars)
------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities................................ $ (4,653) $ 838 $ -- $ (3,815)
Cash flows from investing activities:
Purchase of property and equipment........ (9,877) (170) -- (10,047)
Proceeds from asset dispositions.......... 16,254 -- -- 16,254
Other..................................... (580) -- -- (580)
-------- ------- ------ --------
Net cash provided by (used in) investing
activities............................. 5,797 (170) -- 5,627
-------- ------- ------ --------
Cash flows from financing activities:
Proceeds from long-term debt.............. 9,000 3,000 -- 12,000
Payments on long-term debt................ (10,987) (3,669) -- (14,656)
Other..................................... (518) -- -- (518)
-------- ------- ------ --------
Net cash provided by (used in) financing
activities............................. (2,505) (669) -- (3,174)
-------- ------- ------ --------
Decrease in cash and cash equivalents....... (1,361) (1) -- (1,362)
Cash and cash equivalents, beginning of
year...................................... 3,012 13 -- 3,025
-------- ------- ------ --------
Cash and cash equivalents, end of year...... $ 1,651 $ 12 $ -- $ 1,663
======== ======= ====== ========
FOR THE YEAR ENDED APRIL 30, 1999
--------------------------------------------------------
Net cash provided by (used in) operating
activities................................ $ 21,824 $(5,329) $ -- $ 16,495
Cash flows from investing activities:
Purchase of property and equipment........ (42,101) (170) -- (42,271)
Proceeds from asset dispositions.......... 19,881 -- -- 19,881
Other..................................... (424) -- -- (424)
-------- ------- ------ --------
Net cash provided by (used in) investing
activities............................. (22,644) (170) -- (22,814)
-------- ------- ------ --------
Cash flows from financing activities:
Proceeds from long-term debt.............. 25,893 4,107 -- 30,000
Payments on long-term debt................ (22,324) -- -- (22,324)
Other..................................... (1,065) (20) -- (1,085)
-------- ------- ------ --------
Net cash provided by (used in) financing
activities............................. 2,504 4,087 -- 6,591
-------- ------- ------ --------
Increase (decrease) in cash and cash
equivalents............................... 1,684 (1,412) -- 272
Cash and cash equivalents, beginning of
year...................................... 1,329 1,424 -- 2,753
-------- ------- ------ --------
Cash and cash equivalents, end of year...... $ 3,013 $ 12 $ -- $ 3,025
======== ======= ====== ========
F-32
PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE -----------------------
AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
(IN THOUSANDS) OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
--------------------------------------------------------------------------------------------------------
Year ended December 31, 2001:
Allowance for doubtful accounts........ $2,156 $ 107 $ -- $1,819 $ 444
Allowance for obsolescent inventory.... 3,721 978 -- 359 4,340
Year ended December 31, 2000:
Allowance for doubtful accounts........ $ 794 $1,681 $ -- $ 319 $2,156
Allowance for obsolescent inventory.... 2,208 3,005 -- 1,492 3,721
Eight months ended December 31, 1999:
Allowance for doubtful accounts........ $1,684 $ 110 $ -- $1,000 $ 794
Allowance for obsolescent inventory.... 2,169 527 -- 488 2,208
Year ended April 30, 1999:
Allowance for doubtful accounts........ $1,962 $ 182 $ -- $ 460 $1,684
Allowance for obsolescent inventory.... 1,889 280 -- -- 2,169
S-1
ANNEX A
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
9 3/8% SERIES A SENIOR NOTES DUE 2009
OF
PETROLEUM HELICOPTERS, INC.
PURSUANT TO THE PROSPECTUS DATED , 2002
THIS OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 2002
UNLESS EXTENDED BY PETROLEUM HELICOPTERS, INC. IN ITS SOLE DISCRETION (THE
"EXPIRATION DATE"). TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Mail: By Facsimile: By Hand:
The Bank of New York (212) The Bank of New York
15 Broad Street Attention: Reorganization Unit 15 Broad Street
16th Floor Confirm by Telephone: 16th Floor
New York, NY 10007 (212) New York, NY 10007
Attention: Reorganization Unit Attention: Reorganization Unit Attention: Reorganization Unit
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN
AS LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE SERIES B NOTES PURSUANT TO THE
EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR SERIES A NOTES TO
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
This Letter of Transmittal is to be used by holders ("Holders") of 9 3/8%
Series A Senior Notes due 2009 (the "Series A Notes") of Petroleum Helicopters,
Inc. (the "Issuer") to receive 9 3/8% Series B Senior Notes due 2009 (the
"Series B Notes") if: (i) certificates representing Series A Notes are to be
physically delivered to the Exchange Agent herewith by such Holders; (ii) tender
of Series A Notes is to be made by book-entry transfer to the Exchange Agent's
account at The Depository Trust Company ("DTC") pursuant to the procedures set
forth under the caption "The Exchange Offer -- Procedures for Tendering Series A
Notes -- Book-entry delivery procedures" in the Prospectus dated ,
2002 (the "Prospectus"); or (iii) tender of Series A Notes is to be made
according to the guaranteed delivery procedures set forth under the caption "The
Exchange Offer -- Procedures for Tendering Series A Notes -- Guaranteed
delivery" in the Prospectus, and, in each case, instructions are not being
transmitted through the DTC Automated Tender Offer Program ("ATOP"). The
undersigned hereby acknowledges receipt of the Prospectus. All capitalized terms
used herein and not defined shall have the meanings ascribed to them in the
Prospectus.
Holders of Series A Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through ATOP, for which
the transaction will be eligible. DTC participants that are accepting the
exchange offer as set forth in the Prospectus and this Letter of Transmittal
(together, the "Exchange Offer") must transmit their acceptance to DTC which
will edit and verify the acceptance and execute a book-entry delivery to the
Exchange Agent's account at DTC. DTC will then send an Agent's Message to the
Exchange Agent for its acceptance. Delivery of the Agent's Message by DTC will
satisfy the terms of the Offer as to execution and delivery of a Letter of
Transmittal
A-1
by the participant identified in the Agent's Message. DTC participants may also
accept the Exchange Offer by submitting a notice of guaranteed delivery through
ATOP.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If a Holder desires to tender Series A Notes pursuant to the Exchange Offer
and time will not permit this Letter of Transmittal, certificates representing
such Series A Notes and all other required documents to reach the Exchange
Agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, then such Holder must tender such Series A Notes
according to the guaranteed delivery procedures set forth under the caption "The
exchange offer -- Procedures for tendering Series A notes -- Guaranteed
delivery" in the Prospectus. See Instruction 2.
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
TENDER OF SERIES A NOTES
----------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SERIES A NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution: ----------------------------------------
Account Number: -------------------------------------------------------
Transaction Code Number: ----------------------------------------------
----------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): --------------------------------------
Window Ticker Number (if any): ----------------------------------------
Date of Execution of Notice of Guaranteed Delivery: -------------------
Name of Eligible Institution that Guaranteed Delivery: ----------------
----------------------------------------------------------------------------------
A-2
List below the Series A Notes to which this Letter of Transmittal relates.
The name(s) and address(es) of the registered Holder(s) should be printed, if
not already printed below, exactly as they appear on the Series A Notes tendered
hereby. The Series A Notes and the principal amount of Series A Notes that the
undersigned wishes to tender would be indicated in the appropriate boxes. If the
space provided is inadequate, list the certificate number(s) and principal
amount(s) on a separately executed schedule and affix the schedule to this
Letter of Transmittal.
---------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SERIES A NOTES
---------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND
ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE TOTAL PRINCIPAL
FILL IN IF BLANK) CERTIFICATE AGGREGATE PRINCIPAL PRINCIPAL AMOUNT AMOUNT OF
SEE INSTRUCTION 3. NUMBER(S)* AMOUNT REPRESENTED** TENDERED** SERIES A NOTES
---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise specified, the entire aggregate principal amount represented by the Series A Notes described above
will be deemed to be tendered. See Instruction 4.
---------------------------------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Petroleum Helicopters, Inc. (the
"Issuer"), upon the terms and subject to the conditions set forth in its
Prospectus dated , 2002 (the "Prospectus"), receipt of which is hereby
acknowledged, and in accordance with this Letter of Transmittal (which together
constitute the "Exchange Offer"), the principal amount of Series A Notes
indicated in the foregoing table entitled "Description of Series A Notes" under
the column heading "Principal Amount Tendered." The undersigned represents that
it is duly authorized to tender all of the Series A Notes tendered hereby which
it holds for the account of beneficial owners of such Series A Notes
("Beneficial Owner(s)") and to make the representations and statements set forth
herein on behalf of such Beneficial Owner(s).
Subject to, and effective upon, the acceptance for purchase of the
principal amount of Series A Notes tendered herewith in accordance with the
terms and subject to the conditions of the Exchange Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Issuer, all
right, title and interest in and to all of the Series A Notes tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Issuer) with
respect to such Series A Notes, with full powers of substitution and revocation
(such power of attorney being deemed to be an irrevocable power coupled with an
interest) to (i) present such Series A Notes and all evidences of transfer and
authenticity to, or transfer ownership of, such Series A Notes on the account
books maintained by DTC to, or upon the order of, the Issuer, (ii) present such
Series A Notes for transfer of ownership on the books of the Issuer, and (iii)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Series A Notes, all in accordance with the terms and conditions of the
Exchange Offer as described in the Prospectus.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that:
(1) the Series B Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being
acquired by the undersigned and any Beneficial Owner(s) in the ordinary
course of business of the undersigned and any Beneficial Owner(s),
(2) the undersigned and each Beneficial Owner are not participating,
do not intend to participate, and have no arrangement or understanding with
any person to participate, in the distribution of the Series B Notes,
(3) except as indicated below, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), of the Issuer, and
(4) the undersigned and each Beneficial Owner acknowledge and agree
that (x) any person participating in the Exchange Offer with the intention
or for the purpose of distributing the Series B Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the Series B Notes acquired by such
person with a registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Securities and
Exchange Commission (the "SEC") and cannot rely on the interpretation of
the Staff of the SEC set forth in the no-action letters that are noted in
the section of the Prospectus entitled "The exchange offer -- Registration
rights" and (y) any broker-dealer that pursuant to the Exchange Offer
receives Series B Notes for its own account in exchange for Series A Notes
which it acquired for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of
such Series B Notes.
If the undersigned is a broker-dealer that will receive Series B Notes for
its own account in exchange for Series A Notes that were acquired as the result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Series B Notes.
By so acknowledging and by delivering a prospectus, a broker-dealer shall not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
The undersigned understands that tenders of Series A Notes may be withdrawn
by written notice of withdrawal received by the Exchange Agent at any time prior
to the Expiration Date in accordance with the Prospectus. In the event of a
termination of the Exchange Offer, the Series A Notes tendered pursuant to the
Exchange Offer will be returned to the tendering Holders promptly (or, in the
case of Series A Notes tendered by book-entry transfer, such Series A Notes will
be credited to the account maintained at DTC from which such Series A Notes were
delivered). If the Issuer makes a material change in the terms of the Exchange
Offer or the information concerning the Exchange Offer or waives a material
condition of such Exchange Offer, the Issuer will disseminate additional
Exchange Offer materials and extend such Exchange Offer, if and to the extent
required by law.
The undersigned understands that the tender of Series A Notes pursuant to
any of the procedures set forth in the Prospectus and in the instructions hereto
will constitute the undersigned's acceptance of the terms and conditions of the
Exchange Offer. The Issuer's acceptance for exchange of Series A Notes tendered
pursuant to any of the procedures described in the Prospectus will constitute a
binding agreement between the undersigned and the Issuer in accordance with the
terms and subject to the conditions of the Exchange Offer. For purposes of the
Exchange Offer, the undersigned understands that validly tendered Series A Notes
(or defectively tendered Series A Notes with respect to which the Issuer has, or
has caused to be, waived such defect) will be deemed to have been accepted by
the Issuer if, as and when the Issuer gives oral or written notice thereof to
the Exchange Agent.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Series A Notes
tendered hereby, and that when such tendered Series A Notes are accepted for
purchase by the Issuer, the Issuer will acquire good title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim or right. The
undersigned and each Beneficial Owner will, upon request, execute and deliver
any additional documents deemed by the Exchange Agent or by the Issuer to be
necessary or desirable to complete the sale, assignment and transfer of the
Series A Notes tendered hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive the death or incapacity
of the undersigned and any Beneficial Owner(s), and any obligation of the
undersigned or any Beneficial Owner(s) hereunder shall be binding upon the
heirs, executors, administrators, trustees in bankruptcy, personal and legal
representatives, successors and assigns of the undersigned and such Beneficial
Owner(s).
The undersigned understands that the delivery and surrender of any Series A
Notes is not effective, and the risk of loss of the Series A Notes does not pass
to the Exchange Agent or the Issuer, until receipt by the Exchange Agent of this
Letter of Transmittal, or a manually signed facsimile hereof, properly completed
and duly executed, together with all accompanying evidences of authority and any
other required documents in form satisfactory to the Issuer. All questions as to
form of all documents and the validity (including time of receipt) and
acceptance of tenders and withdrawals of Series A Notes will be determined by
the Issuer, in their discretion, which determination shall be final and binding.
Unless otherwise indicated herein under "Special Issuance Instructions,"
the undersigned hereby requests that any Series A Notes representing principal
amounts not tendered or not accepted for exchange be issued in the name(s) of
the undersigned (and in the case of Series A Notes tendered by book-entry
transfer, by credit to the account of DTC), and Series B Notes issued in
exchange for Series A Notes pursuant to the Exchange Offer be issued to the
undersigned. Similarly, unless otherwise indicated herein under "Special
Delivery Instructions," the undersigned hereby requests that any Series A Notes
representing principal amounts not tendered or not accepted for exchange and
Series B Notes issued in exchange for Series A Notes pursuant to the Exchange
Offer be delivered to the undersigned at the address shown below the
undersigned's signature(s). In the event that the "Special Issuance
Instructions" box or the "Special Delivery Instructions" box is, or both are,
completed, the undersigned hereby requests that any Series A Notes representing
principal amounts not tendered or not accepted for purchase be issued in the
name(s) of, certificates for such Series A Notes be delivered to, and Series B
Notes issued in exchange for Series A Notes pursuant to the Exchange Offer be
issued in the name(s) of, and be delivered to, the person(s) at the address(es)
so indicated, as applicable. The undersigned recognizes that the Issuer has no
obligation pursuant to the "Special Issuance Instructions" box or "Special
Delivery Instructions" box to transfer any Series A Notes from the name of the
registered Holder(s) thereof if the Issuer does not accept for exchange any of
the principal amount of such Series A Notes so tendered.
[ ] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD SERIES A NOTES
IS AN AFFILIATE OF THE ISSUER.
[ ] CHECK HERE IF YOU OR ANY BENEFICIAL OWNER FOR WHOM YOU HOLD SERIES A NOTES
TENDERED HEREBY IS A BROKER-DEALER WHO ACQUIRED SUCH NOTES DIRECTLY FROM
THE ISSUER OR AN AFFILIATE OF THE ISSUER.
[ ] CHECK HERE AND COMPLETE THE LINES BELOW IF YOU OR ANY BENEFICIAL OWNER FOR
WHOM YOU HOLD SERIES A NOTES TENDERED HEREBY IS A BROKER-DEALER WHO
ACQUIRED SUCH NOTES IN MARKET-MAKING OR OTHER TRADING ACTIVITIES. IF THIS
BOX IS CHECKED, THE ISSUER WILL SEND 10 ADDITIONAL COPIES OF THE PROSPECTUS
AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO TO YOU OR SUCH
BENEFICIAL OWNER AT THE ADDRESS SPECIFIED IN THE FOLLOWING LINES.
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Series A Notes in a principal amount not tendered
or not accepted for exchange are to be issued in the name of, or Series B Notes
are to be issued in the name of, someone other than the person(s) whose
signature(s) appear(s) within this Letter of Transmittal or issued to an address
different from that shown in the box entitled "Description of Series A Notes"
within this Letter of Transmittal.
Issue: [ ] Series A Notes [ ] Series B Notes
(check as applicable)
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
(PLEASE PRINT)
--------------------------------------------------------------------------------
(ZIP CODE)
--------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Series A Notes in a principal amount not tendered
or not accepted for exchange or Series B Notes are to be sent to someone other
than the person(s) whose signature(s) appear(s) within this Letter of
Transmittal or to an address different from that shown in the box entitled
"Description of Series A Notes" within this Letter of Transmittal.
Issue: [ ] Series A Notes [ ] Series B Notes
(check as applicable)
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
(PLEASE PRINT)
--------------------------------------------------------------------------------
(ZIP CODE)
--------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
--------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF SERIES A NOTES
REGARDLESS OF WHETHER SERIES A NOTES ARE BEING PHYSICALLY DELIVERED
HEREWITH)
This Letter of Transmittal must be signed by the registered Holder(s)
exactly as name(s) appear(s) on certificate(s) for Series A Notes or, if
tendered by a participant in DTC exactly as such participant's name
appears on a security position listing as owner of Series A Notes, or by
the person(s) authorized to become registered Holder(s) by endorsements
and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity,
please set forth full title and see Instruction 5.
--------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
(SEE GUARANTEE REQUIREMENT BELOW)
Dated:
--------------------------------------------------------------------------
Name(s):
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (Full Title):
--------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
--------------------------------------------------------------------------
Tax Identification or Social Security Number:
----------------------------------------------------------------------
COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
--------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
--------------------------------------------------------------------------
(NAME OF FIRM)
--------------------------------------------------------------------------------
[PLACE SEAL HERE]
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Signature Guarantees. Signatures of this Letter of Transmittal must be
guaranteed by a recognized member of the Medallion Signature Guarantee Program
or by any other "eligible guarantor institution," as such term is defined in
Rule 17Ad-15 promulgated under the Exchange Act (each of the foregoing, an
"Eligible Institution"), unless the Series A Notes tendered hereby are tendered
(i) by a registered Holder of Series A Notes (or by a participant in DTC whose
name appears on a security position listing as the owner of such Series A Notes)
that has not completed either the box entitled "Special Issuance Instructions"
or the box entitled "Special Delivery Instructions" on this Letter of
Transmittal, or (ii) for the account of an Eligible Institution. If the Series A
Notes are registered in the name of a person other than the signer of this
Letter of Transmittal, if Series A Notes not accepted for exchange or not
tendered are to be returned to a person other than the registered Holder or if
Series B Notes are to be issued in the name of or sent to a person other than
the registered Holder, then the signatures on this Letter of Transmittal
accompanying the tendered Series A Notes must be guaranteed by an Eligible
Institution as described above. See Instruction 5.
2. Delivery of Letter of Transmittal and Series A Notes. This Letter of
Transmittal is to be completed by Holders if (i) certificates representing
Series A Notes are to be physically delivered to the Exchange Agent herewith by
such Holders; (ii) tender of Series A Notes is to be made by book-entry transfer
to the Exchange Agent's account at DTC pursuant to the procedures set forth
under the caption "The exchange offer -- Procedures for tendering Series A
notes -- Book-entry delivery procedures" in the Prospectus; or (iii) tender of
Series A Notes is to be made according to the guaranteed delivery procedures set
forth under the caption "The exchange offer -- Procedures for tendering Series A
notes -- Guaranteed delivery" in the Prospectus. All physically delivered Series
A Notes, or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of all Series A Notes delivered electronically, as well as a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof), any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at one of its addresses set forth on the cover page hereto on or prior to the
Expiration Date, or the tendering Holder must comply with the guaranteed
delivery procedures set forth below. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
If a Holder desires to tender Series A Notes pursuant to the Exchange Offer
and time will not permit this Letter of Transmittal, certificates representing
such Series A Notes and all other required documents to reach the Exchange
Agent, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, such Holder must tender such Series A Notes
pursuant to the guaranteed delivery procedures set forth under the caption "The
exchange offer -- Procedures for tendering Series A notes -- Guaranteed
delivery" in the Prospectus. Pursuant to such procedures, (i) such tender must
be made by or through an Eligible Institution; (ii) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form provided
by the Issuer, or an Agent's Message with respect to guaranteed delivery that is
accepted by the Issuer, must be received by the Exchange Agent, either by hand
delivery, mail, telegram, or facsimile transmission, on or prior to the
Expiration Date; and (iii) the certificates for all tendered Series A Notes, in
proper form for transfer (or confirmation of a book- entry transfer or all
Series A Notes delivered electronically into the Exchange Agent's account at DTC
pursuant to the procedures for such transfer set forth in the Prospectus),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any other documents required by this
Letter of Transmittal, or in the case of a book-entry transfer, a properly
transmitted Agent's Message, must be received by the Exchange Agent within two
business days after the date of the execution of the Notice of Guaranteed
Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE SERIES A NOTES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY
ACCEPTANCE OR AGENT'S MESSAGE DELIVERED THROUGH ATOP, IS AT THE ELECTION AND
RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS
INSTRUCTION 2, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE
PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their
Series A Notes for exchange.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the principal amount represented by Series A Notes
should be listed on separate signed schedule attached hereto.
4. Partial Tenders. (Not applicable to Holders who tender by book-entry
transfer). If Holders wish to tender less than the entire principal amount
evidenced by a Series A Note submitted, such Holders must fill in the principal
amount that is to be tendered in the column entitled "Principal Amount
Tendered." The minimum permitted tender is $1,000 in principal amount of Series
A Notes. All other tenders must be in integral multiples of $1,000 in principal
amount. In the case of a partial tender of Series A Notes, as soon as
practicable after the Expiration Date, new certificates for the remainder of the
Series A Notes that were evidenced by such Holder's old certificates will be
sent to such Holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal. The entire principal amount that is represented by Series
A Notes delivered to the Exchange Agent will be deemed to have been tendered,
unless otherwise indicated.
5. Signatures on Letter of Transmittal, Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
Holder(s) of the Series A Notes tendered hereby, the signatures must correspond
with the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever. If this Letter of Transmittal
is signed by a participant in DTC whose name is shown as the owner of the Series
A Notes tendered hereby, the signature must correspond with the name shown on
the security position listing as the owner of the Series A Notes.
If any of the Series A Notes tendered hereby are registered in the name of
two or more Holders, all such Holders must sign this Letter of Transmittal. If
any of the Series A Notes tendered hereby are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Series A Note or instrument of
transfer is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and proper evidence satisfactory to the Issuer of such person's
authority to so act must be submitted.
When this Letter of Transmittal is signed by the registered Holder(s) of
the Series A Notes listed herein and transmitted hereby, no endorsements of
Series A Notes or separate instruments of transfer are required unless Series B
Notes are to be issued, or Series A Notes not tendered or exchanged are to be
issued, to a person other than the registered Holder(s), in which case
signatures on such Series A Notes or instruments of transfer must be guaranteed
by an Eligible Institution.
IF THIS LETTER OF TRANSMITTAL IS SIGNED OTHER THAN BY THE REGISTERED
HOLDER(S) OF THE SERIES A NOTES LISTED HEREIN, THE SERIES A NOTES MUST BE
ENDORSED OR ACCOMPANIED BY APPROPRIATE INSTRUMENTS OF TRANSFER, IN EITHER CASE
SIGNED EXACTLY AS THE NAME(S) OF THE REGISTERED HOLDER(S) APPEAR ON THE SERIES A
NOTES AND SIGNATURES ON SUCH SERIES A NOTES OR INSTRUMENTS OF TRANSFER ARE
REQUIRED AND MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS THE SIGNATURE
IS THAT OF AN ELIGIBLE INSTITUTION.
6. Special Issuance and Delivery Instructions. If certificates for Series
B Notes or unexchanged or untendered Series A Notes are to be issued in the name
of a person other than the signer of this Letter of Transmittal, or if Series B
Notes or such Series A Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown herein, the
appropriate boxes on this Letter of Transmittal should be completed. All Series
A Notes tendered by book-entry transfer and not accepted for payment will be
returned by crediting the account at DTC designated herein as the account for
which such Series A Notes were delivered.
7. Transfer Taxes. Except as set forth in this Instruction 7, the Issuer
will pay or cause to be paid any transfer taxes with respect to the transfer and
sale of Series A Notes to it, or to its order, pursuant to the Exchange Offer.
If Series B Notes, or Series A Notes not tendered or exchanged are to be
registered in the name of any persons other than the registered owners, or if
tendered Series A Notes are registered in the name of any persons other than the
persons signing this Letter of Transmittal, the amount of any transfer taxes
(whether imposed on the registered Holder or such other person) payable on
account of the
transfer to such other person must be paid to the Issuer or the Exchange Agent
(unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted) before the Series B Notes will be issued.
8. Waiver of Conditions. The conditions of the Exchange Offer may be
amended or waived by the Issuer, in whole or in part, at any time and from time
to time in the Issuer's discretion, in the case of any Series A Notes tendered.
9. Substitute Form W-9. Each tendering owner of a Note (or other payee) is
required to provide the Exchange Agent with a correct taxpayer identification
number ("TIN"), generally the owner's social security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided hereafter under "Important Tax Information," and to
certify that the owner (or other payee) is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
tendering owner (or other payee) to a $50 penalty imposed by the Internal
Revenue Service and 31% federal income tax withholding. The box in Part 3 of the
Substitute Form W-9 may be checked if the tendering owner (or other payee) has
not been issued a TIN and has applied for a TIN or intends to apply for a TIN in
the near future. If the box in Part 3 is checked and the Exchange Agent is not
provided with a TIN within 60 days of the date on the Substitute Form W-9, the
Exchange Agent will withhold 31% until a TIN is provided to the Exchange Agent.
10. Broker-dealers Participating in the Exchange Offer. If no
broker-dealer checks the last box on page 7 of this Letter of Transmittal, the
Issuer has no obligation under the Registration Rights Agreement to allow the
use of the Prospectus for resales of the Series B Notes by broker-dealers or to
maintain the effectiveness of the Registration Statement of which the Prospectus
is a part after the consummation of the Exchange Offer.
11. Requests for Assistance or Additional Copies. Any questions or
requests for assistance or additional copies of the Prospectus, this Letter of
Transmittal or the Notice of Guaranteed Delivery may be directed to the Exchange
Agent at the telephone numbers and location listed above. A Holder or owner may
also contact such Holder's or owner's broker, dealer, commercial bank or trust
company or nominee for assistance concerning the Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH CERTIFICATES REPRESENTING THE SERIES A NOTES AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, an owner of Series A Notes whose tendered
Series A Notes are accepted for exchange is required to provide the Exchange
Agent with such owner's current TIN on Substitute Form W-9 below. If such owner
is an individual, the TIN is his or her social security number. If the Exchange
Agent is not provided with the correct TIN, the owner or other recipient of
Series B Notes may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, any interest on Series B Notes paid to such owner or other
recipient may be subject to 31% backup withholding tax.
Certain owners of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that owner must submit to the Exchange Agent a properly
completed Internal Revenue Service Forms W-8ECI, W-8BEN, W-8EXP or W-8IMY
(collectively, a "Form W-8"), signed under penalties of perjury, attesting to
that individual's exempt status. A Form W-8 can be obtained from the Exchange
Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional instructions.
Backup withholding is not an additional tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding the owner is required to notify the Exchange
Agent of the owner's current TIN (or the TIN of any other payee) by completing
the following form, certifying that the TIN provided on Substitute Form W-9 is
correct (or that such owner is awaiting a TIN), and that (i) the
owner is exempt from withholding, (ii) the owner has not been notified by the
Internal Revenue Service that the owner is subject to backup withholding as a
result of failure to report all interest or dividends or (iii) the Internal
Revenue Service has notified the owner that the owner is no longer subject to
backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the owner of the Series A
Notes. If the Series A Notes are registered in more than one name or are not
registered in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9," for
additional guidance on which number to report.
-----------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number(s)
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW.
or
Employer Identification Number
------------------------
-----------------------------------------------------------------------------------------------------------------------------
PART 2 -- CERTIFICATION -- Under penalties of
perjury, I certify that:
(1) The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued to me), and
DEPARTMENT OF THE (2) I am not subject to backup withholding because:
TREASURY (a) I am exempt from backup withholding, or (b)
INTERNAL REVENUE SERVICE I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to
PAYER'S REQUEST FOR backup withholding as a result of a failure to
TAXPAYER IDENTIFICATION report all interest or dividends, or (c) the
NO. ("TIN") IRS has notified me that I am no longer subject
to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out
item (2) above if you have been notified by the IRS
that you are currently subject to backup
withholding because of under-reporting interest or
dividends on your tax return.
-----------------------------------------------------------------------------------------------------------------------------
Signature ----------------------------------------
Date ---------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
PART 3 -- AWAITING TIN [ ]
-----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31%.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
--------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days of the date in this form, 31% of all reportable cash payments made to me
will be withheld until I provide a taxpayer identification number.
-----------------------------------------------------------------------------
-------------------------------- , 1998
Signature Date
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Louisiana Business Corporation Law (the "LBCL"), Section 83, gives
Louisiana corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers; subject to specific
conditions and exclusions, gives a director or officer who successfully defends
an action the right to be so indemnified; and authorizes Louisiana corporations
to buy directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-laws, agreement, authorization of shareholders or otherwise.
Our Articles of Incorporation confirm the authority of the Board of
Directors to (i) adopt by-laws or resolutions providing for indemnification of
directors, officers and other persons to the fullest extent permitted by law,
(ii) enter into contracts with directors and officers providing for
indemnification to the fullest extent permitted by law, and (iii) exercise its
powers to procure directors' and officers' liability insurance. The Articles of
Incorporation also provide that any amendment or repeal of any by-law or
resolution relating to indemnification would not adversely affect any person's
entitlement to indemnification whose claim results from conduct occurring prior
to the date of such amendment or repeal.
Our by-laws expressly provide the indemnification of directors, officers
and employees to the fullest extent permitted by law against any costs incurred
by any such person in connection with any threatened, pending or completed
claim, action, suit or proceeding against such person or as to which such person
is involved solely as a witness or person required to give evidence, because he
or she is our director, officer or employee.
We have entered into indemnification contracts with its directors that
provide for the elimination, to the fullest extent permitted by law, of any
director's liability to us or our shareholders for monetary damages for breach
of his or her fiduciary duty as a director and will provide the contracting
director with certain procedural and substantive rights to indemnification. Such
indemnification rights apply to acts or omissions of directors, whether such
acts or omissions occurred before or after the effective date of the contract.
In addition, we maintain an insurance policy designed to reimburse us for
any payments made by us pursuant to our indemnification obligations. Such policy
has coverage of $20 million.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1* Purchase Agreement dated April 17, 2002 among Petroleum
Helicopters, Inc., the Subsidiary Guarantors listed on
Schedule A thereto, UBS Warburg LLC and Deutsche Bank
Securities Inc.
4.1* Indenture dated April 23, 2002 among Petroleum Helicopters,
Inc., the Subsidiary Guarantors named therein and The Bank
of New York, as Trustee.
4.2* Form of 9 3/8% Senior Note (contained in the Indenture filed
as Exhibit 4.1).
4.3* Registration Rights Agreement dated as of April 23, 2002
between Petroleum Helicopters, Inc., the Subsidiary
Guarantors listed on Schedule A thereto, UBS Warburg LLC and
Deutsche Bank Securities Inc.
4.4 Loan Agreement dated as of April 23, 2002 by and among
Petroleum Helicopters, Inc., Acadian Composites, LLC, Air
Evac Services, Inc., Evangeline Airmotive, Inc., and
International Helicopter Transport, Inc. and Whitney
National Bank.
5.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to
the legality of the securities being offered.
12.1* Calculation of Earnings to Fixed Charges.
23.1* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
II-1
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of KPMG LLP.
24.1* Power of attorney (included on signature pages).
25.1* Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York.
---------------
* Filed herewith.
(b) Financial Statement Schedules
No financial statement schedules are included herein. All other schedules
for which provision is made in the applicable accounting regulation of the
Commission are not required under the related instructions, are inapplicable, or
the information is included in the consolidated financial statements, and have
therefore been omitted.
(c) Reports, Opinions, and Appraisals
None.
ITEM 22. UNDERTAKINGS.
(a) Regulation S-K, Item 512 Undertakings
(1) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) Registration on Form S-4 of Securities Offered for Resale.
II-2
(i) The undersigned hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through the use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of the
applicable form.
(ii) The registrant undertakes that every prospectus: (a) that is
filed pursuant to the paragraph immediately preceding, or (b) that
purports to meet the requirements of section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(a) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
(b) The undersigned hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became
effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
PETROLEUM HELICOPTERS, INC.
By: /s/ LANCE F. BOSPFLUG
------------------------------------
Lance F. Bospflug
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lance F. Bospflug and Michael J. McCann and each
of them, either of whom may act without joinder of the other, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons in the capacities indicated on April 30, 2002.
SIGNATURE TITLE
--------- -----
/s/ AL A. GONSOULIN Chairman of the Board
--------------------------------------------
Al A. Gonsoulin
/s/ LANCE F. BOSPFLUG President, Chief Executive Officer and
-------------------------------------------- Director (Principal Executive Officer)
Lance F. Bospflug
/s/ ARTHUR J. BREAULT Director
--------------------------------------------
Arthur J. Breault
/s/ THOMAS H. MURPHY Director
--------------------------------------------
Thomas H. Murphy
/s/ MICHAEL J. MCCANN Chief Financial Officer
-------------------------------------------- (Principal Financial and Accounting Officer)
Michael J. McCann
II-4
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
INTERNATIONAL HELICOPTER TRANSPORT,
INC.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lance F. Bospflug and Michael J. McCann, and each
of them, either of whom may act without joinder of the other, its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for it and in its name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons in the capacities indicated on April 30, 2002.
SIGNATURE TITLE
--------- -----
/s/ LANCE F. BOSPFLUG President and Director
-------------------------------------------- (Principal Executive Officer)
Lance F. Bospflug
/s/ RICHARD A. ROVINELLI Director
--------------------------------------------
Richard A. Rovinelli
/s/ MICHAEL J. MCCANN Vice President and Director
-------------------------------------------- (Principal Financial and Accounting Officer)
Michael J. McCann
II-5
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
PETROLEUM HELICOPTERS INTERNATIONAL,
INC.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lance F. Bospflug and Michael J. McCann, and each
of them, either of whom may act without joinder of the other, its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for it and in its name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons in the capacities indicated on April 30, 2002.
SIGNATURE TITLE
--------- -----
/s/ LANCE F. BOSPFLUG President and Director
-------------------------------------------- (Principal Executive Officer)
Lance F. Bospflug
/s/ RICHARD A. ROVINELLI Director
--------------------------------------------
Richard A. Rovinelli
/s/ MICHAEL J. MCCANN Vice President and Director
-------------------------------------------- (Principal Financial and Accounting Officer)
Michael J. McCann
II-6
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
AIR EVAC SERVICES, INC.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lance F. Bospflug and Michael J. McCann, and each
of them, either of whom may act without joinder of the other, its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for it and in its name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons in the capacities indicated on April 30, 2002.
SIGNATURE TITLE
--------- -----
/s/ LANCE F. BOSPFLUG President and Director
-------------------------------------------- (Principal Executive Officer)
Lance F. Bospflug
/s/ RICHARD A. ROVINELLI Director
--------------------------------------------
Richard A. Rovinelli
/s/ MICHAEL J. MCCANN Vice President and Director
-------------------------------------------- (Principal Financial and Accounting Officer)
Michael J. McCann
II-7
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
ACADIAN COMPOSITES, L.L.C.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Chief Financial Officer of Petroleum
Helicopters, Inc., the Managing
Member
II-8
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
PHI AEROMEDICAL SERVICES, INC.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each entity which signature appears
below constitutes and appoints Lance F. Bospflug and Michael J. McCann, and each
of them, either of whom may act without joinder of the other, its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for it and in its name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons in the capacities indicated on April 30, 2002.
SIGNATURE TITLE
--------- -----
/s/ LANCE F. BOSPFLUG President and Director
-------------------------------------------- (Principal Executive Officer)
Lance F. Bospflug
/s/ RICHARD A. ROVINELLI Director
--------------------------------------------
Richard A. Rovinelli
/s/ MICHAEL J. MCCANN Vice President and Director
-------------------------------------------- (Principal Financial and Accounting Officer)
Michael J. McCann
II-9
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
EVANGELINE AIRMOTIVE, INC.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lance F. Bospflug and Michael J. McCann, and each
of them, either of whom may act without joinder of the other, its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for it and in its name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or the substitute or substitutes
of either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons in the capacities indicated on April 30, 2002.
SIGNATURE TITLE
--------- -----
/s/ LANCE F. BOSPFLUG President and Director
-------------------------------------------- (Principal Executive Officer)
Lance F. Bospflug
/s/ RICHARD A. ROVINELLI Director
--------------------------------------------
Richard A. Rovinelli
/s/ GLENDON R. CORNETT Director
--------------------------------------------
Glendon R. Cornett
/s/ MICHAEL J. MCCANN Vice President
-------------------------------------------- (Principal Financial and Accounting Officer)
Michael J. McCann
II-10
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
HELICOPTER LEASING, L.L.C.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Chief Financial Officer of Petroleum
Helicopters, Inc., the Managing
Member
II-11
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lafayette, State of Louisiana, on April 30,
2002.
HELICOPTER MANAGEMENT, L.L.C.
By: /s/ MICHAEL J. MCCANN
------------------------------------
Michael J. McCann
Chief Financial Officer of Petroleum
Helicopters, Inc., the Managing
Member
II-12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1* Purchase Agreement dated April 17, 2002 among Petroleum
Helicopters, Inc., the Subsidiary Guarantors listed on
Schedule A thereto, UBS Warburg LLC and Deutsche Bank
Securities Inc.
4.1* Indenture dated April 23, 2002 among Petroleum Helicopters,
Inc., the Subsidiary Guarantors named therein and The Bank
of New York, as Trustee.
4.2* Form of 9 3/8% Senior Note (contained in the Indenture filed
as Exhibit 4.1).
4.3* Registration Rights Agreement dated as of April 23, 2002
between Petroleum Helicopters, Inc., the Subsidiary
Guarantors listed on Schedule A thereto, UBS Warburg LLC and
Deutsche Bank Securities Inc.
4.4 Loan Agreement dated as of April 23, 2002 by and among
Petroleum Helicopters, Inc., Acadian Composites, LLC, Air
Evac Services, Inc., Evangeline Airmotive, Inc., and
International Helicopter Transport, Inc. and Whitney
National Bank.
5.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to
the legality of the securities being offered.
12.1* Calculation of Earnings to Fixed Charges.
23.1* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of KPMG LLP.
24.1* Power of attorney (included on signature pages).
25.1* Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York.
---------------
* Filed herewith.